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

Food Technology Service, Inc. had revenues of $1,019,823 during the second quarter of 2012 compared to revenues of $910,707 for the same period in 2011. This is an increase of approximately 12 percent. The Company had income before taxes during the second quarter of 2012 of $416,630 compared to income before taxes of $363,977 during the second quarter of 2011. This is an increase of approximately 14.5 percent. For the first half of 2012, the Company had revenues of $2,070,439 and income before taxes of $856,284. Revenues during the first half of 2011 were $1,770,599 and the Company had income before taxes of $668,688. Revenues increased by about 16.9 percent and income before taxes increased by approximately 28 percent in the first half of 2012 compared to the same period in 2011.

The Company's statement of operations reflects non-cash deferred income tax expense for the second quarter of 2012 in the amount of $157,300. This resulted in net income during the second quarter of 2012 of $259,330 versus net income of $226,077 during the same period in 2011, an increase of 14.7 percent. Similarly, the Company's statement of operations reflects non-cash deferred income tax expense for the first half of 2012 in the amount of $323,100. This resulted in net income of $533,184 during the first half of 2012 versus $440,388 during the same period of 2011. This is an increase of approximately 21.1 percent.

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

During the second quarter of 2012, processing costs as a percentage of sales were 16.3 percent compared to 17.1 percent during the second quarter of 2011. These costs are relatively fixed and the slight decrease in 2012 reflects the increase in revenue. General, administrative and development costs as a percentage of sales during the second quarter of 2012 were 30.5 percent. This compares to 30.8 percent in the second quarter of 2011. These costs are also relatively fixed and the decline in general, administrative and development expenses, as a percentage of sales, is due to the increased revenue.

During the first half of 2012, processing costs as a percentage of sales were 16 percent compared to 16.4 percent in the first half of 2011. Again, these costs are relatively fixed and decreased due to increased revenue. General, administrative and development costs as a percentage of sales were 30.2 percent during the first half of 2012. This compares to 33.3 percent during the first half of 2011. As previously mentioned, these costs are relatively fixed and the decline in general, administrative and development expenses, as a percentage of sales, is primarily due to increased revenue.