<PAGE>
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            ------------------------

                                   FORM 10-K

<TABLE>
<C>         <S>
(MARK ONE)

   /X/      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
            SECURITIES EXCHANGE ACT OF 1934

               FOR THE FISCAL YEAR ENDED JANUARY 31, 2000

   / /      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
            SECURITIES EXCHANGE ACT OF 1934

             FOR THE TRANSITION PERIOD FROM             TO

                    COMMISSION FILE NUMBER 0-16438
</TABLE>

                            ------------------------

                        NATIONAL TECHNICAL SYSTEMS, INC.
              (Exact name of company as specified in its charter)

<TABLE>
<S>                                    <C>
             CALIFORNIA                             95-4134955
   (State or other jurisdiction of               (I.R.S. Employer
   incorporation or organization)               Identification No.)

 24007 VENTURA BOULEVARD, SUITE 200
            CALABASAS, CA
   (Address of principal executive                     91302
              offices)                              (Zip Code)
</TABLE>

                                 (818) 591-0776
                          (Company's telephone number)

             SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
                        SECURITIES EXCHANGE ACT OF 1934:

<TABLE>
<CAPTION>
                                               NAME OF EACH EXCHANGE
         TITLE OF EACH CLASS                    ON WHICH REGISTERED
         -------------------                   ---------------------
<S>                                    <C>
     Common Stock--No Par Value                     Nasdaq-NMS
</TABLE>

                            ------------------------

    Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K.  /X/

    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 / /

    The aggregate market value of the voting stock held by non-affiliates of the
Registrant at April 20, 2000 was approximately $16,504,000

    The number of shares of Registrant's Common Stock outstanding on April 20,
2000 was 8,508,250.

    Portions of the Proxy Statement of Company for the Annual Meeting of
Shareholders to be held on June 23, 2000, are incorporated by reference into
Part III of this report.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                        NATIONAL TECHNICAL SYSTEMS, INC.

                           ANNUAL REPORT (FORM 10-K)

                        FOR YEAR ENDED JANUARY 31, 2000

                                     PART I

    Except for the historical information contained herein, certain statements
in this Form 10-K 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. Actual
outcomes are dependent upon National Technical Systems, Inc's ("NTS" or "the
Company") successful performance of internal plans, ability to effectively
integrate acquired companies, customer changes in short range and long range
plans, competition in the Company's services areas and pricing, continued
acceptance of new services, performance issues with key customers, and general
economic risks and uncertainties.

1.  BUSINESS

    A.  GENERAL

    NTS is a diversified services company which operates in two segments:
"Engineering and Evaluation" and "Technical Staffing". The business of the
Company is conducted by a number of operating units, each with its own
organization. The management of each operating unit has responsibility for its
operations and for achieving sales and profit goals. The executive staff from
the Company's corporate headquarters maintains overall supervision, coordination
and financial control.

    B.  HISTORY

    The Company was founded in 1961, incorporated in 1968 in California and
subsequently was reincorporated in Delaware in 1987 to serve as a holding
company for its subsidiaries. On January 31, 1997, the Company was merged into a
newly formed California corporation named National Technical Systems, Inc. On
October 30, 1998, the company completed its merger with XXCAL, Inc. and
acquisition of XXCAL Limited (together, "XXCAL"). The merger was treated as a
pooling of interests.

    Unless indicated otherwise, the term "Company" or "NTS" includes
NTS, Inc.--CA and its wholly owned subsidiaries, NTS California, Acton
Environmental Testing Corporation, a Massachusetts corporation, Approved
Engineering Test Laboratories, Inc., a California corporation, ETCR Inc., a
California corporation, Wise and Associates, Inc., a Texas corporation, National
Technical Services, Inc., (formerly S&W Technical Services) a Florida
corporation, XXCAL, Inc., a California corporation, XXCAL Limited, a United
Kingdom corporation, National Quality Assurance--USA, Inc. (NQA), a 50% owned
Massachusetts corporation and NTS--CS, a Delaware corporation.

    Historically, the Company's primary businesses have been comprised of
technical services and engineering disciplines. These services were provided
domestically to a wide range of industries (telecommunications, medical,
computer, automotive, aerospace, defense and nuclear, among others) and included
analysis, engineering and mechanical and electronic testing to ascertain
performance and reliability, qualification of equipment for nuclear power
plants, engineering design, computer-based structural dynamics and finite
element analysis.

                                       2
<PAGE>
    The Company, also performs information technology ("IT") managed services
which includes technical staffing on a temporary or permanent basis, project
management and consulting. In addition, the Company performs quality management
registration services.

    During fiscal 1998, in response to the intention of the U.S. Air Force to
privatize McClellan Air Force base located in Sacramento, California, the
Company took over the operations and employees of the Science and Engineering
Test Laboratories at McClellan. This allowed the Company to enter a new line of
business. The facility provided chemical, materials and electronic analysis for
the government, including failure analysis of fuels and lubricants, electronic
components, materials and processes, metal fatigue simulation, non-destructive
evaluation, corrosion analysis and quality verification. This was the only
facility in the Company that had the necessary equipment and knowledge to
perform these types of services. During fiscal 2000, the Company experienced a
significant loss of business at its McClellan Air Force base facility due to the
government decision to transfer work, planned for that operation, to another Air
Force base. The Company, facing losses in attempting to maintain the operation
decided to discontinue this line of business and close its operations in
Sacramento. (See Note 2 to the Consolidated Financial Statements attached hereto
as Exhibits A (i) and A (ii)). All information presented herein has been
restated to exclude the effects of the Sacramento operation.

    In fiscal 2000 the Company acquired Reintexas Laboratories, a Plano, Texas
facility owned by Reintech Laboratories. The operation performs electromagnetic
compatibility testing for the telecommunications industry. Also in fiscal 2000,
through its NTS-CS subsidiary, the Company acquired the quality management
registration business of Davy Registrar Services and Scott Quality Systems
Registrars, a Pittsburgh, Pennsylvania based registration business.

    C.  FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

    See Note 11 to Consolidated Financial Statements attached hereto as
Exhibits A (i) and A (ii).

    D.  DESCRIPTION OF BUSINESS

        (i) ENGINEERING & EVALUATION ("E&E GROUP")

    The E&E Group of NTS is one of the largest independent product and systems
assessment organization in the U.S., with facilities throughout the country as
well as England and Japan, and provides highly trained technical personnel for
analysis, engineering, and mechanical and electronic evaluation to ascertain
product performance and reliability under both standard use conditions and
induced environmental stress conditions. The E&E Group serves a large variety of
high technology industries, including aerospace, automotive, electronics,
defense, transportation, utilities, and miscellaneous specialty equipment
manufacturers. In these industries, the ability to reproduce actual operating
conditions is required, which entails specialized abilities and equipment, such
as simulating conditions of outer space, under water, aerodynamic pressures and
temperature. These conditions include vibration, extremes of temperature,
acceleration, altitude, shock, acoustic noise and flight dynamics. The E&E Group
also provides other related engineering services, including accelerated aging
analysis, and equipment qualification for the energy market. Components tested
include items used in motor vehicles, missile programs, communications products,
satellites, medical equipment, the space program, aircraft, motor vehicles,
missile programs and nuclear safety equipment (but excluding radioactive
material).

    The E&E Group services include the development of effective product
screening procedures, design and fabrication of test fixtures plus failure
analysis and design modification support. The E&E Group is also one of the
leading providers of fluid component and systems testing. The E&E Group designs
and builds custom facilities and advanced instrumentation and data acquisition
systems to support all types of flow testing for gases, liquids and cryogenics.
The E&E Group is capable of performing structural testing and analysis, and, in
particular, structural loading of large articles such as complete airframes. The
E&E Group also performs fatigue testing of critical hardware items such as
engine blades and high-pressure

                                       3
<PAGE>
fluid components. The E&E Group offers clients a way to minimize their
personnel, testing time and costs by utilizing The E&E Group's on-site climatic,
dynamic, safety and electromagnetic compatibility test capabilities. The E&E
Group provides a "one stop" resource and single source responsibility for
environmental qualification, compliance, reliability and safety testing and
offers full-service assessments for items ranging from components to circuit
boards to entire vehicles, including spacecraft.

    The E&E Group is engaged in supplying services to U.S. government defense
programs. These contracts are subject to special risk, including dependence on
government appropriations, contract termination without cause, contract
renegotiations, and intense competition for the available defense business.

    More recently, The E&E Group has entered into the rapidly growing
information technology industries. These industries include computer and
software manufacturing, telecommunications and medical devices. The E&E Group
performs evaluation of electronic field emissions for a variety of products
manufactured by these industries.

    The rapid expansion of the telecommunications industry's need for product
assessment and certification has led the E&E Group to become actively involved
in the certification and evaluation of a broad array of telecommunications
equipment and systems for major manufacturers of such equipment. The E&E Group's
services are performed in accordance with the Network Equipment Building Systems
specifications (NEBS), as required by the telecommunications industry.

    NTS has achieved certification as a Nationally Recognized Test Laboratory
(NRTL) by the U.S. Government and now performs safety testing and listing for a
variety of product manufacturers including telecommunications, medical,
computers, computer peripherals and other electrical system products. In
addition, NTS also conducts conformity assessment activities for manufacturers
enabling them to attain European Community marking. Selective industry
specifications required that some products that must be safely operated in a
medical environment, receive a third party (independent laboratory) evaluation.
This requirement creates a special market for independent test labs who have the
technical staff and equipment to perform the appropriate specification
requirements. NTS, through its NRTL approval and other national and
international approvals has become a supplier of these technical services.

    The E&E Group provides support for both software development firms, computer
industry hardware manufacturers and networking companies in the areas of quality
assurance, programming, compatibility and certification testing, functionality
testing, usability testing, test plan development and documentation. Rapid
changes in technology require software manufacturers to ensure that their new
products are compatible with older hardware platforms as well as the variety of
products available to users. Hardware manufacturers need to assure that new
products they develop are compatible with existing operational programs they
embed in their products and network developers must assure compatibility with
the systems used by industry. The E&E Group performs such compatibility testing
for the information technology industry. In addition to performing such services
at NTS facilities in the U.S., Great Britain and Japan, The E&E Group provides
trained test specialists at its client's facilities during their periods of peak
demand.

    To support these efforts, the E&E Group programming experts have developed
firmware, device drivers, test programs, automated test scripts and benchmark
suites for various manufacturers using Microsoft Visual Studio. The E&E Group
engineers can also create automated test procedures or test scripts which help
validate applications when changes are made, or bugs are fixed in applications.

    The group also provides international registration of companies requiring
quality control standards. With the ever increasing globalization of industry
and trade, the international community has developed, and continually updates, a
system of quality standards to insure that products manufactured conform to
acceptable standards when sold anywhere in the world. These standards, developed
by the International Standards Organization (ISO), and applicable to different
industries such as aerospace, automotive and environmental are used to provide
compliance by manufacturers being certified by third party registrants.

                                       4
<PAGE>
Third party registrants are accredited by industry regulated accreditation
bodies. The E&E Group is certified to provide third party registrations to a
variety of industries. To accomplish certification, The E&E Group audits a
company's quality policy, quality system documentation and quality records
through on-site assessment. Such assessment determines whether the quality
system is defined, documented, deployed and consistently implemented, and that
the required documentation and records are current and available. If the
client's quality system is verified to conform to the requirements of the
applicable ISO standard, NTS issues a certificate describing the scope of the
client's quality system which has been certified. The client is then entitled to
display the Registrar's mark on advertising and stationery as evidence that it
has achieved ISO registration. Thereafter, the E&E Group performs periodic
follow-up surveillance to assure that the client remains in compliance.

    The Company's strength and diversity is shown in the fact that its largest
customer, a computer manufacturer, represents 3.3% of total revenues. Revenues
derived from the top 50 customers is less than 45% of total revenues.

    The Engineering and Evaluation Group provides such services to its customers
on fixed price, time and material and cost-reimbursement bases. The group
markets these services through a sales force located throughout the United
States, England and Japan and performs these services at its facilities or at
the client's facility.

    The E&E Group provides its Engineering and Evaluation services through 16
independent testing facilities in North America, England and Japan, NTS
laboratories in Acton and Boxborough, MA, Los Angeles, Fullerton, Culver City,
Saugus, and Valencia, CA, Camden, AR, Detroit, MI, Fredericksburg, VA, Largo,
FL, Tinton Falls, NJ, Plano, TX, Tempe, AZ, Letchworth, United Kingdom and
Yokohama, Japan.

INDUSTRY OVERVIEW

    Manufacturers are increasingly fulfilling more of their evaluation testing
on an outsourcing basis in order to reduce costs, avoid large capital
expenditures, save time and remain competitive. Thus, while the aerospace and
industrial product test business has remained flat over the past ten years,
opportunity has arisen for providing outsourcing services to the IT industry.
The E&E Group, by diversifying from its heavy dependence on aerospace/defense to
commercial industries such as IT, automotive and medical industries, has
positioned itself for growth.

BUSINESS STRATEGY

    To meet its clients' needs, the E&E Group is committed to maintaining its
position at the cutting-edge of technology by continuously upgrading its
facilities, equipment and personnel in line with market requirements. In
addition, the E&E Group's continuous movement into new technological areas will
require it to invest in equipment needed to adequately service clients' needs.
Through close consultation with NTS's existing and prospective clients to
ascertain their needs for the future, the E&E Group is able to better determine
its needs. At the same time, the E&E Group continues to maintain its excellent
relations with its staff of experienced engineers and technicians by offering
attractive benefit programs and opportunities for advancement and professional
learning. The soundness of these approaches can be demonstrated by the fact that
approximately 25% of the E&E Group's employees have been with the Company for
20 years or more.

GROWTH STRATEGY

    The E&E Group's growth strategy is to expand its geographic scope of
business. The primary method of growth for the Group will be from expansion of
its services to technological areas that the Group is not yet serving or has
only in recent years begun to penetrate. The most prominent of these is
information technology involving telecommunications, networks, computers and
their ancillary equipment and systems.

                                       5
<PAGE>
The E&E Group has been investing heavily in equipment to support these areas and
continues to win major programs as a result of this investment.

        (ii) TECHNICAL STAFFING

    The Technical Staffing Group is a provider of information technology,
managed services, permanent placement and staffing. Utilizing full-time salaried
and hourly consultants, the Company offers a wide range of staffing solutions to
meet its clients' IT, information systems ("IS") and software engineering needs.
The Group's technical consultants have expertise on many hardware platforms
utilizing a wide variety of operating systems, languages and software
applications. It provides services covering all aspects of development,
including planning, design, programming, implementation, maintenance
documentation and ongoing management. The Group also locates and recruits
full-time employees for its clients.

    NTS also provides other specialty staffing services such as fault-tolerant
application development, network management and desktop services Help desk
support engineers, designers and drafters are made available to the energy
generation and petrochemical industries. The Group also supplies technical
personnel for other high technology industries.

    As of January 31, 2000, the Technical Staffing group served its clients from
12 locations in 7 states, as follows: Calabasas, Orange, Culver City and San
Francisco, CA; Loveland, CO; Atlanta, GA; Cary, NC; San Antonio, Houston, and
Austin, TX; Baton Rouge, LA; and Jacksonville, FL.

INDUSTRY OVERVIEW

    Over the years, businesses have become increasingly dependent on the use of
Technical Staffing to manage operations more efficiently in order to remain
competitive. Important internal functions, ranging from financial reporting to
production and inventory management, have become automated through the use of
applications software. In addition, as information systems have become less
expensive, more powerful and easier to use, the number and level of employees
who use and depend upon these systems have significantly increased.

    Due to the rapid development of technology and the shift from closed,
proprietary systems to open systems, many companies' computer systems
incorporate a variety of hardware and software components, which may span a
number of technology generations. For example, a company may operate
concurrently on mainframe, midrange and client/server hardware platforms running
a variety of operating systems and relational databases. Systems applications
development has become much more important in this environment as IT departments
strive to integrate a company's information processing capabilities into a
single system while providing for ever-changing functionality.

