SECURITIES AND EXCHANGE COMMISSION
                     WASHINGTON, D. C. 20549

                           FORM 10-KSB
 (Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
     For the year ended December 31, 1997

     Commission File No. 0-27864


                 FOOD TECHNOLOGY SERVICE, INC.
                  (Formerly Vindicator, Inc.)
     (Exact name of Registrant as specified in its charter)

              FLORIDA                                    59-2618503
   (State of incorporation or organization)   (Employer Identification  Number)

   502 Prairie Mine Road, Mulberry, FL         33860 
   (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (941) 425-0039
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 
par value 

    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.    Yes    X                No  
                                                  -----                  -----

    Indicate by check mark if disclosure of delinquent filers pursuant to Item 
405 of Regulation S-B is not contained herein, and no disclosure will be 
contained, to the best of Registrant's knowledge, in definitive proxy or 
information statements incorporated by reference in Part III of this Form 10-KSB
 or any amendment to this Form 10-KSB.  [ ]

    The Registrant's operating revenues for its most recent fiscal year were 
$191,291.

    As of December 31, 1997, 10,052,216 shares of the Registrant's Common Stock 
were outstanding, and the aggregate market value of the voting stock held by 
non-affiliates (3,994,626 shares) was approximately $17,601,320 based on the 
market price at that date.

                                
              DOCUMENTS INCORPORATED BY REFERENCE
                                
                              None

<PAGE>




                       TABLE OF CONTENTS


PART I                                                                 PAGE NO.

Item 1   Business ..........................................................1

Item 2   Properties.........................................................7

Item 3   Legal Proceedings..................................................8

Item 4   Submission of Matters to a Vote of Security Holders................8

PART II

Item 5   Market for Registrant's Common Equity and Related 
         Stockholder Matters................................................9

Item 6   Management's Discussion and Analysis...............................9

Item 7   Financial Statements..............................................11

Item 8   Changes in and Disagreements with Accountants on 
         Accounting and Financial Disclosure...............................11

PART III

Item 9   Directors, Executive Officers, Promoters and Control Persons; 
         Compliance with Section 16(a) of the Exchange Act................12

Item 10  Executive Compensation...........................................13

Item 11  Security Ownership of Certain Beneficial Owners and Management...15

Item 12  Certain Relationships and Related Transactions...................16

Item 13  Exhibits and Report on Form 8-K..................................16

<PAGE>



                                 PART I


Item 1. Business
----------------

    Food Technology Service, Inc., formerly Vindicator, Inc., (the "Company"), 
was organized as a Florida corporation on December 11, 1985.  The Company owns 
and operates an irradiation facility, that uses gamma radiation produced by 
Cobalt 60, to treat or process various foods for insect disinfestation, shelf 
life extension and control of certain disease causing microorganisms.  In April 
1991, the Company completed its initial public offering, and the proceeds 
therefrom, approximately $2,000,000, were used primarily to pay for a portion of
the cost of building the Company's irradiation facility in Mulberry, Florida. 
Construction of the facility was completed in December, 1991 and it became 
operational in January 1992.

    The benefits of radiation in preventing food-borne illness are well known. 
Food irradiation is supported by the United States Department of Agriculture 
("USDA"), the World Health Organization, the United States Public Health 
Service, the American Medical Association, the Institute of Food Technologists, 
and reputable scientific and medical organizations throughout America. In 
addition, more than forty countries have approved the irradiation of food 
products.  The United States Food & Drug Administration ("FDA") has approved 
irradiation as a safe and effective means of processing a variety of foods. To 
date, the FDA has approved the irradiation of (i) pork, to control trichinosis; 
(ii) poultry, for the control of disease-causing pathogens; (iii) spices, for 
sterilization; and (iv) all fresh fruits and vegetables, for insect 
disinfestation, and to delay maturation, which extends the shelf life of many 
fresh fruits and vegetables.

    The Company expects that its success will be dependent upon the processing 
of poultry, meat and shellfish.  However, the FDA has not yet approved the 
irradiation of fish, shellfish, or meat, nor has it approved a standard 
polystyrene foam tray for the packaging of poultry.  The delays at the federal 
level are preventing the Company from implementing the technology for the 
irradiation of meat and shellfish which has been proven to be effective in 
controlling E. coli, listeria and other pathogens in meat, and in eliminating 
vibrio, including cholera, found in raw shellfish.  The petition to irradiate 
meats was submitted to the FDA in July 1994.  A petition for the approval of 
the irradiation of fish and shellfish has been pending more than eight (8) 
years, yet no final FDA action has been taken.  The information necessary to 
approve the standard yellow polystyrene foam tray for poultry has been at the 
FDA for nearly two years, but it has not yet acted to approve the use of this 
material for packaging.

    Management is working diligently with some meat processors and with a major
retailer to gain the necessary approvals, so that the technology which can 
protect consumers from dangerous pathogens will be implemented.  The Company 
presently irradiates meat for astronauts, which has been approved by the FDA, 
but it cannot, as yet, offer its services to processors to irradiate meat for 
the American people. Many harvesters of shrimp and oysters have been forced 
into bankruptcy, as a result of the warnings to the public about the dangers 
of enjoying raw shellfish, while the technology of irradiation, which has been 
proven to be an effective method of making shellfish safe for human consumption,
awaits FDA approval. The FDA approved irradiation of meat products for 
controlling disease-causing micro-organisms on December 2, 1997. The USDA must
publish regulations for the inspection and operation of an irradiator before we
can begin processing these meat products. We expect this to be completed by 
late 1998.

<PAGE>

    The numerous problems that have been encountered in gaining the FDA and 
USDA approvals have been very discouraging for the Company, and revenues to 
date have been nominal as a result thereof. Revenues for 1997 were $191,291, 
of which approximately 50% was attributable to the processing of seasonings 
and spices, 18% attributable to fruits and vegetables and 18% to testing 
products for others. A nominal amount of poultry was also processed and 
shipped.

    In February of 1997, the Company and the Marcre Sales Corporation 
("Marcre"), based in Forest Park, Georgia, signed an agreement in principle for
Marcre to handle sales and distribution of food products processed by the 
Company. Additional partners in this initiative include MDS Nordion 
("Nordion") and Nations Pride of Mulberry, Florida.  Marcre specializes in 
fresh and frozen poultry and operates two processing plants in the Atlanta, 
Georgia area.

    The Company does not now, nor does it intend to produce or sell foods.  The 
Company will market its irradiation process to growers and producers, as a 
substitute for and/or a complement to other food processing methods, such as
canning, freezing, heat pasteurization and fumigation. The cost to a customer
of the Company's irradiation services will vary depending on such factors as 
the amount of time the customer's food products occupy the radiation chamber,
the costs and availability of competing methods of food processing, and 
general supply and demand and other economic factors.

Procedures

    Products to be irradiated are placed onto the conveying system.  Some 
products, because of their density and pallet size, may have to be depalletized
for radiation processing to ensure that the appropriate radiation dose is 
applied to the product.  The conveying system automatically moves the product 
through the irradiation chamber at a predetermined rate specified by the 
Company's personnel.  The positioning of the product relative to the radiation 
source and the distance of the product from the radiation source are fixed. The
proper radiation dose is determined by the duration of the exposure of the 
product to the radiation source, which is carefully controlled to provide the 
desired dose.  The exposure time required to achieve the desired dose will 
depend on the amount of Cobalt 60 in use and the density of the material 
exposed.  The Company's facility is currently rated at approximately 1.7
million curies of Cobalt 60.  See "Cobalt 60 Supply," below.

    Like an airport x-ray system, the process does not make the food 
radioactive.  The food is safe to eat immediately after processing.

    The total time required to process different products will vary, primarily 
reflecting (i) the different radiation doses required for different purposes 
(e.g., insect disinfestation requires a lower dose than does elimination of 
microorganisms), and (ii) the density of the product being irradiated (e.g., 
irradiation of relatively dense bulk poultry takes longer than irradiation of 
less dense retail packaged poultry).  A higher or lower dose (but always within
the range approved) can be applied by increasing or decreasing the time of 
exposure of the food to the radioactive source.  Devices which measure the 
level of irradiation are placed in and around the product being irradiated, 
and they allow the Company's personnel to ensure that proper levels have been
achieved. With the addition of refrigeration inside the facility, and the 
current supply of Cobalt 60, the plant can handle any and all products in an
efficient manner.

<PAGE>

Personnel

    At December 31, 1997, the Company employed nine persons, six of which are
office personnel and three are plant employees.  If and when the facility 
becomes fully operational, the Company anticipates that it will need to hire 
approximately seven additional employees for each shift the facility operates.

    Required personnel will included a shift supervisor, a controller/
scheduler, a quality assurance supervisor, a plant operator, and three 
loaders/unloaders. All handling of the Cobalt 60 source, which occurs
periodically for the purpose of adding or removing Cobalt 60, is done by 
Nordion.  See "Agreements with MDS Nordion" below.

