UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K
(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, 1999

[ ]   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

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

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

   24007 Ventura Boulevard, Suite 200
            Calabasas, CA                                 91302    
(Address of principal executive offices)               (Zip Code)  

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

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

                                                     Name of each exchange
Title of each class                                   on which registered
-------------------                                   -------------------
Common Stock - No Par Value                                 NASDAQ-NMS

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, 1999 was approximately $26,821,000.

The number of shares of Registrant's Common Stock outstanding on April 20, 1999
was 8,321,046.

Portions of the Proxy Statement of Company for the Annual Meeting of
Shareholders to be held on June 25, 1999, are incorporated by reference into
Part III of this report.

                             Exhibit Index on Page 55

                                 Page 1 of 68
<PAGE>






                       NATIONAL TECHNICAL SYSTEMS, INC.
                           Annual Report (Form 10-K)
                        For Year Ended January 31, 1999

                                    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: "IT Solutions" and "Engineering & Evaluation". 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 incorporated in Delaware in April 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 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.


                                 Page 2 of 68
<PAGE>


            Unless indicated otherwise, the term "Company" or "NTS" includes
National Technical Systems, Inc., a California corporation and its wholly owned
subsidiaries, NTS Technical Systems, a California corporation, 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 and 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 (aerospace, defense, nuclear,
automotive and computer, among others) including 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. During fiscal
1998, NTS employed the personnel and leased the laboratory facilities at the
Pinellas Science, Technology & Research Center in Largo, Florida and the
personnel and Science & Engineering Test Laboratories at McClellan Air Force
Base in Sacramento, California, as well as the technical personnel and equipment
of Laboratory Testing Systems, Inc. of Athol, Massachusetts. In fiscal 1999, NTS
acquired the assets, customers and personnel of NMi USA, a Netherlands company
located in Tinton Falls, New Jersey.

            The Company, now, also performs information technology ("IT")
managed services which includes technical staffing on a temporary or permanent
basis, testing, project management, consulting and quality registration
services.

            During fiscal 1995, the Company started its Environmental Services
Group which was operated out of Fullerton, California. In January 1997, the
Company, after considering the highly competitive and unreliable nature of the
business and the inability to operate at profitable levels, elected to
discontinue and abandon its Environmental Services segment. 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
Environmental Services segment.

            C.    Financial Information About Industry Segments

      See Note 10 to Consolidated Financial Statements attached hereto as
Exhibits A (i) and A (ii).

            D.    Description of Business

            (i)   IT Solutions

      The IT Solutions Group is a provider of information technology, managed
services, staffing, testing, and International Standards Organization (ISO)
registration services to a diverse group of corporate clients. 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


                                 Page 3 of 68
<PAGE>


and software applications. It provides services covering all aspects of
development, including planning, design, programming, implementation, testing,
maintenance documentation and ongoing management.

      NTS 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. NTS 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, NTS provides trained test
specialists at its client's facilities during their peak demand.

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

      NTS also provides other specialty staffing services such as fault-tolerant
application development, network management and desktop services,
internet/intranet testing and support and packaged software testing. Help desk
support engineers, designers and drafters are made available to the energy
generation and petrochemical industries.

      With the ever increasing globalization of industry and trade, the
international community has developed a system of quality standards to insure
that products manufactured anywhere in the world conform to acceptable standards
when sold anywhere else in the world. These standards developed by ISO, and
applicable to different industries such as aerospace, automotive and
environmental, have at their core audits by accredited agencies aimed at
registering compliant firms so that they will be able to ship their products
off-shore. NTS provides such third party registrations. To accomplish
registration, NTS 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,
stationery and its products as evidence that it has achieved ISO registration.
Following this, NTS performs periodic follow-up audits to assure that the client
remains in compliance.

      As of January 31, 1999, the IT Solutions group served its clients from 18
locations in 10 states and through two international testing facilities:
Calabasas, San Francisco, Los Angeles and San Jose, CA; Boulder and Sedalina,
CO; Atlanta, GA; Rye Brook, NY; Raleigh/Durham, NC; Hillsboro, OH; San Antonio,
Irving, Houston, Dallas and Austin, TX; Baton Rouge and Lake Charles, LA; Acton,
MA; Newport News, VA; London, England; and Yokohama, Japan.


                                 Page 4 of 68
<PAGE>

INDUSTRY OVERVIEW
      Over the years, businesses have become increasingly dependent on the use
of IT to manage operations more efficiently and 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 IT staffing companies to supplement their IT operations.
Utilizing outside IT technical 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, 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 May 1998 Staffing Industry Report, revenues from
technical/computer temporary staffing are estimated to have grown from $7.1
billion in 1994 to $18.5 billion in 1998. The report further estimated an annual
growth rate for 1999 of approximately 25%.

BUSINESS STRATEGY
      To meet its clients' comprehensive IT needs, the IT Solutions 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 consultants competitive wages, offering its
technical consultants an opportunity to purchase a comprehensive employee
benefits package and effectively and consistently communicating with its
technical consultants. 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


                                 Page 5 of 68
<PAGE>

the United States, including its two international offices. 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 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) Emphasize a relationship-oriented approach. NTS serves as an extension of its
clients' internal information systems operations and as a long-term partner to
fulfill its clients' IT staffing requirements.  As a result, NTS emphasizes a
relationship-oriented approach to business, rather than the assignment-oriented
approach used by many of its competitors. To develop close client relationships,
NTS's regional managers and account managers regularly meet with both existing
and prospective clients to help design solutions for, and identify the resources
needed to execute their IT strategies.

3) Focus on improving margins. NTS continuously seeks opportunities to enhance
its margins by offering services for which higher margins can be obtained and by
reducing costs. 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.

4) Provide comprehensive solutions. NTS provides responsive, timely and
comprehensive IT solutions for all aspects of the systems' applications
development life cycle and for other specialized technical needs. NTS believes
that this ability to provide for the full range of such services is an important
competitive advantage. NTS also works to ensure that its technical consultants
have the expertise and skills needed to keep pace with rapidly evolving
information technologies.

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

                                 Page 6 of 68
<PAGE>

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.

      In addition to expanding the geographic scope of its business, NTS is
continuously seeking new clients in the geographic markets it currently serves
and to increase the range of services it provides to its existing clients. The
addition of new clients in existing markets enables NTS to utilize more
profitably its administrative and corporate infrastructure. New clients,
particularly in new industries, also permit NTS to diversify its client base and
thus reduce its exposure to fluctuations in industry business cycles. In
addition, NTS continues to add new specialty service offerings as it has done
with fault-tolerant applications development, network management and desktop
services, Internet/Intranet development and support, packaged software
implementation, software engineering and help desk support. NTS is positioned to
provide Year 2000 conversion project management and resources to existing and
new clients.

      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 established markets. NTS's resource
managers are responsible for recruiting and establishing long-term relationships
with NTS's technical consultants. NTS is implementing 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.

            (ii)  Engineering & Evaluation

      The Engineering & Evaluation Group of NTS is one of the largest
independent product and systems qualification organization in the U. S. with
facilities throughout the country and provides highly trained technical
personnel for analysis, engineering, and mechanical and electronic testing to
ascertain performance and reliability under induced environmental stress
conditions. These conditions include vibration, extremes of temperature,
acceleration, altitude, shock, acoustic noise and flight dynamics and 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 and nuclear safety equipment (but
excluding radioactive material). Other services performed include analytical
chemistry and failure analysis.

      The tremendous expansion of the IT business directly affecting the
telecommunications industry has led NTS to become actively involved in the
engineering and evaluation of a broad array of telecommunications equipment and
systems for most of the manufacturers of such equipment. NTS's services are
performed in accordance with the Network Equipment Building Systems
specifications, 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 and other business equipment, power supplies and other electrical
system products. In addition, NTS also does conformity assessment testing for
manufacturers for them to attain European Community marking.

