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

Food Technology Service Inc. had record revenues of $683,409 during the third quarter of 2008 compared to revenues of $576,197 for the same period in 2007. This is an increase of 18.6 percent. The Company had net income during the third quarter of 2008 of $186,859 compared to net income of $130,027 during the third quarter of 2007. This is an increase of about 43.7 percent. For the first three quarters of 2008, the Company had record revenues of $1,865,344 and net income of $393,187. Revenues during the first three quarters of 2007 were $1,594,357 and the Company had net income of $212,548. Revenues increased by about 17 percent and net income increased by about 85 percent in the first three quarters of 2008 compared to the same period in 2007.

Management attributes increased revenue to a growing customer base that requires irradiation of products on a regular basis. The majority of revenue growth is occurring in medical sterilization.

During the third quarter of 2008, processing costs as a percentage of sales were 18.8 percent compared to 17.7 percent in the third quarter of 2007. This increase was primarily due to in-house costs associated with the installation of Cobalt in June, 2008. General administrative and development costs as a percentage of sales during the third quarter of 2008 were 36.6 percent compared to 38.5 percent in the third quarter of 2007. The decline in general, administrative and development expenses, as a percentage of sales, was due primarily to the increase in sales as such costs are relatively constant.

During the first three quarters of 2008, processing costs as a percentage of sales were 21.5 percent compared to 20 percent during the first three quarters of 2007. As previously mentioned, this increase was primarily due to in-house costs associated with the installation of Cobalt in June, 2008. General, administrative and development costs as a percentage of sales were 39.4 percent during the first three quarters of 2008 compared to 42.1 percent during the same period in 2007. Again, the decline in general, administrative and development expenses, as a percentage of sales, was due primarily to the increase in sales as such costs are relatively constant.

During the third quarter of 2008, the Company paid the remaining balance of approximately $239,000 on a loan for a new warehouse completed in November, 2006. The Company also made a payment of $50,000 for debt owed to MDS Nordion. These two actions reduced the Company's total debt at the end of the third quarter of 2008 from approximately $1,060,000 to approximately $770,000. The Company anticipates further payment of debt during the fourth quarter of 2008.

As previously mentioned, the Company installed additional Cobalt during the second quarter of 2008 at a cost of approximately $530,000. The Company paid cash for this Cobalt. There were short-term increases in processing costs associated with this installation that continued into the early third quarter of 2008

Management anticipates increased revenue during the remaining quarter of 2008 based on growing demand for irradiation services.