Cobalt 60 Supply

    The Company has in place approximately 1.7 million curies of Cobalt 60. The
level of radioactivity of Cobalt 60 declines at approximately 12% per year, 
and new Cobalt 60 must from time to time be purchased to maintain an 
appropriate radiation level. The price of Cobalt 60 ranges from $1.35 to $1.75
per curie. Nordion is the sole supplier of Cobalt 60 and has agreed to sell the
Company all its requirements for Cobalt 60, and to accept the return of all 
used Cobalt 60 that has reached the end of its useful life. The amount of 
Cobalt 60 in place is sufficient to satisfy the Company's needs for the next
three to four years. Cobalt 60 is readily available from several sources. See
"Agreements with MDS Nordion" below.

Additional Uses for Irradiation

Research Services

    The Company uses its facility to irradiate various products as required in 
research activities being conducted by others, including state and federal 
government agencies and academia.

Medical and Consumer Products

    The Company does not expect to provide irradiation treatment for medical 
products, because under the terms of its agreement with Nordion the Company 
will under some circumstances be prohibited from processing any product other 
than food and related products.  However, if the Company's facility does not 
operate successfully as a food irradiation facility, it could be converted at 
little or no cost to a medical and consumer products irradiation facility. See 
"Agreements with MDS Nordion" below.

Plant Safety

Safety to Surrounding Community

    While a radiation source does require special handling, the necessary 
precautions are well understood and practiced daily at numerous medical supply 
irradiation plants already in operation.  Unlike a nuclear power plant, the 
process does not involve any nuclear reaction.  An irradiator is not a nuclear 
reactor.  It is simply a processing plant containing a shielded area where 
foods are exposed to a source of ionizing radiation.

    The Company's irradiation activities will produce no harmful solid, liquid 
or gas effluents or pollutants.  The Company uses Cobalt 60 as its irradiation 
source, which is a manufactured product and not a byproduct from a nuclear 
reactor or otherwise.

<PAGE>

Safety to Plant Workers

    As a result of long experience in designing and operating similar types of 
irradiation facilities, the necessary precautions for worker safety in an 
irradiation facility are well understood. These precautions are enforced by 
several federal and state agencies in the United States. The Bureau of
Radiation Control, Radioactive Materials Section, of the Florida Department 
of Health inspects the facility on an annual basis as does the U.S. Food and
Drug Administration. The USDA inspects the premises whenever the Company is 
processing meats or poultry.

Regulatory Matters

Regulation of Irradiated Foods

    In the United States, primary responsibility for approval of food 
irradiation rests with the FDA.  No irradiated food can be sold, unless the FDA
has found that irradiation of a particular food, at specified doses, is both 
safe and generally effective for the intended purpose.  To date, the FDA has 
approved the irradiation of poultry for the control of Salmonella and certain 
other disease causing microorganisms, the irradiation of all fresh fruits and 
vegetables for insect disinfestation and shelf life extension, the irradiation 
of spices for sterilization, and the irradiation of pork for the control of 
trichinosis.  A petition for the approval of the irradiation of fish and 
shellfish is presently pending. On July 7, 1994, a petition was submitted to 
the FDA by the meat industry to gain approvals to irradiate all meats, so that 
the risk of E. coli: 0157 H7 and other pathogens can be removed from meat 
products. The FDA approved irradiation of meat products for controlling
disease-causing micro-organisms on December 2, 1997. The USDA must publish 
regulations for the inspection and operation of an irradiator that will
process meat products. We expect this to be completed by late 1998. The
Company's facility is being used by the shellfish industry for 
research services to gain the approvals from the FDA.

    In general, no further approvals are necessary for the sale of irradiated 
fresh fruits and vegetables in the United States.  However, the shipment of 
any irradiated food for export will be subject to the rules of the country of 
destination.

    Some states and countries require that certain foods be quarantined on 
import to prevent the establishment or spread of insects commonly carried by 
the food.  Among the foods anticipated to be processed by the Company, Florida 
grapefruit, which sometimes carries fruit fly larvae, is subject to quarantine
requirements in other citrus producing states and countries, most notably 
Japan. As of yet, no such state or country, including Japan, has approved 
irradiation as effective in insect disinfestation of grapefruit.  The Company
believes that this is largely due to the fact that to date there has been no 
plant proposing to irradiate grapefruit for export into countries and states 
that quarantine grapefruit.  The Company is currently working with the USDA 
Animal and Plant Inspection Service to allow its irradiation process to satisfy
those quarantine requirements.  The principal issue as to approval of the
irradiation of grapefruit is not the safety of the irradiated grapefruit, but 
rather the effectiveness of the process.  The USDA has found that irradiation 
is an effective means of satisfying such quarantine requirements and is making 
the results of its research available to interested states and foreign 
countries. The Company knows of no reason why the USDA's research should not be
accepted.

<PAGE>

    Quarantine restrictions also apply to certain foods imported into the 
United States.  The USDA has established rules approving irradiation, at the 
point of shipping, in satisfaction of the quarantine requirements for papayas.
The Company is currently working with the USDA Animal and Plant Inspection 
Service to allow the USDA to approve irradiation at the point of import as 
satisfying such requirements, but the Company cannot predict whether such 
approvals will be forthcoming. The Port facility at Tampa is a major point of 
import of produce, much of which is subject to USDA quarantine requirements.

    Any processing of meat and poultry, whether for irradiation, packaging or 
otherwise, is also regulated by the USDA. The USDA has promulgated rules 
relating to such processing to ensure that the food remains safe and wholesome.
In general, such rules establish standards for the implementation of the 
approval established by the FDA, and relate to such matters as good handling and
processing practices. These rules deal with such matters as (i) minimum 
irradiation levels to assure effective treatment, (ii) temperature standards to
prevent thawing of frozen foods, (iii) requirements for the separation of 
processed from non-processed foods, and (iv) labeling requirements. The USDA 
has already adopted rules relating to irradiation processing of pork and 
poultry and are now writing the required regulations for the recently approved
meat products.

Regulation of the Facility and the Irradiation Process

    The Company has obtained a license for the operation of its facility from 
the Office of Radiation Control, Florida Department of Health, which regulates 
the ownership and operation of all irradiation facilities and equipment in 
the State of Florida (including, for example, hospital x-ray equipment). The 
agency monitors the facility's operation to make certain that all safety 
regulations are being met.

Other Considerations

    The Company recognizes that it is seeking to extend the commercial 
irradiation industry into new fields in the United States, and governmental 
bodies may seek to impose on the Company and its business regulatory 
requirements not now anticipated.  In addition, the long-term course of 
regulatory policy cannot be predicted and, although regulatory approvals have 
been forthcoming, there can be no assurance that laws and regulations will not 
be applied in a manner that adversely affects the Company.  Currently, the 
transportation and sale of irradiated foods is now permitted in all 50 states. 
Although the Company is not aware of any significant regulatory requirements 
applicable to its proposed business, there can be no assurance that the Company
will not encounter unanticipated regulatory requirements.  

Agreements with MDS Nordion

    The Company, in September 1990, entered into an agreement with MDS Nordion, 
a corporation located in Kanata, Ontario, Canada ("Nordion"), whereby Nordion 
agreed to supply the Company with all of the equipment necessary to operate its 
irradiation facility, including 400,000 curies of Cobalt 60.  The total
purchase price for the equipment and cobalt was approximately $2,400,000, of
which $400,000 was paid and the balance of approximately $2,000,000 was
scheduled to become due and payable, without interest, on September 4, 1994.
Nordion has converted all but $585,595 and recently agreed to extend the date 
for repayment of the
balance of this indebtedness, and accrued interest, to January 4, 1999.

<PAGE>

    Nordion also assisted the Company in the construction of its facility, 
providing the Company, its architects and engineers, with construction drawings
of the irradiation cell, plans and specifications and assisted the Company in 
connection with the Company's applying for and obtaining all necessary licenses
and permits for the facility.
On July 1, 1991, MDS Health Group, Inc., a Delaware corporation ("MDS 
Health") then an affiliate of Nordion, loaned the Company $300,000.  Such 
loan was evidenced by a Debenture due and payable, without interest, on July 1,
1993.  The Debenture was convertible into shares of Common Stock at the 
conversion rate of $4.50 per share. In connection with the loan, the Company 
agreed that in the event MDS Health acquired a controlling interest in Nordion,
it would grant to MDS Health or Nordion the right to convert the $2,000,000 of 
indebtedness to Nordion referred to in the preceding paragraph into Common Stock
 of the Company at a conversion rate of $4.50 per share. MDS Health acquired 
Nordion in November, 1991.

