Except for the historical information contained herein, the matters addressed in this Item 2 contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements can be identified by the use of forward-looking words such as "may", "will", "expect", "anticipate", "intend", "estimate", "continue", "behave" and similar words. Financial information contained herein, to the extent it is predictive of financial condition and results of operations that would have occurred on the basis of certain stated assumptions, may also be characterized as forward-looking statements. Although forward-looking statements are based on assumptions made, and information believed by management to be reasonable, no assurance can be given that such statements will prove to be correct. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties occur, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated.

These forward-looking statements are not guarantees of future performance. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. This discussion should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's Annual Report on Form 10-K for the year ended January 31, 2008 and the condensed consolidated financial statements included elsewhere in this report.

GENERAL

The Company is a diversified business to business services organization that supplies technical services and solutions to a variety of industries including aerospace, defense, automotive, power products, electronics, computers and telecommunications. Through its wide range of testing facilities, solutions and certification services, the Company provides to its customers the ability to sell their products globally and enhance their overall competitiveness. NTS is accredited by numerous national and international technical organizations which allows the Company to have its test data accepted in most countries.

The Company operates facilities throughout the United States and in Japan, Canada and Germany, serving a large variety of high technology industries. The Company provides highly trained technical personnel for engineering services, product certification, product safety testing and product evaluation to enable customers to sell their products in world markets. In addition, it performs management registration and certification services to ISO related standards.

The following discussion should be read in conjunction with the consolidated quarterly financial statements and notes thereto. All information is based upon operating results of the Company for the nine month period ended October 31, 2008.

RESULTS OF OPERATIONS


REVENUES

Nine months ended October 31,     2008      % Change      2007
                                -------- - ---------- - --------
(Dollars in thousands)

Total revenues                  $ 90,354       18.5%    $ 76,277
                                - ------                - ------

For the nine months ended October 31, 2008, consolidated revenues increased by $14,077,000 or 18.5% when compared to the same period in fiscal 2008, primarily due to an increase in revenues from the aerospace and power markets, additional revenues of approximately $6,771,000 from new acquisitions, and an increase in engineering services revenues from a major customer. These increases were partially offset by a decrease in revenues in the defense and automotive markets.

GROSS PROFIT


Nine months ended October 31,     2008      % Change      2007
                                -------- - ---------- - --------
(Dollars in thousands)

Total                           $ 24,191       22.1%    $ 19,806
                                - ------                - ------
% to total revenue                  26.8 %                  26.0 %

Total gross profit for the nine months ended October 31, 2008 increased by $4,385,000 or 22.1% when compared to the same period in fiscal 2008. This was primarily due to additional gross profit from new acquisitions and an increase in revenues from higher margin contracts.

SELLING, GENERAL & ADMINISTRATIVE


Nine months ended October 31,     2008      % Change      2007
                                -------- - ---------- - --------
(Dollars in thousands)

Total                           $ 17,907       16.1%    $ 15,427
                                - ------                - ------
% to total revenue                  19.8 %                  20.2 %

For the nine months ended October 31, 2008, selling, general and administrative expenses increased by $2,480,000 or 16.1% when compared to the same period in fiscal 2008, primarily due to higher compensation costs and sales and marketing costs associated with the increased revenues discussed above, additional sales and marketing costs related to the development of the engineering services group and higher amortization expense related to the United States Test Laboratory (USTL) and Elliott Laboratories acquisitions.

EQUITY INCOME FROM NON-CONSOLIDATED SUBSIDIARY

For the nine months ended October 31, 2008, equity income from XXCAL Japan was $7,000, compared to equity income of $63,000 for the same period in fiscal 2008. This decrease was primarily due to generally weaker economic conditions in Japan. XXCAL Japan is 50% owned by NTS and is accounted for under the equity method since NTS does not have management or board control.