                                 Page 7 of 68
<PAGE>


      NTS services include the development of effective product screening
procedures, design and fabrication of test fixtures plus failure analysis and
design modification support. NTS is also one of the leading providers of fluid
components and systems testing. NTS designs and builds custom facilities and
advanced instrumentation and data acquisition systems to support all types of
flow testing for gases, liquids and cryogenics. NTS is capable of performing
structural testing and analysis, in particular structural loading of large
articles such as complete airframes. NTS also performs fatigue testing of
critical hardware items such as engine blades and high pressure fluid
components. NTS offers clients a way to minimize their personnel and testing
time and costs by utilizing NTS's on-site climatic, dynamic, safety and
electromagnetic compatibility test capabilities. NTS seeks to provide a "one
stop" resource and single source responsibility for environmental qualification,
compliance, reliability and safety testing.

      The Engineering & 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 and performs these services at its facilities or at the client's
facility. The Group also performs quality registration services for various
clients in the aerospace, defense, automotive, telecommunications and
electronics industries.

      NTS is engaged in supplying services to U.S. government defense programs
in its Engineering & Evaluation segment. 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.

      NTS provides its Engineering & Evaluation services through 13
independent qualification testing facilities in North America. NTS laboratories
in Acton and Boxborough, MA, Los Angeles, Fullerton, Sacramento, Saugus, and
Valencia, CA, Camden, AR, Detroit, MI, Fredericksburg, VI, Largo, FL, Tinton
Falls, NJ and Tempe, AZ offer full-service environmental qualification for items
ranging from circuit boards to entire vehicles, including spacecraft.

INDUSTRY OVERVIEW
      Product 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 in a shrinking defense and
aerospace market. In rapidly expanding and short technological life cycles in
the IT industries, manufacturers seek to avoid the rapid obsolescence of special
purpose equipment. Thus, while the industrial product test business has remained
flat over the past ten years, opportunity has arisen for outsourcing firms like
NTS to maintain and even grow their businesses. By diversifying from heavy
dependence on aerospace/defense to commercial industries such as IT, automotive
and medical industries, NTS has avoided the downturn and has even been able to
grow.

BUSINESS STRATEGY
      To meet its clients' needs, NTS is committed to maintaining its position
at the cutting-edge of technology by continuously upgrading its facilities and
equipment. In addition, NTS's movement into new technological areas will require
it to invest in equipment needed to adequately service clients' needs. This will
be accomplished through close consultation with NTS's existing and prospective
clients to ascertain their needs for the future. At the same time NTS will

                                 Page 8 of 68
<PAGE>


continue to maintain its relations with its staff of experienced engineers and
technicians by offering attractive benefit programs, opportunities for
advancement and learning, and an incentive plan which is one of the finest
offered by any firm in NTS's industry. The soundness of these approaches can be
demonstrated by the fact that about 25% of NTS's employees have been with the
Company for 20 years or more.

GROWTH STRATEGY
      NTS's growth strategy for the Engineering & Evaluations Group is to
expand its geographic scope of business primarily via internal growth as the
availability of acceptable testing business for acquisition is very limited. The
primary method of growth for the Group will be from expansion of NTS's services
to technological areas NTS is not yet serving or has only in recent years begun
to penetrate. The most prominent of these is IT involving telecommunications,
networks, computers and their ancillary equipment and systems. NTS has been
investing heavily in equipment to support these areas and hopes to capitalize
quickly on these expanded capabilities by emphasizing marketing efforts towards
those industries.

           (iii) Competition.

      Potential customers for services offered by the IT Solutions 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.

      Potential customers for services offered by the Engineering & 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, major
government contractor testing facilities (e.g., Boeing, Lockheed Martin and
Northrop-Grumman), customer in-house testing facilities, and other independent
commercial testing companies. 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. In the area of commercial electronic
equipment, the Company competes with a host of companies such as Underwriters
Laboratories and Southwest Research.

            (iv)      Backlog.

      The Company's backlog at January 31, 1999 and 1998 is as follows:

                                                1999               1998
                                                ----               ----
Engineering & Evaluation                 $28,453,000        $18,059,000
IT Solutions                              15,202,000         13,787,000
                                          ----------         ----------
Total Backlog                            $43,655,000        $31,846,000
                                         ===========        ===========

                                 Page 9 of 68
<PAGE>


The Company estimates that approximately 85% of the backlog at January 31, 1999
will be completed by January 31, 2000.


            (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 IT Solutions 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 Year.

            (d)   Employees. The Company employed 806 individuals at January 31,
1999 and 777  in 1998 as follows:


                                              1999            1998
                                              ----           -----
Engineering & Evaluation                       305             298
IT Solutions                                   487             466
Corporate Administration                        14              13
                                             -----           -----
Total                                          806             777
                                             =====           =====

      Approximately 125 of the Company's Engineering & Evaluation employees
occupy management and professional positions, and approximately 300 of the IT
Solutions 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.



                                 Page 10 of 68
<PAGE>


ITEM  2.    PROPERTIES.

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

                             Owned Properties         Buildings          Land
          STATE                    CITY                (SQ.FT.)       (ACRES)
--------------------------------------------------------------------------------

California                 Fullerton                     36,000             3
                           Saugus                        60,000           160

Massachusetts              Acton                         30,000             5
                           Boxborough                    25,000             4

Virginia                   Hartwood                      66,000            87
                                                        -------           ---
Total owned properties                                  217,000           259
                                                        =======           ===

                             Leased Properties         Buildings         Land
          STATE                     CITY                (SQ.FT.)      (ACRES)
--------------------------------------------------------------------------------
Arizona                    Tempe                          17,100          n/a

Arkansas                   Camden                         22,400          216

California                 Calabasas                       6,600          n/a
                           Fullerton                      20,200          n/a
                           Los Angeles (LAX)              16,000            2
                           Los Angeles (XXCAL)            22,000          n/a
                           San Francisco                   3,000          n/a
                           Valencia                       45,000          n/a

Colorado                   Longmont                        2,000          n/a

Florida                    Largo                          16,000          n/a

Louisiana                  Zachary                         1,500          n/a

Michigan                   Detroit                        64,900          n/a

New Jersey                 Tinton Falls                    7,600          n/a

North Carolina             Raleigh                         1,800          n/a

Texas                      Austin                          3,000          n/a
                           San Antonio                     8,000          n/a
                                                         -------          ---
Total leased properties                                  257,100          218
                                                         =======          ===





                                 Page 11 of 68
<PAGE>


            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.


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.


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

            Not applicable.



                                 Page 12 of 68
<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, 1999 and 1998 is
presented below:

                                    1999                     1998
                                    ----                     ----
                              High        Low          High        Low
                              ----        ---          ----        ---
First Quarter                 8-1/2       6-1/8        3-1/16      2-7/16
Second Quarter                9-5/8       6-5/8        7-3/8       2-3/4
Third Quarter                 7-1/2       3-7/8        11          4-3/4
Fourth Quarter                6-1/4       4-1/4        9-1/8       6


            B.    Holders of Common Stock.

            As of the close of business on April 20, 1999, 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 June 26, 1998, the Company declared a seven cents per share cash
dividend which was paid on August 4, 1998 to shareholders of record on July 15,
1998.

            On June 27, 1997, the Company declared a six cents per share cash
dividend which was paid on August 5, 1997 to shareholders of record on July 22,
1997.

            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.