    The increase in the use of sophisticated information technologies has
occurred at the same time that economic factors have led to reductions in
corporate workforces and a return by businesses to a focus on their core
competencies. Faced with the challenge of implementing and operating more
complex information systems without enlarging their corporate staffs, businesses
are increasingly using technical staffing companies to supplement their
technical staffing operations. Utilizing outside technical staffing consultants
allows a company's management to focus on core business operations, affords
greater staffing flexibility in IT departments and increases a company's ability
to adapt to and keep pace with rapidly changing and increasingly complex
technologies. It also provides access to specialized technical skills on a
project-by-project basis which better matches staffing levels to current needs,
converts fixed labor costs into variable costs, and reduces the cost of
recruiting, training and terminating employees as evolving technologies require
new programming skill sets.

    According to the Staffing Industry' Fourth Quarter 1999 Report, annualized
revenues for all major public staffing companies is approximately $78 billion.

                                       6
<PAGE>
BUSINESS STRATEGY

    To meet its clients' comprehensive IT needs, the Technical Staffing Group is
dedicated to providing solutions to meet its clients' systems, applications,
development, and other specialized technical needs. NTS's business strategy
encompasses the following elements, which management believes are necessary to
ensure high-quality standards and to achieve consistently strong financial
performance:

        1)  Recruit, develop and retain qualified technical consultants. A key
    element of the Company's success is its ability to recruit, develop and
    retain qualified technical consultants. Management believes that it has been
    successful in doing so by offering its technical consultant's competitive
    wages and by offering its technical consultants an opportunity to purchase a
    comprehensive employee benefits package. However, qualified technical
    consultants are in great demand worldwide and, accordingly, competition for
    individuals with proven technical skills is intense. NTS attracts new
    consultants in its established markets primarily through referrals from
    other technical consultants and the Internet via its website and direct and
    indirect recruiting capabilities outside the United States. Through these
    sources, NTS has compiled a database which includes approximately 100,000
    highly qualified technical consultants who become potential resources to
    place on assignment. NTS is working to continually improve its recruiting
    capabilities, but expects to experience the same types of difficulties
    competing for technical consultants as have other providers of IT services.
    NTS competes for technical consultants with other providers of IT services,
    providers of outsourcing services, temporary personnel agencies, systems
    integrators, computer systems consultants, clients and potential clients.

        2)  Focus on improving margins. NTS continuously seeks opportunities to
    enhance its margins by offering services for which higher margins can be
    obtained. For example, NTS offers network management and desktop services,
    Internet/Intranet development and support, packaged software testing,
    software engineering and help desk support. In addition, NTS has identified,
    targeted and expanded into geographic markets which provide relatively
    greater profitability. NTS also actively seeks acquisition candidates with
    margins that are, at a minimum, comparable to those of NTS. Finally, NTS
    focuses on enhancing operating efficiencies and has made and continues to
    make a substantial investment in upgrading its support systems in order to
    improve the efficiency of its accounting, sales, recruiting and marketing
    operations.

GROWTH STRATEGY

    NTS's growth strategy is to expand the geographic scope of its business
through internal development and acquisitions and to continue to develop its
existing markets by adding new clients in the geographic markets it currently
serves, increasing the range of services it provides to its existing clients,
attracting and retaining qualified technical consultants from a variety of
sources, both national and international; and pursuing strategic relationships
with non-competing organizations.

    As part of its growth strategy, NTS continually reviews and evaluates
potential acquisition candidates and believes that there are significant
acquisition opportunities throughout the United States. In evaluating potential
acquisition candidates, NTS seeks profitable IT companies with a proven
management team, a core group of highly qualified technical consultants, a
reputation for quality, an attractive service offering and an established client
base. NTS also evaluates the cultural fit of an acquisition candidate, as well
as the candidate's historical growth rates and financial results. NTS believes
that it is an attractive acquirer due to its ability to provide an acquired
company with expanded services and a broader geographic base, the potential for
certain economies of scale and operating efficiencies, its financial strength
and visibility as a public company, and its decentralized management strategy
pursuant to which NTS's managers are given significant autonomy to make most
day-to-day operating decisions.

    NTS's growth strategy is also dependent upon NTS's ability to attract and
retain qualified technical consultants in those markets in which the Company has
an established presence, as well as in less

                                       7
<PAGE>
established markets. NTS's resource managers are responsible for recruiting and
establishing long-term relationships with NTS's technical consultants. NTS has
implemented a state-of-the-art integrated information management system which
will provide most of its offices with on-line access to information on existing
and prospective technical consultants and clients.

        (iii) COMPETITION.

    The Company exists in a continuous competitive marketplace since its
customers are also its competitors. Practically all of its clients that
manufacture, develop, assemble technical and associated hardware and systems
have their own laboratories and evaluation centers. The clients are making "make
or buy" decisions every time they use an outside laboratory or consultants.

    There are thousands of independent laboratories in the United States,
including approximately 500 members of the American Counsel of Independent
Laboratories. The number of in-house laboratories significantly exceeds the
number of independent laboratories. Except for the smallest manufacturers, all
companies utilize in-house laboratories for at least part of their product
evaluation.

    Potential customers for services offered by the Engineering and Evaluation
segment represent a variety of divergent industries with the majority of
business concentrated in the aerospace/defense, automotive, commercial
electronics, and nuclear industries. Competition in this segment comes from many
different areas including government and non-profit testing facilities (college
and university laboratories), major government contractor testing facilities
(e.g., Boeing, Lockheed Martin and Northrop-Grumman), customer in-house testing
facilities, and other independent commercial testing companies such as Wyle
Laboratories and Dayton T. Brown. As the competition in this segment is
fragmented and there is a lack of available data on testing performed by
government facilities, contractors and in-house testing facilities, the Company
is unable to determine its competitive position in this market. NTS competes in
this segment primarily on the basis of its high quality support personnel, high
technology testing capabilities and price.

    Competition from independent test laboratories varies according to the
industry the Company serves. The Company competes with different independent
labs in the automotive, aerospace, and electronic evaluation markets. The
Company believes it performs less than 5% of the total market for testing in any
industry it serves.

    In the information technology industries, the competition profiles are
similar except some industry specifications require third party inspection for
testing. This limits the in-house laboratory from competing with the independent
laboratories for these approvals. In these industries, the Company competes with
the other sixteen (or more) NRTL approved laboratories. In the area of
commercial electronic equipment, the Company competes with a host of large
companies such as Underwriters Laboratories, Southwest Research and Intertect.

    Potential customers for services offered by the Technical Staffing Group are
from a broad base of high technology and manufacturing companies. Competition in
this segment comes from a large number of public and privately held companies.
NTS estimates the total market to be in excess of $200 billion for all staffing
and information technology business. The Company competes in this segment
primarily on the basis of its niche position and price and high quality service.
In addition, the Company has established strategic alliances with other
technical staffing companies in order to more effectively compete in the
marketplace.

    In the Quality Audit field, the Company's NQA USA division is the ninth
largest auditor in North America. The Company believes that NTS CS and NQA USA
have less than 10% of the total registration market.

                                       8
<PAGE>
        (iv) BACKLOG.

    The Company's backlog at January 31, 2000 and 1999 is as follows

<TABLE>
<CAPTION>
                                                        2000          1999
                                                     -----------   -----------
<S>                                                  <C>           <C>
Engineering & Evaluation*..........................  $28,718,000   $24,994,000
Technical Staffing.................................    6,527,000    12,407,000
                                                     -----------   -----------
Total Backlog......................................  $35,245,000   $37,401,000
                                                     ===========   ===========
</TABLE>

------------------------

The Company estimates that approximately 85% of the backlog at January 31, 2000
will be completed by January 31, 2001.

*   The Engineering and Evaluation backlog at January 31, 1999 has been restated
    to exclude a $6,254,000 contract with a major aerospace company that was
    terminated for the convenience of the customer after $439,000 of revenue was
    completed.

        (V) GENERAL.

    (a)  SERVICE MARK.  The Company has registered its service marks "NTS" and
"XXCAL" with the U.S. Patent and Trademark Office.

    (b)  ENVIRONMENTAL EFFECT.  Compliance with applicable federal, state and
local provisions regulating the discharge of materials into the environment has
not had and is not expected to have any material effect upon the capital
expenditures, earnings or competitive position of the Company.

    (c)  SEASONAL EFFECT.  With Technical Staffing now accounting for
approximately half of the Company's revenues, NTS generally experiences lower
revenues in the fourth quarter of the fiscal year due to the high number of
holidays during that period which includes Thanksgiving, Christmas and New
Years.

    (d)  EMPLOYEES.  The Company employed 726 individuals at January 31, 2000
and 806 at January 31,1999, as follows:

<TABLE>
<CAPTION>
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Engineering & Evaluation....................................    376        305
Technical Staffing..........................................    333        487
Corporate Administration....................................     17         14
                                                                ---        ---
Total.......................................................    726        806
                                                                ===        ===
</TABLE>

    Approximately 130 of the Company's Engineering and Evaluation employees
occupy management and professional positions, and approximately 200 of the
Technical Staffing employees have degrees in engineering and other fields. None
of the employees of the Company is represented by a union. The Company considers
its relationship with its employees to be good.

                                       9
<PAGE>
ITEM 2.  PROPERTIES.

    A.  OPERATIONS.  The Company owns/leases and operates the following
properties:

<TABLE>
<CAPTION>
                             OWNED PROPERTIES               BUILDINGS     LAND
    STATE                          CITY                     (SQ.FT.)    (ACRES)
--------------  ------------------------------------------  ---------   --------
<S>             <C>                                         <C>         <C>
California      Fullerton.................................    36,000        3
                Saugus....................................    60,000      160
Massachusetts   Acton.....................................    30,000        5
                Boxborough................................    25,000        4
Texas           Plano.....................................     1,000        1
Virginia        Hartwood..................................    66,000       87
                                                             -------      ---
TOTAL OWNED PROPERTIES....................................   218,000      260
                                                             =======      ===

<CAPTION>
                            LEASED PROPERTIES               BUILDINGS     LAND
    STATE                          CITY                     (SQ.FT.)    (ACRES)
--------------  ------------------------------------------  ---------   --------
<S>             <C>                                         <C>         <C>
Arizona         Tempe.....................................    17,100      n/a
Arkansas        Camden....................................    22,400      216
California      Calabasas.................................     6,600      n/a
                Culver City...............................    24,100      n/a
                Fullerton.................................    20,200      n/a
                Los Angeles (LAX).........................    16,000        2
                Orange....................................     1,100      n/a
                San Francisco.............................     3,000      n/a
                Valencia..................................    45,000      n/a
Florida         Largo.....................................    16,000      n/a
Louisiana       Baton Rouge...............................     1,500      n/a
                New Orleans...............................       200      n/a
Michigan        Detroit...................................    64,900      n/a
New Jersey      Tinton Falls..............................     7,600      n/a
Texas           Austin....................................     3,000      n/a
                Houston...................................     1,200      n/a
                Plano.....................................    24,000      n/a
                San Antonio...............................     8,000      n/a
United Kingdom  Letchworth................................     2,600      n/a
                                                             -------      ---
TOTAL LEASED PROPERTIES...................................   284,500      218
                                                             =======      ===
</TABLE>

    B.  The Company believes that the space occupied by all of its operations is
adequate for its current and near-term requirements. Should additional space be
required, the Company does not anticipate problems in securing such additional
space.

    C.  INVESTMENT PROPERTIES.

    The Company owns four acres of unimproved real property in Escondido,
California which is currently for sale. In addition, the Company owns, for
investment purposes, a condominium located in Palm Desert, California. The
facility is rented to the public and, on occasion, used by employees of the
Company.

                                       10
<PAGE>
ITEM 3.  LEGAL PROCEEDINGS.

    The Company is, from time to time, the subject of claims and suits arising
out of matters occurring during the operation of the Company's business. In the
opinion of management, no pending claims or suits would materially affect the
financial position or the results of the operations of the Company. (See
Note 10 to the Consolidated Financial Statements attached hereto as
Exhibits A (i) and A (ii)).

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

    Not applicable.

                                       11
<PAGE>
                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

    A.  PRINCIPAL MARKET

    The Company's common stock is traded in the over-the-counter market and
quoted on the Nasdaq National Market under the symbol "NTSC". The range of high
and low quotations as reported by the Nasdaq Intra Dealer Quotation System for
each of the quarters of the fiscal years ended January 31, 2000 and 1999 is
presented below:

<TABLE>
<CAPTION>
                                                                2000                     1999
                                                       -----------------------   ---------------------
                                                         HIGH          LOW         HIGH         LOW
                                                       ---------   -----------   ---------   ---------
<S>                                                    <C>         <C>           <C>         <C>
First Quarter........................................  6 1/4       4 5/16        8 1/2       6 1/8
Second Quarter.......................................  5 1/2       3 7/16        9 5/8       6 5/8
Third Quarter........................................  4 1/4       2 25/32       7 1/2       3 7/8
Fourth Quarter.......................................  7           2 3/4         6 1/4       4 1/4
</TABLE>

    B.  HOLDERS OF COMMON STOCK.

    As of the close of business on April 20, 2000, there were 740 holders of
record of the Company's common stock. The number of holders of record is based
on the actual number of holders registered on the books of the Company's
transfer agent and does not reflect holders of shares in "street name" or
persons, partnerships, associations, corporations or other entities identified
in security position listings maintained by depository trust companies.

    C.  DIVIDENDS.

    On January 26, 1999, the Company's Board of Directors adopted a regular
annual dividend policy and declared an initial annual dividend of $0.04 per
share, payable semi-annually. The initial semi-annual dividend of $0.02 per
share was paid on March 2, 1999 to shareholders of record at the close of
business on February 15, 1999. The second semi-annual dividend of $0.02 per
share was paid on August 4, 1999 to shareholders of record at the close of
business on July 15, 1999. In addition, On June 14, 1999, the Company's Board of
Directors declared a special cash dividend of $0.03 per share which was paid on
August 4, 1999 to shareholders of record at the close of business on July 15,
1999. This brought the total cash dividends for the twelve months ending
August 4, 1999, to $0.07 per share.

    In fiscal 2000, a distribution of $120,000 was made to the former subchapter
S shareholders of XXCAL, Inc. The distribution was made from the accumulated
adjustment account in retained earnings and is the last distribution made to
these shareholders. In fiscal 1999 and 1998, these distributions were $442,000
and $323,000 respectively.

    For the Year ended January 31, 2000, a dividend in the amount of $25,000 was
paid to NQA UK, the 50% shareholder of NQA-USA. In fiscal 1999, the dividend
paid to NQA-UK was $17,000 and there were no dividends paid to NQA-UK in fiscal
1998.

    On June 26, 1998, the Company declared a $0.07 per share cash dividend which
was paid on August 4, 1998 to shareholders of record on July 15, 1998.

    The Company is permitted to pay cash dividends under the terms of its loan
agreements up to 40% of the net income without the prior written consent of its
banks.

