UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, 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 December 31, 2005

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

For the transition period from _______________ to ______________

Commission File Number:   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, Suite 800, St. Petersburg, Florida 33702

(Address of Principal Executive Offices)

727-576-6311

(Registrant's Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year,
if changed since last report)

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

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

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

             As of February 1, 2006, the registrant had 6,011,305 shares of common stock, $.01 par value per share, issued and outstanding.

MTS MEDICATION TECHNOLOGIES, INC. AND SUBSIDIARIES

Index

			Page
Part I - Financial Information
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets – December 31, 2005 and March 31, 2005	1
		Condensed Consolidated Statements of Operations – Three Months and Nine Months Ended December 31, 2005 and 2004	2
		Condensed Consolidated Statement of Changes in Stockholders’ Equity – Nine Months Ended December 31, 2005	3
		Condensed Consolidated Statements of Cash Flows – Nine Months Ended December 31, 2005 and 2004	4
		Notes to Condensed Consolidated Financial Statements	5 - 13
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14 - 20
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
	Item 4.	Controls and Procedures	20 - 21
Part II - Other Information
	Item 1.	Legal Proceedings	22
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
	Item 3.	Defaults Upon Senior Securities	22
	Item 4.	Submission of Matters to a Vote of Securities	22
	Item 5.	Other Information	22
	Item 6.	Exhibits	23
	Signatures		24
	Certifications		25 - 28

i.

Item 1.  Financial Statements

PART 1 - FINANCIAL INFORMATION

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

ASSETS

	December 31,		March 31,
	2005		2005
	(Unaudited)
Current Assets:
Cash	$	113	$	373
Accounts Receivable, Net		6,215		6,930
Inventories, Net		5,341		4,947
Prepaids and Other		280		89
Deferred Tax Benefits		1,037		1,805
Total Current Assets		12,986		14,144
Property and Equipment, Net		4,512		4,871
Other Assets, Net		2,834		2,899
Total Assets	$	20,332	$	21,914

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts Payable and Accrued Liabilities	$	3,942		$	4,021
Current Maturities of Long-Term Debt		555			431
Current Maturities of Related Party Note Payable		303			290
Total Current Liabilities		4,800			4,742
Long-Term Debt, Less Current Maturities		2,717			5,492
Related Party Note Payable, Less Current Maturities		512			742
Lease Incentive		325			350
Total Liabilities		8,354			11,326
Stockholders' Equity:
Preferred Stock		2			2
Common Stock		60			59
Capital In Excess of Par Value		13,862			13,786
Accumulated Deficit		(1,618	)		(2,931	)
Treasury Stock		(328	)		(328	)
Total Stockholders' Equity		11,978			10,588
Total Liabilities and Stockholders' Equity	$	20,332		$	21,914

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

1

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

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2005		2004		2005		2004
Revenue:
Net Sales	$	10,190	$	10,008	$	31,024	$	30,270
Costs and Expenses:
Cost of Sales		6,258		6,425		18,999		18,935
Selling, General and Administrative		2,590		2,471		7,863		7,396
Depreciation and Amortization		489		405		1,771		1,431
Total Costs and Expenses		9,337		9,301		28,633		27,762
Operating Profit		853		707		2,391		2,508
Other Expenses:
Interest Expense		73		97		252		513
Amortization of:
Financing Costs		9		8		27		491
Original Issue Discount		–		–		–		803
Total Other Expenses		82		105		279		1,807
Income Before Income Taxes		771		602		2,112		701
Income Tax Expense		292		224		799		374
Net Income		479		378		1,313		327
Convertible Preferred Stock Dividends		56		55		168		165
Net Income Available to Common Stockholders	$	423	$	323	$	1,145	$	162
Net Income Per Basic Common Share	$	0.07	$	0.06	$	0.19	$	0.03
Net Income Per Diluted Common Share	$	0.07	$	0.05	$	0.18	$	0.05
Weighted Average Shares Outstanding - Basic		6,009		5,703		5,945		5,626
Weighted Average Shares Outstanding - Diluted		7,203		7,123		7,173		7,143