                                 Page 13 of 68
<PAGE>
Item 6. Selected Financial Data.  (in thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended January 31,                                         1999        1998        1997        1996        1995
                                                               ----        ----        ----        ----        ----
INCOME STATEMENT DATA:
<S>                                                          <C>         <C>         <C>         <C>         <C>     
Net revenues                                                 $ 89,537    $ 81,297    $ 74,413    $ 67,518    $ 57,618
Gross profit                                                   26,554      23,712      20,894      17,634      14,590
Interest expense                                                1,253       1,245       1,161       1,326       1,165
Income from continuing operations before income taxes
  and minority interest                                         4,887       5,495       4,291       3,597       1,370
Income taxes                                                    1,742       2,014       1,588       1,000         578
                                                             --------    --------    --------    --------    --------
Income from continuing operations before minority interest      3,145       3,481       2,703       2,597         792
Minority interest                                                 (24)        (26)         10         (55)       --
Loss from discontinued operations, net of  income  taxes         --          --          (684)       (246)       (137)
Cumulative effect of change in accounting for start-up
expense, net of income taxes                                     (482)       --          --          --          --
                                                             --------    --------    --------    --------    --------
Net income                                                   $  2,639    $  3,455    $  2,029    $  2,296    $    655
                                                             ========    ========    ========    ========    ========
Basic earnings (loss) per common share:
   Continuing operations                                     $   0.38    $   0.43    $   0.34    $   0.32    $   0.10
   Discontinued operations                                       --          --         (0.09)      (0.03)      (0.02)
   Cumulative effect of change in accounting                    (0.06)       --          --          --          --
                                                             --------    --------    --------    --------    --------
Net income *                                                 $   0.32    $   0.43    $   0.26    $   0.29    $   0.08
                                                             ========    ========    ========    ========    ========
Diluted earnings (loss) per common share:
   Continuing operations                                     $   0.36    $   0.41    $   0.33    $   0.31    $   0.10
   Discontinued operations                                       --          --         (0.08)      (0.03)      (0.02)
   Cumulative effect of change in accounting                    (0.06)       --          --          --          --
                                                             --------    --------    --------    --------    --------
Net income *                                                 $   0.31    $   0.41    $   0.25    $   0.28    $   0.08
                                                             ========    ========    ========    ========    ========
Weighted average common shares outstanding                      8,236       8,061       7,902       7,860       7,822
Dilutive effect of  stock options                                 374         389         264         221         257
                                                             --------    --------    --------    --------    --------
Weighted average common shares outstanding, assuming
  dilution                                                      8,610       8,450       8,166       8,081       8,079
                                                             ========    ========    ========    ========    ========
Cash dividends paid per common share                         $   0.07    $   0.06    $   0.05    $   0.02    $   0.02
                                                             ========    ========    ========    ========    ========
BALANCE SHEET DATA:

Working capital                                              $ 16,951    $ 15,912    $ 11,265    $ 10,354    $  8,371

Total assets                                                   49,831      46,112      40,377      39,048      36,905

Long-term debt, excluding current installments                 13,076      12,859       9,324       9,376      10,418

Shareholders' equity                                           24,102      22,042      18,791      17,613      16,045

    The earnings per share amounts prior to 1998 have been restated as required
    to comply with Statement of Financial Accounting Standards No. 128, Earnings
    Per Share. For further discussion of earnings and the impact of Statement
    No. 128, see the notes to the consolidated financial statements.

*   Per share data may not always add up to total for the year because each
    figure is independently calculated.
</TABLE>
                                 Page 14 of 68
<PAGE>


ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS.

GENERAL
      On October 30, 1998, the Company completed its merger with XXCAL. The
transaction 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.

      XXCAL is principally engaged in outsourcing personnel for a wide variety
of temporary technical and professional positions into the IT and IS industries
including compatibility testing of hardware and software components. XXCAL has
approximately 300 employees and has offices in Los Angeles, San Francisco and
San Jose, California; Austin and Houston, Texas; London, England; and Yokohama,
Japan.

      After the merger, the Company reorganized itself into two major
operational groups: (1) The Engineering & Evaluation Group which includes all
the technical services testing facilities and the certification services unit;
and (2) The IT Solutions Group which combines XXCAL with the NTS technical
staffing and registration businesses. Each group is under the direction of its
own executive and operational management team. Accordingly, the Company's
segment reporting reflects this new structure.

      The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto. All information is based
upon the "pooling of interests" method of accounting pursuant to Opinion No. 16
of the Accounting Principles Board. They include the combined financial
statements of NTS and XXCAL from the beginning of the current fiscal year ended
January 31, 1999. All prior year financial statements have also been restated to
reflect the pooling of interests method of accounting and are based on fiscal
years ended as of January 31 for NTS and December 31 for XXCAL.

                RESULTS OF OPERATIONS

Net Revenues
(Dollars in thousands)

                                1999      % chg       1998      % chg       1997
                                ----      -----       ----      -----       ----
Engineering & Evaluation     $43,684       2.2%    $42,750      13.3%    $37,716
IT Solutions                  45,853      19.0%     38,547       5.0%     36,697
                             -------               -------               -------
    Total                    $89,537      10.1%    $81,297       9.3%    $74,413

      For the year ended January 31, 1999, total net revenues increased
$8,240,000 or 10.1% when compared with fiscal 1998.

      For the year ended January 31, 1998, total net revenues increased
$6,884,000 or 9.3% when compared with fiscal 1997.



                                 Page 15 of 68
<PAGE>


ENGINEERING & EVALUATION:
      Revenues in the Engineering & Evaluation segment increased by $934,000
or 2.2% in fiscal 1999 compared to fiscal 1998 primarily due to the additional
revenues generated from two new testing facilities which commenced operations
during fiscal 1998. This increase was partially offset by 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
are experiencing difficulties producing new products due to technological
problems thus delaying production of hardware for evaluation and testing. This
trend is expected to improve as some of the newer programs are starting to go
into full production.

      For the year ended January 31, 1998, revenues in the Engineering and
Evaluation segment increased $5,034,000 or 13.3% when compared with fiscal 1997
primarily due to increases in its traditional aerospace and defense testing
business resulting from increased research and development budgets of government
defense and aerospace contractors, the addition of two new testing facilities
and an increase in outsourcing of engineering and evaluation services by
commercial customers.

IT SOLUTIONS:
      Revenues in the IT Solutions segment increased by $7,306,000 or 19.0% in
fiscal 1999 compared to fiscal 1998 due to 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. In addition, there was an increase in registration revenues due to
increased demand by U.S. companies for ISO 9000 certification.

      For the year ended January 31, 1998, revenues in the IT Solutions segment
increased $1,850,000 or 5.0% when compared with fiscal 1997 due to the
continuing success of the Company's strategic alliances with major technical
staffing companies, the opening of three new staffing offices during the first
six months of fiscal 1997 and the acquisition of the staffing division of
Texas-based Johnson Engineering Corporation in the third quarter of fiscal 1997.


Gross Profit
(Dollars in thousands)

                                1999      % chg       1998       % chg      1997
                                ----      -----       ----       -----      ----
Engineering & Evaluation     $12,530       4.8%    $11,953       26.0%    $9,486
 % to segment revenues         28.7%                 28.0%                 25.2%
IT Solutions                  14,024      19.3%     11,759        3.1%    11,408
 % to segment revenues         30.6%                 30.5%                 31.1%
                           ---------               -------               -------
Total                      $  26,554      12.0%    $23,712       13.5%   $20,894

 % to net revenues             29.7%                 29.2%                 28.1%

      For the year ended January 31, 1999, total gross profit increased
$2,842,000 or 12.0% when compared with fiscal 1998.

      For the year ended January 31, 1998, total gross profit increased
2,818,000 or 13.5% when compared with fiscal 1997.