                                       12
<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>
                                                                  YEAR ENDED JANUARY 31,
                                                   ----------------------------------------------------
                                                     2000       1999       1998       1997       1996
                                                   --------   --------   --------   --------   --------
                                                         (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S>                                                <C>        <C>        <C>        <C>        <C>
INCOME STATEMENT DATA:
Net revenues.....................................  $84,124    $86,813    $80,921    $74,413    $67,518
Gross profit.....................................   23,995     25,983     23,660     20,894     17,634
Operating income.................................    5,090      5,493      6,572      5,496      4,136
Interest expense.................................    1,544      1,253      1,245      1,161      1,326
Income from continuing operations before income
  taxes and minority interest....................    1,817      4,331      5,445      4,291      3,597
Income taxes.....................................      722      1,544      1,996      1,588      1,000
                                                   -------    -------    -------    -------    -------
Income from continuing operations before minority
  interest.......................................    1,095      2,787      3,449      2,703      2,597
Minority interest................................      (16)       (24)       (26)        10        (55)
Income (loss) from discontinued operations, net
  of income taxes................................     (274)       358         32       (684)      (246)
Cumulative effect of change in accounting for
  start-up expense, net of income taxes..........       --       (482)        --         --         --
                                                   -------    -------    -------    -------    -------
Net income.......................................  $   805    $ 2,639    $ 3,455    $ 2,029    $ 2,296
                                                   =======    =======    =======    =======    =======
Basic earnings (loss) per common share:
  Continuing operations..........................  $  0.13    $  0.34    $  0.43    $  0.34    $  0.32
  Discontinued operations........................    (0.03)      0.04         --      (0.09)     (0.03)
  Cumulative effect of change in accounting......       --      (0.06)        --         --         --
                                                   -------    -------    -------    -------    -------
Net income*......................................  $  0.10    $  0.32    $  0.43    $  0.26    $  0.29
                                                   =======    =======    =======    =======    =======
Diluted earnings (loss) per common share:
  Continuing operations..........................  $  0.13    $  0.32    $  0.41    $  0.33    $  0.31
  Discontinued operations........................    (0.03)      0.04         --      (0.08)     (0.03)
  Cumulative effect of change in accounting......       --      (0.06)        --         --         --
                                                   -------    -------    -------    -------    -------
Net income*......................................  $  0.09    $  0.31    $  0.41    $  0.25    $  0.28
                                                   =======    =======    =======    =======    =======
Weighted average common shares outstanding.......    8,345      8,236      8,061      7,902      7,860
Dilutive effect of stock options.................      194        374        389        264        221
                                                   -------    -------    -------    -------    -------
Weighted average common shares outstanding,
  assuming dilution..............................    8,539      8,610      8,450      8,166      8,081
                                                   =======    =======    =======    =======    =======
Cash dividends paid per common share.............  $  0.07    $  0.07    $  0.06    $  0.05    $  0.02
                                                   =======    =======    =======    =======    =======

BALANCE SHEET DATA:
Working capital..................................  $16,232    $16,951    $15,912    $11,265    $10,354
Total assets.....................................   58,631     49,831     46,112     40,377     39,048
Long-term debt, excluding current installments...   18,639     13,076     12,859      9,324      9,376
Shareholders' equity.............................   24,463     24,102     22,042     18,791     17,613
</TABLE>

------------------------

*   Per share data may not always add up to total for the year because each
    figure is independently calculated.

                                       13
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

GENERAL

    NTS is a diversified services company which operates in two segments:
"Engineering and Evaluation" and "Technical Staffing". The business of the
Company is conducted by a number of operating units, each with its own
organization. Each segment is under the direction of its own executive and
operational management team. During fiscal 2000, the segments were restructured
to conform with the new operational management structure. All registration
operations and computer testing operations are now under the "Engineering and
Evaluation" segment. Prior years segment information have been restated to
conform with the new structure.

    The Engineering and Evaluation segment performs technical services for a
wide range of industries (telecommunications, medical, computer, automotive,
aerospace, defense, among others) including analysis, engineering and mechanical
and electronic testing to ascertain performance and reliability, computer-based
structural dynamics and finite element analysis. In addition, this segment
performs quality management registration services.

    The Technical Staffing segment is a provider of information technology,
managed services and staffing. Utilizing full-time salaried and hourly
consultants, the Company offers a wide range of staffing solutions to meet its
clients' information technology "IT", information systems ("IS") and software
engineering needs.

    In fiscal 2000, the Company acquired Reintexas Laboratories, a Plano, Texas
facility owned by Reintech Laboratories. The operation performs electromagnetic
compatibility testing for the telecommunications industry. Also in fiscal 2000,
through its NTS-CS subsidiary, the Company acquired the quality management
registration business of Davy Registrar Services and Scott Quality Systems
Registrars, a Pittsburgh, Pennsylvania based registration business.

    During fiscal 2000, the Company experienced a significant loss of business
at its McClellan Air Force base division located in Sacramento, California, due
to the government decision to transfer work, planned for that operation, to
another Air Force base. The Company, facing losses in attempting to maintain the
operation decided to discontinue this line of business and close its operations
at Sacramento. All information presented herein has been restated to exclude the
effects of the Sacramento discontinued operation.

    On October 30, 1998, NTS completed its merger with XXCAL, Inc. and
acquisition of XXCAL Limited (together, "XXCAL"). The statements are presented
based on the "pooling of interests" method of accounting pursuant to Opinion
No. 16 of the Accounting Principles Board (APB 16). All prior year financial
statements include the combined financial statements of NTS and XXCAL.

    The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto.

RESULTS OF OPERATIONS

REVENUES

<TABLE>
<CAPTION>
                                    2000      % CHG          1999      % CHG          1998
                                  --------   --------      --------   --------      --------
                                                    (DOLLARS IN THOUSANDS)
<S>                               <C>        <C>           <C>        <C>           <C>
Engineering & Evaluation........  $49,637        -- %      $49,652      (2.5)%      $50,904
Technical Staffing..............   34,487      (7.2)%       37,161      23.8 %       30,017
                                  -------                  -------                  -------
TOTAL...........................  $84,124      (3.1)%      $86,813       7.3 %      $80,921
                                  =======                  =======                  =======
</TABLE>

                                       14
<PAGE>
    For the year ended January 31, 2000, total net revenues decreased $2,689,000
or 3.1% when compared with fiscal 1999.

    For the year ended January 31, 1999, total net revenues increased $5,892,000
or 7.3% when compared with fiscal 1998.

ENGINEERING & EVALUATION:

    Revenues in the Engineering and Evaluation segment remained unchanged in
fiscal 2000 when compared with fiscal 1999. Revenues in the aerospace and
defense industries declined as some of the Company's aerospace customers are
retaining programs in-house and government laboratories are becoming more
aggressive in competing with private industry for programs. The decline in
aerospace and defense revenues was offset by an increase in registration
services revenues and an increase from telecommunications and computer hardware
testing as a direct result of the strategic focus by the Company on that fast
growing market.

    For the year ended January 31, 1999, revenues in the Engineering and
Evaluation segment decreased $1,252,000 or 2.5% when compared with fiscal 1998
primarily due to decreases in revenues generated by some of the facilities which
have experienced a slowdown in their production activities as some programs
reached maturity. Also, certain of the newer research and development programs
being conducted by the Company's clients were experiencing difficulties
producing new products due to technological problems thus delaying production of
hardware for evaluation and testing.

TECHNICAL STAFFING:

    Revenues in the Technical Staffing segment decreased by $2,674,000 or 7.2%
in fiscal 2000 compared to fiscal 1999 due to the industry-wide Year 2000
projects slowdown coupled with the low availability of employees resulting from
the reduced level of unemployment. In addition, fiscal 2000 revenues were
affected by a significant reduction in fees at two of the Company's largest
customers and the loss of a major contract, which the company had for a number
of years, due to increased competition. In an effort to reposition itself in
this industry and become more competitive, the Company made structural changes
which resulted in the closing of four offices.

    For the year ended January 31, 1999, revenues in the Technical Staffing
segment increased $7,144,000 or 23.8% when compared with fiscal 1998 due to the
successful alliances with major high technology companies and other major
technical staffing companies, the increase in fee placements and permanent
placements and the opening of offices in new markets.

GROSS PROFIT

<TABLE>
<CAPTION>
                                 2000         % CHG          1999         % CHG          1998
                               --------      --------      --------      --------      --------
                                                    (DOLLARS IN THOUSANDS)
<S>                            <C>           <C>           <C>           <C>           <C>
Engineering & Evaluation.....  $14,672         (2.9)%      $15,110          8.4%       $13,936
% to segment revenues........     29.6%                       30.4%                       27.4%
Technical Staffing...........    9,323        (14.3)%       10,873         11.8%         9,724
% to segment revenues........     27.0%                       29.3%                       32.4%
                               -------                     -------                     -------
TOTAL........................  $23,995         (7.7)%      $25,983          9.8%       $23,660
                               =======                     =======                     =======
% to net revenues............     28.5%                       29.9%                       29.2%
</TABLE>

    For the year ended January 31, 2000, total gross profit decreased $1,988,000
or 7.7% when compared with fiscal 1999.

    For the year ended January 31, 1999, total gross profit increased 2,323,000
or 9.8% when compared with fiscal 1998.

                                       15
<PAGE>
ENGINEERING & EVALUATION:

    Gross profit for the Engineering and Evaluation segment slightly decreased
by $438,000 or 2.9% in fiscal 2000 when compared with fiscal 1999 as a result of
the competitive pressures from other companies and government laboratories,
which are becoming more aggressive in competing with private industry, combined
with the revenue slowdown in the aerospace and defense industries discussed
above. This decrease was partially offset by increases in gross profit generated
from registration services and telecommunications testing.

    For the year ended January 31, 1999, gross profits for the Engineering and
Evaluation segment increased by $1,174,000 or 8.4% due primarily due to the
success of the Company in obtaining more profitable fixed price contracts and
the success of its continued cost containment programs.

TECHNICAL STAFFING

    Gross profit for the Technical Staffing segment decreased by $1,550,000 or
14.3% in fiscal 2000 when compared to the same period in 1999 due primarily to
the decrease in revenues and competitive pricing pressures due to the tight
recruiting market.

    For the year ended January 31, 1999, gross profit for the Technical Staffing
segment increased by $1,149,000 or 11.8% when compared to the same period in
1999 as a result of increased revenues in fiscal 1999 and obtaining more fee
placements and permanent placement contracts.

SELLING, GENERAL AND ADMINISTRATIVE

<TABLE>
<CAPTION>
                                 2000         % CHG          1999         % CHG          1998
                               --------      --------      --------      --------      --------
                                                    (DOLLARS IN THOUSANDS)
<S>                            <C>           <C>           <C>           <C>           <C>
Engineering & Evaluation.....  $ 9,180         (2.4)%      $ 9,405         19.3%       $ 7,885
% to segment revenues........     18.5%                       18.9%                       15.5%
Technical Staffing...........    9,725         (4.5)%       10,178         10.6%         9,203
% to segment revenues........     28.2%                       27.4%                       30.7%
                               -------                     -------                     -------
TOTAL........................  $18,905         (3.5)%      $19,583         14.6%       $17,088
                               =======                     =======                     =======
% to net revenues............     22.5%                       22.6%                       21.1%
</TABLE>

    For the year ended January 31, 2000, total selling, general and
administrative expenses decreased $678,000 or 3.5% when compared with fiscal
1999.

    For the year ended January 31, 1999, total selling, general and
administrative expenses increased $2,495,000 or 14.6% when compared with fiscal
1998.

ENGINEERING & EVALUATION:

    Selling, general and administrative expenses slightly decreased by $225,000
or 2.4% in fiscal 2000 when compared with fiscal 1999. This decrease was
primarily due to the Company's cost containment efforts offset by increases in
costs to expand the base of business into new technology areas. The Company is
continuing to redirect its sales efforts to procure larger evaluation programs
which require a greater depth of technical knowledge.

    For the year ended January 31, 1999, selling, general and administrative
expenses for the Engineering and Evaluation segment increased by $1,520,000 or
19.3% when compared to fiscal 1998 due to efforts to expand the base of business
into new technology areas by engaging specialists in these new areas to offset
the declining opportunities in the Company's traditional testing business. The
Company was redirecting some of its sales efforts to procure larger evaluation
programs which require a greater depth of technical knowledge. Thus, the Company
hired several specialists which caused selling expenses to increase in advance
of achieving results from their work.

                                       16
<PAGE>
TECHNICAL STAFFING:

    Selling, general and administrative expenses decreased by $453,000 or 4.5%
in fiscal 2000 when compared with fiscal 1999 primarily due to the cost
reduction efforts made to partially offset the reduction in revenues.

    For the year ended January 31, 1999, selling, general and administrative
expenses for the Technical Staffing segment increased by $975,000 or 10.6% when
compared to fiscal 1998 primarily due to costs related to the planned expansion
of the sales and marketing capabilities through new marketing programs and
expansion efforts in new markets.

OPERATING INCOME (LOSS)

<TABLE>
<CAPTION>
                                  2000         % CHG          1999         % CHG          1998
                                --------      --------      --------      --------      --------
                                                     (DOLLARS IN THOUSANDS)
<S>                             <C>           <C>           <C>           <C>           <C>
Engineering & Evaluation......   $5,492           9.4%        5,019        (17.1)%       $6,051
% to segment revenues.........     11.1%                       10.1%                       11.9%
Technical Staffing............     (402)       (184.8)%         474         (9.0)%          521
% to segment revenues.........     (1.2)%                       1.3%                        1.7%
                                 ------                      ------                      ------
TOTAL.........................   $5,090          (7.3)%      $5,493        (16.4)%       $6,572
                                 ======                      ======                      ======
% to net revenues.............      6.1%                        6.3%                        8.1%
</TABLE>

    For the year ended January 31, 2000, operating income decreased $403,000 or
7.3% when compared with fiscal 1999.

    For the year ended January 31, 1999, operating income decreased $1,079,000
or 16.4% when compared with fiscal 1998.

ENGINEERING & EVALUATION:

    Operating income increased by $473,000 in fiscal 2000 when compared with
fiscal 1999 primarily due to the lack of merger costs in fiscal 2000 compared to
$686,000 in merger costs in fiscal 1999. This increase was offset by a slight
decrease in gross profit in fiscal 2000 when compared to fiscal 1999.

    For the year ended January 31, 1999, operating income decreased by
$1,032,000 when compared to fiscal 1998 primarily due to merger costs of
$686,000 in fiscal 1999 and the increase in selling, general and administrative
expenses in fiscal 1999, offset by an increase in gross profit.

TECHNICAL STAFFING:

    Operating income decreased by $876,000 in fiscal 2000 when compared with
fiscal 1999 primarily due to the lower revenues and gross profit in fiscal 2000
offset by a reduction in selling, general and administrative expenses in fiscal
2000 as well as the lack of merger costs in fiscal 2000.

    For the year ended January 31, 1999, operating income decreased slightly by
$47,000 when compared to fiscal 1998 primarily due to the increase in selling,
general and administrative expenses in fiscal 1999 and merger costs of $221,000
incurred in fiscal 1999, offset by an increase in gross profit.

MERGER COSTS

    During fiscal year 1999, the Company incurred $907,000 in one-time costs
related to the merger of NTS and XXCAL. These costs are related to outside
consulting, accounting, legal and other fees and expenses specifically
associated with the merger (accounted for as a pooling). In accordance with
APB 16, these costs were expensed as incurred.

                                       17
<PAGE>
INTEREST EXPENSE

    Interest expense increased $291,000 in fiscal 2000 when compared to fiscal
1999. This increase was principally due to higher weighted average debt balances
in fiscal 2000 along with slightly higher interest rates. Interest expense
increased $8,000 in fiscal 1999 when compared to fiscal 1998. This small
increase was due primarily to slightly higher weighted average debt balances in
fiscal 1999 partially offset by slightly lower interest rates.

SETTLEMENT AND RELATED LEGAL EXPENSES

    During the fourth quarter of fiscal 2000, the Company recorded an unusual
charge of $1,598,000 which included a one time cash payment of $1,020,000 to
Tecstar and $578,000 for the Company's legal and defense costs. The Company has
retained legal counsel on a contingent-fee basis to pursue a possible recovery
from its insurance companies. (See Note 10 to the Consolidated Financial
Statements attached hereto as Exhibits A (i) and A (ii))

INCOME TAXES

    The income tax rate for fiscal years 2000, 1999 and 1998 reflects a rate in
excess of the federal statutory rate primarily due to the inclusion of state
income taxes and certain non-deductible expenses. The Company's fiscal 2000
income tax provision was $822,000 less than fiscal 1999 because of a decrease in
income.

    The fiscal 1999 income tax provision was $452,000 less than fiscal 1998 due
to the decrease in income. See Note 4 to the consolidated financial statements
for a reconciliation of the provision for income taxes from continuing
operations at the statutory rate to the provision for income taxes from
continuing operations.