OPERATING INCOME


Nine months ended October 31,    2008      % Change     2007
                                ------- - ---------- - -------
(Dollars in thousands)

Total                           $ 6,291       41.6%    $ 4,442
                                - -----                - -----

For the nine months ended October 31, 2008, operating income increased by $1,849,000 or 41.6% when compared to the same period in fiscal 2008, primarily as a result of the increase in gross profit, partially offset by the increase in selling, general and administrative expenses and the decrease in equity income from a non-consolidated subsidiary.

INTEREST EXPENSE

Net interest expense increased by $291,000 to $1,671,000 in the nine months ended October 31, 2008 when compared to the same period in the prior year, primarily due to additional borrowings for the USTL and Elliott Laboratories acquisitions, partially offset by lower interest rates in the current year.

OTHER INCOME

Other income was $52,000 for the nine months ended October 31, 2008, compared to $121,000 for the same

period in the prior year. Other income in the current year includes gains from securities sold, partially offset by certain acquisition related expenses.

INCOME TAXES

The income tax provision rate for the nine months ended October 31, 2008 was 41.5% compared to the 42.0% income tax rate in the prior year. Management has determined that it is more likely than not that the deferred tax assets will be realized on the basis of offsetting them against the reversal of deferred tax liabilities. It is the Company's intention to assess the need for a valuation account by evaluating the realizability of the deferred tax asset quarterly based upon projected future taxable income of the Company.

DISCONTINUED OPERATIONS

On November 3, 2008, the Company sold to Strategic Staffing Solutions, L.C., a Florida limited liability company, contracts and certain other assets from its Technical Solutions segment associated with information technology services and information technology consulting. The sale price for the assets sold was $5,000,000, subject to working capital adjustment.

The Company classified the assets and liabilities of the discontinued operations as "held for sale" as of October 31, 2008, since all the criteria for a qualifying plan of sale were met as of that date. All revenues and expenses from discontinued operations for the third quarter and nine months ended October 31, 2008 are presented as "Income (loss) from discontinued operations" in the accompanying Statements of Income. Prior year numbers were reclassified to conform to the current year presentation. The gain on disposal of discontinued operations will be recorded in the fourth quarter.

The results of the discontinued operations for the nine months ended October 31, 2008 and 2007 were as follows:

                                               Nine Months Ended October
                                                  2008             2007
                                             --------------    ------------
Net revenues                                 $   15,693,000    $ 15,555,000
                                             -- ----------- -- - ----------
Income from discontinued operations
before income taxes                          $      596,000    $    324,000
                                             -- ----------- -- - ----------
Income taxes                                        244,000         133,000
                                             -- ----------- -- - ----------
Net income from discontinued operations      $      352,000    $    191,000
                                             -- ----------- -- - ----------

NET INCOME

Net income for the nine months ended October 31, 2008 was $3,033,000 compared to $1,992,000 for the same period in fiscal 2008, an increase of $1,041,000 or 52.3%. This increase was primarily due to the higher operating income, partially offset by higher interest expense and higher income taxes.

The following discussion should be read in conjunction with the consolidated quarterly financial statements and notes thereto. All information is based upon operating results of the Company for the three-month period ended October 31, 2008.

REVENUES


Three months ended October 31,     2008      % Change      2007
                                 -------- - ---------- - --------

(Dollars in thousands)

Total revenues                   $ 32,634       25.4%    $ 26,027
                                 - ------                - ------

For the three months ended October 31, 2008, consolidated revenues increased by $6,607,000 or 25.4% when compared to the same period in fiscal 2008, primarily due to an increase in revenues from the power and aerospace markets, engineering services and additional revenues of approximately $3,109,000 from new acquisitions, partially offset

by a decrease in revenues in the automotive market.

GROSS PROFIT

Three months ended October 31,    2008      % Change     2007
                                 ------- - ---------- - -------
(Dollars in thousands)

Total                            $ 8,767       30.4%    $ 6,724
                                 - -----                - -----

Total gross profit for the three months ended October 31, 2008 increased by $2,043,000 or 30.4% when compared to the same period in fiscal 2008. This was primarily due to additional gross profit from the USTL and Elliott Laboratories acquisitions and the increase in revenues discussed above.