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

2

MTS MEDICATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED DECEMBER 31, 2005
(In Thousands; Except Shares)
(Unaudited)

	Preferred Stock			Common Stock
	$.001 Par Value			$.01 Par Value			Capital									Total
							In Excess of			Accumulated			Treasury			Stockholders'
	Shares	Amount		Shares	Amount		Par Value			Deficit			Stock			Equity
Balance March 31, 2005	2,000	$	2	5,894,505	$	59	$	13,786		$	(2,931	)	$	( 328	)	$	10,588
Stock Options Exercised				111,800		1		243								$	244
Stock Grant Issued				5,000				29								$	29
Convertible Preferred Stock Dividends								(168	)							$	( 168	)
Tax Benefit from Stock Options Exercised								30								$	30
Foreign Currency Translation Adjustment								(58	)							$	(58	)
Net Income											1,313					$	1,313
Balance December 31, 2005	2,000	$	2	6,011,305	$	60	$	13,862		$	( 1,618	)	$	( 328	)	$	11,978

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

3

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

	Nine Months Ended December 31,
	2005			2004
Operating Activities
Net Income	$	1,313		$	327
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Amortization of Deferred Financing Costs		27			491
Amortization of Original Issue Discount		–			803
Depreciation and Amortization		1,771			1,431
Deferred Income Taxes		799			374
Stock Grant Awarded		29			352
Lease Incentive		(25	)		359
Loss on Disposal of Equipment		43			29
(Increase) Decrease in:
Accounts Receivable		699			(48	)
Inventories		(410	)		(554	)
Prepaids and Other		(191	)		166
Increase (Decrease) in:
Accounts Payable and Other Accrued Liabilities		(87	)		125
Total Adjustments		2,655			3,528
Net Cash Provided by Operating Activities		3,968			3,855
Investing Activities
Expended for Property and Equipment		(901	)		(1,540	)
Expended for Product Development		(515	)		(327	)
Expended for Patents and Other Assets		(1	)		(42	)
Net Cash Used by Investing Activities		(1,417	)		(1,909	)
Financing Activities
Payments on Notes Payable and Long-Term Debt		(78	)		(264	)
Payments on Related Party Note Payable		(220	)		–
(Paydowns) Advances on Revolving Line of Credit		(2,331	)		1,403
Payments on Subordinated Notes		–			(4,000	)
Borrowing on Term Loans and Subordinated Notes		–			1,200
Payments on Term Loans		(224	)		(535	)
Exercise of Stock Options		244			516
Expended for Financing Costs		–			(106	)
Dividends on Convertible Preferred Stock		(168	)		(165	)
Net Cash Used by Financing Activities		(2,777	)		(1,951	)
Effect of Exchange Rate Changes on Cash		(34	)		48
Net (Decrease) Increase in Cash		(260	)		43
Cash at Beginning of Period		373			59
Cash at End of Period	$	113		$	102
Supplemental Information
Cash Paid for Interest	$	262		$	522
Supplemental Disclosure of Non-Cash Activities
Reclassification of machine rentals from Inventory to Equipment	$	16		$	66
Reclassification of software from Other Assets to Equipment	$	42		$	–

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

4

MTS MEDICATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2005

NOTE A – BASIS OF PRESENTATION

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

        The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries, MTS Packaging Systems, Inc.™ (“MTSP”) and MTS Medication Technologies International™, Ltd. (“MTS Limited”). All other subsidiaries of the Company did not have operations during the nine-month periods ended December 31, 2005 and 2004.

NOTE B – INVENTORIES

        The components of inventory consist of the following:

	December 31, 2005			March 31, 2005
	(In Thousands)
Raw Materials	$	2,676		$	2,374
Finished Goods and Work in Progress		2,888			2,778
Less:  Inventory Valuation Allowance		(223	)		(205	)
	$	5,341		$	4,947

NOTE C – EARNINGS PER SHARE

        Earnings per share are computed using the basic and diluted calculations on the face of the statement of operations. Basic earnings per share are calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding for the period and any warrants outstanding that are exercisable at a de minimus amount. Diluted earnings per share are calculated by dividing net income by the basic weighted average number of shares of common stock outstanding for the period, adjusted for the dilutive effect of common stock equivalents, using the “treasury stock” method and the “if converted” method as it relates to the convertible preferred stock outstanding.