    Management has determined that it is more likely than not that the Company's
deferred tax asset will be realized on the basis of offsetting it against
deferred tax liabilities and future income. It is the Company's intention to
evaluate the realizability of the deferred tax asset quarterly by assessing the
need for a valuation allowance based upon anticipated future net income of the
Company.

START-UP EXPENSES

    In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting the Costs of Start-Up Activities"
(SOP 98-5), which requires that costs related to start-up activities be expensed
as incurred. The Company adopted the provisions of SOP 98-5 in its financial
statements during the year ended January 31, 1999, which resulted in a one-time
charge of $482,000 (net of taxes) in start-up related expenses.

DISCONTINUED OPERATIONS

    The discontinued operations represents the results of operations of the
Company's McClellan Air Force base facility in Sacramento, California. During
fiscal 1998, the Company took over the operations and employees of the Science
and Engineering Test Laboratories at McClellan. This facility allowed the
Company to enter a new segment of business which provided chemical, materials
and electronic analysis for the government, including failure analysis of fuels
and lubricants, electronic components, materials and processes, metal fatigue
simulation and corrosion analysis. This was the only facility in the Company
that had the necessary equipment and knowledge to perform these types of testing
services.

    During the fourth quarter of fiscal 2000 the Company decided to discontinue
this line of business and close its operations in Sacramento as it experienced a
significant loss of business due to the government decision to transfer work,
planned for that operation, to another Air Force base. (See Note 2 to the
Consolidated Financial Statements attached hereto as Exhibits A (i) and
A (ii)).

                                       18
<PAGE>
    All information presented herein has been restated to exclude the effects of
the Sacramento discontinued operation.

NET INCOME

    The decrease in net income for fiscal 2000 compared to fiscal 1999 was due
primarily to the legal and settlement expense discussed above, the decrease in
revenues and the losses from McClellan Air Force base, offset by the absence of
merger costs and start-up expenses in fiscal 2000.

    The decrease in net income for fiscal 1999 compared to fiscal 1998 was due
primarily to merger costs of $907,000, the cumulative effect of a change in
accounting of start-up expenses of $482,000 (net of taxes) and higher selling,
general and administrative expenses, offset by higher gross profit margins and
lower income taxes.

YEAR 2000

    In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
The Company will continue to monitor its mission critical computer applications
and those of its suppliers and vendors throughout the year 2000 to ensure that
any latent Year 2000 matters that may arise are addressed promptly. The
financial impact of addressing the Year 2000 issue had no material impact on the
Company's financial condition, results of operations or cash flows. The Company
has funded these costs from its operating and financing cash flows.

BUSINESS ENVIRONMENT

ENGINEERING & EVALUATION:

    The Company's basic service to industry is to support the development of new
products. Much of that effort in basic industries such as automotive, aerospace
and defense was not evident in fiscal 2000 except for research and development
on new spacecraft such as X-33, DeltaIV and Atlas V. For those programs, the
Company expects to see increased workload in the cryogenics evaluation during
next year.

    The information technology market, on the other hand, is in a rapid
technological growth cycle due to the use of computers, wireless, cell phones,
e-mail and faxes. The Company is serving this growing market in four of its
locations and anticipates significant growth for the next 18 to 24 months.
Competition is more limited in these markets for two reasons. First, when
international standards and approval are required, only third party laboratories
such as the Company's can perform this service. Second, information technology
companies need all their scientists and engineers working on the design and
manufacturing of their evolving products, and will make more "make or buy"
decisions to use independent, qualified test labs to evaluate and test their
products.

    Competition among the quality audit companies is expected to be similar to
last year.

TECHNICAL STAFFING:

    The Company has aggressively pursued additional business in the growing
Technical Staffing market. The Company supplies professionals in support of
customers who need help-desk analysts and managers; relational database
administrators and developers; application and systems programmers;
configuration and project managers; and multiple levels of system operations
personnel. The shortage of qualified

                                       19
<PAGE>
temporary and permanent candidates may bring additional pressure on earnings to
this highly competitive business. The Company expects competition to be similar
to last year.

    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

    In fiscal 2000, cash provided by operations increased by $100,000 when
compared to fiscal 1999. Primary factors contributing to this were an increase
in depreciation, as well as increases in the change in accounts receivable,
prepaid expenses and accounts payable. These changes were partially offset by a
decrease in net income and decreases in the change in inventories, accrued
expenses and income taxes. In fiscal 1999, cash provided by operations increased
by $1,211,000 over fiscal 1998, reflecting increases in depreciation, provision
for losses on receivables and an increase in changes in accounts receivable,
accounts payable and accrued expenses, partially offset by a decrease in net
income, inventories and prepaid expenses.

    Net cash used in investing activities in fiscal 2000 increased by $5,881,000
as compared to fiscal 1999, primarily due to increases in purchases of
telecommunications testing equipment, increases in computer hardware and
software, the acquisition of the assets of Reintexas Laboratories in Plano,
Texas and the acquisitions of Davy Registrar Services and Scott Quality Systems
Registrars. Net cash used in investing activities in fiscal 1999 decreased
$59,000 as compared to fiscal 1998.

    Net cash provided by financing activities in fiscal 2000 consisted
principally of proceeds from bank loans and issuance of stock upon the exercise
of stock options and related tax benefit, offset by repayments of debt and cash
dividends to shareholders and subchapter S shareholders. Net cash used by
financing activities in fiscal 1999 consisted principally of repayments of debt
and cash dividends to shareholders and subchapter S shareholders offset by
proceeds from bank loans and issuance of stock upon the exercise of stock
options.

    In September 1997, the Company negotiated with Sanwa Bank California, as
agent, and Mellon Bank, for a credit agreement which included a $6,000,000
revolving line of credit at an interest equal to the bank's reference rate plus
0.25%. On October 30, 1998, the credit agreement was amended to extend the term
of the revolving line to September 8, 2000 and to increase the revolving line
amount from $6,000,000 to $8,000,000 at an interest rate equal to the bank's
reference rate. A flat fee of $18,750 was charged to set up the new revolving
line and a facility fee of 0.5% of the total line is charged on a quarterly
basis. On October 29, 1999, the credit agreement was amended again to extend the
term of the revolving line to September 8, 2001and to increase the revolving
line amount from $8,000,000 to $10,000,000 at an interest rate equal to the
bank's reference rate. The outstanding balance at January 31, 2000 was
$7,507,000 compared with an outstanding balance of $4,107,000 at January 31,
1999. This balance is reflected in the accompanying consolidated balance sheets
as long-term.

    In November 1997, the Company entered into an equipment line of credit
agreement with Mellon US Leasing (interest rates of 7.60% to 10.25%) to finance
various test equipment with terms of 60 months for each equipment schedule. In
April 1999, Mellon US Leasing extended an additional $2,000,000 of credit under
the same terms as the original agreement. The outstanding balance at
January 31, 2000 is $3,665,000. The note payable to Mellon Bank is
collateralized by equipment with a net book value of $3,595,000 at January 31,
2000. Other secured notes payable at January 31, 2000 includes auto loans of
$22,000 and $147,000 in capital equipment leases acquired with the purchase of
Reintexas Laboratories with terms of 24 months to 60 months and an average
interest rate of 15.7%.

    Maturities of long-term debt consist of regularly scheduled payments on the
Company's term loans to its banks and notes payable. Of the $12,709,000 shown in
the maturities of long term debt (see note 3 to the consolidated financial
statements) due in fiscal 2002, $7,507,000 is the outstanding balance of the

                                       20
<PAGE>
Company's revolving line of credit. All other maturities of long-term debt will
be paid with cash generated from operations.

    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 future working capital will be provided from
operations and the current bank revolving line of credit, which had $2,493,000
available at January 31, 2000.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    The Company is exposed to changes in interest rates primarily from its
long-term debt arrangements. Under its current policies, the Company does not
use interest rate derivative instruments to manage exposure to interest rate
changes. A hypothetical 100 basis point adverse move in interest rates along the
entire interest rate yield curve would adversely affect the net fair value of
all interest sensitive financial instruments by $75,000 at January 31, 2000.

ENVIRONMENTAL MATTERS

    An internal environmental compliance group formed in 1991 continues to
review environmental matters for the Company. It is the opinion of Management
that compliance with applicable environmental regulations will not have a
material effect upon capital expenditures or future earnings of the Company.

IMPACT OF INFLATION

    The Company has not been adversely affected by inflation during the past
three fiscal years. The Company continues to incur increased costs in the areas
of wages, operating supplies and utilities. To date, these increases have been
substantially offset by reductions in other operating areas, and reductions in
interest expense. The Company can give no assurances, however, that in the
future it can offset such increased costs.

ITEM 8.  FINANCIAL STATEMENT AND SUPPLEMENTARY DATA.

    The Company's consolidated financial statements together with the reports
thereon by independent auditors, are attached hereto as Exhibits A (i) and
A (ii).

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURES.

    None.

                                       21
<PAGE>
                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

    The sections entitled "Nomination and Election of Directors" and
"Remuneration of Directors and Officers" in the Company's definitive Proxy
Statement to be furnished to shareholders in connection with the Annual Meeting
of Shareholders to be held on June 23, 2000 are incorporated herein by
reference.

    EXECUTIVE OFFICERS OF THE COMPANY

<TABLE>
<CAPTION>
NAME                          AGE                               POSITION
----                        --------   -----------------------------------------------------------
<S>                         <C>        <C>
Lloyd Blonder.............     60      Senior Vice President and Chief Financial Officer,
                                       Treasurer. Has been associated with the Company
                                         since 1983.

Aaron Cohen...............     63      Senior Vice President, Corporate Development and Vice
                                         Chairman. Has been associated with the Company
                                         since 1961.

Arthur Edelstein..........     62      Senior Vice President, Chief Technical Officer of the
                                       Company. Has been associated with the Company since 1962.

Jack Lin..................     67      President and Chief Executive Officer of the Company. Has
                                       been associated with the Company continuously since 1961.

Harold Lipchik............     71      Corporate Secretary of the Company. Has been associated
                                       with the Company since 1984.

William McGinnis..........     41      Executive Vice President and Group President. Has been
                                         associated with the Company since 1980.

Richard Short.............     57      Group President. Has been associated with the Company
                                         since 1961.

William Traw..............     62      Senior Group Vice President. Has been associated with the
                                         Company since 1963.
</TABLE>

ITEM 11.  EXECUTIVE COMPENSATION.

    The section entitled "Remuneration of Directors and Officers" in the
Company's definitive Proxy Statement to be furnished to shareholders in
connection with the Annual Meeting of Shareholders to be held on June 23, 2000
is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

    The sections entitled "Voting Securities and Principal Holders Thereof" and
"Nomination and Election of Directors" in the Company's definitive Proxy
Statement to be furnished to shareholders in connection with the Annual Meeting
of Shareholders to be held on June 23, 2000 are incorporated herein by
reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

    The section entitled "Transactions with Management and Other" in the
Company's definitive Proxy Statement to be furnished to shareholders in
connection with the Annual Meeting of Shareholders to be held on June 23, 2000
are incorporated herein by reference.

                                       21
<PAGE>
                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

    A.  CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES.

        (i) Consolidated Financial Statements and notes thereto as of
            January 31, 2000 and 1999 and for each of the years in the
            three-year period ended January 31, 2000.

        (ii) Consolidated Financial Statement Schedule.

           II  Valuation and Qualifying Accounts and Reserves

    B.  REPORTS ON FORM 8-K.

    There were no reports on Form 8-K filed during the fourth quarter ended
January 31, 2000.

    C.  EXHIBITS.

<TABLE>
<C>                     <S>
         2              Agreement and Plan of Merger of National Technical Systems,
                        Inc., a Delaware corporation into National Technical
                        Systems, Inc., a California corporation (formerly NTS Merger
                        corporation), (filed as Exhibit 2 to the Company's Annual
                        Report on Form 10-K for the fiscal year ended January 31,
                        1997, and is incorporated herein by reference thereto).

         2.1            Agreement and Plan of Merger dated as of August 21, 1998, by
                        and between National Technical Systems, Inc. and XXCAL,
                        Inc., a California Corporation filed as Exhibit 2.1 to the
                        Company's Form 8-K, (filed November 3, 1998 and is
                        incorporated herein by reference thereto).

         2.2            Amendment No. 1 to Agreement and Plan of Merger dated as of
                        October 19, 1998, by and between National Technical Systems,
                        Inc. and XXCAL, Inc., a California Corporation filed as
                        Exhibit 2.2 to the Company's Form 8-K, (filed November 3,
                        1998 and is incorporated herein by reference thereto).

         2.3            Share Purchase Agreement, dated as of August 21, 1998, by
                        and between National Technical Systems, Inc. and the holders
                        of all of the outstanding Ordinary Shares of XXCAL Limited,
                        a United Kingdom corporation, to acquire all of the
                        outstanding Ordinary Shares, filed as Exhibit 2.3 to the
                        Company's Form 8-K, (filed November 3, 1998 and is
                        incorporated herein by reference thereto).

         2.4            Amendment No. 1 to Share Purchase Agreement dated as of
                        October 19, 1998 by and between National Technical Systems,
                        Inc. and the holders of all of the outstanding Ordinary
                        Shares of XXCAL Limited, a United Kingdom corporation, to
                        acquire all of the outstanding Ordinary Shares, filed as
                        Exhibit 2.4 to the Company's Form 8-K, (filed November 3,
                        1998 and is incorporated herein by reference thereto).

         3.1            Articles of Incorporation of National Technical Systems,
                        Inc., a California corporation (formerly NTS Merger
                        corporation), (filed as Exhibit 3(i) to the Company's Annual
                        Report on Form 10-K for the fiscal year ended January 31,
                        1997, and is incorporated herein by reference thereto).

         3.2            Amendment No. 1 to Articles of Incorporation of National
                        Technical Systems, Inc., a California corporation (formerly
                        NTS Merger corporation), (filed as Appendix A to the
                        Company's Proxy Statement for Annual Meeting of June 26,
                        1998, and is incorporated herein by reference thereto).

         3.3            Bylaws of National Technical Systems, Inc., a California
                        corporation (formerly NTS Merger corporation), (filed as
                        Exhibit 3(ii) to the Company's Annual Report on Form 10-K
                        for the fiscal year ended January 31, 1997, and is
                        incorporated herein by reference thereto).
</TABLE>

                                       22
<PAGE>
<TABLE>
<C>                     <S>
         3.4            Amendment No. 1 to Bylaws of National Technical Systems,
                        Inc., a California corporation (formerly NTS Merger
                        corporation), (filed as Appendix B to the Company's Proxy
                        Statement for Annual Meeting of June 25, 1999, and is
                        incorporated herein by reference thereto).

        10.1            Form of the Company's 1994 Stock Option Plan (filed as
                        Appendix B to the Company's Proxy Statement for Annual
                        Meeting of June 30, 1994, and is incorporated herein by
                        reference thereto).

        10.2            Amendment to the Company's 1994 Stock Option Plan (filed as
                        Proposal No. 3 to the Company's Proxy Statement for Annual
                        Meeting of June 26, 1998, and is incorporated herein by
                        reference thereto).

        10.3            National Technical Systems Credit Agreement between Sanwa
                        Bank California and Mellon Bank dated September 8, 1997
                        (filed as exhibit 10.7 to the Company's form 10-Q for the
                        fiscal quarter ended October 31, 1997, and is incorporated
                        herein by reference thereto).

        10.4            Second Amendment to Credit Agreement between Sanwa Bank
                        California, Mellon Bank and NTS dated October 30, 1998
                        Exhibit 10.(c)(2) to the Company's Form 8-K, (filed
                        November 3, 1998 and is incorporated herein by reference
                        thereto).

        10.5            Third Amendment to Credit Agreement between Sanwa Bank
                        California, Mellon Bank and NTS dated October 29, 1999
                        Exhibit 10.6 to the Company's Form 10-Q, (filed
                        December 13, 1999 and is incorporated herein by reference
                        thereto).