    On October 22, 1991 the Company entered into a Reimbursement and Indemnity 
Agreement with Nordion whereby Nordion assisted the Company in obtaining a 
surety bond in the sum of $600,000. In connection therewith the Company agreed 
to reimburse Nordion for any and all liabilities, costs, damages, attorney fees 
and other expenses which Nordion may sustain as a consequence of the Indemnity 
Agreement from Nordion to the insurer or payments made by the Bank of Montreal 
on a letter of credit in the amount of $450,000 furnished by the Bank to the 
insurer on behalf of Nordion, each in connection with the issuance of the surety
bond.

    On December 11, 1991 the Company entered into a further Agreement with 
Nordion whereby Nordion agreed to make available to the Company over a period of
time an additional $850,000 for working capital purposes and an additional 
$900,000 in the form of additional curies of Cobalt 60 (approximately 600,000
curies). In addition, as part of the Agreement, 

    (a) The Company reduced the conversion rate of the above mentioned 
        $2,000,000 of indebtedness to Nordion from $4.50 to $4.05 per share.

    (b) The $300,000 debenture payable to MDS Health was assigned by MDS Health 
        to Nordion and canceled. A new Debenture, in the amount of $900,000 
        payable to Nordion was issued (this included the $300,000 prior 
        Debenture payable to MDS Health and $600,000 of the additional $850,000 
        that Nordion agreed to lend to the Company). The Debenture is due and 
        payable September 4, 1994 and was convertible at any time prior thereto 
        into shares of Common Stock at the conversion rate of $4.05 per share. 
        In addition, the Debenture is secured by a first mortgage on the 
        property on which the plant is located.

    (c) The Company agreed to pay the $900,000 due Nordion for the additional 
        600,000 curies of Cobalt 60 on September 4, 1994 without interest. Such
        indebtedness is secured by the irradiation equipment and other personal 
        property and the 1,000,000 curies of cobalt supplied by Nordion. In 
        addition, the indebtedness was convertible at any time on or before 
        September 4, 1994 into shares of Common Stock of the Company at the 
        conversion rate of $4.05 per share. 

    (d) The Company granted Nordion the right to designate two members to the 
        Board of Directors. 

<PAGE>

    On November 23, 1994, Nordion extended the due date on all indebtedness as 
well as accrued interest from September 4, 1994, to January 4, 1996 and in early
1996, further extended the due date to January 4, 1997. In early 1997, Nordion 
again extended the due date to January 4, 1998. In 1998, Nordion extended the
due dated to January 4, 1999. At December 31, 1997 such indebtedness amounted
to $585,595. The indebtedness continues to be secured by substantially all of
the assets of the Company. As part of such extensions, the conversion rate was 
reduced from $4.05 to $.80 per share. For the balance of the original loans 
($382,317). For all cash advances and interest accrued in 1997 the conversion 
option is at 70% of the closing price the day prior to the execution of the
option. For terms of the Agreement, reference is made to Note D of the Notes to
Financial Statements. In addition to the 1 million curies of Cobalt 60, which 
were supplied the Company in 1990 and 1991, Nordion, in 1992, stored an 
additional 2.4 million curies at the Company's facility. In anticipation that
it would be needed in the Company's operations. See Item 6 Management's 
Discussion and Analysis and Note H of the Notes to Financial Statements. Due to
the decline in level of radioactivity as a result of decay, there is currently 
available approximately 1.2 million curies. Although the additional Cobalt-60 
is located on the Company's premises and available to it for use in processing,
title to this Cobalt-60 continues to be held by Nordion and may be removed by 
Nordion in its discretion at any time.

    The agreements with Nordion provide that, until the Company pays its debt to
Nordion in full, the Company may not compete with Nordion's existing customers 
in their irradiation of non-food products, unless the Company obtains Nordion's
prior consent. This provision could make it difficult for the Company to 
succeed in the event that irradiation of food and related products is not 
sufficient to allow the Company to become profitable.

Item 2. Properties
------------------

    The Company's irradiation facility and executive office are located on an 
approximately 4.33 acre site owned by the Company in Mulberry, Polk County, 
Florida.  The Company purchased the site because of its convenient access to 
State Road 60, a major transportation artery between central Florida produce 
growers and the port facility at Tampa.  Should the Company's first facility
prove successful, the site is sufficiently large to add one or two additional 
irradiation chambers, thereby increasing the capacity of the facility.

    The Company's irradiation facility and executive office comprises 
approximately 28,800 square feet, including a 22,600 square foot warehouse and 
loading and unloading area, a 3,200 square foot office area, and a 3,000 square
foot irradiation chamber and Cobalt 60 storage cell.  The Company's 
irradiation processing plant consists of a radiation source, an automated 
conveying system, and operating safety controls.  The heart of the plant is 
the radiation source. Within the processing chamber, a water-filled pool,
approximately 28 feet deep, is used to shield and store the radiation source in 
the "off" position. The pool is enclosed in a radiation proof chamber, a double
safeguard against the escape of any radiant energy.  The concrete walls and 
roof of the processing chamber are approximately 6 feet thick and, during the 
times that the source is out of the pool in the "on" position, will provide 
safe shielding of adjacent areas such as the control room, work floor, offices 
and outdoor grounds. The control room contains operating and safety controls.
The conveying system is used to transport foods to and from the processing 
chamber. The Company's facility is designed to operate 24 hours a day, seven 
days a week. Although the Company currently has available approximately 1.7 
million curies of Cobalt 60, the facility is designed to meet international 
standards of radiation protection with an installed source of 7,000,000 curies.
The capacity of the source racks, however, will only permit a maximum of 
5,000,000 curies of Cobalt 60 to be installed. 

<PAGE>

    As indicated under Item 1 Business - Agreements with MDS Nordion" 
substantially all of the assets of the Company are pledged as collateral 
against the obligation to Nordion.

Item 3. Legal Proceedings
-------------------------
  None

Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------
  None

<PAGE>

                                    PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
-----------------------------------------------------------------------------

(a) The following table shows the range of closing bid prices for the Company's 
Common Stock in the over-the-counter market for the calendar quarters indicated.
The quotations represent prices in the over-the-counter market between dealers 
in securities, do not include retail mark-up, mark-down, or commissions and do 
not necessarily represent actual transactions.

                                                              BID PRICES
                                                              ----------
  1997                                                       High      Low
                                                             ----      ---
     First Quarter                                           1.75      .75
     Second Quarter                                         1.375      .94
     Third Quarter                                          6.375      .62
     Fourth Quarter                                        13.125     4.40

  1996
     First Quarter                                          2-3/8     21/32
     Second Quarter                                         2-1/8         1
     Third Quarter                                        1-15/16         1
     Fourth Quarter                                        1-9/16     11/16

(b)  Approximate Number of Equity Security Holders.
     ----------------------------------------------

    As of December 31, 1997, the approximate number of beneficial holders of 
Common Stock of the Company was approximately 3,000.

(c)  Dividend History and Policy
     ---------------------------

    The Company has paid no dividends to date and does not anticipate paying any
for the foreseeable future.

Item 6. Management's Discussion and Analysis
--------------------------------------------

Plan of Operations

    The Company completed construction of its irradiation facility in Mulberry,
Florida in December 1991 and the facility became operational on January 24, 
1992. The Company is still in the developmental stage. The plant was constructed
to irradiate fruits and vegetables for the primary purpose of extending shelf 
life and poultry to control salmonella and other illness causing bacteria. Soon
after the commencement of operations, it was recognized that the success of
the Company would be dependent on the irradiation of poultry and red meats.
This was due to the fact that most of the fresh fruits and vegetables are
pre-sold in the Florida area where the extension of shelf life is not
necessarily a help for the fruit and vegetable growers. In addition, although
the FDA has approved the use of irradiation for the extension of shelf life,
the USDA Animal and Plant Health Inspection Service (APHIS) has not completed
their approval for the use of irradiation for post harvest quarantine treatment.
As a result, Japan, a large importer of grapefruit, has declined to consider
irradiation as a quarantine treatment until approval is obtained from the USDA

<PAGE>

Although the rules for the irradiation of poultry were finalized by the
U. S. Department of Agriculture and published in the Federal Register on
September 22, 1992, the Company is still awaiting FDA approval for standard
packaging material for retail poultry. During 1997 the FDA approved the use
of a white tray for meat products. It is hopeful that necessary approvals
for standard yellow trays will be forthcoming in the near future. While 
awaiting action by the FDA, the Company's revenue (approximately $200,000 for 
1997) has been realized primarily from the processing of food ingredients,
seasonings and spices, food packaging materials and from testing the processing
of various other food commodities. The red meat industry, which has been faced 
with pathogen problems such as E. Coli:0157 H7 supported a petition to 
irradiate all meats that was approved by the FDA on December 7, 1997. The USDA
must publish regulations for the inspection and operation of an irradiator
that will process meat products. We expect this to be completed by late 1998.
Until such time, this Company will continue to process whatever items are
available and perform testing of products for others.