5

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

	Three Months Ended				Nine Months Ended
	December 31,		December 31,		December 31,		December 31,
	2005		2004		2005		2004
	(In Thousands; Except Per Share Amounts)
Numerator:
Net Income	$	479	$	378	$	1,313	$	327
Minus:
Convertible Preferred Stock Dividend		56		55		168		165
Net Income Available to Common Stockholders	$	423	$	323	$	1,145	$	162
Denominator:
Weighted Average Shares Outstanding – Basic		6,009		5,703		5,945		5,626
Add: Effect of Dilutive Warrants and Options		347		573		381		670
Effect of Conversion of Convertible Preferred Stock into Common Stock		847		847		847		847
Weighted Average Shares Outstanding – Diluted		7,203		7,123		7,173		7,143
Net Income Per Common Share – Basic	$	0.07	$	0.06	$	0.19	$	0.03
Net Income Per Common Share – Diluted	$	0.07	$	0.05	$	0.18	$	0.05

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

        For the three and nine months ended December 31, 2005, the effect of 411,000 common stock options have not been included in the calculation of the income per common share because their effect would have been anti-dilutive.

NOTE D – STOCK BASED COMPENSATION

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

6

	Three Months Ended				Nine Months Ended
	December 31,		December 31,		December 31,		December 31,
	2005		2004		2005		2004
	(In Thousands; Except Per Share Amounts)
Net Income Available to Common Shareholders as Reported	$	423	$	323	$	1,145	$	162
Less:
Stock Based Employee Compensation Cost Under the Fair Value Based Method		130		94		281		257
Pro Forma Net Income (Loss)	$	293	$	229	$	864	$	(95	)
Net Income Per Common Share, Basic as Reported	$	0.07	$	0.06	$	0.19	$	0.03
Pro Forma Net Income (Loss) Per Common Share, Basic	$	0.05	$	0.04	$	0.15	$	(0.02	)
Net Income Per Share, Diluted as Reported	$	0.07	$	0.05	$	0.18	$	0.05
Pro Forma Net Income Per Share, Diluted	$	0.05	$	0.04	$	0.14	$	0.01
Weighted Average Shares Outstanding – Basic		6,009		5,703		5,945		5,626
Weighted Average Shares Outstanding – Diluted		7,203		7,123		7,173		7,143

        On August 5, 2005, in response to the recently published accounting standard, Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”), the Compensation Committee of the Company’s Board of Directors approved accelerating the vesting of options to acquire approximately 13,000 shares of the Company’s stock, which accounted for all unvested outstanding options with an exercise price of $5.65 per share or greater. All of these options are out-of-the-money and all are held by two executive officers. An option was considered out-of-the-money if the stated option exercise price was greater than $5.29, the closing price of the Company’s common stock on the day the Compensation Committee approved the acceleration. The accelerated vesting was effective as of the close of business on August 5, 2005.

        The decision to accelerate vesting of these options was made primarily to avoid recognizing compensation cost in the statement of earnings in future financial statements upon the effectiveness of SFAS 123R. It is estimated that the maximum future compensation expense that will be avoided, based on the Company’s implementation date for SFAS 123R of April 1, 2006, is approximately $35,000, all of which is related to options held by two senior executives of the Company.

7

NOTE E – REVENUE RECOGNITION

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

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

NOTE F – RESEARCH AND DEVELOPMENT AND PRODUCT DEVELOPMENT COSTS

        The Company expenses product research and development costs as incurred. The Company incurred approximately $301,000 and $125,000 during the nine months ended December 31, 2005 and 2004, respectively, for research and development costs.

        All costs incurred subsequent to the completion of research and development activities associated with the product’s hardware components and the software components achievement of technological feasibility are capitalized until the product is available for general release to customers. The Company initially classifies the construction costs of the first units produced for commercial use as product development costs prior to transferring these costs to inventory. The Company capitalized approximately $515,000 and $326,000 of product development costs during the nine months ended December 31, 2005 and 2004, respectively.