        10.6            Fourth Amendment to Credit Agreement between Sanwa Bank
                        California, Mellon Bank and NTS dated April 27, 2000.

        21              Subsidiaries of the Company.

        27              Financial Data Schedule.

        23.1            Consent of Ernst & Young LLP, Independent Auditors.

        23.2            Consent of Duitch, Franklin & Co., LLP, Independent
                        Auditors.

        99.1            Undertakings incorporated by reference into Form S-8
                        Registration Statement No. 33-48211.

        99.2            Undertakings incorporated by reference into Form S-8
                        Registration Statement No. 2-83778.

        99.3            Undertakings incorporated by reference into Form S-8
                        Registration Statement No. 333-04905.

        99.4            Undertakings incorporated by reference into Form S-8
                        Registration Statement No. 333-67743.
</TABLE>

                                       23
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

<TABLE>
<S>                                                    <C> <C>
April 28, 2000                                         NATIONAL TECHNICAL SYSTEMS, INC.

                                                       By                 /s/ JACK LIN
                                                           ------------------------------------------
                                                                            Jack Lin,
                                                             PRESIDENT (PRINCIPAL EXECUTIVE OFFICER)
</TABLE>

    Pursuant to the requirements of Section 13 or 15(d) 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 indicated on April 28, 2000.

<TABLE>
<S>                                               <C>
                /s/ JACK LIN                                   /s/ ALOYSIUS CASEY
-------------------------------------------       -------------------------------------------
                 Jack Lin,                                      Aloysius Casey,
  PRESIDENT (PRINCIPAL EXECUTIVE OFFICER &                   CHAIRMAN OF THE BOARD
                 DIRECTOR)

            /s/ ARTHUR EDELSTEIN                                /s/ AARON COHEN
-------------------------------------------       -------------------------------------------
             Arthur Edelstein,                                    Aaron Cohen,
   EXECUTIVE VICE PRESIDENT AND DIRECTOR             VICE CHAIRMAN OF THE BOARD AND SENIOR
                                                                VICE PRESIDENT

             /s/ LLOYD BLONDER                                /s/ WILLIAM MCGINNIS
-------------------------------------------       -------------------------------------------
               Lloyd Blonder,                                  William McGinnis,
    SENIOR VICE PRESIDENT AND TREASURER            EXECUTIVE VICE PRESIDENT, GROUP PRESIDENT
          (PRINCIPAL FINANCIAL AND                               AND DIRECTOR
            ACCOUNTING OFFICER)

             /s/ MARVIN HOFFMAN                                /s/ ROBERT I. LIN
-------------------------------------------       -------------------------------------------
              Marvin Hoffman,                                    Robert I. Lin,
  CHIEF INFORMATION OFFICER AND DIRECTOR                            DIRECTOR

            /s/ RICHARD D SHORT                               /s/ RALPH F CLEMENTS
-------------------------------------------       -------------------------------------------
             Richard D. Short,                                 Ralph F. Clements,
        GROUP PRESIDENT AND DIRECTOR                                DIRECTOR

             /s/ WILLIAM L TRAW                              /s/ DONALD J. TRINGALI
-------------------------------------------       -------------------------------------------
              William L. Traw,                                Donald J. Tringali,
 SENIOR GROUP VICE PRESIDENT AND DIRECTOR                           DIRECTOR
</TABLE>

                                       24
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

<TABLE>
<S>                                                           <C>
Report of Independent Auditors..............................     26

Financial Statements:

  Consolidated Balance Sheets--January 31, 2000 and 1999....     27

  Consolidated Statements of Income--Years ended
    January 31, 2000, 1999 and 1998.........................     28

  Consolidated Statements of Shareholders' Equity--Years
    ended January 31, 2000, 1999 and 1998...................     29

  Consolidated Statements of Cash Flows--Years ended
    January 31, 2000, 1999 and 1998.........................     30

Notes to Consolidated Financial Statements..................     31

                                                              SCHEDULE
                                                                 --
<S>                                                           <C>
Schedule Supporting Financial Statements:

  Valuation and Qualifying Accounts and Reserves............     II
</TABLE>

------------------------

All other schedules are omitted as inapplicable or because the required
information is contained in the financial statements or the notes thereto.

                                       25
<PAGE>
               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Shareholders
National Technical Systems, Inc.

    We have audited the accompanying consolidated balance sheets of National
Technical Systems, Inc. and Subsidiaries as of January 31, 2000 and 1999, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended January 31, 2000. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits. We did not audit the 1998
financial statements of XXCAL, Inc., a wholly-owned subsidiary, which statement
reflects revenues constituting 31% of the related consolidated revenues. That
income statement was audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the income statement data
included for XXCAL, Inc., is based solely on the report of other auditors.

    We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we 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. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.

    In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of National Technical
Systems, Inc. and Subsidiaries at January 31, 2000 and 1999 and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended January 31, 2000, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

                                          /s/ Ernst & Young LLP

Woodland Hills, California
April 14, 2000, except for the third paragraph of Note 3,
  as to which the date is April 27, 2000

                                       26
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                           JANUARY 31, 2000 AND 1999

                                     ASSETS

<TABLE>
<CAPTION>
                                                                 2000          1999
                                                              -----------   -----------
<S>                                                           <C>           <C>
CURRENT ASSETS:
  Cash......................................................  $ 3,133,000   $ 2,599,000
  Accounts receivable, less allowance for doubtful accounts
    of $803,000 in 2000 and $904,000 in 1999................   20,114,000    20,120,000
  Income taxes receivable...................................    1,387,000        56,000
  Inventories...............................................    1,804,000     1,640,000
  Deferred tax assets.......................................      847,000       919,000
  Prepaid expenses..........................................      719,000     1,099,000
                                                              -----------   -----------
    Total current assets....................................   28,004,000    26,433,000
Property, plant and equipment
  Land......................................................    1,460,000     1,306,000
  Buildings.................................................    8,484,000     8,200,000
  Machinery and equipment...................................   48,803,000    40,545,000
  Leasehold improvements....................................    4,600,000     4,172,000
                                                              -----------   -----------
    Total property, plant and equipment.....................   63,347,000    54,223,000
  Less: accumulated depreciation............................   36,310,000    33,402,000
                                                              -----------   -----------
    Net property, plant and equipment.......................   27,037,000    20,821,000
Property held for sale......................................      544,000       544,000
Intangible assets, net......................................    1,077,000       544,000
Other assets................................................    1,969,000     1,489,000
                                                              -----------   -----------
    TOTAL ASSETS............................................  $58,631,000   $49,831,000
                                                              ===========   ===========

                         LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable..........................................  $ 5,249,000   $ 3,493,000
  Accrued expenses..........................................    3,222,000     3,785,000
  Income taxes payable......................................      106,000       113,000
  Current installments of long-term debt....................    3,195,000     2,091,000
                                                              -----------   -----------
    Total current liabilities...............................   11,772,000     9,482,000
Long-term debt, excluding current installments..............   18,639,000    13,076,000
Deferred income taxes, net..................................    3,075,000     2,565,000
Deferred compensation.......................................      615,000       555,000
Minority interest...........................................       67,000        51,000
Commitments and contingencies
SHAREHOLDERS' EQUITY:
  Common stock, no par value. Authorized,
    20,000,000 shares; issued and outstanding 8,404,000 in
    2000 and 8,319,000 in 1999..............................   11,764,000    11,472,000
  Retained earnings.........................................   12,706,000    12,630,000
  Accumulated other comprehensive income (loss).............       (7,000)           --
                                                              -----------   -----------
    Total shareholders' equity..............................   24,463,000    24,102,000
                                                              -----------   -----------
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..............  $58,631,000   $49,831,000
                                                              ===========   ===========
</TABLE>

                            See accompanying notes.

                                       27
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME

                  YEARS ENDED JANUARY 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                           2000          1999          1998
                                                        -----------   -----------   -----------
<S>                                                     <C>           <C>           <C>
Net revenues..........................................  $84,124,000   $86,813,000   $80,921,000
Cost of sales.........................................   60,129,000    60,830,000    57,261,000
                                                        -----------   -----------   -----------
Gross profit..........................................   23,995,000    25,983,000    23,660,000
Selling, general and administrative expense...........   18,905,000    19,583,000    17,088,000
Merger costs..........................................           --       907,000            --
                                                        -----------   -----------   -----------
Operating income......................................    5,090,000     5,493,000     6,572,000
Other income (expense):
  Interest expense....................................   (1,544,000)   (1,253,000)   (1,245,000)
  Settlement and related legal expenses...............   (1,598,000)           --            --
  Other...............................................     (131,000)       91,000       118,000
                                                        -----------   -----------   -----------
                                                         (3,273,000)   (1,162,000)   (1,127,000)
Income from continuing operations before income taxes
  and minority interest...............................    1,817,000     4,331,000     5,445,000
Income taxes..........................................      722,000     1,544,000     1,996,000
                                                        -----------   -----------   -----------
Income from continuing operations before minority
  interest............................................    1,095,000     2,787,000     3,449,000
Minority interest.....................................      (16,000)      (24,000)      (26,000)
                                                        -----------   -----------   -----------
Income from continuing operations.....................    1,079,000     2,763,000     3,423,000
Income (loss) from discontinued operations, net of
  income taxes (benefit) of ($226,000), $198,000 and
  $18,000 in 2000, 1999 and 1998, respectively........     (274,000)      358,000        32,000
Cumulative effect of change in accounting for start-up
  costs, net of income taxes (benefit) of
  ($483,000)..........................................           --      (482,000)           --
                                                        -----------   -----------   -----------
Net income............................................  $   805,000   $ 2,639,000   $ 3,455,000
                                                        ===========   ===========   ===========
Basic earnings (loss) per common share:
  Continuing operations...............................  $      0.13   $      0.34   $      0.42
  Discontinued operations.............................        (0.03)         0.04            --
  Cumulative effect of change in accounting...........           --         (0.06)           --
                                                        -----------   -----------   -----------
Net income*...........................................  $      0.10   $      0.32   $      0.43
                                                        ===========   ===========   ===========
Diluted earnings (loss) per common share:
  Continuing operations...............................  $      0.13   $      0.32   $      0.41
  Discontinued operations.............................        (0.03)         0.04            --
  Cumulative effect of change in accounting...........           --         (0.06)           --
                                                        -----------   -----------   -----------
Net income*...........................................  $      0.09   $      0.31   $      0.41
                                                        ===========   ===========   ===========
Weighted average common shares outstanding............    8,345,000     8,236,000     8,061,000
Dilutive effect of stock options......................      194,000       374,000       389,000
                                                        -----------   -----------   -----------
Weighted average common shares outstanding, assuming
  dilution............................................    8,539,000     8,610,000     8,450,000
                                                        ===========   ===========   ===========
</TABLE>

------------------------

*   Per share data may not always add up to total for the year because each
    figure is independently calculated

                            See accompanying notes.

                                       28
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                  YEARS ENDED JANUARY 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                             COMMON STOCK
                                        -----------------------    ADDITIONAL                   ACCUMULATED         TOTAL
                                         NUMBER                     PAID-IN       RETAINED     COMPREHENSIVE    SHAREHOLDERS'
                                        OF SHARES     AMOUNT        CAPITAL       EARNINGS     INCOME (LOSS)       EQUITY
                                        ---------   -----------   ------------   -----------   --------------   -------------
<S>                                     <C>         <C>           <C>            <C>           <C>              <C>
Balance at January 31, 1997...........  7,936,000   $   134,000   $ 10,610,000   $ 8,047,000      $    --        $18,791,000
Net income............................        --             --             --     3,455,000           --          3,455,000
Foreign currency translation..........        --             --             --        (5,000)          --             (5,000)
Stock issued in lieu of wages.........    40,000         92,000             --            --           --             92,000
Stock options exercised...............   195,000        175,000             --            --           --            175,000
Repurchase of common stock............    (2,000)        (5,000)            --            --           --             (5,000)
Tax benefit from stock options
  exercise............................        --        159,000             --            --           --            159,000
Extension of stock options............        --        119,000             --            --           --            119,000
Common stock change to no par.........        --     10,610,000    (10,610,000)           --           --                 --
XXCAL Paid-in-capital.................                 (165,000)       165,000            --           --                 --
Distributions to subchapter S
  shareholders........................        --             --             --      (323,000)          --           (323,000)
Cash dividends........................        --             --             --      (416,000)          --           (416,000)
                                        ---------   -----------   ------------   -----------      -------        -----------
Balance at January 31, 1998...........  8,169,000    11,119,000        165,000    10,758,000           --         22,042,000
Net income............................        --             --             --     2,639,000           --          2,639,000
Earnings from merged entity not
  include in net income...............        --             --             --       181,000           --            181,000
Stock options exercised...............   150,000        188,000             --            --           --            188,000
XXCAL Common stock change to no par...        --        165,000       (165,000)           --           --                 --
Distributions to subchapter S
  shareholders........................        --             --             --      (442,000)          --           (442,000)
Cash dividends NQA-UK.................        --             --             --       (17,000)          --            (17,000)
Cash dividends........................        --             --             --      (489,000)          --           (489,000)
                                        ---------   -----------   ------------   -----------      -------        -----------
Balance at January 31, 1999...........  8,319,000    11,472,000             --    12,630,000           --         24,102,000
Net income............................        --             --             --       805,000           --            805,000
Foreign currency translation..........        --             --             --            --       (7,000)            (7,000)
                                                                                                                 -----------
  Comprehensive income................                                                                               798,000
Stock options exercised...............    95,000        171,000             --            --           --            171,000
Stock retired for option exercise.....   (10,000)       (56,000)                          --           --            (56,000)
Tax benefit from stock options
  exercise............................        --        177,000             --            --           --            177,000
Distributions to subchapter S
  shareholders........................        --             --             --      (120,000)          --           (120,000)
Cash dividends NQA-UK.................        --             --             --       (25,000)          --            (25,000)
Cash dividends........................        --             --             --      (584,000)          --           (584,000)
                                        ---------   -----------   ------------   -----------      -------        -----------
Balance at January 31, 2000...........  8,404,000   $11,764,000   $          0   $12,706,000      $(7,000)       $24,463,000
                                        =========   ===========   ============   ===========      =======        ===========
</TABLE>

                            See accompanying notes.

