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 September 30, 2008
|- | -----------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such filing requirements for the past
90 days.   Yes    x
     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. (Check one)

| | 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 November 11, 2008 | 
| | -------------------------------------- |  | -------------------------------- | 
| |                                        |  |                                  | 
| | Common Stock, $.01 par value per share |  | 6,454,005                        | 

---

# MTS MEDICATION TECHNOLOGIES,
INC. AND SUBSIDIARIES

# Index

| |                   | Page                                                                                                                                         | 
| | ----------------- | -------------------------------------------------------------------------------------------------------------------------------------------- | 
|
|
|
| | Item 1.           | Financial Statements                                                                                                                         | 
| |                   |                                                                                                                                              | 
| |                   | Consolidated
        Balance Sheets  September 30, 2008 (Unaudited) and March 31, 2008                                                      | 
|
| |                   | Consolidated
        Statements of Income  Three and Six Months Ended September 30, 2008 and 2007 (Unaudited)                               | 
|
| |                   | Consolidated
        Statement of Changes in Stockholders Equity and Comprehensive Income  Six Months Ended September 30, 2008 (Unaudited) | 
|
| |                   | Consolidated
        Statements of Cash Flows  Six Months Ended September 30, 2008 and 2007 (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 and Section 21E of the Securities Exchange Act of 1934. Additional
written or oral forward-looking statements may be made by us from time to time, in filings
with the 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:

- 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; and
- the changing U.S. healthcare environment.

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

# PART 1 - FINANCIAL
INFORMATION

# Item 1.  Financial
Statements

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

# ASSETS

|                             | September 30, 2008 |  | March 31, 2008
|---------------------------- | ------------------ |  | --------------
|
|                             | (Unaudited)        |  |               
|
|Current Assets:              |                    |  |               
|Cash                         |                    |  | $             
|Restricted Cash              |                    |  |               
|Accounts Receivable, Net     |                    |  |               
|Inventories, Net             |                    |  |               
|Prepaids and Other           |                    |  |               
|Deferred Tax Asset           |                    |  |               
|
|Total Current Assets         |                    |  |               
|
|Property and Equipment, Net  |                    |  |               
|Goodwill                     |                    |  |               
|Other Intangible Assets, Net |                    |  |               
|Other Assets, Net            |                    |  |               
|
|Total Assets                 |                    |  | $             
|

# LIABILITIES AND
STOCKHOLDERS' EQUITY

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

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

1

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# 

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

|                                              | Three Months Ended September 30, |  | Six Months Ended September 30,
|--------------------------------------------- | -------------------------------- |  | ------------------------------
|
|
|
|
|Net Sales                                     |                                  |  | $                             
|
|Costs and Expenses:                           |                                  |  |                               
|Cost of Sales                                 |                                  |  |                               
|Selling, General and Administrative           |                                  |  |                               
|Depreciation and Amortization                 |                                  |  |                               
|
|Total Costs and Expenses                      |                                  |  |                               
|
|Operating Profit                              |                                  |  |                               
|
|Interest Expense                              |                                  |  |                               
|
|Income  Before Taxes                          |                                  |  |                               
|
|Income Tax Expense                            |                                  |  |                               
|
|Net Income                                    |                                  |  | $                             
|
|Net Income  Per Basic Common Share            |                                  |  | $                             
|
|Net Income  Per Diluted Common Share          |                                  |  | $                             
|
|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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# MTS MEDICATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME SIX
MONTHS ENDED SEPTEMBER 30, 2008 (In Thousands; Except Shares)(Unaudited)

|                                                  |  | Common Stock |  |   |    | Accumulated |   |        |  |   |      |   |  |  
|------------------------------------------------- |  | ------------ |  | - | -- | ----------- | - | ------ |  | - | ---- | - |  | -
|
|
|
|
|
|Balance March 31, 2008                            |  | 6,444,065    |  | $ | 64 |             | $ | 10,137 |  | $ | 374  |   |  | $
|Stock Grants Issued                               |  | 5,000        |  |   |    |             |   | 57     |  |   |      |   |  |  
|Share-Based Compensation                          |  |              |  |   |    |             |   | 105    |  |   |      |   |  |  
|Exercise of Stock Options and Warrants            |  | 5,000        |  |   |    |             |   | 9      |  |   |      |   |  |  
|Tax Benefit of Stock Option Exercises             |  |              |  |   |    |             |   | 37     |  |   |      |   |  |  
|Comprehensive Income:                             |  |              |  |   |    |             |   |        |  |   |      |   |  |  
|Net Income                                        |  |              |  |   |    |             |   |        |  |   |      |   |  |  
|Mark to Market of Interest Rate Swaps, Net of Tax |  |              |  |   |    |             |   |        |  |   | 42   |   |  |  
|Foreign Currency Translation Adjustment           |  |              |  |   |    |             |   |        |  |   | (252 | ) |  |  
|
|Total Comprehensive Income                        |  |              |  |   |    |             |   |        |  |   |      |   |  |  
|
|Balance September 30, 2008                        |  | 6,454,065    |  | $ | 64 |             | $ | 10,345 |  | $ | 164  |   |  | $
|