    At December 31, 1997, the Company had negative working capital of 
($68,635) and cash of approximately $12,231. The loss from operations for the 
year ended December 31, 1997 was ($1,062,369). Operating costs in 1997 were 
approximately $56,000 per month, down from $70,000 in 1996. The decline in 
operating costs resulted primarily from a reduction in personnel, which 
effected both Processing costs and General, Administrative and Development 
costs, and a reduction in interest. The reduction in personnel was due
primarily to the decrease in revenues and an attempt by the Company to limit 
expenses whereas the reduction in interest was due to the conversion by Nordion
of a portion of the debt owed it. The Company believes that increased revenues 
will have a positive impact on the negative gross margins since Processing 
costs and General, Administrative and Developmental costs will not increase 
significantly as a result of an increase in revenue.

    On September 25, 1992 Nordion stored approximately 2,600,000 curies of 
cobalt at the Company's plant. Subsequently 200,000 curies were returned, 
leaving approximately 2,400,000 curies at the Company's plant. Such cobalt was
stored in anticipation that it would be needed in the Company's operations,
however, such cobalt has not been needed because of low processing volume due 
to the lack of necessary FDA approvals and marketing demand. Due to physical
layout of the Company's plant, all product processed was exposed to Nordion's
cobalt. If Nordion's cobalt had been owned by the Company, or had been required
for increased processing volume or speed, the decay of such cobalt would have 
been charged to operations, resulting in an increased expense of approximately 
$300,000, $260,000 and $230,000 for the years ended December 31, 1995, 1996 and
1997, respectively (approximately $1,630,000 from inception through December 
31, 1997). The net losses for such periods would have been $1,627,867, 
$1,330,400 and $1,236,981 respectively ($9,224,887 from inception through
December 31, 1997). At such time that the Company's operations increase to such
an extent that the Nordion cobalt is required for increased processing volume 
or speed, the Company will begin charging its decay to operations.

    At December 31, 1997, the Company's outstanding debt amounted to 
$585,595, which consisted of a financing agreement with Nordion January 4, 1999
plus interest at prime plus 1% and as convertible debenture payable to Nordion 
due January 4, 1999 plus interest at prime plus 1%.

<PAGE>

    To fund its operations during 1997, the Company received $255,282 from the 
private sale of 319,102 shares of Common Stock to Nordion. In addition, the 
Company reduced its outstanding obligations by converting accrued interest 
due Nordion ($242,265) into 302,830 shares of Common Stock. Nordion converted 
a majority (------) of the debt owed to it into 3,600,000 shares of Common
Stock. It is not expected that income from operations will be sufficient in the 
foreseeable future to cover the Company's operating costs. Although Nordion

has indicated that it will continue to fund operations, there is no assurance 
that it will continue to do so.  In the event Nordion discontinues funding the 
Company's operations or the Company is not successful in raising additional 
capital, the Company will have to curtail a portion or all of its operations.

Item 7. Financial Statements
----------------------------

         Reference is made to the Company's Financial Statements included 
herewith.

Item 8. Changes in and Disagreements with Accountants on Accounting and 
        Financial Disclosure
-------------------------------------------------------------------------

         None.

<PAGE>

                                  PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        with Section 16(a) of the Exchange Act
--------------------------------------------------------------------------------

Directors and Executive Officers of the Company.

    As of December 31, 1997, the directors and executive officers of the Company
are as follows:

Name                       Age            Position with the Company

*Gordon H. Shirah, II      61            Board Chairman/Director

E.W. (Pete) Ellis          56             President/Chief Executive Officer/
                                          Director

Harley W. Everett          49             Chief Financial Officer

Frank M. Fraser            62             Director

Geoff Marott               48             Director

Paul O'Neill               59             Director

    All directors of the Company hold office until the next annual meeting of 
shareholders or until their successors have been duly elected and qualified.  
Officers are elected annually by the Board of Directors to hold office until 
their successors are duly elected and qualified.

    Gordon H. Shirah II (*Deceased 2/18/98) was a director of the Company 
since its inception in 1985 through July 1993.  In July 1996, he was reelected
 as a Director and Board Chairman.  From 1968 until his retirement in 1995, he 
worked as a Certified Public Accountant with Bella Hermida & Co.

    E.W (Pete) Ellis has been President, Chief Executive Officer and Director 
since December 1996.  He has been in the food business for the past 33 years, 
ten years of which were spent with Oscar Mayer & Co., and fifteen years with 
ConAgra.  He was employed in sales and marketing with both companies.  He was 
President and owner of Ellis, Harris, and Associates, Inc., a food brokerage 
company, from 1986 to 1988.

    Harley W. Everett has been Executive Vice President of the Company since May
1990.  He was President of Harley Williamson Software from 1988 until joining 
the Company in 1990.  Mr. Everett was Chief Executive Officer of Micro Resources
Corporation of America from 1986 through 1988, and was Product Development 
Manager for National Computer Systems, Inc. from 1983 through 1986.

    Frank M. Fraser served as a director of the Company from May 1992 through 
September 1993.  He was reelected as a director in July 1996.  He is presently 
Vice President of Market Development at Nordion. In June 1964, Mr. Fraser 
joined Atomic Energy of Canada Limited (now MDS Nordion) as a project
engineer.  He is a Director of the Canadian Irradiation Centre Laval, Quebec.
He is also the Canadian delegate to the International Consultative Group on 
Food Irradiation and has Chaired the International Meeting on Radiation 
Processing

<PAGE>

    Geoff Marott served as a director of the Company since February 1997. He
is the President and Chief Executive Officer of Marcre Sales Corporation, a 
sales and marketing company primarily focusing on proprietary items for 
national restaurant accounts. Mr. Marott formed Marcre Sales inn 1984 after
serving as President of Filet of Chicken since 1980. He is also currently
serving as Chairman of the Board of American Century Bank in Stockbridge,
Georgia.

    Paul O'Neill served as a director of the Company from August 1992 through 
September 1993.  He was reelected as a director in July 1996.  He is currently 
retired.  From January 1985 to March 1992, Mr. O'Neill was President, Chief 
Executive Officer and a director of Nordion and its predecessor company Atomic 
Energy of Canada Limited.  He was Executive Vice President and Chief Financial 
Officer of Atomic Energy of Canada Limited from September 1978 until January 
1985. 

Item 10. Executive Compensation
-------------------------------

    The following tables set forth certain information relating to the 
compensation earned by the Chief Executive Officer of the Company for the
years indicated.

                          Summary Compensation Table

                                                              Long-Term
                                                             Compensation
                                                             ------------
                                                                Awards
                                                                ------
                                                                     Securities
                                    Annual Compensation  Restricted  Underlying
                               Year       Salary($)        Stock     Options(#)
                               ----  ------------------- ---------- -----------
E. W. (Pete) Ellis
 President and
 Chief Executive Officer(1)...1997        $ 70,000
                              1996           2,692      10,000 shs  100,000 shs

___________
<FN1>
(1)  Mr. Ellis was appointed President and Chief Executive Officer on December
     9, 1996. His compensation is set at $70,000 per year and he is eligible 
     for a bonus for the year ending December 31, 1997, upon the attainment of

<PAGE>

     certain sales targets. On November 11, 1996, the Company agreed to issue 
     Mr. Ellis 10,000 shares of Common Stock in connection with his employment 
     and granted to him options to purchase 100,000 shares of Common Stock. 
     Such shares were issued subsequent to December 31, 1996. The options are 
     exercisable for the purchase of 20,000 shares per year in each of the 
     first five years of his employment at an exercise 
     price of $1.00 per share, the fair market value of the Company's Common 
     Stock on the date of grant. The option terminates December 9, 2006.

Stock Option Plan

    The Company has an Incentive and Non-Statutory Stock Option Plan covering 
150,000 shares of Common Stock (the "Plan"). There is currently outstanding 
five-year options to purchase an aggregate of (I) 75,500 shares of Common 
Stock of the Company, exercisable at $8.50 and $9.35 per share (granted in 1992)
 and (ii) 100,000 shares at $1.00 per share (granted in 1996). The options are 
exercisable 60% after one (1) year of continued employment after the date 
of grant and 10% in each of the following four years (a year is defined as the 
period between Annual Stockholders meetings). ISO's and NQO's granted to an 
optionee terminate 90 days after termination of employment or other
relationship, except that ISO's and NQO's terminate the earlier of the
expiration date of the option or one year after termination in the event of
disability, and 180 days in the event of death.

    A former officer also holds warrants to purchase 100,000 shares of Common 
Stock. Such warrants expire in 1998 and 1999 and are exercisable at $8.25 per 
share.

    The market price of the Company's Common Stock December 31, 1997 was $4.406 
per share.

<PAGE>

Item 11. Security Ownership of Certain Beneficial Owners and Management
-----------------------------------------------------------------------

    The following table sets forth as of December 31, 1997, the ownership of 
Common Stock of the Company of (i) all persons known by the Company to own 
beneficially 5% or more of such Common Stock, (ii) each current director and 
officer of the Company and (iii) all current directors and officers as a group,
 together with their percentage holdings at such date.  The addresses of all 
holders of 5% or more of the Common Stock are included in the table.