                                       29
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                  YEARS ENDED JANUARY 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                  2000          1999           1998
                                                              ------------   -----------   ------------
<S>                                                           <C>            <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income from continuing operations.....................  $  1,079,000   $ 2,763,000   $  3,423,000
  Adjustments to reconcile net income to cash provided by
    operating activities:
    Depreciation and amortization...........................     3,477,000     2,934,000      2,437,000
    Stock issued in lieu of compensation....................            --            --        210,000
    Provisions for losses (recoveries) on receivables.......      (101,000)      163,000        (37,000)
    Loss on retirement of assets............................         9,000       100,000          3,000
    Earnings from merged entity not included in net
      income................................................            --       181,000             --
    Undistributed earnings of affiliate.....................        16,000        24,000         26,000
    Deferred income taxes...................................       582,000      (134,000)       163,000
    Changes in assets and liabilities:
      Accounts receivable...................................       330,000    (1,901,000)    (2,586,000)
      Inventories...........................................      (164,000)      220,000        411,000
      Prepaid expenses......................................       380,000      (180,000)        26,000
      Other assets..........................................      (306,000)      (90,000)      (139,000)
      Deferred revenues.....................................            --            --        (20,000)
      Accounts payable......................................     1,712,000       117,000       (457,000)
      Income taxes..........................................    (1,338,000)       92,000        (75,000)
      Deferred compensation.................................        60,000        60,000         99,000
      Accrued expenses......................................      (953,000)      395,000       (107,000)
                                                              ------------   -----------   ------------
  Cash provided by continuing operations....................     4,783,000     4,744,000      3,377,000
    Gain (loss) from discontinued operations................      (274,000)      358,000         32,000
    Loss from cumulative effect of start-up costs...........            --      (482,000)            --
                                                              ------------   -----------   ------------
  Cash provided by operating activities.....................     4,509,000     4,620,000      3,409,000
                                                              ------------   -----------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property, plant and equipment.................    (8,242,000)   (4,397,000)    (4,125,000)
  Investment in life insurance..............................      (174,000)     (155,000)      (192,000)
  Acquisition of business, net of cash......................    (1,782,000)           --       (275,000)
  Net cash paid on employee loans and notes receivable......            --            --        (13,000)
  Proceeds from sale of assets..............................            --        24,000         18,000
                                                              ------------   -----------   ------------
  Cash used for investing activities........................   (10,198,000)   (4,528,000)    (4,587,000)
                                                              ------------   -----------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from current and long-term debt..................    10,471,000     7,283,000     17,627,000
  Proceeds from stock options exercised.....................       115,000       188,000        175,000
  Tax benefit from stock options exercised..................       177,000            --        159,000
  Cash dividends paid to NQA-UK.............................       (25,000)      (17,000)            --
  Cash dividends paid.......................................      (584,000)     (489,000)      (416,000)
  Repurchase of common stock................................            --            --         (5,000)
  Distributions to subchapter S shareholders................      (120,000)     (442,000)      (323,000)
  Repayments of current and long-term debt..................    (3,804,000)   (6,526,000)   (14,960,000)
                                                              ------------   -----------   ------------
  Cash provided by (used for) financing activities..........     6,230,000        (3,000)     2,257,000
                                                              ------------   -----------   ------------
  Effect of exchange rate changes on cash and cash
    equivalents.............................................        (7,000)           --             --
                                                              ------------   -----------   ------------
Net increase in cash........................................       534,000        89,000      1,079,000
BEGINNING CASH BALANCE......................................     2,599,000     2,510,000      1,431,000
                                                              ------------   -----------   ------------
ENDING CASH BALANCE.........................................  $  3,133,000   $ 2,599,000   $  2,510,000
                                                              ============   ===========   ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments during the year for:
  Interest..................................................     1,575,000     1,271,000      1,348,000
  Income taxes..............................................     1,076,000     1,301,000      1,757,000
Cash received during the year for:
  Income taxes..............................................         3,000         2,000          4,000
</TABLE>

                            See accompanying notes.

                                       30
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        JANUARY 31, 2000, 1999 AND 1998

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

    The consolidated financial statements include the accounts of National
Technical Systems, Inc. (NTS or the "Company") and its subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation. Certain 1998 and 1999 amounts have been reclassified to conform
with the 2000 presentation.

    On October 30, 1998, NTS completed its merger with XXCAL, Inc. and
acquisition of XXCAL Limited (together, "XXCAL"). The statements are presented
based on the "pooling of interests" method of accounting pursuant to Opinion
No. 16 of the Accounting Principles Board (APB 16). They include the combined
financial statements of NTS and XXCAL from the beginning of the fiscal year. All
prior year financial statements have also been restated to reflect the pooling
of interests method of accounting. In management's opinion, all adjustments have
been made to present fairly the results of the combined financial statements.

    The Company has consolidated NQA-USA, a 50% owned subsidiary for which the
distribution of profits and losses is 62% to the Company, and 38% to the other
shareholder. NTS controls the management decisions and elects the president of
NQA who has complete operating control of the subsidiary. XXCAL Japan is a 52%
owned subsidiary which started in fiscal 1999 and is accounted for under the
equity method since NTS does not have management or board control. The equity
investment is $120,000.

RISKS AND UNCERTAINTIES

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Estimates made by the Company relate primarily to the
recognition of revenue under long-term contracts, valuation of contract claims,
the valuation of certain real estate held for sale and estimates for future
expenses related to discontinued operations. Actual results could differ from
those estimates.

REVENUE RECOGNITION

    Revenues are derived from development, qualification and production testing
and engineering services for commercial products, space systems and military
equipment of all types. The Company also provides technical staffing,
qualification of safety related systems and components, and ISO 9000
certification services.

    Revenue from testing contracts is recorded upon completion of the contracts,
which are generally short-term, or identifiable contractual tasks. Revenue from
contracts which are cost-based are recorded as effort is expended. The Company
measures progress on long-term contracts on the basis of efforts-expended (hours
charged). Billings in excess of amounts earned are deferred. The Company has
entered into fixed-price contracts. Accounting for these contracts involves
considerable cost and revenue estimation. Such estimates are reviewed
periodically over the life of the contracts and any changes in projected cost
and revenue are appropriately reflected in income. Any anticipated losses on
contracts are charged to income when identified. All selling, general and
administrative costs are treated as period costs and expensed as incurred.

                                       31
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2000, 1999 AND 1998

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES

    Inventories consist of accumulated costs including direct labor, material
and overhead applicable to uncompleted contracts and are stated at actual cost
which is not in excess of estimated net realizable value.

PROPERTY HELD FOR SALE

    The Company owns a parcel of land in San Diego County, California, which was
offered for sale in the fourth quarter of fiscal 1988. The property was acquired
for approximately $544,000. The Company anticipates that sales proceeds will
exceed the net book value of the property.

PROPERTY, PLANT AND EQUIPMENT

    Property, plant, and equipment is stated at actual cost and is depreciated
and amortized using the straight-line method over the following estimated useful
lives:

<TABLE>
<S>                                                       <C>
Buildings...............................................         30 to 35 years
Machinery and equipment.................................          3 to 20 years
Leasehold improvements..................................     Terms of lease, or
                                                          estimated useful life
                                                           (whichever is less)
</TABLE>

    The Company capitalizes certain machinery and equipment repair costs which
are irregular in occurrence. These costs are charged to expense over a one-year
period.

INTANGIBLE ASSETS

    Intangible assets consist primarily of the excess of cost over net assets
acquired and are amortized over 5 to 20 years using the straight-line method.
Accumulated amortization was $465,000 as of January 31, 2000 and $232,000 as of
January 31, 1999.

LONG-LIVED ASSETS

    In accordance with Statement of Financial Accounting Standards No. 121
"Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of" ("SFAS
No. 121"), long-lived and certain identifiable intangible assets held and used
by the Company will be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The recoverability test will be performed on undiscounted net cash
flows of the entities acquired over the remaining amortization period. Based on
the Company's analysis under SFAS No. 121, the Company believes that no
impairment of the carrying value of its long-lived assets inclusive of goodwill
existed at January 31, 2000.

COMPREHENSIVE INCOME

    As of February 1, 1998, the Company adopted Statement No. 130, "Reporting
Comprehensive Income" (SFAS No. 130). SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and its components. It requires
display of unrealized gains or losses on available-for-sale

                                       32
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2000, 1999 AND 1998

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
securities and foreign currency translation adjustments. Accumulated other
comprehensive loss as of January 31, 2000 was $7,000 due to foreign currency
translation adjustments. Prior year financial statements have not been
reclassified to conform to the requirements of SFAS No. 130 since these
accounting transactions were not material.

SEGMENT INFORMATION

    In fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS No. 131). SFAS No. 131 supersedes Statement of Financial
Accounting Standards No. 14, "Financial Reporting for Segments of a Business
Enterprise" replacing the industry segment approach with the management
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments. SFAS No. 131 also requires
disclosures about products and services, geographic areas and major customers.
The adoption of SFAS No. 131 did not affect results of operations or the
financial position of the Company.

EARNINGS PER SHARE

    Basic and diluted net income per common share is presented in conformity
with Statement of Financial Accounting Standards No. 128, "Earnings Per
Share"(FAS 128) for all periods presented. In accordance with FAS 128, basic
earnings per share has been computed using the weighted average number of shares
of common stock outstanding during the year. Basic earnings per share excludes
any dilutive effects of options, warrants and convertible securities.

FOREIGN CURRENCY TRANSLATION

    The accounts of the foreign divisions are translated into United States
dollars in accordance with Statement of Financial Accounting Standard No. 52,
"Foreign Currency Translation" (FAS 52). All balance sheet accounts have been
translated using the current rate of exchange at the balance sheet date. Results
of operations have been translated using the average rates prevailing throughout
the year. Translation gains or losses resulting from the changes in the exchange
rates from year-to-year are accumulated in a separate component of shareholders'
equity. Translation losses of $7,000 were recorded in fiscal year 2000.Prior
years translation gains and losses were immaterial.

MERGER COSTS

    In fiscal 1999, the Company incurred $907,000 in one-time merger costs
related to outside consulting, accounting and, legal fees and other costs and
expenses specifically associated with the merger between NTS and XXCAL and in
accordance with APB 16 these costs were expensed as incurred. The majority of
these merger costs are non-deductible for tax purposes.

START-UP EXPENSES

    In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting the Costs of Start-Up Activities"
(SOP 98-5), which requires that costs related to start-up activities be expensed
as incurred. The Company adopted the provisions of the SOP in its financial

                                       33
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2000, 1999 AND 1998

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
statements during the third quarter of fiscal year ending January 31, 1999. The
effect of adoption of SOP 98-5 was to record as a one-time charge the cumulative
effect of changes in accounting of $482,000 ($0.06 per basic share and diluted
share) net of taxes of $483,000 to expense all start-up costs.

RECENTLY ISSUED ACCOUNTING STANDARDS

    In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments and hedging activities. The Statement will
require the recognition of all derivatives on the Company's balance sheet at
fair value. The Financing Accounting Standards Board has subsequently delayed
implementation of the standard for the financial years beginning after June 15,
2000. The Company expects to adopt the new Statement effective February 1, 2001.
The impact on the Company's financial statements is not expected to be material.

(2)  BUSINESS DISPOSITION AND ACQUISITION

MCCLELLAN AIR FORCE BASE, SACRAMENTO, CALIFORNIA

    During fiscal 1998, the Company took over the operations and employees of
the Science and Engineering Test Laboratories at McClellan Air Force base
located in Sacramento, California. This facility allowed the Company to enter a
new segment of business which provided chemical, materials and electronic
analysis for the government, including failure analysis of fuels and lubricants,
electronic components, materials and processes, metal fatigue simulation and
corrosion analysis. This was the only facility in the Company that had the
necessary equipment and knowledge to perform these types of testing services.

    During the fourth quarter of fiscal 2000 the Company decided to discontinue
this line of business and close its operations in Sacramento as it experienced a
significant loss of business due to the government decision to transfer work,
planned for that operation, to another Air Force base.

    Results of operations related to the discontinued operations are as follows:

<TABLE>
<CAPTION>
                                                2000         1999        1998
                                              ---------   ----------   --------
<S>                                           <C>         <C>          <C>
Revenues....................................  $ 947,000   $2,724,000   $375,000
                                              ---------   ----------   --------
Gain (loss) from discontinued operations:
  Science and Engineering Laboratories......  $(436,000)  $  556,000   $ 50,000
Estimated future shutdown expenses..........    (64,000)          --         --
Income taxes (benefit) from discontinued
  operations................................   (226,000)     198,000     18,000
                                              ---------   ----------   --------
                                              $(274,000)  $  358,000   $ 32,000
                                              =========   ==========   ========
</TABLE>

TELECOMMUNICATIONS TESTING LABORATORY

    In November 1999, the Company acquired the assets and assumed certain
liabilities of Reintexas Laboratories, a Plano, Texas facility owned by Reintech
Laboratories for $1,300,000 cash and an additional

                                       34
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2000, 1999 AND 1998

(2)  BUSINESS DISPOSITION AND ACQUISITION (CONTINUED)
consideration not to exceed $300,000 if the revenues exceed certain targeted
levels. Such additional consideration will be paid in cash and recorded when
earned as additional purchase price. As of January 31, 2000, nothing was earned.
The operation performs electromagnetic compatibility testing for the
telecommunications industry. The fixed assets consisted primarily of
electromagnetic compatibility testing equipment which complement one of the
Company's primary business segments. The transaction was accounted for as a
purchase of assets and resulted in goodwill of $313,000.

QUALITY REGISTRATION AND CERTIFICATION COMPANIES

    In March 1999, NTS-CS a subsidiary of the Company acquired the Assets of
Davy Registrar Services and Scott Quality Systems Registrars, a Pittsburgh,
Pennsylvania based quality registration business, for $482,000 cash. The
companies acquired provide quality registration and certification services
including electronics, telecommunications, and medical products. The transaction
was accounted for as a purchase of assets and resulted in goodwill of $483,000.

INFORMATION TECHNOLOGY MANAGED SERVICES COMPANY

    On October 30, 1998, NTS completed its merger with XXCAL. The merger was
treated as a pooling of interests whereby NTS issued to the shareholders of
XXCAL 1,297,878 shares of NTS common stock constituting 15.6% of the outstanding
common stock of NTS after giving effect to the merger. NTS has also reserved an
additional 214,622 shares of its common stock for issuance upon exercise of
outstanding XXCAL stock options that were assumed by the Company.

    The financial statements are presented based on the "pooling of interests"
method of accounting pursuant to Opinion No. 16 of the Accounting Principles
Board (APB 16). They include the combined financial statements of NTS and XXCAL
from the beginning of the fiscal year. All prior year financial statements have
also been restated to reflect the pooling of interests method of accounting.
There have been no intercompany transactions. In management's opinion, all
adjustments have been made to present fairly the results of the combined
financial statements, none of which impacted the financial results or position
of the Company. The one month results for XXCAL in January 1998 are excluded
from the results of operations in order to reflect the same twelve month period
in fiscal 1999. The resulting net income of $181,000 on net revenues of
$2,297,000 for the one month is included in equity.

    The separate unaudited results for XXCAL and NTS for the period from
February 1, 1998 through October 30, 1998 prior to the business combination were
as follows:

<TABLE>
<CAPTION>
                                                         NTS          XXCAL
                                                     -----------   -----------
<S>                                                  <C>           <C>
Revenue............................................  $45,639,000   $22,413,000
Net Income.........................................  $   695,000   $   780,000
</TABLE>

                                       35
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2000, 1999 AND 1998

(3)  DEBT

    Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                 2000          1999
                                                              -----------   -----------
<S>                                                           <C>           <C>
Revolving lines of credit(a)................................  $ 7,507,000   $ 4,107,000
Term loans payable to banks(b)..............................    8,333,000     7,133,000
Notes payable (interest rates of 8.50% to 10.95%),
  collateralized by land and buildings, with a net book
  value of $2,891,000.......................................    1,772,000     1,857,000
Secured notes payable(c)....................................    3,834,000     1,640,000
Loans from employee and officers(d).........................      388,000       430,000
                                                              -----------   -----------
Subtotal....................................................   21,834,000    15,167,000
Less current installments...................................    3,195,000     2,091,000
                                                              -----------   -----------
Total.......................................................  $18,639,000   $13,076,000
                                                              ===========   ===========
</TABLE>

------------------------

(a) The Credit Agreement includes a $6,000,000 revolving line of credit at an
    interest rate equal to the bank's reference rate plus 0.25%. On October 30,
    1998, the Credit Agreement was amended to extend the term of the revolving
    line to September 8, 2000 and to increase the revolving line amount from
    $6,000,000 to $8,000,000 at an interest rate equal to the bank's reference
    rate. A flat fee of $18,750 was charged to set up the new revolving line and
    a facility fee of 0.5% of the total line is charged on a quarterly basis. On
    October 29, 1999, the Credit Agreement was amended again to extend the term
    of the revolving line to September 8, 2001and to increase the revolving line
    amount from $8,000,000 to $10,000,000 at an interest rate equal to the
    bank's reference rate. The outstanding balance at January 31, is $7,507,000
    compared with an outstanding balance of $4,107,000 at January 31, 1999. This
    balance is reflected in the accompanying consolidated balance sheets as
    long-term.

(b) The Credit Agreement also includes a $6,500,000 term loan at an interest
    rate of 8.31% which expires in January 2003. On October 30, 1998, the
    Company added a new term loan for $2,000,000 at an interest rate equal to
    the bank's reference rate plus 0.25% and a maturity date of November 1,
    2003. On October 29, 1999, the Company added another new term loan for
    $3,000,000 at an interest rate equal to the bank's reference rate plus 0.50%
    and a maturity date of October 31, 2004. On November 5, 1999, the interest
    rate for the new term loan was converted from the reference rate base to a
    fixed rate base at an annual rate of 8.88%.