                                 Page 16 of 68
<PAGE>


ENGINEERING & EVALUATION:
      Gross profit for the Engineering & Evaluation segment slightly increased
by $577,000 or 4.8% in fiscal 1999 when compared with fiscal 1998 as a result of
the increase of 2.2% in revenues. Despite the competitive pressures from other
companies and government laboratories, which are becoming more aggressive in
competing with private industry, combined with the slowdown in revenues
discussed above, gross profits as a percentage of net revenues slightly
increased in fiscal 1999 when compared with fiscal 1998 as a result of the
Company's continuing successful cost containment programs.

      For the year ended January 31, 1998, gross profits for the Engineering and
Evaluation segment increased by $2,467,000 or 26.0% as a result of increased
revenues in fiscal 1998 compared to fiscal 1997. Gross profit as a percentage of
net revenues in fiscal 1998 also increased when compared to fiscal 1997.This
increase was due primarily to the success of the Company in obtaining more
profitable fixed price contracts and the success of its continued cost
containment programs.

IT SOLUTIONS
      Gross profit for the IT Solutions segment increased by $2,265,000 or 19.3%
in fiscal 1999 when compared to the same period in 1998 due to the continued
growth in this segment of the business and obtaining more fee placements and
permanent placement contracts. Gross profit as a percentage of net revenues
remained approximately the same in fiscal 1999 when compared to the same period
in 1998.

      For the year ended January 31, 1998, gross profit for the IT Solutions
segment increased by $351,000 or 3.1% as a result of increased revenues in
fiscal 1998 compared to fiscal 1997. Gross profit as a percentage of net
revenues in fiscal 1998 slightly decreased when compared to fiscal 1997 due
primarily to labor costs associated with opening four new offices in fiscal
1998.

Selling, General and Administrative
(Dollars in thousands)

                                1999     % chg        1998      % chg      1997
                               -----     -----       -----      -----      ----
Engineering & Evaluation      $7,421     17.5%      $6,315      11.0%    $5,690
% to segment revenues          17.0%                 14.8%                15.1%
IT Solutions                  12,177     13.0%      10,775      11.0%     9,708
% to segment revenues          26.6%                 28.0%                26.5%
                             -------               -------              -------
Total                        $19,598     14.7%     $17,090      11.0%   $15,398

 % to net revenues             21.9%                 21.0%                20.7%

      For the year ended January 31, 1999, total selling, general and
administrative expenses increased $2,508,000 or 14.7% when compared with fiscal
1998.

        For the year ended January 31, 1998, total selling, general and
administrative expenses increased $1,692,000 or 11% when compared with fiscal
1997.

                                 Page 17 of 68
<PAGE>


ENGINEERING & EVALUATION:
      Selling, general and administrative expenses increased by $1,106,000 or
17.5% in fiscal 1999 when compared with fiscal 1998. This increase was primarily
due to efforts to expand the base of business into new technology areas by
engaging specialists in these new areas to offset the relatively flat growth in
the basic testing business. The Company is redirecting some of its sales efforts
to procure larger evaluation programs which require a greater depth of technical
knowledge. Thus, the Company has hired a number of such specialists which has
caused selling, general and administrative expenses to increase in advance of
achieving results from their work.

      For the year ended January 31, 1998, selling, general and administrative
expenses for the Engineering & Evaluation segment increased by $625,000 or
11.0% when compared to fiscal 1997. This increase was primarily due to the
increase in incentive sales compensation to the Company's sales representatives
and managers, increases in marketing and advertising costs as well as expenses
related to the opening of a new testing facility in Largo Florida and taking
over the test laboratory facilities at McClellan Air Force Base in Sacramento,
California in fiscal 1998.

IT SOLUTIONS:
      Selling, general and administrative expenses increased by $1,402,000 or
13.0% in fiscal 1999 when compared with fiscal 1998. This increase was 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. Selling, general and administrative expenses as a percentage of net
revenues decreased in fiscal 1999 when compared to the same period in 1998.

      For the year ended January 31, 1998, selling, general and administrative
expenses for the IT solutions segment increased by $1,067,000 or 11.0% when
compared to fiscal 1997. Selling, general and administrative expenses as a
percentage of net revenues also increased in 1998 when compared to the same
period in 1997. These increases were primarily due to the addition of expenses
related to the acquisition of the staffing division of Texas-based Johnson
Engineering Corporation in Boulder, Colorado along with expenses related to the
opening of three new staffing offices. The Company continues to look for new
ways to reduce costs yet remain effective in all segments of its business.

MERGER COSTS
      During the current fiscal year, 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, and legal fees and other fees and expenses specifically
associated with the merger. In accordance with APB 16, these costs were expensed
as incurred.

INTEREST EXPENSE
      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.
Interest expense increased $84,000 in fiscal 1998 when compared to fiscal 1997.
This increase was principally due to higher weighted average debt balances in
fiscal 1998 along with comparable interest rates.

INCOME TAXES
      The income tax rate for fiscal years 1999, 1998 and 1997 reflects a rate
in excess of the federal statutory rate primarily due to the inclusion of state
income taxes. The Company's fiscal 1999 income tax provision was $272,000 less
than fiscal 1998 because of a decrease in income.

                                 Page 18 of 68
<PAGE>


      The fiscal 1998 income tax provision was $426,000 more than fiscal 1997
due to the increase 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 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 loss from discontinued operations represents the operating results of
the Company's Environmental Services segment prior to its discontinuance in
fiscal 1997.

NET INCOME
      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.

      The increase in net income for fiscal 1998 compared to fiscal 1997 was due
primarily to higher gross profit margins in both segments of the Company's
business, and the lack of losses from the discontinuance of the Environmental
Services segment in fiscal 1997, partially offset by higher selling, general and
administrative expenses and income taxes.

YEAR 2000
      The Year 2000 problem is the result of computer programs being written
using two digits (rather than four) to define the applicable year. Any of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the Year 1900 rather than the Year 2000.

      The Company has assessed and identified to the best of its knowledge all
requirements needed to fix potential problems related to the Year 2000 issue.
This includes: (1) the Company's business software and hardware at all of its
locations, (2) the Company's test equipment used in all the laboratories and (3)
communications with third party vendors to ensure they will meet their Year 2000
requirements.

      Much of the hardware used by the Company has already been upgraded to be
Year 2000 compliant. Certain test equipment at the laboratories has been
identified to be date sensitive and vendors are supplying new Year 2000
compliant software. In situations where the software is not available, the
Company is replacing the equipment. To complete the necessary remediation of its
business systems software, the Company has identified new Year 2000 compliant

                                 Page 19 of 68
<PAGE>


software that will replace certain crucial software applications it currently
uses. All other identified existing systems will be fixed internally. The
Company expects to complete its software remediation by June 30, 1999.

      The estimated total cost for the Year 2000 project is approximately
$400,000 for new hardware, software and in-house programming. The Company has
incurred $322,000 through January 31, 1999. The Company does not expect these
costs to have a material impact on its financial position, results of operations
or cash flows. The Company has funded and will continue to fund these costs from
its operating and financing cash flows.

      The Company has also contacted its major third-party vendors and is in the
process of obtaining assurances that their systems are Year 2000 compliant.
Although the Company does not anticipate any material problems resulting from
the Year 2000 issues, it is taking steps to establish a contingency plan prior
to September 1999 in the event of system failures beyond the Company's control
or in the event of failure by other companies or governmental entities to
remediate their own systems.

Business Environment

ENGINEERING & EVALUATION:
      The business climate which has in the past shown signs of uncertainty and
which had appeared to stabilize last year, has again become uncertain in the
aerospace and defense industries in contrast with IT industries such as
telecommunications, electronics and medical, which have been growing rapidly.
This has occurred due to program delays in new research and development projects
caused by technical difficulties being experienced by the Company's aerospace
and defense clients. In addition, the trend to outsourcing, which started when
many aerospace contractors began downsizing, has begun to reverse. Some of the
Company's aerospace customers are now retaining programs in-house. Also,
government laboratories are becoming more aggressive in competing with private
industry for programs. All these factors have rendered the market more
competitive with an attendant pressure on profits.