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

3

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

|                                                                                   | Six Months Ended September 30,
|---------------------------------------------------------------------------------- | ------------------------------
|
|
|
|Operating Activities                                                               |                               
|Net Income                                                                         |                               
|Adjustments to Reconcile  Net Income to Net Cash Provided by Operating Activities: |                               
|Depreciation and Amortization                                                      |                               
|Write-off of Deferred Financing Costs                                              |                               
|Tax Benefit of Stock Options Exercised                                             |                               
|Other Assets                                                                       |                               
|Deferred Income Taxes                                                              |                               
|Loss on Disposal of Equipment                                                      |                               
|Share-Based Compensation                                                           |                               
|Changes in Operating Assets and Liabilities:                                       |                               
|Restricted Cash                                                                    |                               
|Accounts Receivable                                                                |                               
|Inventories                                                                        |                               
|Prepaids and Other                                                                 |                               
|Accounts Payable and 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 Patents and Other Assets                                              |                               
|
|Net Cash Used in Investing Activities                                              |                               
|
|Financing Activities                                                               |                               
|Payments on Notes Payable and Term Loans                                           |                               
|Payments on Related Party Note Payable                                             |                               
|Pay Downs on Revolving Line of Credit                                              |                               
|Advances on Revolving Line of Credit                                               |                               
|Tax Benefit of Stock Options Exercised                                             |                               
|Proceeds from Exercise of Stock Options                                            |                               
|
|Net Cash (Used) 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                                                                |                               
|Non-Cash Activities:                                                               |                               
|Reclassified machine rentals from Inventory to Equipment                           |                               
|Provision for uncertain tax positions                                              |                               
|Reclassified labor costs from product development to inventory                     |                               

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 AND SIX MONTHS ENDED SEPTEMBER 30, 2008

# 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.

In
April 2008, BAF Printers, Ltd. was legally merged into MTS Limited. Prior to this merger,
BAF Printers, Ltd. operated as a wholly owned subsidiary of MTS Limited. Both companies
now operate under 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 consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the U.S. (US 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 US GAAP for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three- and six-month period
ended September 30, 2008 are not necessarily indicative of the results that may be
expected for future quarters in the year ending March 31, 2009. 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 year ended March 31, 2008.

# 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
eighteen-month period.  The agreement provides that the customer will make certain deposits
that will ultimately be applied towards the purchase price of the machines.  The
agreement further provides that the deposits will be held in a separate bank account and
used exclusively for costs associated with the manufacture of the machines.  As of
September 30, 2008, the Company has received deposits of approximately $2.3 million
towards machines delivered, but not accepted. This represents a decrease of approximately
$1.6 million from the previous quarter, due to the acceptance of a number of OnDemand
machines. The Company has used these cash deposits to pay for deposits to an outsourced
manufacturer, and to pay costs and expenses related to the manufacture and installation of
the machines.

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

5

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The
agreement further provides that in the event the Company does not deliver the machines,
the customer will be entitled to a full refund of the deposit. In addition, the Company
may be responsible for financial penalties in the event the machines are not delivered
according to the delivery schedule contained in the agreement. As of September 30, 2008,
the Company delivered twenty-two machines to the customer pursuant to the agreement and
incurred approximately $56,000 in penalties because three of the twenty-two machines were
not delivered according to the delivery schedule.

During
the three and six months ended September 30, 2008, the customer accepted nine machines and
sixteen machines, respectively. As a result, the Company recorded $5.1 million and $9.2
million, respectively, in revenue associated with the acceptance of these machines.

# NOTE 3  INVENTORIES

The
components of inventory consist of the following:

|                                     | September 30, 2008 |  | March 31, 2008
|------------------------------------ | ------------------ |  | --------------
|
|                                     | (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                       |  | Six Months Ended
|--------------------------------------------- | ---------------------------------------- |  | ----------------
|
|
|
|                                              | (In Thousands; Except Per Share Amounts)
|Numerator:                                    |                                          |  |                 
|Net Income                                    |                                          |  | $               
|Denominator:                                  |                                          | 
|Weighted Average Shares Outstanding - Basic   |                                          |  |                 
|Add: Effect of Dilutive Warrants and Options  |                                          |  |                 
|
|Weighted Average Shares Outstanding - Diluted |                                          |  |                 
|
|Income Per Common Share  Basic               |                                          |  | $               
|
|Income Per Common Share  Diluted             |                                          |  | $               
|

6

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The
effect of 525,496 and 6,000 and 79,500 and 6,000 options were not included in the
calculation of net income per diluted common share for the three and six months ended
September 30, 2008 and 2007, respectively, as the effect would have been anti-dilutive.

