Item 7. Management's Discussion and Analysis

Plan of Operations

Food Technology Service, Inc. had revenue of $2,507,078 in 2008. This is an increase of 19.9% over 2007 revenue of $2,092,084. In 2006, the Company reflected a portion of the value of tax-loss carry-forward credits on its financial statements as required by Generally Accepted Accounting Principles. Based on increased profitability in 2008 and potential future profitability, the Company has increased the value of the tax-loss carry-forward credits which increased net income in 2008 and stockholders equity at December 31, 2008 by $525,000. To facilitate comparison to 2007, profit for 2008 is being expressed as net income (with increased tax credit benefit) and income before taxes (without increased tax credit benefit). The Company had net income (with increased tax credit benefit) of $1,030,387 in 2008 compared to $234,752 in 2007. This is an increase of approximately 339% over 2007. Net income per share was $0.375 for 2008 compared to $0.085 for 2007. The Company had income before taxes of $505,387 in 2008 compared to $234,752 in 2007, an increase of about 115%. Income per share before taxes was $0.183 for 2008 compared to $0.085 for 2007.

Revenue for the fourth quarter of 2008 was $641,731 compared to $497,723 during the same period in 2007. This is an increase of about 29%.

Management attributes increased revenue to continuing growth of base customers requiring irradiation of products on a regular basis. The majority of revenue growth is occurring in medical sterilization but the Company remains well-positioned for any increased interest in food irradiation.

During 2008, processing costs as a percentage of sales were 22.6 percent compared to 25 percent in 2007. This decrease was due primarily to the increase in sales as such costs are relatively fixed. General administrative and development costs as a percentage of sales during 2008 were 39.3 percent compared to 40.9 percent in 2007. Again, the decline in general administrative and development expenses, as a percentage of sales, is attributed primarily to the increase in sales.

In order to comply with SFAS 123R, the Company continues to report the value of stock-options granted as an item of expense. These options have been issued to Company employees and Board members and are valued using the Black-Scholes pricing method. This action increased expenses in 2008 by $33,094.

Although there is no assurance, management anticipates continued profitability during 2009. Management does not anticipate any significant increases in actual processing costs or general and administrative expenses during 2009.

Liquidity and Capital Resources

During June of 2008, the Company purchased and installed Cobalt to replace Cobalt lost to normal deterioration and to expand production capacity. That purchase was paid from cash on hand.

The Company made substantial progress towards reducing debt in 2008. The $239,000 note on a warehouse completed in late 2006 was paid in full and payment of $200,000 was made on long-term debt owed to MDS Nordion.

At December 31, 2008, the Company had cash on hand of approximately $216,978. At December 31, 2008, the Company's outstanding debt to MDS Nordion amounted to $628,629 which is evidenced by a Debenture and Security Agreement. The debt, which includes interest of $565,435, bears interest at prime plus 1%. Such debt is due and payable on demand.