        Product development costs are generally amortized on a straight-line basis over a five (5) year period. Amortization expense related to product development costs was approximately $324,000 and $244,000 for the nine months ended December 31, 2005 and 2004, respectively.

        At December 31, 2005 and March 31, 2005, the Company’s capitalized product development costs included its OnDemand product and versions thereof, which represented approximately $2,091,000 (excluding accumulated amortization) and $1,843,000, respectively, of the total capitalized product development costs (see Note K).

8

NOTE G – LONG-TERM DEBT

	December 31,			March 31,
	2005			2005
	(In Thousands)
Revolving line of credit due June 2007 plus interest payable monthly at the prime rate (7.25% at December 31, 2005).	$	2,294		$	4,625
Bank term loan payable in graduated monthly installments of $16,000 – $52,000 plus interest at 0.50% above the prime rate through June 2007.		848			1,072
Note payable to related party (see Note L) payable in monthly installments of $28,785 including interest at 6.25% through July 2008.		815			1,031
Other Notes and Agreements		130			227
Total Long-Term Debt		4,087			6,955
Less Current Portion (including approximately $303,000 and $290,000, respectively, due to a related party).		(858	)		(721	)
Long-Term Debt Due After One Year	$	3,229		$	6,234

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

        There was approximately $2.3 million borrowed and an additional $4.0 million available on the Company’s revolving line of credit at December 31, 2005 based upon eligible collateral and overadvance capabilities provided for in the credit facility.

        The revolving line of credit and bank term loans contain provisions that require the Company to maintain certain financial covenants that, among other things, require the maintenance of tangible net worth and debt service coverage ratios, limit the amount of capital expenditures and require lender approval for certain matters. The Company was in compliance with all provisions of the loan agreements as of December 31, 2005.

        At December 31, 2005, the Company also had a $300,000 line of credit available for purchases of equipment at an interest rate of prime plus 0.75%. Advances on this line of credit are repayable over a three-year term. There were no amounts outstanding on this line of credit at December 31, 2005.

NOTE H – CONTINGENCIES

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

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

9

NOTE I – STOCKHOLDERS’ EQUITY

        In June 2002, the Company issued 2,000 shares of convertible preferred stock at $1,000 per share. The holders of the convertible preferred stock are entitled to receive quarterly dividends at the rate of 11% per annum. The dividends are payable in cash or shares of convertible preferred stock at the Company’s option and are cumulative. Through the period ended December 31, 2005, all dividends were paid in cash. Based on a conversion price of $2.36 per share, the preferred stock is convertible into 847,457 shares of the Company’s common stock. On the date the convertible preferred stock was issued, the fair market value of the Company’s common stock was $2.77 per share based upon the closing bid on the OTC Bulletin Board. The difference between the fair market value of the shares and the conversion price of the convertible preferred stock represented a constructive dividend to the holders of the preferred stock in the amount of $347,000. The terms of the convertible preferred stock agreement contains certain anti-dilution provisions and also contains a make-whole provision that obligates the Company to pay certain amounts to the holder of the convertible preferred stock if they do not ultimately receive an amount equal to the price per share of the common stock on the date they exercise their right to convert the convertible preferred stock into common stock. The Company followed the accounting prescribed in EITF 98-5 and EITF 00-27 for the recording of the convertible preferred stock and the constructive dividend in fiscal year 2003.

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

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

        During June 2005, the Company issued 5,000 common shares to its Chief Operating Officer as compensation under his employment agreement.  The Company recorded compensation expense in the amount of $29,250 during the nine months ended December 31, 2005 based on the fair value of the shares at the grant date.