IT SOLUTIONS:
      The Company has aggressively pursued additional business in the growing IT
market. The Company supplies IT 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 Company
believes the growth in this sector will be accompanied by higher margins that
will contribute favorably to the overall product mix. Also, the Company
continues to pursue ISO registration business as demand for these services
continues to increase as more companies must compete for business in the global
market place.

      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 1999, cash provided by operations increased by $1,211,000 when
compared to fiscal 1998. Primary factors contributing to this were an increase
in depreciation, as well as increases in the change in accounts receivable,
accounts payable, accrued expenses, income taxes, reserve for doubtful

                                 Page 20 of 68
<PAGE>


accounts and the inclusion in earnings of $181,000 from the merged entity that
was not included in net income. These increases were partially offset by a
decrease in net income and decreases in the change in inventories, prepaid
expenses and deferred taxes. In fiscal 1998, cash provided by operations
decreased by $326,000 over fiscal 1997, reflecting decreases from changes in
accounts receivable, other assets, accounts payable, accrued expenses and income
taxes, partially offset by an increase in net income, inventories and the lack
of loss from discontinued operations in fiscal1998.

      Net cash used in investing activities in fiscal 1999 decreased $59,000 as
compared to fiscal 1998. Net cash used in investing activities in fiscal 1998
increased $1,555,000 as compared to fiscal 1997, primarily due to increased
capital requirements to continue the Company's business expansion.

      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. Net cash provided by financing activities in fiscal
1998 consisted of proceeds from bank loans and stock options exercised,
partially offset by cash dividends and distributions paid and repayments of
debt. Long-term debt increased $217,000 in fiscal 1999 from fiscal 1998. This
increase was principally due to new borrowings in excess of regularly scheduled
payments on long-term debt.

      In May 1997, the Company paid off its revolving lines of credit and term
loans with Bank of America NT & SA and replaced them with a new $6,000,000
revolving line of credit with Sanwa Bank California at an interest rate of prime
plus 0.5% and a $3,250,000 term loan with Sanwa Bank California at an interest
rate of prime plus 0.75% which matures on May 1, 2002. In addition, the Company
entered into an agreement with Sanwa Bank California for a $2,000,000 equipment
line of credit which matures on February 1, 2003 with interest only payments
through January 31, 1998. This line was used to retire the leases outstanding
with Bank of America NT & SA which were approximately $1,170,000 at May 31,
1997, and to finance a portion of future requirements.

      In September 1997, the Company negotiated with Sanwa Bank California as
agent and Mellon Bank for a new credit agreement which replaces all of the above
agreements. The new agreements include a new $6,000,000 revolving line of credit
at an interest rate equal to the bank's reference rate plus 0.25% which expires
in September 1999. Also included in the new agreements is a $6,500,000 term loan
at an interest rate of 8.31% which expires in January 2003.

      On October 30, 1998, the Sanwa and Mellon 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. The outstanding balance at January 31, 1999 is
$4,107,000 compared with an outstanding balance of $4,830,000 at January 31,
1998. In addition, the Company added a new term loan in the principal amount of
$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.

      XXCAL, Inc. had a line of credit agreement with Sanwa Bank under which
they could borrow up to $3,250,000, limited to a maximum of 80% of its eligible
accounts receivable. At December 31, 1997, the balance of advances made under
this line of credit was $500,000 at the fixed rate of 8.22%. On October 30,
1998, NTS paid off the balance due on this line of credit which amounted to
$1,207,000.

                                 Page 21 of 68
<PAGE>


      In July 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. The
outstanding balance at January 31, 1999 is $1,606,000. In April 1999, Mellon US
Leasing extended an additional $2,000,000 of credit under the same terms of the
original agreement. The note payable to Mellon Bank is collateralized by
equipment with a net book value of $1,483,000 at January 31, 1999.

      Maturities of long-term debt consist of regularly scheduled payments on
the Company's term loans to its banks and notes payable. Of the $6,712,000 shown
in the maturities of long term debt (see note 3 to the consolidated financial
statements) due in fiscal 2001, $4,107,000 is the outstanding balance of the
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 $3,893,000
available at January 31, 1999.

MANAGEMENT RISK AND RISK MANAGEMENT POLICY
      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 $41,000 at January 31, 1999.

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.











                                 Page 22 of 68
<PAGE>













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.












                                 Page 23 of 68
<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 25, 1999 are incorporated herein by
reference.

            Executive Officers of the Company
            ---------------------------------

       Name           Age                             Position
-------------------  ----     --------------------------------------------------
Lloyd Blonder         59      Senior Vice President and Chief Financial Officer,
                              Treasurer. Has been associated with the Company
                              since 1983.

Aaron Cohen           62      Group President, IT Solutions Group. Has been
                              associated with the Company since 1961.

Arthur Edelstein      61      Senior Vice President, Chief Technical Officer of
                              the Company. Has been associated with the Company
                              since 1961.

Jack Lin              66      President and Chief Executive Officer of the
                              Company. Has been associated with the Company
                              continuously since 1961.

Harold Lipchik        70      Vice President Administration and Corporate
                              Secretary of the Company. Has been associated with
                              the Company since 1984.

William McGinnis      40      Executive Vice President of the Company. Has been
                              associated with the Company since 1980.

Richard Short         56      Group President, Engineering & Evaluation Group.
                              Has been associated with the Company since 1961.

William Traw          61      Senior Vice President, Chief of Operations,
                              Engineering & Evaluation Group. Has been
                              associated with the Company since 1963.

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 25, 1999
is incorporated herein by reference.


                                 Page 24 of 68
<PAGE>


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 25, 1999 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 25, 1999
are incorporated herein by reference.













                                 Page 25 of 68
<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, 1999 and 1998 and for
                            each of the years in the three year period ended
                            January 31, 1999.

                  (ii)      Consolidated Financial Statement Schedule.

                            II    Valuation and Qualifying Accounts and Reserves

            B.    Reports on Form 8-K.

                  The following reports on Form 8-K were filed during the fourth
                  quarter ended January 31, 1999:

                  On November 3, 1998, the Company filed a Current Report on
                  Form 8-K with respect to Item 2, reporting the Agreement and
                  Plan of Merger and acquisition of XXCAL, Inc. and XXCAL
                  Limited, effective on October 30, 1998.

                  On December 23, 1998, the Company filed a Current Report on
                  Form 8-K with respect to Item 5, reporting the unaudited
                  consolidated results of its operations for the month ended
                  November 30, 1998, the first month since it completed its
                  merger and acquisition of XXCAL, effective on October 30,
                  1998.

            C.    Exhibits.

                  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).

                                 Page 26 of 68
<PAGE>


                  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).

                  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  Form of the Company's 1988 Stock Option Plan (filed as
                        Exhibit A to the Company's Proxy Statement for Annual
                        Meeting of June 18, 1988, and is incorporated herein by
                        reference thereto

                  10.4  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).

                                 Page 27 of 68
<PAGE>


                  10.5  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)

                  21    Subsidiaries of the Company.

                  23.1  Consent of Ernst & Young LLP, Independent Auditors.

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

                  27    Financial Data Schedule.

                  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.




                                 Page 28 of 68
<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.

April 28, 1999                                 NATIONAL TECHNICAL SYSTEMS, INC.

                                                  By    /s/ Jack Lin
                                                    ---------------------------
                                                       Jack Lin, President
                                                   (Principal Executive Officer)

            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, 1999.