SELLING, GENERAL & ADMINISTRATIVE

Three months ended October 31,    2008      % Change     2007
                                 ------- - ---------- - -------
(Dollars in thousands)

Total                            $ 6,272       23.5%    $ 5,080
                                 - -----                - -----

Total selling, general and administrative expenses increased $1,192,000 or 23.5% for the three months ended October 31, 2008 when compared to the same period in fiscal 2008. This was primarily due to higher compensation costs and sales and marketing costs associated with the increased revenues discussed above, additional sales and marketing costs related to the development of the engineering services group and higher amortization expense related to the USTL and Elliott Laboratories acquisitions.

EQUITY INCOME FROM NON-CONSOLIDATED SUBSIDIARY

For the three months ended October 31, 2008, equity income from XXCAL Japan was $11,000, compared to an equity loss of $8,000 for the same period in fiscal 2008. XXCAL Japan is 50% owned by NTS and is accounted for under the equity method since NTS does not have management or board control.

OPERATING INCOME

Three months ended October 31,    2008      % Change     2007
                                 ------- - ---------- - -------
(Dollars in thousands)

Total                            $ 2,506       53.2%    $ 1,636
                                 - -----                - -----

Operating income for the three months ended October 31, 2008 increased by $870,000 or 53.2% when compared to the same period in fiscal 2008, primarily as a result of the increase in gross profit, partially offset by the increase in selling, general and administrative expenses.

INTEREST EXPENSE

Net interest expense increased by $125,000 to $573,000 in the three months ended October 31, 2008 when compared to the same period in the prior year, primarily due to additional borrowings for the USTL and Elliott Laboratories acquisitions, partially offset by lower interest rates in the current quarter.

OTHER EXPENSE

Other expense was $183,000 for the three months ended October 31, 2008, compared to other expense of $6,000

for the same period in the prior year. The expense in the current quarter was primarily due to acquisition related expenses.

INCOME TAXES

The income tax provision rate for the three months ended October 31, 2008 was 42.4% compared to the 44.7% income tax rate in the prior year. Management has determined that it is more likely than not that the deferred tax assets will be realized on the basis of offsetting them against the reversal of deferred tax liabilities. It is the Company's intention to assess the need for a valuation account by evaluating the realizability of the deferred tax asset quarterly based upon projected future taxable income of the Company.

DISCONTINUED OPERATIONS

On November 3, 2008, the Company sold to Strategic Staffing Solutions, L.C., a Florida limited liability company, contracts and certain other assets from its Technical Solutions segment that are associated with information technology services and information technology consulting. The sale price for the assets sold was $5,000,000, subject to working capital adjustment.

The Company classified the assets and liabilities of the discontinued operations as "held for sale" as of October 31, 2008, since all the criteria for a qualifying plan of sale were met as of that date. All revenues and expenses from discontinued operations for the third quarter and nine months ended October 31, 2008 are presented as "Income (loss) from discontinued operations" in the accompanying Statements of Income. Prior year numbers were reclassified to conform to the current year presentation. The gain on disposal of discontinued operations will be recorded in the fourth quarter.

The results of the discontinued operations for the three months ended October 31, 2008 and 2007 were as follows:

                                                             Three Months Ended
                                                             2008          2007
                                                          -----------   -----------
Net revenues                                              $ 5,677,000   $ 4,976,000
                                                          - --------- - - ---------
Income from discontinued operations before income taxes   $   322,000   $    (3,000 )
                                                          - --------- - - ---------
Income taxes                                                  132,000        (1,000 )
                                                          - --------- - - ---------
Net income from discontinued operations                   $   190,000   $    (2,000 )
                                                          - --------- - - ---------

NET INCOME

Net income for the three months ended October 31, 2008 was $1,175,000 compared to $631,000 for the same period in fiscal 2008, an increase of $544,000 or 86.2%. This increase was primarily due to the higher operating income, partially offset by higher interest expense and higher income taxes.