# 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 September 30, 2008, options to purchase 833,496 shares were outstanding in
the aggregate under the Stock Plan and the Companys previous stock incentive plan,
and there were 317,754 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 six months ended September
30, 2008 and 2007, the Company issued 5,000 shares of restricted common stock to its
Chief Operating Officer as additional compensation under his employment agreement. The
Company recorded share-based compensation expense in the amount of approximately $0 and
$57,000 ($35,000 net of tax) during the three and six months ended September 30, 2008 and
$0 and $56,000 ($34,000 net of tax) during the three and six months ended September 30,
2007, based on the fair value of the shares at the date of grant.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Stock Options
and Warrants  The Company grants stock options to employees that allow them to
purchase shares of the Companys common stock. Options are also granted to members
of the Board of Directors of the Company. The Company determines the fair value of stock
options at the date of grant using the Black-Scholes valuation model. Options generally
vest over three- to five-year periods. Awards generally expire ten years after the date
of grant. The Company issues new shares upon the exercise of stock options and warrants.
The company issued 211,246 options to employees and members of the Board of Directors
during the three and six months ended September 30, 2008. The options had a fair value of
approximately $445,000.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
Company has 900 warrants outstanding at an exercise price of $1.88 per share as of
September 30, 2008, which expire in August 2009. These warrants were issued in 1998 and no
new warrants have been issued since that time.

During
the six months ended September 30, 2008, the Company received approximately $9,000 in cash
from the exercise of 5,000 warrants.

As
of September 30, 2008, the Company has unrecognized compensation cost of approximately
$582,000 expected to be recognized over the next three years for share-based awards.

A
summary of the changes in stock options outstanding during the six months ended September
30, 2008 is as follows:

|                                  |  |         |   |  | Weighted Average
|--------------------------------- |  | ------- | - |  | ----------------
|
|
|
|
|Outstanding at March 31, 2008     |  | 625,250 |   |  | $               
|Options Granted                   |  | 211,246 |   |  | $               
|Options Expired/Forfeited         |  | (3,000  | ) |  |                 
|
|Outstanding at September 30, 2008 |  | 833,496 |   |  | $               
|

7

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Table of Contents

# Outstanding Options

|                |  |         |  | Weighted Average |  |      
|--------------- |  | ------- |  | ---------------- |  | -----
|
|
|
|$1.45 -   $2.30 |  | 233,500 |  | 2.5              |  | $1.55
|$2.50 -   $4.47 |  | 69,500  |  | 4.5              |  | $3.79
|$5.24 - $13.70  |  | 530,496 |  | 8.3              |  | $7.08
|                |  |         |  |                  |  |      
|                |  | 833,496 |  |                  |  |      
|                |  |         |  |                  |  |      

# Exercisable Options

|                |  |         |  | Weighted Average |  |      
|--------------- |  | ------- |  | ---------------- |  | -----
|
|
|
|$1.45 -   $2.30 |  | 233,500 |  | 2.5              |  | $1.55
|$2.50 -   $4.47 |  | 69,500  |  | 4.5              |  | $3.79
|$5.60 - $12.45  |  | 249,917 |  | 6.8              |  | $6.41
|                |  |         |  |                  |  |      
|                |  | 552,917 |  |                  |  |      
|                |  |         |  |                  |  |      

The
options outstanding at September 30, 2008 expire on various dates through June 2018.

At
September 30, 2008, exercisable options had aggregate intrinsic values of approximately
$560,000. At September 30, 2008, exercisable warrants had aggregate intrinsic values of
approximately $2,800.

# NOTE 6  LONG-TERM
DEBT

|                                                                                                                                                              | September 30, 2008 |  | March 31, 2008
|------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------ |  | --------------
|
|                                                                                                                                                              | (In Thousands)    
|
|Reducing revolving line of credit due in November 2010 with interest payable
        monthly at LIBOR plus 1.75% (5.7% at September 30, 2008).  (See Note 7.) |                    |  | $             
|
|Note payable to related party in monthly installments of $28,785 including interest at 6.25% through July 2008.                                               |                    |  |               
|
|Capital leases expiring at various times through fiscal year 2010 at interest rates ranging from 6.29% to 9.5%.                                               |                    |  |               
|
|Total Long-Term Debt                                                                                                                                          |                    |  |               
|
|Less Current Portion (including $0 and $106,000, respectively, due to a related party).                                                                       |                    |  |               
|
|Long-Term Debt Due After One Year                                                                                                                             |                    |  | $             
|

8

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Table of Contents

The Company
has a reducing revolving credit facility (the Credit Facility) with a maximum
borrowing limit of up to $13 million at September 30, 2008. 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.

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 September 30, 2008.

The
Credit Facility is collateralized by a first security interest in all of the assets of the
Company and a pledge of 100% of the shares of its domestic wholly owned subsidiaries, and
65% of its foreign wholly owned subsidiaries. There was approximately $11.3 million
borrowed and an additional $1.7 million available under the Credit Facility at September
30, 2008.

# NOTE 7  FINANCIAL
DERIVATIVES

In
April 2008, the Company entered into three interest rate swap agreements for notional
amounts of $1 million, $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 4.6%. The swaps mature on March 2009, 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. The Company calculates the effectiveness of the hedge on a quarterly basis. There
was no ineffectiveness during the three or six months ending September 30, 2008. The
related gains or losses are recorded in stockholders equity as a component of other
comprehensive income.