                                          Number and Percent
                                               Of Shares
                                          Beneficially Owned
                                         At December 31, 1997
                                         --------------------
                                                    
Name and Address                          Number     Percent
----------------------------              ------     -------

MDS Nordion                             6,549,079 <F1> 65.15
  447 March Road-Kanata Ontario
  Canada K2K 1X8
E.W. (Pete) Ellis                         30,000 <F2>   (*)
Harley W. Everett                          7,000 <F3>   (*)
Frank M. Fraser                                  <F1>
Paul O'Neill                                     <F1>
All Directors and Officers             6,646,079 <F4>  66.12
  as a group (5 persons)

* Less than 1%

<FN1>
(1) Includes 543,896 shares of Common Stock which are issuable upon
    conversion of $585,595 of indebtedness owed Nordion by the Company.
    See "Business - Agreements with MDS Nordion."  Messrs. Fraser and O'Neill
    are designees of Nordion to serve on the Companies Board of Directors.
    Messers. Fraser and O'Neill own less than 1% each of the Capital Stock of
    Nordion and they disclaim beneficial ownership of the Common Stock of the
    Company which Nordion owns or has the right to acquire. Approximately 99%
    of the outstanding shares of Nordion's common stock is owned by MDS, Inc.,
    a Quebec Corporation, whose shares are traded on the Toronto Stock 
    Exchange.
<FN2>
(3) On November 11, 1996, the Company agreed to issue Mr. Ellis 10,000 shares 
    of Common Stock. Such shares had not been issued as of December 31, 1996. 
    The Company also granted to Mr. Ellis on November 11, 1996 options to 
    purchase 100,000 shares of the Company's Common Stock. The options are 
    exercisable 20,000 shares per year for a period of five years at an 
    exercise price of $1.00 per share.

<FN3>
(4) Includes 5,000 shares underlying options which are currently exercisable or 
    exercisable within the next sixty (60) days.
<FN4>
(5) Includes shares underlying options which are currently exercisable or 
    exercisable within the next sixty (60) days and shares underlying 
    convertible debt.

<PAGE>

Item 12. Certain Relationships and Related Transactions
--------------------------------------------------------

    See "Business-Agreements with MDS Nordion."

Item 13. Exhibits and Report on Form 8-K
----------------------------------------

    (a)  Exhibits
         --------

    (1)  Articles of Incorporation. Reference is made to Exhibit 3.1 included 
         in the Company's Registration Statement on Form S-18 (File No. 33-
         36838-A).
    (2)  By-Laws. Reference is made to Exhibit 3.2 included in the Company's 
         Registration Statement on Form S-18 (File No. 33-36838-A).
    (3)  Agreements entered into by the Company with Nordion International,
         Inc.

              *(a) Reimbursement and Indemnity Agreement dated October 22, 1991
              *(b) Agreement dated December 11, 1991
              *(c) Debenture dated January 15, 1992
              *(d) Copy of Security & Mortgage Agreement dated January 15, 1992
              *(e) Financing Agreement dated February 21, 1992
              *(f) Security Agreement dated February 21, 1992
             **(g) Letter Agreement dated March 31, 1994 and April 13, 1994.

    * Reference is made to Exhibit (c)(3) included in the Company's Form 10-K 
      Report filed for the year ended December 31, 1991.

    **   Reference is made to Exhibit 3(g) included in the Company's Form 
         10-KSB Report filed for the year ended December 31, 1993.

    (b)    Reports on Form 8-K
           -------------------
         No reports on Form 8-K were filed during the fourth quarter of the 
         year ended December 31, 1997.

<PAGE>

                            SIGNATURES
                            ----------

    Pursuant to the requirements of Section 13 or 15(d) 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 as of the 
thirteenth day of March, 1998.

                                   FOOD TECHNOLOGY SERVICE, INC.


                                   By:    /S/ E.W. (Pete) Ellis
                                      -------------------------
                                 E.W. (Pete) Ellis, Chief Executive Officer

    Pursuant to the requirements of the Securities Exchange Act of 1934, this 
report has been signed below by the following persons on behalf of the Company 
and in the capacities and on the dates indicated:
 
                 Name                       Title                     Date

  /S/  E.W. (Pete) Ellis            Chief Executive Officer     March 13, 1998
---------------------------             and Director
E.W. (Pete) Ellis

  /S/  Harley W. Everett             Chief Financial and        March 13, 1998
---------------------------          Accounting Officer
Harley W. Everett

  /S/  Frank M. Fraser               Director                   March 13, 1998
---------------------------
Frank M. Fraser

  /S/  Paul O'Neill                  Director                   March 13, 1998
---------------------------
Paul O'Neill

  /S/  Geoff Marott                  Director                   March 13, 1998
---------------------------
Geoff Marott

<PAGE>

                              FOOD TECHNOLOGY SERVICE, INC.
                              (A DEVELOPMENT STAGE COMPANY)

                              INDEX TO FINANCIAL STATEMENTS



               Report of Independent Certified Public Accountants

               Financial Statements

               Balance Sheets - December 31, 1997 and 1996

               Statements of Operations - Years Ended December 31, 1997,
                 1996 and 1995 and from December 11, 1985 (Inception)
                 through December 31, 1997

               Statement of Stockholder's Equity - December 11, 1985 (Inception)
                 through December 31, 1997

               Statements of Cash Flows - Years ended December 31, 1997, 1996
                 and 1995 and from December 11, 1985 (Inception) through
                 December 31, 1997

               Notes to Financial Statements

<PAGE>

      REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

       To The Board of Directors
         and Stockholders
       Food Technology Service, Inc.

I have audited the accompanying balance sheets of Food Technology Service, Inc.
(a Development Stage Company) as of December 31, 1997 and 1996 and the related
statements of operations, Stockholders' equity and cash flows for each of the 
three years in the period ended December 31, 1997.  These financial statements 
are the responsibility of the Company's management.  My responsibility is to 
express an opinion on these financial statements based on my audits.

I conducted the audits in accordance with generally accepted auditing 
standards. Those standards require that I plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also 
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement 
presentation. I believe that my audits provide a reasonable basis for my
opinion.

In my opinion, the financial statements referred to above present fairly, in 
all material respects, the financial position of Food Technology Service, Inc. 
as of December 31, 1997 and 1996 and the results of its operations and its cash 
flows for each of the three years in the period ended December 31, 1997, in 
conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the 
Company will continue as a going concern.  As discussed in Note B to the 
financial statements, the Company is in the development stage and has not 
received significant revenue and has incurred losses since inception. 
Accordingly, there is substantial doubt about the Company's ability to continue 
as a going concern.  Management's plans in regard to these matters are also 
described in Note B.  The financial statements do not include adjustments that 
might result from the outcome of this uncertainty.

<PAGE>


Food Technology Service, Inc.
Page 2


I previously audited the balance sheets at years ended December 31, 1985 
through 1994 and the related statements of operations, Stockholders' equity, and
cash flows for the years then ended (none of which are presented herein) and I
expressed a qualified opinion because of the substantial doubt about the 
Company's ability to continue as a going concern.  The cumulative data from 
December 11, 1985 (inception) through December 31, 1997 appearing on the 
statements of operations, Stockholders' equity and cash flows has been compiled 
from such financial statements and the statements presented herein.  In my 
opinion, the cumulative data is fairly stated in all material respects in 
relation to the financial statements from which it was derived.



                                        JOHN J. FAIRCLOTH, C.P.A.