OFF BALANCE SHEET ARRANGEMENTS

None.

BUSINESS ENVIRONMENT

The defense and aerospace markets generate approximately 55% of the Company's overall revenues. The U.S. commercial airline industry projects an increase from 19,000 aircraft in 2007 to 35,000 aircraft in 2027, an annual growth rate of 4.4%. In addition, 82% of the world fleet will consist of new airplanes. NTS anticipates the demand for testing aerospace components and systems will remain strong. NTS also anticipates the demand for engineering services will increase significantly as the new aircraft are being designed and built. The defense budget projected for 2009 reflects a decrease of 9% overall. However, R&D spending, the funding relevant to NTS, is projected to increase by 4%. NTS anticipates an increase in demand for engineering and test work specifically in munitions and ordnance as well as component and system qualification and acceptance testing. The Company continues to enhance its capabilities and capacity to support this activity in its laboratories.

The trend in the telecommunications market appears to be stable in the short term and is expected to grow in the future. Carriers are delivering voice, video and data using fiber networks. New means of delivery may increase the demand for certification of suppliers' premises equipment, and certification of new central office equipment. The Company expects an increase in demand for its services as carriers upgrade their packet-based Voice Over Internet Protocol (VOIP) devices. The Company is currently evaluating the overall compliance requirements for the deployment of broadband wireless products and how best to position NTS to service the anticipated growth of this technology. The Company anticipates a moderate increase in the telecom business and the acquisition of Elliott Laboratories will provide additional capacity and capability to grow in this market.

The computer and electronics markets have been stable. The Company's growth in these markets will depend on its ability to capture additional market share and/or expand geographically. Currently, NTS is developing compliance and interoperabiltiy testing for emerging technologies; Multimedia over Coax Cable (MoCA), USB 3.0 and Wireless USB, "ZigBee" smart energy. The Company believes demand will increase for certification of "ZigBee" platforms and "ZigBee" Alliance-recognized products and the Company has developed a smart energy test harness to perform the testing and certification. The Company believes these compliance activities will have applicability in both the Asian and U.S. markets.

The power markets, particularly the dedication and certification work the Company provides, has been increasing. The Company believes there is a positive outlook for this market as the government and industry search for alternative energy solutions.

The automotive industry has been declining and it is anticipated that it will continue to decline. The Company has experienced a decrease in both revenues and earnings as a result of this decline in demand.

Notwithstanding the foregoing, and because of factors affecting the Company's operating results, past financial performance should not be considered to be a reliable indicator of future performance.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities of $4,738,000 in the nine months ended October 31, 2008 primarily consisted of net income of $3,033,000 adjusted for non-cash items of $5,333,000 in depreciation and amortization, share-based compensation of $220,000, partially offset by changes in working capital of $3,312,000, and other non-cash items of $536,000. Net cash provided by operating activities of $3,971,000 in the nine months ended October 31, 2007 primarily consisted of net income of $1,992,000 adjusted for non-cash items of $4,560,000 in depreciation and amortization, share-based compensation of $283,000, partially offset by changes in working capital of $2,618,000 and other non cash items of $246,000.

Cash used for investing activities in the nine months ended October 31, 2008 of $10,380,000 was primarily attributable to capital spending of $5,391,000, cash used to acquire businesses of $4,720,000, investment in retirement funds of $428,000 and investment in life insurance of $36,000, partially offset by net proceeds from sale of securities of $195,000. Cash used for investing activities in the nine months ended October 31, 2007 of $4,236,000 was primarily attributable to capital spending of $3,729,000, cash used to acquire TRA Certification, Inc. of $471,000 and investment in life insurance of $133,000, partially offset by net proceeds from insurance claim of $97,000.