# NOTE 8  OTHER
ASSETS

Other
assets consist of the following:

|                                                          | Amortization Period |        | September 30, |   | March 31,
|--------------------------------------------------------- | ------------------- | ------ | ------------- | - | ---------
|
|
|                                                          | (In Thousands)     
|
|Product Development                                       |                     | 3  5  |               | $ | 4,368    
|Less:  Accumulated
         Amortization                  |                     |        |               |   | (3,022   
|
|                                                          |                     |        |               | $ | 1,346    
|
|
|Patents                                                   |                     | 5  17 |               | $ | 2,716    
|Less:  
        Accumulated Amortization                  |                     |        |               |   | (2,200   
|
|                                                          |                     |        |               | $ | 516      
|
|
|Financing Costs                                           |                     | 3  5  |               | $ | 77       
|Less:  
          Accumulated Amortization and Write Offs |                     |        |               |   | (64      
|
|                                                          |                     |        |               | $ | 13       
|
|
|Fair Value of Interest Rate Swaps                         |                     |        |               | $ | 68       
|
|Other                                                     |                     |        |               | $ | 54       
|
|Total Other Assets, Net                                   |                     |        |               | $ | 1,997    
|

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

9

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# NOTE 9  RECENT
ACCOUNTING PRONOUNCEMENTS

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 will adopt SFAS No. 161 beginning
in the fourth quarter of fiscal 2009. The Company is evaluating the impact the adoption of
SFAS No. 161 will have on its consolidated financial statements.

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 will adopt SFAS
No. 141R beginning in the first quarter of fiscal 2010, which will change the
accounting treatment for business combinations on a prospective basis.

In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements(SFAS No, 157). SFAS No. 157 establishes a single definition of fair
value and a framework for measuring fair value, sets out a fair value hierarchy to be used
to classify the source of information used in fair value measurements, and requires new
disclosures of assets and liabilities measured at fair value based on their level in the
hierarchy. This statement applies under other accounting pronouncements that require or
permit fair value measurements. In February 2008, the FASB issued FSAB 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 as it
applies to certain nonfinancial assets and liabilities. On April 1, 2008, the Company
adopted, on a prospective basis, the SFAS No. 157 definition of fair value and became
subject to the new disclosure requirements (excluding FSP 157-2) with respect to fair
value measurements of (a) nonfinancial assets and liabilities that are recognized or
disclosed at fair value in its financial statements on a recurring basis (at least
annually) and (b) all financial assets and liabilities.  The adoption did not
impact the consolidated financial position or results of operations.  The additional
disclosures required by SFAS No. 157 are included in Note 11, Fair Value of Financial
Instruments.

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 is evaluating the impact FSP
157-2 will have on its nonfinancial assets and liabilities.

In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities(SFAS No. 159). SFAS
No. 159 permits companies to choose to measure many financial instruments and certain
other items at fair value. The objective is to improve financial reporting by providing
companies with the opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply complex hedge
accounting provisions. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007. Companies are not allowed to adopt SFAS No. 159 on a
retrospective basis unless they choose early adoption. The Company adopted SFAS
No. 159 on April 1, 2008, and did not elect the fair value option for eligible
items that existed at the date of adoption.

10

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Table of Contents

# NOTE 10 SEGMENT
INFORMATION

During
the first quarter of fiscal year 2009, the Company began to evaluate its business under
three segments: (a) consumables; (b) packaging automation; and (c) medication
administration systems. The consumable 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. Prior to this change, the Company managed its business as one
segment.

Below
are sales and operating income (loss) by segment for the three and six months ended
September 30, 2008 and 2007 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. 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 September 30, |  | Six Months Ended September 30,
|--------------------------------------------------------- | -------------------------------- |  | ------------------------------
|
|
|
|                                                          | (In Thousands)                  
|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 Allocated to Other Segments        |                                  |  |                               
|
|Operating Income                                          |                                  |  | $                             
|                                                          |                                 
|Operating Margin                                          |                                  |  |                               
|                                                          |                                 
|Deductions from Operating Income                          |                                  |  |                               
|Interest Expense                                          |                                  |  |                               
|
|Earnings Before Income Taxes                              |                                  |  | $                             
|

11

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Geographic Information

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

|                                       | Three Months Ended September 30, |  | Six Months Ended September 30,
|-------------------------------------- | -------------------------------- |  | ------------------------------
|
|
|
|                                       | (In Thousands)                  
|Net Sales                              |                                  |  |                               
|U.S.                                   |                                  |  | $                             
|Non-U.S.                               |                                  |  |                               
|
|Total Net Sales                        |                                  |  | $                             
|
|Operating 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 as follows:

|         | September 30, 2008 |  | March 31, 2008
|-------- | ------------------ |  | --------------
|
|         | (In Thousands)    
|U.S.     |                    |  | $             
|Non-U.S. |                    |  |               
|
|         |                    |  | $             
|

# NOTE 11  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. 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;
| | -------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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).
| | -------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12

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The
following table summarizes the valuation of the Companys financial instruments by
the above SFAS No. 157 categories as of September 30, 2008:

|                    |  | September 30, 2008
|------------------- |  | ------------------
|
|
|
|
|
|                    |  | (In Thousands)    
|
|Interest Rate Swaps |  | $68               

Interest
rate swaps are included in other assets. The Company utilizes interest rate swaps to hedge
flucuations 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.