<TABLE>

<S>                                                                      <C>
/s/ Jack Lin                                                             /s/ Aloysius Casey
----------------------------------------                                 -------------------------------------
Jack Lin, President                                                      Aloysius Casey, Chairman of the Board
(Principal Executive Officer & Director)

/s/ Arthur Edelstein                                                     /s/ Aaron Cohen
----------------------------------------                                 -------------------------------------
Arthur Edelstein, Director                                               Aaron Cohen, Vice Chairman of the Board
and Executive Vice President                                             and Senior Executive Vice President

/s/ Lloyd Blonder                                                        /s/ William McGinnis
----------------------------------------                                 -------------------------------------
Lloyd Blonder, Senior Vice President                                     William McGinnis, Group Vice President and
and Treasurer (Principal Financial and Accounting                        Director
Officer)

/s/ William L Traw                                                       /s/ Robert I. Lin
----------------------------------------                                 -------------------------------------
William L. Traw, Group Vice President                                    Robert I. Lin, Director
and Director

/s/ Richard D Short                                                      /s/ Ralph F Clements
----------------------------------------                                 -------------------------------------
Richard D. Short, Group Vice President                                   Ralph F. Clements, Director
and Director
</TABLE>






                                 Page 29 of 68
<PAGE>



                       NATIONAL TECHNICAL SYSTEMS, INC.
                               AND SUBSIDIARIES

           Index to Consolidated Financial Statements and Schedules
           --------------------------------------------------------




Report of Independent Auditors

Financial Statements:

      Consolidated Balance Sheets - January 31, 1999 and 1998

      Consolidated Statements of Income - Years ended January 31, 1999, 1998
      and 1997

      Consolidated Statements of Shareholders' Equity - Years ended January 31,
      1999, 1998 and 1997

      Consolidated Statements of Cash Flows - Years ended January 31, 1999, 1998
      and 1997

Notes to Consolidated Financial Statements


Schedule Supporting Financial Statements:                               Schedule

      Valuation and Qualifying Accounts and Reserves                         II


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



                                 Page 30 of 68
<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, 1999 and 1998, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended January 31, 1999. 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 conducted our audits in accordance with generally accepted auditing
standards. 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 provide a reasonable basis for our opinion.

In our opinion, 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, 1999 and 1998
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended January 31, 1999, in conformity with
generally accepted accounting principles. 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.

We previously audited and reported on the consolidated balance sheet and the
related consolidated statements of income, shareholders' equity, and cash flows
of National Technical Systems, Inc. and Subsidiaries for the years ended January
31, 1998 and 1997, prior to their restatement for the 1999 pooling of interests
as described in Note 2. The contribution of National Technical Systems, Inc. and
subsidiaries to total assets, revenues, and net income represented 88%, 69%, and
85% of the respective restated totals in 1998 and 63% and 75% of the respective
restated revenues and net income totals in 1997. Financial statements of the
other pooled companies included in the 1998 and 1997 restated consolidated
statements were audited and reported on separately by other auditors. We also
have audited, as to combination only, the accompanying consolidated balance
sheet as of January 31, 1998 and the related consolidated statements of income,
shareholders' equity, and cash flows for the years ended January 31, 1998 and
1997, after restatement for the 1999 pooling of interests; in our opinion, such
consolidated financial statements have been properly combined on the basis
described in Note 2 to the consolidated financial statements.

As discussed in Note 1 to the financial statements, in 1999 National Technical
Systems, Inc. changed its method of accounting for start up costs.

                                                /s/ Ernst & Young LLP

Woodland Hills, California
April 9, 1999

                                 Page 31 of 68
<PAGE>
<TABLE>
                                           NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
                                                      Consolidated Balance Sheets
                                                       January 31, 1999 and 1998
<CAPTION>
                                            ASSETS                       1999          1998
                                            ------                       ----          ----
<S>                                                                    <C>           <C>        
CURRENT ASSETS:
  Cash                                                                 $ 2,599,000   $ 2,510,000
  Accounts receivable, less allowance for doubtful accounts
    of $904,000 in 1999 and $741,000 in 1998                            20,120,000    18,382,000
  Income taxes receivable                                                   56,000       104,000
  Inventories                                                            1,640,000     1,860,000
  Deferred tax assets                                                      919,000       523,000
  Prepaid expenses                                                       1,099,000       919,000
                                                                       -----------   -----------
            Total current assets                                        26,433,000    24,298,000
Property, plant and equipment
   Land                                                                  1,306,000     1,306,000
   Buildings                                                             8,200,000     7,976,000
   Machinery and equipment                                              40,545,000    36,864,000
   Leasehold improvements                                                4,172,000     3,975,000
                                                                       -----------   -----------
    Total property, plant and equipment                                 54,223,000    50,121,000
   Less: accumulated depreciation                                       33,402,000    30,732,000
                                                                       -----------   -----------
     Net property, plant and equipment                                  20,821,000    19,389,000
Property held for sale                                                     544,000       544,000
Intangible assets, net                                                     544,000       637,000
Other assets                                                             1,489,000     1,244,000
                                                                       -----------   -----------
         TOTAL ASSETS                                                  $49,831,000   $46,112,000
                                                                       ===========   ===========
                             LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable                                                     $ 3,493,000   $ 3,376,000
  Accrued expenses                                                       3,785,000     3,390,000
  Income taxes payable                                                     113,000        69,000
  Current installments of long-term debt                                 2,091,000     1,551,000
                                                                       -----------   -----------
         Total current liabilities                                       9,482,000     8,386,000

Long-term debt, excluding current installments                          13,076,000    12,859,000
Deferred income taxes, net                                               2,565,000     2,303,000
Deferred compensation                                                      555,000       495,000
Minority interest                                                           51,000        27,000
Commitments and contingencies

SHAREHOLDERS' EQUITY:     
  Common stock, no par value.  Authorized, 20,000,000 shares; issued
    and outstanding 8,319,000 in 1999 and 8,168,000 in 1998             11,472,000    11,119,000
  Paid-in-capital                                                             --         165,000
  Retained earnings                                                     12,630,000    10,758,000
                                                                       -----------   -----------
         Total shareholders' equity                                     24,102,000    22,042,000
                                                                       -----------   -----------
         TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                    $49,831,000   $46,112,000
                                                                       ===========   ===========

