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

Food Technology Service, Inc. had revenues of $1,056,616 during the first quarter of 2012 compared to revenues of $859,892 for the same period in 2011. This is an increase of approximately 22.2 percent. The Company had income before taxes during the first quarter of 2012 of $439,655 compared to income before taxes of $304,711 during the first quarter of 2011. This is an increase of approximately 44.3 percent. The Company's statement of operations reflects non-cash deferred income tax expense for the first quarter of 2012 in the amount of $165,800. This resulted in net income during the first quarter of 2012 of $273,855 versus net income of $214,311 during the same period in 2011, an increase of approximately 27.8 percent.

Management attributes increased revenue to continued growth in demand for packaging sterilization.

During the first quarter of 2012, processing costs as a percentage of sales when compared to the first quarter of 2011 remained relatively constant at approximately 15.8 percent. These costs are relatively fixed. General, administrative and development costs as a percentage of sales during the first quarter of 2012 were 29.9 percent compared to 36 percent in the first quarter of 2011. Again these costs are relatively fixed and the decrease results primarily from costs incurred in connection with the installation of Cobalt during the first quarter of 2011.

In March, 2012 the Company entered into an agreement with Nordion for the replacement of the Programmable Logic Control (PLC) system at an estimated cost of $800,000. This is the last part of a multi-year project intended to maintain the facility in good and reliable condition. The PLC replacement will take place in two phases and is expected to be substantially completed by the end of 2012.

In March, 2012 the Company entered into an agreement with Nordion to purchase an additional 300,000 curies of Cobalt at a cost of approximately $840,000 plus installation in order to accommodate increasing demand and normal Cobalt loss of strength over time. Installation is expected during the third quarter of 2012.