    The term loan and line of credit noted above are subject to certain
    covenants and require the maintenance of certain working capital,
    debt-to-equity, earnings-to-expense and cash flow ratios. Under these
    agreements, the Company may declare and pay cash dividends up to 40% of net
    income. The Company may not make any distribution other than dividends to
    its shareholders or repurchase any of the Company's stock without the banks'
    prior approval. As of January 31, 2000 the Company was in violation of
    certain of those covenants, for which the Company has received a waiver and
    amended the covenants on April 27, 2000 in order for the Company to be in
    compliance through January 31, 2001, based on the Company's projections for
    the year ended January 31, 2001. Sanwa Bank California and Mellon Bank share
    60% and 40% respectively in these loan agreements. These loan agreements are
    collateralized by substantially all of the Company's accounts receivable and
    machinery and equipment other than those which serve as collateral for the
    notes in (c) below.

                                       36
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2000, 1999 AND 1998

(3)  DEBT (CONTINUED)
(c) In November 1997, the Company entered into an equipment line of credit
    agreement with Mellon US Leasing (interest rates of 7.60% to 10.25%) to
    finance various test equipment with terms of 60 months for each equipment
    schedule. In April of 1999, Mellon US Leasing extended an additional
    $2,000,000 of credit under the same terms of the original agreement. The
    outstanding balance at January 31, 2000 is $3,665,000. The note payable to
    Mellon Bank is collateralized by equipment with a net book value of
    $3,595,000 at January 31, 2000. Other secured notes payable at January 31,
    2000 includes auto loans of $22,000 and $147,000 in capital equipment leases
    acquired with the purchase of Reintexas Laboratories with terms of
    24 months to 60 months and an average interest rate of 15.7%.

(d) The Company has unsecured demand notes payable to two officers of the
    Company and one employee in the aggregate amount of $388,000 as of
    January 31, 2000. The interest on the officer note is payable monthly and is
    based on the bank's reference rate less three basis points and the interest
    on the other two notes is payable monthly and ranges from 8% to 9% per
    annum.

    The weighted average interest rate on the Company's short-term debt in 2000
    and 1999 is approximately 8.82% and 8.45%, respectively.

    Maturities of long-term debt for five years subsequent to January 31, 2000
    are as follows:

<TABLE>
    <S>                                                          <C>
    2001.......................................................  $ 3,195,000
    2002.......................................................   12,709,000
    2003.......................................................    3,247,000
    2004.......................................................    1,631,000
    2005.......................................................    1,052,000
    Thereafter.................................................            0
                                                                 -----------
                                                                 $21,834,000
                                                                 ===========
</TABLE>

    In accordance with the requirements of Statement of Financial Accounting
    Standards No. 107, "Disclosure about Fair Value of Financial Instruments", a
    reasonable estimate of fair value for the Company's fixed rate debt was
    based on a discounted cash flow analysis. The carrying amount of other debt,
    including borrowings under the Company's revolving lines of credit,
    approximate its fair value.

    The carrying amounts and estimated fair values of the Company's financial
    instruments are:

<TABLE>
<CAPTION>
                                                   2000         2000         1999         1999
                                                 CARRYING    ESTIMATED     CARRYING    ESTIMATED
                                                  AMOUNT     FAIR VALUE     AMOUNT     FAIR VALUE
                                                ----------   ----------   ----------   ----------
    <S>                                         <C>          <C>          <C>          <C>
    Term loans payable to banks...............  $8,333,000   $8,684,000   $7,133,000   $7,310,000
    Notes payable.............................   1,772,000    1,904,000    1,857,000    1,929,000
    Secured notes payable.....................   3,834,000    3,999,000    1,640,000    1,653,000
    Revolving lines of credit.................   7,507,000    7,507,000    4,107,000    4,107,000
    Loans from employee and officer...........     388,000      388,000      430,000      430,000
</TABLE>

                                       37
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2000, 1999 AND 1998

(4)  INCOME TAXES

    Until the merger with NTS, XXCAL had elected to be taxed as a subchapter S
Corporation, whereby the entire federal and California taxable income or loss of
XXCAL was reportable by the shareholders. XXCAL incurred a corporate franchise
tax to the state of Texas and a 1.5% California surtax.

    Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes.
Pre-tax income generated from foreign operations was $354,000, $252,000 and
$130,000 in fiscal 2000, 1999 and 1998, respectively. Accumulated foreign
earnings were $734,000 as of January 31, 2000. The earnings associated with the
Company's foreign subsidiary are considered to be permanently invested and no
provision for U.S. federal or state income taxes is provided.

    The provision (benefit) for income tax expense from continuing operations
consists of:

<TABLE>
<CAPTION>
                                               2000        1999         1998
                                             --------   ----------   ----------
<S>                                          <C>        <C>          <C>
Current:
  Federal..................................  $ (1,000)  $1,333,000   $1,411,000
  State....................................    35,000      294,000      396,000
  Foreign..................................   106,000       51,000       26,000
                                             --------   ----------   ----------
                                              140,000    1,678,000    1,833,000

Deferred:
  Federal..................................   462,000     (102,000)     137,000
  State....................................   120,000      (32,000)      26,000
                                             --------   ----------   ----------
                                              582,000     (134,000)     163,000
                                             --------   ----------   ----------
Income tax expense.........................  $722,000   $1,544,000   $1,996,000
                                             ========   ==========   ==========
</TABLE>

    The following is a reconciliation of the difference between the actual
provision for income taxes and the provision computed by applying the federal
statutory tax rate on income from continuing operations before income taxes:

<TABLE>
<CAPTION>
                                                              2000         1999         1998
                                                           ----------   ----------   ----------
<S>                                                        <C>          <C>          <C>
Income from continuing operations before income taxes....  $1,817,000   $4,331,000   $5,445,000
                                                           ==========   ==========   ==========
Federal income tax computed at statutory rate............     618,000    1,473,000    1,851,000
Amortization of goodwill.................................       3,000       31,000       17,000
State income taxes, net of federal benefits..............      31,000      184,000      268,000
XXCAL, Inc. Subchapter S non-taxable income..............          --     (196,000)    (144,000)
Other, principally non-deductible expenses...............      70,000       52,000        4,000
                                                           ----------   ----------   ----------
Income tax expense.......................................  $  722,000   $1,544,000   $1,996,000
                                                           ==========   ==========   ==========
</TABLE>

    Deferred income taxes on the consolidated balance sheets reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the

                                       38
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2000, 1999 AND 1998

(4)  INCOME TAXES (CONTINUED)
amounts used for income tax purposes. The primary components of the Company's
deferred tax assets and liabilities at January 31 were as follows:

<TABLE>
<CAPTION>
                                           2000                     1999
                                  ----------------------   ----------------------
                                  CURRENT    NON-CURRENT   CURRENT    NON-CURRENT
                                  --------   -----------   --------   -----------
<S>                               <C>        <C>           <C>        <C>
DEFERRED TAX ASSET:
Bad debt reserve................  $262,000   $        --   $304,000   $        --
Vacation accrual................   226,000            --    192,000            --
State taxes.....................    13,000        68,000     91,000        27,000
Deferred compensation...........   346,000            --    332,000            --
                                  --------   -----------   --------   -----------
Total deferred tax asset........   847,000        68,000    919,000        27,000
Valuation allowance.............        --            --         --            --

DEFERRED TAX LIABILITY:
Tax over book depreciation......        --    (3,143,000)        --    (2,592,000)
                                  --------   -----------   --------   -----------
NET DEFERRED TAX ASSET
  (LIABILITY)...................  $847,000   $(3,075,000)  $919,000   $(2,565,000)
                                  ========   ===========   ========   ===========
</TABLE>

(5)  STOCK OPTIONS AND PENSION PLANS

    The Company has one employee incentive stock option plan: the 1994 stock
option plan. The XXCAL, Inc. stock options were exchanged for options of
National Technical Systems, Inc.

    Under the 1994 stock option plan, officers, key employees, non-employee
directors and consultants may be granted options to purchase shares of the
Company's authorized but unissued common stock.

    Outstanding options under all plans are exercisable at 100% or more of fair
market (as determined by the stock option committee of the Board of Directors)
at the date of grant. The options are contingent upon continued employment and
are exercisable, unless otherwise specified, on a cumulative basis of one-
fourth of the total shares each year, commencing one year from the date of
grant. Options currently expire five to ten years from the date of grant.
Proceeds received by the Company from the exercises are credited to common
stock. Additional information with respect to the option plans as of
January 31, is as follows:

<TABLE>
<CAPTION>
                                                       2000                           1999
                                           ----------------------------   ----------------------------
                                                       WEIGHTED AVERAGE               WEIGHTED AVERAGE
                                            SHARES      EXERCISE PRICE     SHARES      EXERCISE PRICE
                                           ---------   ----------------   ---------   ----------------
<S>                                        <C>         <C>                <C>         <C>
Beginning Balance........................  1,287,925        $4.16           490,966        $3.19
Grants...................................    279,581         3.72           854,755         4.61
Exercises................................    (94,966)        1.80           (50,346)        2.20
Canceled or expired......................   (101,600)        4.86            (7,450)        4.39
                                           ---------        -----         ---------        -----
Ending balance...........................  1,370,940        $4.18         1,287,925        $4.16
                                           =========        =====         =========        =====
Reserve for future grants at year end....    103,869                        291,550
Exercisable..............................    532,127        $3.42           404,075        $2.25
                                           =========        =====         =========        =====
</TABLE>

                                       39
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2000, 1999 AND 1998

(5)  STOCK OPTIONS AND PENSION PLANS (CONTINUED)
    The range of exercise prices for options outstanding at January 31, 2000 was
$1.20 to $7.00. The range of exercise prices for options is wide due primarily
to the fluctuating price of the Company's stock over the period of the grants.

    The following tables summarize information about options outstanding at
January 31, 2000:

<TABLE>
<CAPTION>
                                                  WEIGHTED AVG.
RANGE OF                     OUTSTANDING AT     REMAINING CONTRACT   WEIGHTED AVG.      NUMBER      WEIGHTED AVG.
EXERCISE PRICES             JANUARY 31, 2000       LIFE IN YRS.      EXERCISE PRICE   EXERCISABLE   EXERCISE PRICE
---------------             -----------------   ------------------   --------------   -----------   --------------
<S>                         <C>                 <C>                  <C>              <C>           <C>
$1.00 to $2.00............        163,528               3.0              $1.52          125,210         $1.48
$2.01 to $3.00............        267,452               5.1              $2.72          220,577         $2.69
$3.01 to $4.00............        228,158               9.1              $3.34            5,672         $3.16
$4.01 to $5.00............         65,000               9.2              $4.94               --         $  --
$5.01 to $6.00............        469,569               8.3              $5.46          132,360         $5.43
$6.01 to $7.00............        177,233               8.3              $7.00           48,308         $6.34
</TABLE>

    These options will expire if not exercised at specific dates ranging from
March 2000 to December 2009. Prices for options exercised during the two-year
period ended January 31, 2000 ranged from $0.70 to $3.16. The Company has
elected to continue to follow APB Opinion No. 25,"Accounting for Stock Issued to
Employees" (APB No. 25), in accounting for its employee stock options because,
as discussed below, the alternative fair value accounting provided under SFAS
No. 123, "Accounting for Stock Based Compensation" (SFAS No. 123), requires the
use of option valuation models that were not developed for use in valuing
employee stock options. Under APB No. 25, no compensation expense is recognized
in the Company's financial statements, since the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant.

    Pro forma information regarding net income and earnings per share is
required by SFAS No. 123. This information is required to be determined as if
the Company had accounted for its employee stock options granted subsequent to
January 31, 1995 under the fair value method of that statement. The fair value
of options granted reported below has been estimated at the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions:

<TABLE>
<CAPTION>
                                                        2000       1999       1998
                                                      --------   --------   --------
<S>                                                   <C>        <C>        <C>
Expected life (in years)............................       5          5          5
Risk-free interest rate.............................   6.19%      4.99%      6.01%
Expected volatility.................................     57%        61%        62%
Expected dividend yield.............................   1.39%      0.82%      0.72%
</TABLE>

    The Black-Scholes option valuation model was developed for use in estimating
the fair value of the traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in the opinion of management, the
existing models do not necessarily provide a reliable single measure of the fair
value of its options. The weighted average estimated fair value of employee
stock options granted during

                                       40
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2000, 1999 AND 1998

(5)  STOCK OPTIONS AND PENSION PLANS (CONTINUED)
2000 and 1999 was $3.72 and $4.47 per share, respectively. Had compensation cost
for the Company's stock option plan been determined consistent with the fair
value method outlined in SFAS No. 123, the Company's net income and earnings per
share would have been as indicated below:

<TABLE>
<CAPTION>
                                   JANUARY 31, 2000    JANUARY 31, 1999    JANUARY 31, 1998
                                   -----------------   -----------------   -----------------
<S>                                <C>                 <C>                 <C>
Net Income
  As reported....................      $805,000           $2,639,000          $3,455,000
  Pro forma......................      $471,000           $2,461,000          $3,366,946
Basic earnings per common share
  As reported....................      $   0.10           $     0.32          $     0.43
  Pro forma......................      $   0.06           $     0.30          $     0.42
Diluted earnings per common share
  As reported....................      $   0.09           $     0.31          $     0.41
  Pro forma......................      $   0.06           $     0.29          $     0.40
</TABLE>

    The Company had an employee stock ownership plan covering all employees.
Contributions by the Company were at the discretion of the Board of Directors.
The Company did not make contributions in 2000, 1999 or 1998 and the Board of
Directors voted to terminate the Plan as of December 31, 1999 and distribute the
shares in the Plan to the participants.

    The Company offers four 401(k) profit sharing plans: National Technical
Systems 401(k) Profit Sharing Plan, XXCAL 401(k) Profit Sharing Plan, NTS
Technical Services Employees' Profit Sharing Plan and NQA 401(k) Pension Plan.
The purpose of these plans is to provide retirement benefits to all employees of
the Company. The Company's employees can contribute up to 15% of their salary
into the 401(k) plan and the Company's Board of Directors, at its discretion,
will determine each year the amount of matching contribution the Company will
make. Employer contributions are allocated based on participants own
contribution percentage amount to the total amount contributed by all employees
in each plan. In fiscal 2000, the Board of Directors and management of the
Company approved a contribution to the 401(k) profit sharing plan of $152,100 as
compared to $253,600 in 1999 and $258,500 in 1998.

    The Company provides nonqualified discretionary deferred compensation
benefits to certain employees of XXCAL. Except for the president of XXCAL, the
benefits are payable over a period of 10 years in the event of death,
disability, or retirement at ages between 62 and 65 and range between $7,800 and
$60,000 annually. The benefits are funded by life insurance contracts purchased
by the Company.

    The former president of XXCAL has elected to receive the cash surrender
value of life insurance owned by the Company on his life, in lieu of lifetime
periodic deferred compensation payments. The cash surrender value is included in
other assets and the deferred compensation liability is included in current
liabilities, as he is eligible to retire at any time.

    The deferred compensation benefits are accrued and recognized over each
employee's expected term of employment. The Company's total deferred
compensation expenses were $94,000, $67,000 and $119,000 for the years ended
January 31, 2000, 1999 and 1998, respectively. Included in other assets is
$1,324,000 and $1,150,000 for the cash surrender value as of January 31, 2000
and 1999, respectively.

                                       41
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2000, 1999 AND 1998

(6)  CAPITAL STOCK

    As of January 31, 2000 and 1999, the Company had 20,000,000 authorized
common shares with no par value. At January 31, 2000 and January 31, 1999,
8,404,000 shares and 8,319,000 shares were issued and outstanding, respectively.