See accompanying notes.
</TABLE>
                                 Page 32 of 68
<PAGE>
<TABLE>
                                           NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
                                                   Consolidated Statements of Income
                                              Years Ended January 31, 1999, 1998 and 1997
<CAPTION>
                                                                                 1999            1998            1997
                                                                                 ----            ----            ----
<S>                                                                            <C>             <C>             <C>         
Net revenues                                                                   $ 89,537,000    $ 81,297,000    $ 74,413,000
Cost of sales                                                                    62,983,000      57,585,000      53,519,000
                                                                               ------------    ------------    ------------
Gross profit                                                                     26,554,000      23,712,000      20,894,000
Selling, general and administrative expense                                      19,598,000      17,090,000      15,398,000
Merger costs                                                                        907,000            --              --
                                                                               ------------    ------------    ------------
Operating income                                                                  6,049,000       6,622,000       5,496,000
Other income (expense):
  Interest expense                                                               (1,253,000)     (1,245,000)     (1,161,000)
  Other                                                                              91,000         118,000         (44,000)
                                                                               ------------    ------------    ------------
                                                                                 (1,162,000)     (1,127,000)     (1,205,000)
Income from continuing operations before income taxes and minority interest       4,887,000       5,495,000       4,291,000
Income taxes                                                                      1,742,000       2,014,000       1,588,000
                                                                               ------------    ------------    ------------
Income from continuing operations before minority interest                        3,145,000       3,481,000       2,703,000
Minority interest                                                                   (24,000)        (26,000)         10,000
                                                                               ------------    ------------    ------------
Income from continuing operations                                                 3,121,000       3,455,000       2,713,000
Loss from discontinued operations,  net of income tax                                  --              --          (684,000)
Cumulative effect of change in accounting for start-up costs, net of  income
   taxes                                                                           (482,000)           --              --
                                                                               ------------    ------------    ------------
Net income                                                                     $  2,639,000    $  3,455,000    $  2,029,000
                                                                               ============    ============    ============
 Basic earnings (loss) per common share:
   Continuing operations                                                       $       0.38    $       0.43    $       0.34
   Discontinued operations                                                             --              --             (0.09)
   Cumulative effect of change in accounting                                          (0.06)           --              --
                                                                               ------------    ------------    ------------
Net income *                                                                   $       0.32    $       0.43    $       0.26
                                                                               ============    ============    ============
Diluted earnings (loss) per common share:
   Continuing operations                                                       $       0.36    $       0.41    $       0.33
   Discontinued operations                                                             --              --             (0.08)
   Cumulative effect of change in accounting                                          (0.06)           --              --
                                                                               ------------    ------------    ------------
Net income *                                                                   $       0.31    $       0.41    $       0.25
                                                                               ============    ============    ============
Weighted average common shares outstanding                                        8,236,000       8,061,000       7,902,000
Dilutive effect of stock options                                                    374,000         389,000         264,000
                                                                               ------------    ------------    ------------
Weighted average common shares outstanding, assuming dilution                     8,610,000       8,450,000       8,166,000
                                                                               ============    ============    ============

* Per share data may not always add up to total for the year because each figure
  is independently calculated
See accompanying notes.
</TABLE>

                                 Page 33 of 68
<PAGE>
<TABLE>
                                                      NATIONAL TECHNICAL SYSTEMS, INC.
                                                              AND SUBSIDIARIES

                                              Consolidated Statements of Shareholders' Equity
                                                 Years ended January 31, 1999, 1998 and 1997
<CAPTION>
                                                     COMMON STOCK
                                                     ------------

                                                 NUMBER                       ADDITIONAL                        TOTAL
                                                   OF                          PAID-IN         RETAINED      SHAREHOLDERS'
                                                 SHARES         AMOUNT         CAPITAL         EARNINGS         EQUITY
                                             -----------------------------------------------------------------------------
<S>                                             <C>          <C>             <C>             <C>             <C>         
Balance at January 31, 1996                     7,874,000    $    134,000    $ 10,546,000    $  6,933,000    $ 17,613,000
Net income                                           --              --              --         2,029,000       2,029,000
Foreign currency translation                         --              --              --             4,000           4,000
Stock options exercised                            62,000            --            64,000            --            64,000
Distributions to subchapter S shareholders           --              --              --          (584,000)       (584,000)
Cash dividends                                       --              --              --          (335,000)       (335,000)
                                             -----------------------------------------------------------------------------
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 included
 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                                       --              --              --          (506,000)       (506,000)
                                             -----------------------------------------------------------------------------
Balance at January 31, 1999                     8,319,000    $ 11,472,000    $       --      $ 12,630,000    $ 24,102,000
                                             =============================================================================

See accompanying notes.

</TABLE>

                                 Page 34 of 68
<PAGE>
<TABLE>
                                                      NATIONAL TECHNICAL SYSTEMS, INC.
                                                              AND SUBSIDIARIES
                                                    Consolidated Statements of Cash Flows
                                                 Years Ended January 31, 1999, 1998 and 1997
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:                                                1999            1998            1997
                                                                                     ----            ----            ----
<S>                                                                               <C>             <C>             <C>         
  Net income                                                                      $  2,639,000    $  3,455,000    $  2,713,000
  Adjustments to reconcile net income to cash provided by operating activities:
      Depreciation and amortization                                                  2,934,000       2,437,000       2,390,000
      Stock issued in lieu of compensation                                                --           210,000            --
      Provisions for losses on receivables                                             163,000         (37,000)        108,000
      Loss on retirement of assets                                                     100,000           3,000           8,000
      Earnings from merged entity not included in net income                           181,000            --              --
      Distributed earnings of affiliate                                                   --              --           (51,000)
      Undistributed earnings of affiliate                                               24,000          26,000         (23,000)
      Deferred income taxes                                                           (134,000)        163,000         390,000
      Changes in assets and liabilities:
          Accounts receivable                                                       (1,901,000)     (2,586,000)     (1,317,000)
          Inventories                                                                  220,000         411,000         (51,000)
          Prepaid expenses                                                            (180,000)         26,000        (132,000)
          Other assets                                                                 (90,000)       (139,000)        135,000
          Deferred revenues                                                               --           (20,000)       (118,000)
          Accounts payable                                                             117,000        (457,000)        225,000
          Income taxes                                                                  92,000         (75,000)         73,000
          Deferred compensation                                                         60,000          99,000          24,000
          Accrued expenses                                                             395,000        (107,000)         45,000
                                                                                  ------------    ------------    ------------
 Cash provided by continuing operations                                              4,620,000       3,409,000       4,419,000
     Loss from discontinued operations                                                    --              --          (684,000)
                                                                                  ------------    ------------    ------------
  Cash provided by operating activities                                              4,620,000       3,409,000       3,735,000
                                                                                  ------------    ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property, plant and equipment                                         (4,397,000)     (4,125,000)     (2,669,000)
  Investment in life insurance                                                        (155,000)       (192,000)       (143,000)
  Investment in new business                                                              --          (275,000)       (208,000)
  Net cash paid on employee loans and notes receivable                                    --           (13,000)        (14,000)
  Proceeds from sale of assets                                                          24,000          18,000           2,000
                                                                                  ------------    ------------    ------------
  Cash used for investing activities                                                (4,528,000)     (4,587,000)     (3,032,000)
                                                                                  ------------    ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from current and long-term debt                                           7,283,000      17,627,000       2,673,000
  Proceeds from stock options exercised                                                188,000         175,000          65,000
  Tax benefit from stock options exercised                                                --           159,000            --
  Cash dividends paid                                                                 (506,000)       (416,000)       (335,000)
  Repurchase of common stock                                                              --            (5,000)           --
  Distributions to subchapter S shareholders                                          (442,000)       (323,000)       (584,000)
  Repayments of current and long-term debt                                          (6,526,000)    (14,960,000)     (3,103,000)
                                                                                  ------------    ------------    ------------
  Cash provided by (used for) financing activities                                      (3,000)      2,257,000      (1,284,000)
                                                                                  ------------    ------------    ------------
Net increase (decrease) in cash                                                         89,000       1,079,000        (581,000)
BEGINNING CASH BALANCE                                                               2,510,000       1,431,000       2,012,000
                                                                                  ------------    ------------    ------------
ENDING CASH BALANCE                                                               $  2,599,000    $  2,510,000    $  1,431,000
                                                                                  ============    ============    ============
                                 Page 35 of 68
<PAGE>


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments during the year for:
      Interest                                                                       1,271,000       1,348,000       1,193,000
      Income taxes                                                                   1,301,000       1,757,000         673,000
Cash received during the year for:
      Income taxes                                                                       2,000           4,000          43,000
Non-cash items:
      Deferred revenue in connection with acquisition of business                         --              --            45,000
</TABLE>


































                                 Page 36 of 68
<PAGE>


                          NATIONAL TECHNICAL SYSTEMS, INC.
                               AND SUBSIDIARIES
                  Notes to Consolidated Financial Statements
                       January 31, 1999, 1998 and 1997

(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. 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 63% to the Company, and 37% 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 $75,000. All significant
      intercompany balances and transactions have been eliminated in
      consolidation. Certain 1997 and 1998 amounts have been reclassified to
      conform with the 1999 presentation.