NOTE J – FINANCING COSTS

        The Company incurred approximately $1,478,000 of financing costs during the fiscal year ended March 31, 2003, including the value of the warrants issued to the Company’s financial advisors related to obtaining certain financing in June 2002. The financing costs were allocated between the components of the financing that represented debt and equity. The financing costs that were allocated to the debt proceeds of $1,110,000 were recorded as other assets and were being amortized over the repayment term of the various loans and notes. The financing costs that were allocated to the equity proceeds of $368,000 were recorded as a reduction of the equity proceeds. These financing costs were written off as part of the June 2004 debt refinancing. We incurred $106,000 in new financing costs in June 2004. Amortization expense related to the financing costs was $27,000 and $491,000 for the nine months ended December 31, 2005 and 2004, respectively.

10

NOTE K – OTHER ASSETS

        Other assets consist of the following:

	Amortization Period	December 31,			March 31,
	(Years)	2005			2005
		(In Thousands)
Product Development (see Note F)	5	$	3,424		$	2,902
Less:  Accumulated Amortization			(1,559	)		(1,235	)
		$	1,865		$	1,667
Patents (see Note L)	5 – 17	$	2,424		$	2,423
Less:   Accumulated Amortization			(1,507	)		(1,313	)
		$	917		$	1,110
Financing Costs (see Note J)	3	$	106		$	106
Less:   Accumulated Amortization			(54	)		(26	)
		$	52		$	80
Other	5	$	–		$	222
Less:   Accumulated Amortization			–			(180	)
		$	–		$	42
Total Other Assets, Net		$	2,834		$	2,899

        All of the Company’s other assets are pledged as collateral on bank notes.

NOTE L – RELATED PARTY TRANSACTIONS

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

11

NOTE M – LEASE COMMITMENTS

        The Company currently leases 115,000 square feet consisting of office space and air-conditioned manufacturing and warehousing space at 2003 Gandy Boulevard North, Suite 800, St. Petersburg, Florida. The lease automatically expands to 132,500 square feet on October 1, 2006. The lease term is for 12 years ending September 30, 2016. Our corporate administrative offices and the primary manufacturing facilities for MTS are at this location. The monthly lease payments are approximately $50,000 plus tax in the first six months and increase to approximately $52,000 plus tax in the last six months of fiscal 2006. In addition, we are obligated to pay annual operating expenses (i.e., insurance, property taxes and common area maintenance fees). Due to the fact that the lease contains scheduled rent increases, the Company has applied the provisions of FASB Statement 13, “Accounting for Leases.” As a result, from October 1, 2004 through December 31, 2005, the Company has recorded lease expense of approximately $216,000 in excess of cash paid under this lease.

        Pursuant to the terms of the lease, the Company was paid a lease incentive of $400,000, which will be amortized to rental expense over the term of the lease. As of December 31, 2005, the lease incentive has been recorded in the accompanying condensed consolidated balance sheets under the caption “lease incentive” in the amount of approximately $325,000 and the current portion of approximately $33,000 being included in the accounts payable and accrued liabilities.

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

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

NOTE N – PROPERTY AND EQUIPMENT RECONCILIATION

        As a result of our move to our new facility in the latter part of fiscal 2005, we performed a physical inventory of our property and equipment assets and instituted a tagging and tracking system. This initiative was completed in the quarter ended September 30, 2005 and resulted in a $399,000 charge, which has been included in depreciation and amortization expense. We have determined that no individual prior period was materially misstated, and therefore, restatement of prior periods is not necessary. The resulting charge is non-cash and has no material impact on our cash flows, cash position or compliance with covenants under our senior credit facility.

NOTE O – RECENT ACCOUNTING PRONOUNCEMENTS

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

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        In November 2004, the FASB issued SFAS 151, Inventory Costs, an amendment of ARB No. 43, which is effective for inventory costs incurred by the Company during fiscal years beginning after June 15, 2005. The amendments made by SFAS 151 will improve financial reporting by clarifying that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and by requiring the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The Company does not believe that the adoption of SFAS 151 will have a significant impact on its financial statements.

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

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MTS MEDICATION TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2005

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

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

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

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

Summary of Results

        Revenue increased approximately 2% to $10.2 million in the third quarter ended December 31, 2005 compared with $10.0 million in the same period of the prior year. Revenue from sales of our consumable products to existing and new customers increased 11%. We believe the revenue increase in our consumable products is the primarily the result of: (1) increased penetration of independent pharmacies; (2) growth in market demands due to the aging demographics of the U.S. population; (3) a continued shift toward punch-card use; and (4) growth in international markets. Revenue from OnDemand sales decreased 63% compared with the same period of the prior year. We recorded one OnDemand system sale during the third quarter ended December 31, 2005 compared with three systems in the same period of the prior year.