13

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Table of Contents

# MTS MEDICATION
TECHNOLOGIES, INC. AND SUBSIDIARIESMANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2008

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

# Overview

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

Recently,
our operating margins have been impacted by the sale of our OnDemand machines to our
largest customer at margins lower than other products we sell.  We have continued to
invest in our personnel and other resources related to our medication administration
segment.  This investment has been necessary to help set the stage for future growth
and take advantage of our opportunities.  We anticipate that ultimately our operating
margins will benefit from the significant impact on our revenue that could result from a
successful launch of our MedTimes® product and consumable products into the retail
pharmacy market, the possible further automation of the retail pharmacy medication
delivery model and the continued acceptance of our OnDemand system automation by our
long-term care market customers in the U.S. and Europe.

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

The
following table sets forth, for the three- and six-month periods indicated, certain key
operating results and other financial information.

|                                     | Three Months Ended September 30,         |  | Six Months Ended September 30,
|------------------------------------ | ---------------------------------------- |  | ------------------------------
|
|
|
|                                     | (In Thousands; Except Per Share Amounts)
|                                     |                                         
|Net Sales                            |                                          |  | $                             
|                                     |                                         
|Gross Margin Percentage              |                                          |  |                               
|                                     |                                         
|Operating Income Percentage          |                                          |  |                               
|                                     |                                         
|Net Income                           |                                          |  | $                             
|                                     |                                         
|Net Income Per Common Share -Diluted |                                          |  | $                             

14

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Table of Contents

# RESULTS OF OPERATIONS

# Three Months Ended
September 30, 2008 and 2007

Net
sales for the three months ended September 30, 2008 increased 46.6% to $20.7 million
compared with $14.1 million during the same period of the prior fiscal year. This increase
is attributable to an increase in net sales for consumable punch cards and prepack
machines both to new and existing customers. In addition, revenue associated with the sale
of OnDemand machines was $5.7 million during the three months ended September 30, 2008
compared with $425,000 during the same period of the prior fiscal year. This increase
relates primarily to the acceptance of nine OnDemand machines by our largest customer
during the three months ended September 30, 2008. Also, our net sales in Europe increased
15.1% due to increased penetration of our products in that market.

Cost
of sales for the three months ended September 30, 2008 was $14.0 million compared with
$8.3 million during the same period of the prior fiscal year. Cost of sales as a
percentage of sales increased to 67.8% from 58.6% during the same period of the prior
fiscal year. Cost of sales as a percentage of sales increased primarily because the
proportion of revenue associated with OnDemand machines, which have a higher cost of sales
percentage than consumables.

Selling,
general and administration expenses for the three months ended September 30, 2008
increased 28.5% to $4.9 million from $3.8 million of the prior fiscal year primarily due
to travel and personnel costs associated with support of our OnDemand machine
installations, general administrative costs in the U.S. and Europe, foreign currency
exchange fluctuations due to a stronger U.S. dollar, increased research and development
expenses and higher employee benefit costs associated with medical claims for our
self-insured health plan, legal, auditing and consulting expenses.

Depreciation
and amortization expense for the three months ended September 30, 2008 increased 31.3% to
$792,000 from $603,000 during the same period of the prior fiscal year. The increase
resulted primarily from increased depreciation and amortization associated with capital
expenditures and acquired intangible assets.

Interest
expense for the three months ended September 30, 2008 decreased 16.9% to $138,000 from
$166,000 during the same period of the prior fiscal year. The decrease results primarily
from a decrease in interest rates.

Income
tax expense decreased 39.2% to $313,000 during the three months ended September 30, 2008
compared with $515,000 during the same period of the prior fiscal year. The decrease
results from the fact that our net income before tax decreased and our effective tax rate
decreased to 36.1% from 39.9%. Our effective tax rate decreased as a result of higher net
income from our European operations, which are taxed at lower rates.

Segments

During
the first quarter of fiscal year 2009, we began to evaluate our business under three
segments: (a) consumables; (b) packaging automation; and (c) medication administration
systems. The consumable 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 now manage our operations. Prior to
this change, we managed our business as one segment.

15

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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 10 to the Consolidated Financial Statements included in the report.

Consumables

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

Net
sales in the second quarter increased approximately $861,000, or 6.7%, primarily due to
growth in sales to the U.S. long-term care market of approximately 5.3% and growth in the
European domiciliary and retail markets of approximately 15.1%. The growth in the U.S. is
primarily attributable to the increase in medications dispensed in long-term care
facilities. The European growth is primarily the result of increased penetration of our
products into that market.