    Holders of common stock vote together on matters submitted to shareholders,
including the election of directors. Except as required by law, the powers,
preferences and rights of all common stock and the qualifications, limitations
or restrictions thereof, shall in all respects be identical. The common stock
shareholders will be entitled to receive, to the extent permitted by law, and to
share equally and ratably, share for share, any such dividends as may be
declared from time to time by the board of directors.

(7)  COMMITMENTS

    The Company leases certain of its operating facilities and equipment under
operating leases which principally expire at various dates to fiscal year 2011.
The leases are generally on a net-rent basis, whereby the Company pays taxes,
maintenance, insurance and other operating expenses. Management expects that, in
the normal course of business, leases that expire will be renewed or replaced by
other leases. Gross rental expense was $2,228,000 in 2000, $1,843,000 in 1999,
and $1,542,000 in 1998.

    At January 31, 2000, minimum rental payment obligations under operating
leases were as follows:

<TABLE>
<S>                                                           <C>
2001........................................................  $1,770,000
2002........................................................   1,559,000
2003........................................................   1,462,000
2004........................................................     955,000
2005........................................................     587,000
Thereafter..................................................   1,035,000
                                                              ----------
                                                              $7,368,000
                                                              ==========
</TABLE>

(8)  ACCRUED EXPENSES

    A summary of accrued expenses at January 31 is as follows:

<TABLE>
<CAPTION>
                                                          2000         1999
                                                       ----------   ----------
<S>                                                    <C>          <C>
Compensation and employee benefits...................  $2,308,000   $2,734,000
Other................................................     914,000    1,051,000
                                                       ----------   ----------
                                                       $3,222,000   $3,785,000
                                                       ==========   ==========
</TABLE>

(9)  CONTINGENCIES

    The Company is, from time to time, the subject of claims and suits (see
Note 10) arising out of matters occurring during the operation of the Company's
business. In the opinion of management, no claims or suits would materially
affect the financial position or the results of the operations or cash flows of
the Company.

                                       42
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2000, 1999 AND 1998

(10)  SUBSEQUENT EVENTS

LITIGATION SETTLEMENT AND OTHER CONTINGENCIES

    On or about April 30, 1999, Tecstar, Inc., a manufacturer of flight hardware
for use in satellites filed a complaint against the Company in the Superior
Court of the State of California for Los Angeles County. The complaint alleged
that during a test cycle, the Company damaged hardware provided by Tecstar and
as a result the hardware was rejected by Tecstar's customer as allegedly being
unsuitable for flight. Tecstar sought monetary damages of $2,488,700 plus the
costs of litigation and interest, including prejudgment interest, as provided by
law.

    During the fourth quarter ended January 31, 2000, the Company's Board of
Directors authorized management to engage in settlement discussions with
Tecstar. In March 2000, the Company and Tecstar agreed to terms of a settlement
based on the mounting legal costs, distraction of management focus and the
uncertainty present in any litigation. The Company recorded an unusual charge of
$1,598,000 as of the fourth quarter of fiscal 2000. This included a one time
cash payment of $1,020,000 to Tecstar and $578,000 for the Company's legal and
defense costs. The Company also received the alleged damaged flight hardware.

    The Company has retained legal counsel on a contingent-fee basis to pursue a
possible recovery from its insurance carriers.

(11)  SEGMENT OF BUSINESS INFORMATION

    The Company maintains two core operating segments: Engineering & Evaluation
and Technical Staffing.

    The Engineering and Evaluation segment operates test laboratories in various
states in the U.S., the United Kingdom and Japan and provides technical support
and technical support personnel to assist clients in a broad range of industries
(aerospace, defense, telecommunications, nuclear, automotive and computer, among
others) in the solving of technical problems via analysis and testing of
materials, components, subsystems and systems, electro-magnetic interference
testing and product safety testing under its newly granted NRTL status by the
United States' Department of Labor, Occupational Safety and Health
Administration. This segment also provides registration, certification and
conformance evaluation services to its clients, particularly with regard to EU
standards. In addition, it performs compatibility testing of hardware and
software components. This segment also performs quality registration services by
evaluating a supplier's systems for conformity to ISO 9000, the international
quality standard. The evaluations include an examination of the companies'
quality policy, quality system documentation and quality records.

    The Technical Staffing segment includes the newly acquired XXCAL which was
combined with the operations of the NTS Technical Staffing division. This
segment operates in various states. Technical Staffing locates, recruits, and
hires a wide variety of technical personnel, engineers, drafters, designers,
computer programmer technicians and others and assigns them to clients either on
a temporary or permanent basis.

    The Company's reportable segments each represent strategic business units
that offer different, yet related services. They are managed differently because
each requires differing technical skills and sales strategies. Each segment is
led by a chief operating decision maker, who, in coordination with the

                                       43
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2000, 1999 AND 1998

(11)  SEGMENT OF BUSINESS INFORMATION (CONTINUED)
Company's Chief Executive Officer utilizes the information reported below in
evaluating results and allocating resources pertaining to segment operations.

    Direct and indirect revenues of the Engineering and Evaluation Group from
federal agencies of approximately $25,933,000 in 2000, $25,945,000 in 1999 and
$25,290,000 in 1998, consist principally of sales under subcontracts to
customers with government contracts. The Company did not have any revenues from
single customers which represented in excess of 10% of total segment revenues.
Total revenues from customers in foreign (UK) operations were $867,000, $548,000
and $369,000 in 2000, 1999, and 1998, respectively. Assets utilized in the
foreign (UK) subsidiaries were $807,000, $485,000 and $257,000 as of
January 31, 2000, 1999 and 1998, respectively.

    The Company performs ongoing credit evaluations of its customers' financial
condition and generally requires no collateral.

    The following table illustrates each segment's operating income for 2000,
1999 and 1998. Assets by segment are those assets that are used in the Company's
operations in each segment. Corporate assets consist of cash, accounts
receivable, income taxes receivable, investments in securities, real estate,
fixed assets not allocated to segments. Corporate general and administrative
expenses were allocated on the basis of revenues, gross profit, net property,
plant and equipment and payroll expenses of the respective segments. Interest
expense is allocated to the segments based on average borrowing rates and
segment advances.

<TABLE>
<CAPTION>
                                                                JANUARY 31, 2000
                                             -------------------------------------------------------
                                             ENGINEERING &     TECHNICAL
                                               EVALUATION      STAFFING     CORPORATE       TOTAL
                                             --------------   -----------   ----------   -----------
<S>                                          <C>              <C>           <C>          <C>
Net revenues...............................   $49,637,000     $34,487,000   $       --   $84,124,000
                                              ===========     ===========   ==========   ===========
Gross profit...............................    14,672,000       9,323,000           --    23,995,000
Selling, general and administrative
  expense..................................     9,180,000       9,725,000           --    18,905,000
                                              -----------     -----------   ----------   -----------
Operating income (loss)....................     5,492,000        (402,000)          --     5,090,000
Other income (expense):
  Interest expense, net....................    (1,251,000)       (293,000)          --    (1,544,000)
  Settlement and related legal expenses....    (1,598,000)             --           --    (1,598,000)
  Other....................................      (367,000)        236,000           --      (131,000)
                                              -----------     -----------   ----------   -----------
Income (loss) before income taxes, minority
  interest, discontinued operations and
  cumulative effect of change in accounting
  for start-up expenses....................   $ 2,276,000     $  (459,000)  $       --   $ 1,817,000
                                              ===========     ===========   ==========   ===========
Assets.....................................   $40,192,000     $11,475,000   $6,964,000   $58,631,000
                                              ===========     ===========   ==========   ===========
Equity Investments.........................   $   120,000     $        --   $       --   $   120,000
                                              ===========     ===========   ==========   ===========
Expenditures for long-lived assets.........   $ 7,705,000     $ 1,673,000   $   61,000   $ 9,439,000
                                              ===========     ===========   ==========   ===========
Depreciation and amortization..............   $ 3,077,000     $   191,000   $  209,000   $ 3,477,000
                                              ===========     ===========   ==========   ===========
</TABLE>

                                       44
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2000, 1999 AND 1998

(11)  SEGMENT OF BUSINESS INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
                                                                JANUARY 31, 1999
                                             -------------------------------------------------------
                                             ENGINEERING &     TECHNICAL
                                               EVALUATION      STAFFING     CORPORATE       TOTAL
                                             --------------   -----------   ----------   -----------
<S>                                          <C>              <C>           <C>          <C>
Net revenues...............................   $49,652,000     $37,161,000   $       --   $86,813,000
                                              ===========     ===========   ==========   ===========
Gross profit...............................    15,110,000      10,873,000           --    25,983,000
Selling, general and administrative
  expense..................................     9,405,000      10,178,000           --    19,583,000
Merger costs...............................       686,000         221,000           --       907,000
                                              -----------     -----------   ----------   -----------
Operating income...........................     5,019,000         474,000           --     5,493,000
Other Income (expense):
  Interest expense, net....................    (1,191,000)        (62,000)          --    (1,253,000)
  Other....................................       356,000        (265,000)          --        91,000
                                              -----------     -----------   ----------   -----------
Income before income taxes, minority
  interest, discontinued operations and
  cumulative effect of change in accounting
  for start-up expenses....................   $ 4,184,000     $   147,000   $       --   $ 4,331,000
                                              ===========     ===========   ==========   ===========
Assets.....................................   $33,003,000     $10,920,000   $5,908,000   $49,831,000
                                              ===========     ===========   ==========   ===========
Equity Investments.........................   $    75,000     $        --   $       --   $    75,000
                                              ===========     ===========   ==========   ===========
Expenditures for long-lived assets.........   $ 3,816,000     $   313,000   $  268,000   $ 4,397,000
                                              ===========     ===========   ==========   ===========
Depreciation and amortization..............   $ 2,402,000     $   354,000   $  178,000   $ 2,934,000
                                              ===========     ===========   ==========   ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                JANUARY 31, 1998
                                             -------------------------------------------------------
                                             ENGINEERING &     TECHNICAL
                                               EVALUATION      STAFFING     CORPORATE       TOTAL
                                             --------------   -----------   ----------   -----------
<S>                                          <C>              <C>           <C>          <C>
Net revenues...............................   $50,904,000     $30,017,000   $       --   $80,921,000
                                              ===========     ===========   ==========   ===========
Gross profit...............................    13,936,000       9,724,000           --    23,660,000
Selling, general and administrative
  expense..................................     7,885,000       9,203,000           --    17,088,000
                                              -----------     -----------   ----------   -----------
Operating income...........................     6,051,000         521,000           --     6,572,000
Other Income (expense):
  Interest expense, net....................    (1,135,000)       (110,000)          --    (1,245,000)
  Other....................................       497,000        (379,000)          --       118,000
                                              -----------     -----------   ----------   -----------
Income before income taxes, minority
  interest and discontinued operations.....   $ 5,413,000     $    32,000   $       --   $ 5,445,000
                                              ===========     ===========   ==========   ===========
Assets.....................................   $30,831,000     $ 8,940,000   $6,341,000   $46,112,000
                                              ===========     ===========   ==========   ===========
Expenditures for long-lived assets.........   $ 3,966,000     $   125,000   $   34,000   $ 4,125,000
                                              ===========     ===========   ==========   ===========
Depreciation and amortization..............   $ 2,123,000     $   224,000   $   90,000   $ 2,437,000
                                              ===========     ===========   ==========   ===========
</TABLE>

                                       45
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2000, 1999 AND 1998

(12)  QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED
                                            -----------------------------------------------------
2000                                         APRIL 30       JULY 31     OCTOBER 31    JANUARY 31
----                                        -----------   -----------   -----------   -----------
<S>                                         <C>           <C>           <C>           <C>
Net revenues..............................  $21,565,000   $21,794,000   $20,831,000   $19,934,000
Gross profit..............................    6,660,000     6,441,000     5,708,000     5,186,000
Income (loss) from continuing
  operations..............................      809,000       707,000       438,000      (875,000)
Loss from discontinued operations.........      (61,000)      (22,000)      (15,000)     (176,000)
Net income (loss).........................      748,000       685,000       423,000    (1,051,000)
Basic earnings (loss) per common share
  Continuing operations...................         0.10          0.08          0.05         (0.10)
  Discontinued operations.................        (0.01)           --            --         (0.02)
Net Income (loss)*........................         0.09          0.08          0.05         (0.13)
Diluted earnings (loss) per common share
  Continuing operations...................         0.09          0.08          0.05         (0.10)
  Discontinued operations.................        (0.01)           --            --         (0.02)
Net Income (loss)*........................         0.09          0.08          0.05         (0.13)
Weighted average common shares
  outstanding.............................    8,321,000     8,337,000     8,352,000     8,372,000
Dilutive effect of stock options..........      261,000       261,000       191,000            --
Weighted average common shares
  outstanding, assuming dilution..........    8,582,000     8,598,000     8,543,000     8,372,000
</TABLE>

------------------------

*   Per share data may not always add to the total for the year because each
    figure is independently calculated.

                                       46
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2000, 1999 AND 1998

(12)  QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED
                                            -----------------------------------------------------
1999                                         APRIL 30       JULY 31     OCTOBER 31    JANUARY 31
----                                        -----------   -----------   -----------   -----------
<S>                                         <C>           <C>           <C>           <C>
Net revenues..............................  $21,121,000   $22,451,000   $22,420,000   $20,821,000
Gross profit..............................    6,350,000     6,536,000     6,412,000     6,685,000
Income (loss) before discontinued
  operations and cumulative effect of
  change in accounting....................    1,045,000       825,000      (129,000)    1,022,000
Income from discontinued operations.......        2,000        71,000       134,000       151,000
Cumulative effect of change in
  accounting..............................           --       (95,000)     (378,000)       (9,000)
Net income (loss).........................    1,047,000       801,000      (373,000)    1,164,000
Basic earnings (loss) per common share
  Continuing operations...................         0.13          0.10         (0.02)         0.12
  Discontinued operations.................           --          0.01          0.02          0.02
  Cumulative effect of change in
    accounting............................           --         (0.01)        (0.05)           --
Net income (loss)*........................         0.13          0.10         (0.05)         0.14
Diluted earnings (loss) per common share
  Continuing operations...................         0.12          0.10         (0.02)         0.12
  Discontinued operations.................           --          0.01          0.02          0.02
  Cumulative effect of change in
    accounting............................           --         (0.01)        (0.04)           --
Net income (loss)*........................         0.12          0.09         (0.04)         0.14
Weighted average common shares
  outstanding.............................    8,168,000     8,180,000     8,281,000     8,318,000
Dilutive effect of stock options..........      447,000       291,000       325,000       291,000
Weighted average common shares
  outstanding, assuming dilution..........    8,615,000     8,471,000     8,606,000     8,609,000
                                            ===========   ===========   ===========   ===========
</TABLE>

------------------------

*   Per share data may not always add to the total for the year because each
    figure is independently calculated.

                                       47
<PAGE>
                                  SCHEDULE II

               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

                  YEARS ENDED JANUARY 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                   COLUMN A                      COLUMN B        COLUMN C         COLUMN D      COLUMN E
----------------------------------------------  ----------   ----------------   ------------   ----------
                                                BALANCE AT     ADDITIONS--                     BALANCE AT
                                                BEGINNING    CHARGED TO COSTS   DEDUCTIONS--      END
DESCRIPTION                                     OF PERIOD      AND EXPENSES     DESCRIBE(A)    OF PERIOD
-----------                                     ----------   ----------------   ------------   ----------
<S>                                             <C>          <C>                <C>            <C>
Allowance for doubtful accounts receivable:
  2000........................................   $904,000        $454,000        $(555,000)     $803,000
                                                 ========        ========        =========      ========
  1999........................................   $741,000        $289,000        $(126,000)     $904,000
                                                 ========        ========        =========      ========
  1998........................................   $750,000        $235,000        $(244,000)     $741,000
                                                 ========        ========        =========      ========
</TABLE>

------------------------

(a) Write-off of uncollectible accounts receivable, net of recoveries.

                                       48