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

	Three Months Ended				Nine Months Ended
	December 31,		December 31,		December 31,		December 31,
	2005		2004		2005		2004
	(In Thousands; Except Per Share Amounts)
Net Revenue	$	10,190	$	10,008	$	31,024	$	30,270
Gross Profit	$	3,932	$	3,583	$	12,025	$	11,335
Operating Income	$	853	$	707	$	2,391	$	2,508
Net Income Available to Common Stockholders	$	423	$	323	$	1,145	$	162
Diluted Earnings Per Share	$	0.07	$	0.05	$	0.18	$	0.05

ESTIMATES AND CRITICAL ACCOUNTING POLICIES

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

Revenue Recognition

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

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

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Valuation of Accounts Receivable

        Our allowance for doubtful accounts of approximately $249,000 at December 31, 2005 is based on management’s estimates of the creditworthiness of our customers, current economic conditions and historical information. We believe our allowance for doubtful accounts is in an amount sufficient to respond to normal business conditions. Historically, the levels of recorded bad debt expense and write-offs have not been material to our financial statements. Should business conditions deteriorate or any large customer default on its obligations to us, this allowance may need to be significantly increased, which would have a negative impact upon our operations.

Inventory Obsolescence Valuation Allowance

        Our allowance for inventory obsolescence and slow moving inventory is reviewed on a monthly basis. We review various information related to the age and turnover of specific inventory items to assist in our assessment. We believe the valuation allowance is sufficient to absorb the ultimate obsolescence of certain inventory as they may occur. The inventory obsolescence valuation allowance was approximately $223,000 at December 31, 2005.

Self-Insurance Plan Reserve

        We have established a reserve for unpaid medical claims of approximately $47,000 at December 31, 2005. Management reviews claims history information provided to it by the third-party administrator of the self insured plan on a regular basis and believes that the reserve is sufficient to respond to the claims that may be incurred by the participants in the plan.

Deferred Tax Asset Valuation Allowance

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

Impairment Valuations

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

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

Product Development

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

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Estimated Liabilities

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

        We are subject to various matters of litigation in the ordinary course of business. As the outcome of any litigation is unknown, management estimates the potential amount of liability, if any, in excess of any applicable insurance coverage, based on historical experience and/or the best estimate of the matter at hand. Significant changes in estimated amounts could occur. To date, we have not had to pay any legal settlements in excess of existing insurance coverage.

Warranty

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

RESULTS OF OPERATIONS

Three Months Ended December 31, 2005 and 2004

        Net sales for the three months ended December 31, 2005 was $10.2 million compared with $10.0 million during the same period of the prior year. Net sales increased for consumable punch cards and machines sold to new and existing customers by 11%. In addition, revenue associated with the sale of OnDemand systems was $0.5 million during the three months ended December 31, 2005 compared with $1.3 million in the same period of the prior year. Average selling prices for consumable products were slightly higher during the third quarter of fiscal 2005 compared to the same period of the prior fiscal year.

        Cost of sales for the three months ended December 31, 2005 was $6.3 million compared with $6.4 million during the same period of the prior year. Cost of sales as a percentage of sales decreased to 61.4% from 64.2% during the same period of the prior fiscal year. Cost of sales as a percentage of sales decreased primarily as a result of manufacturing efficiencies and a higher percentage of sales from consumable products.

        Selling, general and administration expenses for the three months ended December 31, 2005 were $2.6 million compared to $2.5 million in the prior year. SG&A expense remained comparable primarily due to increased investment in growth initiatives and new product development offset by the prior period expenses associated with the move of the Company’s facilities to a new location in October 2004.

        Depreciation and amortization expenses for the three months ended December 31, 2005 increased 21% to $489,000 from $405,000 during the same period of the prior fiscal year. This increase is primarily the result of the completion and amortization of several major product initiatives during fiscal 2006.