Operating
margins declined in the second quarter primarily due to (a) increases in raw material
costs primarily related to materials that have a high petroleum-based content; (b)
additional personnel added to the Companys headquarters and allocated to this
segment based on revenue; (c) higher audit, tax and consulting costs; (d) increased
research and development expenses; (e) higher depreciation expense associated with assets
related to this segment; and (f) higher employee benefit costs due to increased medical
claims under the Companys self-insured medical plan.

Packaging Automation

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

Net
sales in the second quarter increased $5.7 million, or 487.5%, because of an agreement
with our largest customer for the sale of twenty-four OnDemand machines. During the second
quarter, we recorded $5.1 million in revenue associated with nine machines that were
installed and accepted by the customer.

Our
operating loss during the second quarter was lower than the prior fiscal year because we
realized additional gross profit on the increased net sales, which offset a portion of the
indirect costs associated with this segment.

16

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Medication Administration
Systems

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

Net
sales in the second quarter were unchanged compared to the same period last year.

Our operating
loss during the second quarter was higher than the prior fiscal year because we have added
personnel to develop the MedTimes product and increased research and development
expenditures.

Consolidated
operating income represents operating income (loss) for the consumables, packaging
automation and medication administration segments less share-based compensation expense
and corporate asset depreciation expense.

# Six Months Ended
September 30, 2008 and 2007

Net
sales for the six months ended September 30, 2008 increased 38.5% to $40.1 million
compared with $28.9 million during the same period of the prior fiscal year. This increase
is primarily attributable to an increase in net sales for consumable punch cards and
pre-pack machines primarily because of additional sales made to new and existing
customers. In addition, revenue associated with the sale of OnDemand machines was $10.7
million during the six months ended September 30, 2008 compared with $2.5 million during
the same period of the prior fiscal year. This increase relates primarily to the
acceptance of sixteen OnDemand machines by our largest customer during the six months
ended September 30, 2008. Also, our net sales in Europe increased 22.5% due to increased
penetration of our products in that market.

Cost
of sales for the six months ended September 30, 2008 was $27.4 million compared with $17.6
million during the same period of the prior fiscal year. Cost of sales as a percentage of
sales increased to 68.3% from 60.9% during the same period of the prior fiscal year. Cost
of sales as a percentage of sales increased primarily because the proportion of revenue
associated with OnDemand machines, which have a higher cost of sales percentage than
consumables.

Selling,
general and administration expenses for the six months ended September 30, 2008 increased
23.5% to $9.4 million from $7.6 million of the prior fiscal year primarily due to travel
and personnel costs associated with support of our OnDemand machine installations, general
administrative costs in the U.S. and Europe, foreign exchange loss due to a stronger U.S.
dollar, increased research and development expenses and higher employee benefit costs due
to increased medical claims under our self-insured health plan, legal, auditing and
consulting expenses.

Depreciation
and amortization expense for the six months ended September 30, 2008 increased 32.2% to
$1.6 million from $1.2 million during the same period of the prior fiscal year. The
increase resulted primarily from increased depreciation and amortization associated with
capital expenditures and acquired intangible assets.

Interest
expense for the six months ended September 30, 2008 decreased 16.7% to $264,000 from
$317,000 during the same period of the prior fiscal year. The decrease results primarily
from a decrease in interest rates.

Income
tax expense decreased 39.8% to $526,000 during the six months ended September 30, 2008
compared with $874,000 during the same period of the prior fiscal year. The decrease
results from the fact that our net income before tax decreased and our effective tax rate
decreased to 36.2% from 40.1%. Our effective tax rate decreased as a result in higher net
income from our European operations, which are taxed at lower rates.

17

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# 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 10 to the Consolidated Financial Statements included in the report.

# Consumables

|                 | Six Months Ended September 30,
|---------------- | ------------------------------
|
|
|
|                 | (In Thousands)                
|                 |                               
|Net Sales        |                               
|Operating Income |                               
|Operating Margin |                               

Net
sales during the six months ended September 30, 2008 increased approximately $2.2 million,
or 8.8%, primarily due to growth in sales to the U.S. long-term care market of
approximately 6.2% and growth in the European domiciliary and retail markets of
approximately 22.5%. The growth in the U.S. is primarily attributable to the increase in
medications dispensed in long-term care facilities. The European growth is primarily the
result of increased penetration of our products into that market.

Operating
margins declined during the six months ended September 30, 2008 primarily due to (a)
higher freight costs that resulted from increased fuel surcharges and a higher percentage
of products sold indirectly to our end customers through wholesalers, which are shipped at
our expense; (b) increases in raw material costs primarily related to materials that have
a high petroleum-based content; (c) increased scrap rates and labor costs; (d) additional
headquarters personnel and allocated to this segment based on revenue; (e) higher audit,
tax, consulting and legal costs; (f) increased research and development expenses; (g)
higher depreciation expense associated with assets related to this segment; and (h) higher
employee benefit costs due to increased medical claims under the Companys
self-insured medical plan.