Net cash provided by financing activities in the nine months ended October 31, 2008 of $7,551,000 consisted primarily of proceeds from current and long-term debt of $11,350,000 and proceeds from stock options exercised of $222,000, partially offset by repayments of current and long-term debt of $3,835,000 and cash dividends paid of $186,000. Net cash provided by financing activities in the nine months ended October 31, 2007 of $19,000 consisted primarily of repayment of debt of $3,052,000, partially offset by proceeds from borrowings of $2,767,000 and proceeds from stock options exercised of $354,000.

On December 5, 2007, the Company entered into an Amendment No. 9 to the Revolving Credit Agreement with Comerica Bank, as agent and lender, holding 60%, and First Bank, as lender, holding 40% (the "Amendment"). This agreement matures on December 1, 2012. The amendment included:

(a) $16,500,000 revolving line of credit with interest rate at the agent's prime rate less 25 basis points, with an option for the Company to convert to loans at the Libor rate plus 200 basis points for periods ranging from 30 days to 365 days, with minimum advances of $1,000,000. There is an annual fee of 25 basis points and a quarterly unused credit fee of 25 basis points. The outstanding balance on the revolving line of credit at October 31, 2008 was $13,500,000. This balance is reflected in the accompanying consolidated balance sheets as long-term. The amount available on the line of credit was $3,000,000 as of October 31, 2008.

(b) $9,000,000 in Term Loan A which was used to consolidate previous term loans. The outstanding balance on Term Loan A at October 31, 2008 was $8,036,000. The interest rate is at the agent's prime rate less 25 basis points, with an option for the Company to convert to loans at the Libor rate plus 225 basis points for periods ranging from 30 days to 365 days, with minimum advances of $1,000,000. The principal amount is amortized over a seven year period.

(c) $12,650,000 in Term Loan B which was used to acquire USTL on December 5, 2007. The interest rate is at the agent's prime rate less 25 basis points, with an option for the Company to convert to loans at the Libor rate plus 225 basis points for periods ranging from 30 days to 365 days, with minimum advances of $1,000,000. The principal amount is amortized at the rate of 0% during the first year of the note, 5% in the second year, 10% in the third year and 15% in the fourth and fifth years.

On June 5, 2008, the Company entered into Amendment No. 10 to the Revolving Credit Agreement to add Term Loan C in the amount of $6,000,000. Proceeds from Term Loan C were used to finance the acquisition of Elliott Laboratories and pay off two existing mortgage notes with other banks. The outstanding balance on Term Loan C at October 31, 2008 was $5,571,000. The interest rate is at the agent's prime rate with an option for the Company to convert to loans at the Libor rate plus 250 basis points for periods ranging from 30 days to 365 days, with minimum advances of $1,000,000. The principal amount is amortized over a seven year period. This agreement matures on May 30, 2013.

The Company has entered into a mortgage agreement with a bank in Arkansas for $1,100,000 with a maturity of ten years and interest at prime rate less 25 basis points. The outstanding balance on this loan at October 31, 2008 was $1,072,000. The Company has an additional $421,000 in equipment line balances which was used to finance various test equipment with terms of 60 months for each equipment schedule at interest rates ranging from 5.56% to 7.47%. The Company was in compliance with all of the covenants with its banks at October 31, 2008.

The Company's 50% owned subsidiary, NQA, Inc., has total borrowings of $216,000 at October 31, 2008, for the acquisitions of TRA Certification Inc. and International Management Systems, Inc. (IMS).

Management is not aware of any significant demands for capital funds that may materially affect short or long-term liquidity in the form of large fixed asset acquisitions, unusual working capital commitments or contingent liabilities. In addition, the Company has made no material commitments for capital expenditures. The Company's long-term debt may be accelerated if the Company fails to meet its covenants with its banks. The Company believes that the cash flow from operations and the revolving line of credit will be sufficient to fund its operations for the next twelve months.