Tampa, Florida
March 10, 1998

<PAGE>

<TABLE>

                   FOOD TECHNOLOGY SERVICE, INC.
                   (A DEVELOPMENT STAGE COMPANY)

                        BALANCE SHEETS

<CAPTION>

                                      December 31,
                                    1996         1997
                                 ----------   ----------

                         ASSETS
<S>                               <C>         <C>
Current Assets:
  Cash                              $26,104     $12,231
  Accounts Receivable                40,331      34,745
                                     ------      ------
    Total Current Assets             66,435      46,976

Property and Equipment:

  Building                        2,883,675   2,883,675
  Cobalt                          1,310,272   1,310,272
  Furniture and Equipment         1,650,242   1,654,880
  Less Accumulated Depreciation  (1,657,420) (1,942,276)
                                 ----------- -----------
                                  4,186,769   3,906,551

  Land                              171,654     171,654
                                  ---------   ---------
    Total Property and Equipment  4,358,423   4,078,205


Other Assets                         49,528       5,000
                                  ---------   ---------
    Total Assets                 $4,474,386  $4,130,181
                                 ==========  ==========

<FN>               SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE>

<TABLE>

                        FOOD TECHNOLOGY SERVICE, INC.
                        (A DEVELOPMENT STAGE COMPANY)

                            BALANCE SHEETS

<CAPTION>

                                     December 31,
                                   1996        1997
                                ---------  ----------

                LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                               <C>         <C>
Current Liabilities:
  Accounts Payable                  101,248     115,611
                                  ---------   ---------
      Total Current Liabilities     101,248     115,611

Financing Agreement and
  Debenture Payable               3,362,229     585,595

Stockholders' Equity:
  Common Stock $.01 Par Value
  Authorized 20,000,000 Shares,
  Outstanding 5,750,284 Shares 
  in 1996 and 10,052,216 in 1997     57,503     100,522

  Paid-In Capital                 7,541,312  10,923,339
  Deficit Accumulated During
    Development Stage            (6,587,906) (7,594,886)
                                  ---------   ---------
                                  1,010,909   3,428,975
Commitments and Contingencies
  (Notes B and I)

    Total Liabilities and
      Stockholders' Equity       $4,474,386  $4,130,181


<FN>                 SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>

<PAGE>

<TABLE>
                         FOOD TECHNOLOGY SERVICE, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                            STATEMENTS OF OPERATIONS
<CAPTION>

                                                              December 11, 1985
                                                                  (INCEPTION)
                         Year Ended December 31,                     Through
                                                                   December 31,
                            1995           1996           1997         1997
                      ------------   ------------   ------------   ------------
<S>                    <C>            <C>            <C>             <C>
Net Sales                 $272,315       $196,647       $191,291     $1,210,359
                      ------------   ------------   ------------   ------------

Processing Costs           318,357        276,788        241,597      1,776,519

General,
 Administrative
 and Development           507,867        321,786        435,871      4,049,000

Depreciation               328,939        307,927        284,856      1,947,850

Interest Expense          $380,300       $342,934       $291,336     $1,561,684
                      ------------   ------------   ------------   ------------
                        $1,535,463     $1,249,435     $1,253,660     $9,335,053
                      ------------   ------------   ------------   ------------
 Loss from
  Operations            (1,263,148)    (1,052,788)    (1,062,369)    (8,124,694)

Other Income
   (Loss):
 Interest Income               280              5              3        188,897
 Miscellaneous                                                           14,400
 Foreign Exchange          (63,222)         5,497         99,913        431,000
 Equity in
  Net Loss
  of Affiliate              (1,777)       (23,114)       (44,527)      (104,489)
                      ------------   ------------   ------------   ------------

Loss before
  Income Taxes          (1,327,867)    (1,070,400)    (1,006,980)    (7,594,886)

Income Taxes                     0              0              0              0
                      ------------   ------------   ------------   ------------

  Net Loss             ($1,327,867)   ($1,070,400)   ($1,006,980)   ($7,594,886)
                      ------------   ------------   ------------   ------------
Net Loss Per
  Common Share              ($0.38)        ($0.22)        ($0.16)        ($1.23)
                      -------------  -------------  ------------   ------------

<FN>                           SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>

<PAGE>



<TABLE>

                         FOOD TECHNOLOGY SERVICE, INC.
                        (A DEVELOPMENT STAGE COMPANY)

                       STATEMENT OF STOCKHOLDERS' EQUITY

<CAPTION>
                                             Common     Paid-In
                                             Stock      Capital     Deficit
                                           ----------  ----------  ----------
December 11, 1985 (Inception)
  to December 31, 1993):
<S>                                            <C>      <C>        <C>
  Sale of 2,035,000 Shares of Stock
    in January 1986 for $37,435 in
    Cash, $36,000 in Notes and for
    Services                                  $20,350     $58,120

  Sale of 77,000 Shares of Stock in
    January and February 1986 for
    $192,500 in Cash                              770     191,730

  Purchase of 8,000 Shares of Stock
    for $20,000                                   (80)    (19,920)

  Sale of 69,000 Shares of Stock
    for $690 to Investors who
    Previously Purchased Stock
    for $2.50 per Share                           690

  Surrender of 338,500 Shares by
    Founding Shareholders for No
    Compensation                               (3,385)      3,385

  Sale of 451,500 Shares of Stock
    for $1,354,500 in Cash and
    Notes in 1989                               4,515   1,349,985

  Sale of 483,321 Shares of Stock for
    $2,166,508 in Cash in 1990                  4,833   2,161,675
  Offering Cost to Sell Stock                            (422,460)

  Sale of 228,474 Shares of Stock for 
    $1,440,825 in Cash and Services 
    in 1992 and 1993                            2,285   1,438,540
  Offering Cost to Sell Stock                             (50,250)

  Net Loss, December 11, 1985
    (Inception) to December 31, 1993                               (2,948,576)
                                          ------------------------------------
Balance, December 31, 1993                    $29,978  $4,710,805 ($2,948,576)

<FN>                  SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>


<PAGE>



<TABLE>

                       FOOD TECHNOLOGY SERVICE, INC.
                      (A DEVELOPMENT STAGE COMPANY)

                    STATEMENT OF STOCKHOLDERS' EQUITY
                               (CONTINUED)

<CAPTION>
                                             Common     Paid-In
                                             Stock      Capital     Deficit
<S>                                            <C>      <C>        <C>
  Sale of 37,808 Shares of Stock
    for $214,850 in Cash and Services             378     214,472

   Issuance of 17,416 Shares of Stock
     for Stock in Nations Pride                   174     104,320

  Net Loss for Year                                                (1,241,063)
                                          ------------------------------------
Balance, December 31, 1994                     30,530   5,029,597  (4,189,639)

  Sale of 733,659 Shares of Stock
    for $591,401 in Cash and Services           7,337     584,064

  Offering Cost to Sell Stock                             (25,500)

  Exchange of 612,945 shares for $892,257
    of Debt and Accrued Interest                6,129     886,128

  Net Loss for Year                                                (1,327,867)
                                          ------------------------------------
Balance, December 31, 1995                     43,996   6,474,289  (5,517,506)

  Sale of 517,531 Shares of Stock
    for $414,025 in Cash                        5,175     408,850

  Exchange of 833,130 shares for $666,505
    of Debt and Accrued Interest                8,332     658,173

  Net Loss for Year                                                (1,070,400)
                                          ------------------------------------
Balance, December 31, 1996                    $57,503  $7,541,312 ($6,587,906)

  Sale of 399,102 Shares of Stock
    for $302,781 in Cash and Services           3,991     298,790

  Exchange of 3,902,830 shares for $3,122,265
    of Debt and Accrued Interest               39,028   3,083,237

  Net Loss for Year                                                (1,006,980)
                                          -------------------------------------
Balance, December 31, 1997                   $100,522 $10,923,339 ($7,594,886)
                                          =====================================

<FN>                          SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>

<PAGE>



<TABLE>

                    FOOD TECHNOLOGY SERVICE, INC.
                    (A DEVELOPMENT STAGE COMPANY)

                       STATEMENTS OF CASH FLOWS

<CAPTION>
                                                      December 11,
                                                         1985
                                                       (Inception)
                              Year Ended               Through
                              December 31,             December 31,
                       1995        1996        1997      1997
                   ----------   ---------   ---------   ----------
<S>                   <C>          <C>         <C>     <C>
Cash Flows from
  Operations:
  Cash Received from
  Customers            $289,021    $201,548    $193,698  $1,178,686
  Interest Received         280           5           3     188,897
  Interest Paid          (7,825)     (6,429)       (793)    (15,047)
  Cash Paid for 
  Operating Expenses   (912,582)   (591,336)   (624,924) (5,411,316)
                    ------------   ---------   ---------  ----------
                       (631,106)   (396,212)   (432,016) (4,058,780)
Cash Flows from
  Investing:
  Land Acquisition                                         (171,654)
  Construction in
    Progress                                             (2,663,116)
  Deposits                3,920                              (5,000)
  Collection of
    Notes Receivable                                        489,300
  Purchase of Equipment  (1,199)                 (4,638) (3,204,663)
  Sale of Equipment      10,500                              10,500
                     -----------   ----------   --------  ----------
                         13,221                  (4,638) (5,544,633)
Cash Flows from
Financing Activities:
  Proceeds from Sale
    of Common Stock     562,021     414,025      267,781  5,958,135
  Offering Costs        (11,250)                           (483,959)
  Proceeds from
    Borrowing           121,500                  155,000  4,213,918
  Payment of Loans      (52,450)                            (52,450)
  Purchase of Common
    Stock                                                   (20,000)
                    ------------   ---------   ---------  ----------
                        619,821     414,025      422,781  9,615,644

Net Increase
 (Decrease) in Cash       1,936      17,813      (13,873)    12,231

Cash at Beginning
  of Year                 6,355       8,291       26,104
                    ------------   --------   ----------  ----------

Cash at End of Year      $8,291     $26,104      $12,231     $12,231
                    ============   ========   ==========  ==========
<FN>                SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>



<PAGE>
<TABLE>
                    FOOD TECHNOLOGY SERVICE, INC.
                    (A DEVELOPMENT STAGE COMPANY)