# Packaging Automation

|                 | Six Months Ended September 30,
|---------------- | ------------------------------
|
|
|
|                 | (In Thousands)                
|                 |                               
|Net Sales        |                               
|Operating Loss   |                               
|Operating Margin |                               

Net
sales during the six months ended September 30, 2008 increased $8.9 million, or 215.3%,
because of an agreement with our largest customer for the sale of twenty-four OnDemand
machines. During the six months ended September 30, 2008, we recorded $9.2 million in
revenue associated with sixteen machines that were installed and accepted by the customer.
In addition, we sold two AccuFlex machines to other independent pharmacies, which resulted
in approximately $653,000 in revenue.

Our
operating loss during the six months ended September 30, 2008 was lower than the prior
year because we realized additional gross profit on the increased net sales, which offset
a portion of the indirect costs associated with this segment.

18

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# Medication
Administration Systems

|                 | Six Months Ended September 30,
|---------------- | ------------------------------
|
|
|
|                 | (In Thousands)                
|                 |                               
|Net Sales        |                               
|Operating Loss   |                               
|Operating Margin |                               

Net
sales during the six months ended September 30, 2008 increased due to increased sales of
our MedLocker systems.

Our
operating loss during the six months ended September 30, 2008 was higher than the prior
year because we have added personnel to develop the MedTimes product and increased
research and development expenditures.

Consolidated
operating income represents operating income (loss) for the consumables, packaging
automation and medication administration segments less share-based compensation expense
and corporate asset depreciation expense.

# LIQUIDITY AND CAPITAL
RESOURCES

During
the six months ended September 30, 2008, we had net income of $929,000 compared with
$1,308,000 during the same period of the prior fiscal year. Cash provided by operations
increased to $2.0 million from $306,000 during the six months ended September 30, 2008 and
2007, respectively, primarily due to decreases in inventory and prepaid and other assets.
We had working capital of $13.7 million at September 30, 2008 compared to $13.6 million at
March 31, 2008 and $9.5 million at September 30, 2007.

Investing
activities used $2.1 million during the six months ended September 30, 2008 compared with
$1.5 million during the same period of the prior fiscal year. The increase results
primarily from an increase in capital expenditures for manufacturing equipment used
primarily in our consumables segment, as well as additional information technology
equipment used throughout the Company.

Financing
activities used $424,000 during the six months ended September 30, 2008 compared with $1.4
million provided in the same period of the prior fiscal year. Cash provided by operations
this year has been sufficient to fund investing activities and provide for a reduction in
debt. In the prior year, additional borrowing was required to fund investing activities.

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.

There
was $11.3 million borrowed and an additional $1.7 million available under our Credit
Facility at September 30, 2008. Subsequent to the end of the quarter, we received payments
from our largest customer and used a portion of those funds to reduce the balance on the
revolving line of credit by approximately $1 million.

19

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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 September 30, 2008.

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 generally accepted
accounting principles in the U.S. requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the financial
statements and revenue and expenses for the respective period-ended for such statements.
The determination of estimates requires the use of judgment since future events and their
affect on our operations cannot be determined with absolute certainty. Actual results
typically differ from these estimates in some fashion, and at times, these variances may
be material to our financial statements. Our management continually evaluates its
estimates and assumptions, which are based on historical experience and other factors that
are believed to be reasonable under these circumstances. These estimates and our actual
results are subject to the risk factors listed under Part II, Item 1A of the Form 10-Q for
the fiscal quarter ended September 30, 2008 and those listed under Item 1A. Risk Factors
in our Form 10-K for the fiscal year ended March 31, 2008. Nevertheless, our management
believes the following items involve a higher degree of complexity and, judgment and
therefore, has commented on these items below.

Consolidation

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

Revenue Recognition

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

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.

20

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

Accounts Receivable

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

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.

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 September 30, 2008, we were reinsured for claims
that exceed $100,000 per participant and an annual maximum aggregate limit of
approximately $1.3 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.

Product Development

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

21

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Warranty

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

# 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
September 30, 2008. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that, at September 30, 2008, our disclosure controls and
procedures were effective.

# 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 September 30, 2008, that has materially affected or is reasonably
likely to materially affect our internal control over financial reporting.

22

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# PART II  OTHER
INFORMATION

# Item 1.  Legal Proceedings

None.

# Item 1A.   Risk Factors

Set
forth below are the material changes and updates from, and should be read in conjunction
with, the risk factors previously disclosed in our Annual Report on Form 10-K for our year
ended March 31, 2008, which was filed with the SEC on June 30, 2008.

The
rate of growth of gross domestic product in the U.S. has declined in the last few
quarters indicating that the U.S. economy could be in or nearing a recession.

Sustained
downturns or sluggishness in the U.S. and the European economies generally affect the
markets in which we operate. While the economic uncertainties in which we operate make it
challenging for us to predict the near-term future of our operations, a U.S. or a European
recession may have a significant adverse impact upon certain of our clients and portions
of our business.

We face certain risks in
collecting our trade accounts receivable.