        Interest expense for the three months ended December 31, 2005 decreased 25% to $73,000 from $97,000 during the same period of the prior fiscal year. The decrease results primarily from lower debt levels as compared with the same period of the prior year.

        Amortization of financing costs was $9,000 in the third quarter of this year compared with $8,000 in the third quarter of the prior year.

        We realized income tax expense of $292,000 during the three months ended December 31, 2005 compared with $224,000 during the same period of the prior fiscal year. This increase results from higher net profit during the three-month period ended December 31, 2005 compared to the same period of the prior year. The effective tax rate for the three-month period ended December 31, 2005 compared with the same period of the prior year is similar.

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Nine months Ended December 31, 2005 and 2004

        Net sales for the nine months ended December 31, 2005 was $31.0 million compared with $30.3 million during the same period of the prior year. Net sales increased for consumable punch cards and machines sold to new and existing customers by 11%. In addition, revenue associated with the sale of OnDemand systems was $1.5 million during the nine months ended December 31, 2005 compared with $3.7 million in the same period of the prior year. Average selling prices for consumable products were slightly higher during the nine months ended December 31, 2005 compared to the same period of the prior fiscal year.

        Cost of sales for the nine months ended December 31, 2005 was $19.0 million compared with $18.9 million during the same period of the prior year. Cost of sales as a percentage of sales decreased to 61.2% from 62.6% during the same period of the prior fiscal year. Cost of sales as a percentage of sales decreased primarily as a result of operating efficiencies in the manufacturing process, as well as a higher percentage of sales from consumable products.

        Selling, general and administration expenses for the nine months ended December 31, 2005 increased 6% to $7.9 million from $7.4 million in the prior year primarily due to increased staffing, personnel related costs and new product development initiatives. The Company has been adding personnel and utilizing consultants to support its growth plans in new products and new markets. This increase in expense compared to the prior period was in part offset by expenses associated with the move of the Company’s facilities to a new location in October 2004 and the stock grant provided to the Company’s former CFO in September 2004 that did not recur.

        Depreciation and amortization expenses for the nine months ended December 31, 2005 increased 24% to $1.8 million from $1.4 million during the same period of the prior fiscal year. As a result of our move to our new facility in the latter part of fiscal 2005, we performed a physical inventory of our property and equipment assets and instituted a tagging and tracking system. This initiative was completed in the quarter ended September 30, 2005 and resulted in a $399,000 charge, which has been included in depreciation and amortization expense. The increase from the same period of the prior fiscal year was also partially attributable to increased depreciation and amortization of capital expenditures made to the new facility partially offset by additional expense in the prior period resulting from the acceleration of the amortization of leasehold improvements made to our previous facility as a result of terminating our lease in anticipation of relocating in October 2004.

        Interest expense for the nine months ended December 31, 2005 decreased 51% to $252,000 from $513,000 during the same period of the prior fiscal year. The decrease results primarily from lower debt levels and lower interest rates have lowered interest expense as compared with the same period of the prior year. Further, a $120,000 prepayment penalty incurred when our $4,000,000 subordinated note was repaid in June 2004.

        Amortization of original issue discount and financing costs was $0 and $27,000, respectively, for the nine months ended December 31, 2005 compared with $803,000 and $491,000, respectively, in the prior period. The decrease resulted from the repayment of our $4,000,000 subordinated note in June 2004. At that time, the remaining original issue discount and financing costs associated with that note was completely amortized.

        We realized income tax expense of $799,000 during the nine months ended December 31, 2005 compared with $374,000 during the same period of the prior fiscal year. The decrease in the effective tax rate for the nine months ended December 31, 2005 compared with the same period of the previous year resulted from the permanent difference between the carrying value of the subordinate debt for book and tax purposes in the prior year.