                    STATEMENTS OF CASH FLOWS
                         (CONTINUED)

<CAPTION>
                                                       December 11, 1985
                                                       (Inception)
                                Year Ended               Through
                                December 31,            December 31,
                       1995       1996         1997        1997
                    ---------   ---------   ----------   ----------
<S>                 <C>         <C>         <C>         <C>
Reconciliation of
  Net Loss to Net
  Cash Used by
  Operations:
  Net Loss          ($1,327,867)($1,070,400)($1,006,980)($7,594,886)

Adjustments to
  Reconcile Net Loss
  to Cash Used:
  Depreciation          328,939     307,927     284,856   1,947,850
  Loss on Sale
    of Equipment          2,877                               2,877
  Imputed Interest
    on Financing
    Agreement                                               432,199
  Foreign Exchange
    (Gain) Loss          63,222      (5,497)    (99,913)   (431,000)
  (Increase)
    Decrease in
    Receivables          16,706      13,051       5,586     (34,744)
  Increase
    (Decrease) in
    Payables and
    Accruals           (208,800)       (912)     62,643     163,890
  Value Ascribed to
    Stock Issued for
    Services and
    Interest            492,040     336,505     277,265   1,350,545
  Equity in Net Loss 
    of Affiliate          1,777      23,114      44,527     104,489
                        -------     -------     -------   ---------
Net Cash Used by
Operating Activities  ($631,106)  ($396,212)  ($432,016)($4,058,780)
                      ==========   =========   ========  ===========
</TABLE>

Supplemental schedule of noncash investing and financing activities.

In 1991 and 1992 the Company purchased $2,800,383 of equipment and
cobalt under the terms of a financing agreement for $2,400,383 and
$400,000 in cash (Notes C and D).

During 1995, 1996 and 1997 the Company issued common stock for debt in the
amounts of $65,000, $330,000 and $2,880,000 respectively (Note F).
[FN]               SEE NOTES TO FINANCIAL STATEMENTS



<PAGE>


                       FOOD TECHNOLOGY SERVICE, INC.
                       (A DEVELOPMENT STAGE COMPANY)

                       NOTES TO FINANCIAL STATEMENTS
                            DECEMBER 31, 1997


Note A - Summary of Significant Accounting Policies:

A summary of the Company's significant accounting policies consistently applied
in the preparation of the accompanying financial statements follows:


1.  Nature of Business

The Company was organized in December 1985 to engage in the business of 
operating a gamma irradiation facility using Cobalt 60 to extend the shelf life
of and/or disinfect fruits, vegetables and meat products and for the 
sterilization of medical, surgical, pharmaceutical and packaging materials.

Since its inception, the Company has been devoting its efforts to research and 
development, planning for and construction of facilities, planning for 
operations, raising capital and informing agricultural interests and other 
potential users of the Company's intentions and progress. During 1992, the plant
was completed and commenced operations.  However, revenues to date have not 
been significant.  Accordingly, the Company is considered to be a development 
stage Company.  All operating costs have been expensed as incurred during the 
development stage.


2.  Use of Estimates

Management uses estimates and assumptions in preparing financial statements in 
accordance with generally accepted accounting principles.  Those estimates and 
assumptions affect the reported amounts of assets and liabilities, the 
disclosure of contingent assets and liabilities, and the reported revenues and 
expenses.  Actual results could vary from the estimates that were assumed in 
preparing the financial statements.


3.  Fair Value of Financial Instruments

The fair value of financial instruments have been valued at the prevailing 
prime interest rate plus 1%. The fair value approximates the carrying amount 
of long term debt.


4.  Revenue Recognition

Sales are recorded by the Company when the customer's product has been 
processed.

<PAGE>




                       FOOD TECHNOLOGY SERVICE, INC.
                       (A DEVELOPMENT STAGE COMPANY)

                       NOTES TO FINANCIAL STATEMENTS
                            DECEMBER 31, 1997


5.  Research and Development Costs

Research and development costs are charged to expense as incurred. Such costs 
have not been significant to date.


6.  Depreciation

Assets other than Cobalt have been depreciated using the straight-line method 
over the following lives for both financial statement and tax purposes:

     Building                                            31.5 Years

     Furniture and Equipment                             5-15 Years

Cobalt has been depreciated using engineering estimates from published tables 
under which one-half of the remaining value is written off over 5.26 year 
periods.

The Company adopted Statement of Financial Accounting Standards No. 121 
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets 
to be Disposed of", as of January 1, 1996. This Statement had no impact on the 
Company's 1996 or 1997 results of operations or financial position.


7.  Foreign Exchange

Debt payable in Canadian currency has been translated at the Exchange Rates in 
effect at the Balance Sheet dates and any gain or loss has been included in 
results of operations.


8.  Offering Costs

Costs incurred with the offering of securities have been charged to equity.


9.  Net Loss Per Share

Basic net loss per share is computed using the weighted average number of 
common shares outstanding. Diluted earnings per share are not presented because
the result of using common stock equivalents in the computation is antidilutive.

<PAGE>



                       FOOD TECHNOLOGY SERVICE, INC.
                       (A DEVELOPMENT STAGE COMPANY)

                       NOTES TO FINANCIAL STATEMENTS
                            DECEMBER 31, 1997


Note B - The Company as a Going Concern:

The accompanying financial statements have been prepared in conformity with 
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern.  However, the Company is in the development stage 
and has not received significant revenues and has incurred significant expenses
to further this development.

Anticipated revenues from operations for 1998 are not expected to cover 
operating costs. Accordingly, additional funds must be raised to continue 
operations.

Management is of the opinion that the Company will continue operations through 
December 31, 1998 based on the following plans:

The Company's supplier (Notes C and D) and major creditor, MDS Nordion, has 
indicated that it will continue to fund operations and convert debt and 
interest to equity pending necessary approvals from Governmental agencies.
However, there is no assurance that it will do so.

In February, 1997 the Company entered into a marketing agreement with a major 
poultry distributor in an attempt to increase poultry sales. The impact of this
contract cannot be determined at this time.


Note C - Equipment and Cobalt Purchase:

As of December 31, 1991, the Company had purchased necessary equipment and 
Cobalt 60 from MDS NORDION to commence plant operations for $400,000 in cash 
and a non-interest bearing note for $1,932,604.  On January 15, 1992, an 
additional supply of Cobalt 60 was shipped for a non-interest bearing note
for $899,978. For accounting purposes, these notes and the related equipment
and Cobalt amounts were discounted by $432,199.  Such discounts were
amortized as interest expense over the original life of the notes as follows:

                              1992            $165,957
                              1993             160,256
                              1994             105,986
                                              --------
                                              $432,199
                                              ========

On April 13, 1994 as partial consideration for extending the due date of the 
notes, the Company agreed to begin accruing interest at 1% over prime on
September 4, 1994.

<PAGE>



                       FOOD TECHNOLOGY SERVICE, INC.
                       (A DEVELOPMENT STAGE COMPANY)

                       NOTES TO FINANCIAL STATEMENTS
                            DECEMBER 31, 1997


Note D - Financing Agreement and Debenture Payable:

Financing agreement to supplier for $546,791 (Canadian)
$382,316 (U.S.) due January 4, 1999 plus interest at
1% over prime.                                               $382,317

Cash advances from supplier made during 1997 over prime        155,000

Accrued interest                                               48,278
                                                           ----------

                                                             $585,595
                                                           ==========

All interest accrued through September 30, 1997 has been converted into common
stock of the Company (Note F).

The financing agreement is payable in Canadian currency.  Accordingly, future 
fluctuations in exchange rates will effect the balance due in U.S. dollars 
resulting in foreign exchange gains or losses.

On November 23, 1994 the supplier agreed to extend the due date of the debt to 
January 4, 1996. As part of the consideration for extending the due date, the 
holder could, at any time, convert all or any portion of the debt at a lower 
of $4.05 per share, or the then current market price. In early 1996, the 
supplier further agreed to extend the due date of the debt to January 4, 1997 
and the conversion price was changed to the lower of $.80 or the then current 
market price. On December 12, 1997 the supplier agreed to further extend the 
due date of the debt to January 4, 1999.

Cash advances made during 1997 are convertible into common stock of the Company
at 70% of the market value at the date of conversion.

All sums advanced by the supplier, including accrued interest are
collateralized by all assets of the Company.