We
generate a significant amount of trade accounts receivable sales from our customers.
Delays or defaults in payments owed to us could have a significant adverse impact on our
financial condition and results of operations. Factors that could cause a delay or default
include but are not limited to, business failures, turmoil in the financial and credit
markets, sluggish or recessionary U.S. or European economic conditions and declines in the
credit worthiness of our customers.

Inflation may adversely affect our
business operations in the future.

Given
the current macroeconomic environment, it is possible that the U.S. and certain European
governments may attempt in the near future to provide a monetary stimulus, a fiscal
stimulus, or both, to the economy. Such actions may lead to inflationary conditions in our
cost base, particularly resulting in an increase in our cost of sales and our SG&A
expenses. This may harm our margins and profitability if we are unable to increase prices
or cut costs enough to offset the effects of inflation in our cost base.

The financial markets have
recently experienced significant turmoil which may negatively impact our liquidity and our
ability to obtain financing, and may also cause a decrease in demand for our services.

Our
liquidity and our ability to obtain financing may be negatively impacted if the lender
under our Credit Facility, or another financial institution, suffers liquidity issues. In
such an event, we may not be able to draw on all, or a substantial portion, of our Credit
Facility. Also, if we attempt to obtain future financing in addition to our Credit
Facility, the credit market turmoil could negatively impact our ability to obtain such
financing. In addition, the credit market turmoil has negatively impacted certain of our
customers which could lead to a decrease in demand for our services.

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

None.

23

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# Item 3.   Defaults Upon
Senior Securities

None.

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

September
23, 2008 was the date established for MTSs annual meeting of stockholders. Set fort
below are the voting results from the proposals presented for a stockholder vote at that
meeting.

| | 1. | To
elect seven members to MTSs board of directors (the Board), each of
whom will serve until the 2009 annual meeting of stockholders, and until their successors
have been duly elected and qualified.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                      | Number of Shares
|--------------------- | ----------------
|
|
|
|
|Todd E. Siegel        | 6,063,895       
|Allen S. Braswell     | 5,866,511       
|Irv I. Cohen          | 5,866,511       
|David W. Kazarian     | 6,089,071       
|John Stanton          | 6,084,771       
|Chet Borgida          | 6,085,271       
|Edgardo A. Mercadante | 6,106,071       

| | 2. | To
ratify the appointment of Grant Thornton LLP as MTSs independent
certified public accountants for the fiscal year ending March 31, 2009.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------

|          |         |        
|--------- | ------- | -------
|
|For       | Against | Abstain
|          |         |        
|6,132,209 | 39,360  | 334    

# Item 5.   Other Information

None.

24

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# 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)                                                                                                                    
|10.1          |  | Employment Agreement, dated as of July 29, 2008, between the Registrant and Todd E. Siegel.                                                        
|3.11          |  | 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.                                                                                  

25

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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:   November 14, 2008 |                                  
|                          |                                  
|                          |                                  
|                          |                                  

|Date:   November 14, 2008 |  | By: | /s/ Michael P. Conroy                      | 
|------------------------- |  | --- | ------------------------------------------ | 
|                          |  |     |                                            | 
|                          |  |     | Michael P. Conroy                          | 
|                          |  |     | Vice President and Chief Financial Officer | 

26

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# 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)                                                                                                                    
|10.1          |  | Employment Agreement, dated as of July 29, 2008, between the Registrant and Todd E. Siegel.                                                        
|3.11          |  | 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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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
and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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:   November 14, 2008 |  | By: | /s/ Todd E. Siegel                    | 
|------------------------- |  | --- | ------------------------------------- | 
|                          |  |     |                                       | 
|                          |  |     | Todd E. Siegel                        | 
|                          |  |     | President and Chief Executive Officer | 

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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 and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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:   November 14, 2008 |  | By: | /s/ Michael P. Conroy                      | 
|------------------------- |  | --- | ------------------------------------------ | 
|                          |  |     |                                            | 
|                          |  |     | Michael P. Conroy                          | 
|                          |  |     | Vice President and Chief Financial Officer | 

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EXHIBIT 32.1

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

In
connection with the quarterly report of MTS Medication Technologies, Inc. (the
Company) on Form 10-Q for the quarter ended September 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 (15 U.S.C. § 78m or § 78o(d)); and
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                                      | 
|------------------------------------- | 
|Dated:
          November 14, 2008    | 
|                                      | 
|/s/ Todd E. Siegel                    | 
|Todd E. Siegel                        | 
|President and Chief Executive Officer | 
|                                      | 
|                                      | 

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EXHIBIT 32.2

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

In
connection with the quarterly report of MTS Medication Technologies, Inc. (the
Company) on Form 10-Q for the quarter ended September 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 (15 U.S.C. § 78m or § 78o(d)); and
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                                           | 
|------------------------------------------ | 
|Dated:
          November 14, 2008         | 
|                                           | 
|/s/ Michael P. Conroy                      | 
|Michael P. Conroy                          | 
|Vice President and Chief Financial Officer | 
|                                           | 
|                                           | 

29

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