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LIQUIDITY AND CAPITAL RESOURCES

        During the nine months ended December 31, 2005, we had a net income available to common stockholders of $1,145,000 compared with $162,000 during the same period of the prior fiscal year. Cash provided by operations was $3,968,000 during the nine months ended December 31, 2005 compared with $3,855,000 provided during the same period of the prior year. We generated cash from operations during the first nine months of fiscal 2006 primarily from net income and the add-back of depreciation and amortization expense, as well as the change in deferred income taxes. We had working capital of $8.2 million at December 31, 2005.

        Investing activities used $1.4 million during the nine months ended December 31, 2005 compared with $1.9 million used during the same period of the prior fiscal year. During the nine months ended December 31, 2005, we incurred $515,000 for new product development and $901,000 for property and equipment.

        Financing activities used $2,777,000 during the nine months ended December 31, 2005 compared with $1,951,000 used during the same period of the prior fiscal year. The change results primarily from the pay-down of the revolving line of credit and term loans.

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

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

        There was $2.3 million borrowed and an additional $4.0 million available on our revolving line of credit at December 31, 2005 based upon eligible collateral and overadvance capabilities provided for in the credit facility. In addition, we had $300,000 available on our capital equipment line of credit.

            The revolving line of credit and term loans contain provisions that require the Company to maintain certain financial covenants that, among other things, require the maintenance of minimum tangible net worth and debt service coverage ratios, limit the amount of capital expenditures and require lender approval for certain matters. The Company was in compliance with all provisions of the loan agreements as of December 31, 2005.

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

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CONTRACTUAL OBLIGATIONS

	Payment Due by Period
			Less Than		Years		Years		More Than
Contractual Obligations	Total		1 Year		2 and 3		4 and 5		5 Years
	(In Thousands)
Long-Term Debt Obligations	$	3,987	$	817	$	3,170	$	–	$	–
Capital Lease Obligations	$	100	$	41	$	59	$	–	$	–
Operating Lease Obligations	$	8,887	$	858	$	1,662	$	1,657	$	4,710
Purchase Obligations	$	–	$	–	$	–	$	–	$	–
Other Long-Term Liabilities Reflected on the Registrant’s Balance Sheet Under GAAP	$	358	$	33	$	67	$	67	$	191
Total	$	13,332	$	1,749	$	4,958	$	1,724	$	4,901

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4.   CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Controls

        There has not been any change in our internal control over financial reporting identified in connection with the Evaluation that occurred during the quarter ended December 31, 2005 that has materially affected or is reasonably likely to materially affect, those controls.

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Limitations on the Effectiveness of Controls

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

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

CEO and CFO Certifications

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

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PART II – OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

        NONE.

ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

        NONE.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

        NONE.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITIES

        NONE.

ITEM 5.   OTHER INFORMATION

        NONE.

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ITEM 6.   EXHIBITS

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

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

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

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

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Signatures

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MTS MEDICATION TECHNOLOGIES, INC.
Date:   February 13, 2006	By:	/s/ Michael Branca
		Michael Branca
		Vice President and Chief Financial Officer

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Exhibit 31.1

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

I, Todd E. Siegel, certify that:

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

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

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

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

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

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

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

    5.        The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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

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

Date:   February 13, 2006	By:	/s/ Todd E. Siegel
		Todd E. Siegel
		President and Chief Executive Officer

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Exhibit 31.2

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

I, Michael Branca, certify that:

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

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

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

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

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

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

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

    5.        The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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

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

Date:   February 13, 2006	By:	/s/ Michael Branca
		Michael Branca
		Vice President and Chief Financial Officer

26

Exhibit 32.1

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

        In connection with the quarterly report of MTS Medication Technologies, Inc. (the “Company”) on Form 10-Q for the quarterly period ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), I, Todd E. Siegel, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

       (1)        The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. §78m or §78o(d)); and

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

Dated:   February 13, 2006

/s/Todd E. Siegel                                      

Todd E. Siegel

President and Chief Executive Officer

27

Exhibit 32.2

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

        In connection with the quarterly report of MTS Medication Technologies, Inc. (the “Company”) on Form 10-Q for the quarterly period ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), I, Michael Branca, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

       (1)     The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. §78m or §78o(d)); and

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

Dated:   February 13, 2006

/s/Michael Branca                                           

Michael Branca

Vice President and Chief Financial Officer