Note E - Income Taxes:

The Company has unused operating loss carryforwards available at December 31, 
1997 of $7,526,483 for tax purposes and $7,588,306 for financial reporting 
purposes.  The loss carryforwards expire as follows:

<PAGE>



                       FOOD TECHNOLOGY SERVICE, INC.
                       (A DEVELOPMENT STAGE COMPANY)

                       NOTES TO FINANCIAL STATEMENTS
                            DECEMBER 31, 1997


Note E - Income Taxes (continued):

                                                      Amount
                              Year              Tax             Book
                              ----           ---------       --------
                              2001             $28,141        $28,141
                              2002              45,859         45,859
                              2003              73,687         73,687
                              2004              23,345         23,345
                              2005              77,909         77,909
                              2006             400,332        400,332
                              2007           1,352,015      1,352,015
                              2008           1,297,455        943,455
                              2009           1,239,590      1,239,696
                              2010           1,262,386      1,327,867
                              2011           1,052,783      1,070,000
                              2012             672,931      1,006,000
                                             ---------     ----------
                                            $7,526,433     $7,588,306
                                            ==========     ==========


Deferred income taxes reflect the estimated tax effect of temporary 
differences between assets and liabilities for financial reporting purposes 
and those amounts as measured by tax laws and net operating losses. The 
components of deferred income tax assets and liabilities at December 31, 1996 
and 1997 were as follows:

                                                  1996          1997

     Net operating loss carry forwards        $2,435,453    $2,843,730

     Foreign exchange                           (123,482)      (10,068)

     Equity in loss of affiliate                  22,186
                                              -----------    ----------

               Net deferred tax assets         2,334,157     2,833,662

               Less - Reserve                 (2,334,157)   (2,833,662)
                                              -----------    ----------
                                              $    -0-      $    -0-   
                                              ===========    ==========

The net deferred tax assets have been fully reserved because there is less 
than a 50% change that they will be utilized.

<PAGE>



                        FOOD TECHNOLOGY SERVICE, INC.
                        (A DEVELOPMENT STAGE COMPANY)

                        NOTES TO FINANCIAL STATEMENTS
                             DECEMBER 31, 1997


Note F - Stock Offerings:

During 1995, the Company received $562,021 from the sale of 718,034 shares of
its unregistered common stock for $.45-$2.85 per share.  In addition, 628,570 
unregistered shares were issued for interest, debt, commissions and services
as follows:

                              Number      Price Per                Charged
                            of Shares       Share     Amount         To

Loans from Officers and
 Directors                   100,520      $2.85      $286,482   Loans Payable
                              79,835      $0.80        63,868   Loans Payable

Supplier for Interest on
 Financing Agreement         351,340   $.80-$1.69     476,909 Accrued Interest

Supplier for Principal on
 Financing Agreement          81,250      $0.80        65,000     Financing 
                                                                  Agreement
                                                                   Payable

President for Services        10,625   $.95-$2.75      15,130     Operations

Stock Sale Commissions         5,000       $2.85       14,250       Equity
                             -------                  -------
           Total             628,570                  921,639
                             =======                  =======

During 1996, the Company received 1,350,661 of its unregistered common shares
at $.80 per share to its Cobalt supplier for $414,025 cash, $336,505 accrued 
interest and $330,000 debt.

During 1997 the Company issued 4,221,932 of its unregistered common shares at
$.80 per share to its Cobalt supplier for $255,281 cash, $242,265 accrued
interest and $2,880,000 debt. In addition 70,000 shares were issued for 
services and $35,000 was charged to operations. Also the shareholders approved
an increase in the number of authorized shares from 10 to 20 million to 
facilitate these transactions.

All shares issued for services have been ascribed the market value on the
dates they were earned.

<PAGE>



                          FOOD TECHNOLOGY SERVICE, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS
                               DECEMBER 31, 1997



Note G - Stock Purchase Warrants and Stock Options:

The Company's policy is to issue warrants and options at or above the market 
value on the issue date. Accordingly, no compensation has been recorded for 
warrants or options granted.

On November 9, 1993 the Company granted its former President warrants to 
purchase 100,000 shares of stock at $8.25 per share. Such warrants vested 40,000
on November 9, 1993 and 10,000 shares per month through May 1994. The warrants
expire five years after vesting.

On November 11, 1996 the Company agreed to issue its President 10,000 shares.
The Company also granted to him options to purchase up to 20,000 shares of 
stock per year at $1.00 per share during the five year period ending December 8
 2001.

On May 18, 1992, the Stockholders approved the 1992 Incentive and Non-Statutory
Stock Option Plan (the "1992 Plan").

The 1992 Plan is administered by the Board of Directors who are authorized to 
grant incentive stock options ("ISO's") or non-qualified options ("NQO's"), to 
Officers and employees of the Company and for certain other individuals 
providing services to or serving as Directors of the Company.

The maximum number of shares of the Company's Common Stock that may be issued 
under the 1992 Plan is 150,000 shares.

<PAGE>



                      FOOD TECHNOLOGY SERVICE, INC.
                      (A DEVELOPMENT STAGE COMPANY)

                      NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997


Note G - Stock Purchase Warrants and Stock Options (continued)

The aggregate fair market value (determined at the time an ISO is granted) of 
the Common Stock with respect to which ISO's are exercisable for the first time
by any person during any calendar year under the 1992 Plan shall not exceed 
$100,000.  Any option granted in excess of the foregoing limitation shall be 
specifically designated as being a NQO.

On August 25, 1992, the Board of Directors authorized and issued options to buy
122,000 shares at $8.75 per share. Such price was the market value on August 
25, 1992.  Accordingly, no compensation was charged to operations.

The options are exercisable 60% of the authorized amount after one year of 
continued employment after the date of grant and 10% in each of the following 
four years (for Directors, a year is defined as the period between annual 
Stockholders meetings). ISO's and NQO's granted to an optionee terminate 90 
days after termination of employment or other relationship, except that ISO's 
and NQO's terminate the earlier of the expiration date of the option or one 
year after termination in the event of disability and 180 days in the event 
of death.

Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" was implemented in January, 1996. As permitted by the Standard, 
the Company retained its prior method of accounting for stock compensation. If 
the accounting provisions of Statement No. 123 had been adopted, the net impact
on the 1997, 1996 and 1995 income would not have been material.

Changes that occurred in options and warrants outstanding in 1997, 1996, and 
19954 are summarized below:


                     1997               1996              1995
                               Avg                Avg                Avg
                             Exercise           Exercise           Exercise
                    Shares    Price    Shares    Price    Shares    Price

Outstanding at
beginning of year   285,500   $5.86    193,000   $8.49    235,000   $7.97

Granted                                100,000   $1.00

Exercised

Expired/canceled    (12,500)  $8.75     (7,500)  $8.75    (42,000)  $5.56
                    --------           --------           --------

Outstanding at
end of year          273,000  $5.73    285,500   $5.86    193,000   $8.49

Exercisable at
end of year          193,00   $7.69    176,950   $8.47    174,400   $8.46
                     =======           =======            =======


<PAGE>



                        FOOD TECHNOLOGY SERVICE, INC.
                        (A DEVELOPMENT STAGE COMPANY)

                        NOTES TO FINANCIAL STATEMENTS
                             DECEMBER 31, 1997


Note H - Related Party Transactions:

The Company's supplier of Cobalt and holder of long-term debt. MDS Nordion 
can significantly influence the Company's operating policies and is,
therefore, considered a related party. See Notes C and D for purchases of
Cobalt and related debt and financing. Also see Note F for stock offerings 
for debt, interest and cash.

On September 25, 1992 Nordion stored approximately 2,600,000 curies of cobalt 
at the Company's plant. Subsequently 200,000 curies were returned, leaving 
approximately 2,400,000 curies at the Company's plant. Such cobalt was stored
in anticipation that it would be needed in the Company's operations; however, 
such cobalt has not been needed because of low processing volume due to the 
lack of necessary FDA approvals and marketing demand. Due to the physical 
layout of the Company's plant, all product processed was exposed to Nordion's
cobalt. If Nordion's cobalt had been owned by the Company or had been required
for increased processing volume or speed, the decay of such cobalt would have
been charged to operations, resulting in an increased expense of approximately
$300,000, $260,000 and $230,000 for the years ended December 31, 1995, 1996 and
1997, respectively (approximately $1,630,000 from inception through December 31
1997). The net losses for such periods would have been $1,627,867, $1,330,400 
and $1,236,981, respectively ($9,224,887 from inception through December 31,
1997). At such time that the Company's operations increase to such an extent 
that the Nordion cobalt is required for increased processing volume or speed, 
the Company will begin charging its decay to operations.

Note I - Commitments and Contingencies

The Company has entered into a marketing agreement with a poultry distributor 
to provide the function of procurement, distribution, marketing, sale and 
promotion of irradiated poultry for the period February 1, 1997 to July 31, 
1998. During 1997, under the terms of the agreement the Company sold the 
distributor 10,000 shares of common stock for $12,500 cash and issued an
additional 50,000 shares for services. The Company also agreed to issue an 
additional 100,000 shares for services and 100,000 shares for $1 per share
if certain sales goals are met during the agreement period. Such goals have
not been met to date. If the agreement is renewed the Company has agreed to
issue the distributor an option to purchase 1,000,000 shares of common stock
at a price not to exceed 60% of the July 31, 1998 market price.

<PAGE>