      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


                                 Page 37 of 68
<PAGE>


      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.

      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:

             Buildings                     30 to 35 years
             Machinery and equipment        3 to 20 years
             Leasehold improvements        Terms of lease, or estimated useful
                                              life (whichever is less)

      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 $612,000 as of January 31, 1999 and
      $519,000 as of January 31, 1998. 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, 1999.

      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;
      however, the adoption of this statement had no impact on the Company's net
      income or shareholders' equity. SFAS No.130 requires display of unrealized
      gains or losses on available-for-sale securities and foreign currency
      translation adjustments. The Company does not have these accounting
      transactions. Prior year financial statements have not been reclassified
      to conform to the requirements of SFAS No.130 since there is no impact.

                                 Page 38 of 68
<PAGE>


      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
      In 1997, the Financial Accounting Standards Board issued SFAS No.128,
      "Earnings Per Share". The statement replaced the calculation of primary
      and fully diluted earnings per share with basic and diluted earnings per
      share. Unlike primary earnings per share, basic earnings per share
      excludes any dilutive effects of options, warrants and convertible
      securities. Diluted earnings per share is very similar to the previously
      reported fully diluted earnings per share. All earnings per share amounts
      for all periods have been presented, and where appropriate, restated to
      conform to the statement's requirements.

      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
      gains and losses are 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 statements during the third quarter of fiscal
      year ending January 31, 1999. The effect of adoption of SOP 98-5 was to
      record a one-time charge of 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.



                                 Page 39 of 68
<PAGE>


(2)   Business Disposition and Acquisition

      In January 1997, the Company, after considering the highly competitive and
      unreliable nature of the business and the inability to operate at
      profitable levels, elected to discontinue and abandon its Environmental
      Services segment. As of January 31, 1999 the Environmental Services
      segment had contract claims totaling $245,000 and net accounts receivable
      of $180,000 relative to completed contracts. As of January 31, 1998 the
      contract claims were $245,000 and the net accounts receivable were
      $684,000. Management of the Company, on the advice of legal counsel,
      believes the amounts recorded will be fully realized.

      Results of operations in fiscal 1997 related to the discontinued
      operations are as follows:

          Net Revenues                          $ 1,683,000
                                                 ==========
          Loss from discontinued operations:
            Environmental Services operating
            losses and other expenses            (1,093,000)

            Estimated future shutdown
             expenses                              (116,000)
            Tax benefit from discontinued
             operations                             525,000 
                                                 ---------- 
                                                $  (684,000)
                                                 ==========


      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.


                                 Page 40 of 68
<PAGE>


      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:

                                                  NTS          XXCAL
                                              -----------   -----------
                    Revenue                 $  45,639,000  $ 22,413,000

                    Net Income              $     695,000  $    780,000

(3)   Debt

      Long-term debt consists of the following:

<TABLE>

<CAPTION>
                                                                                 1999          1998
                                                                          -------------------------
      <S>                                                                 <C>           <C>        
      Term loans payable to banks (b)                                     $ 7,133,000   $ 6,500,000
      Notes payable (interest rates of 8.50% to 10.25%), collateralized
       by land and buildings, with a net book value of $3,095,000           1,857,000     1,950,000
      Secured notes payable (c)                                             1,640,000       915,000
      Revolving lines of credit (a)                                         4,107,000     4,830,000
      Loans from employee and officers (d)                                    430,000       215,000
                                                                          -----------   -----------
      Subtotal                                                             15,167,000    14,410,000
      Less current installments                                             2,091,000     1,551,000
                                                                          -----------   -----------
      Total                                                               $13,076,000   $12,859,000
                                                                          ===========   ===========
</TABLE>

      In September 1997, the Company negotiated with Sanwa Bank California as
      agent and Mellon Bank a new "Credit Agreement" which replaced all prior
      agreements.

 (a)  The Credit Agreement included a $6,000,000 revolving line of credit at an
      interest rate of the bank's reference rate plus 0.25% which expires in
      September 1999. 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. The outstanding balance at
      January 31, 1999 is $4,107,000 compared with an outstanding balance of
      $4,330,000 at January 31, 1998. This balance is reflected in the
      accompanying consolidated balance sheets as long-term. 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.

      XXCAL, Inc. had its own line of credit agreement with Sanwa Bank under
      which, they could borrow up to $3,250,000, limited to a maximum of 80% of
      its eligible accounts receivable. At December 31, 1997, the balance of
      advances made under this line of credit was $500,000 at the fixed rate of
      8.22%. On October 30, 1998 NTS paid off the balance due on this line of
      credit which amounted to $1,207,000.

                                 Page 41 of 68
<PAGE>


(b)   The Credit Agreement also called for 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.

      The term loan and line of credit noted above 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. 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.

(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. The outstanding balance at January 31, 1999 is $1,606,000. In
      April of 1999 Mellon US Leasing extended an additional $2,000,000 of
      credit under the same terms of the original agreement. The note payable to
      Mellon Bank is collateralized by equipment with a net book value of
      $1,483,000 at January 31, 1999.

(d)   The Company has unsecured demand notes payable to two officers of the
      Company and one employee in the aggregate amount of $430,000 as of January
      31, 1999. 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 all of the Company's long-term debt
      in 1999 and 1998 is approximately 8.45% and 8.85% respectively.

      Maturities of long-term debt for five years subsequent to January 31, 1999
      are as follows:

                  2000              $ 2,091,000
                  2001                6,712,000
                  2002                3,671,000
                  2003                2,100,000
                  2004                  441,000
                  Thereafter            152,000
                                    -----------
                                    $15,167,000
                                    ===========

      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.


                                 Page 42 of 68
<PAGE>


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

<TABLE>
<CAPTION>
                                           1999         1999         1998         1998
                                       Carrying    Estimated     Carrying    Estimated
                                         amount   fair value       amount   fair value
                                    ------------ ------------ ------------ ------------
      <S>                             <C>          <C>          <C>          <C>       
      Term loans payable to banks     $7,133,000   $7,310,000   $6,500,000   $6,471,000
      Notes payable                    1,857,000    1,929,000    1,950,000    2,029,000
      Secured notes payable            1,640,000    1,653,000      915,000      942,000
      Revolving lines of credit        4,107,000    4,107,000    4,830,000    4,830,000
      Loans from employee and officer    430,000      430,000      215,000      215,000
</TABLE>

(4)   Income Taxes

      Until the merger with NTS, XXCAL had elected to be taxed as an 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 $252,000,
      $130,000, and $47,000 in fiscal 1999, 1998 and 1997, respectively. 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:

      Current:                      1999             1998             1997
                              ---------------------------------------------
           Federal            $1,502,000       $1,425,000         $625,000
           State                 323,000          400,000          297,000
           Foreign                51,000           26,000           12,000
                              ----------       ----------       ----------
                               1,876,000        1,851,000          934,000
      Deferred:
           Federal              (102,000)         137,000          638,000
           State                 (32,000)          26,000           16,000
                              ----------       ----------       ----------
                                (134,000)         163,000          654,000
                              ----------       ----------       ----------
      Income tax expense      $1,742,000       $2,014,000       $1,588,000
                              ==========       ==========       ==========


                                 Page 43 of 68
<PAGE>


      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>
                                                                  1999           1998           1997
                                                           -----------------------------------------
      <S>                                                  <C>            <C>            <C>        
      Income from continuing operations before income
       taxes                                               $ 4,887,000    $ 5,495,000    $ 4,291,000
                                                           ===========    ===========    ===========
      Federal income tax computed at statutory rate          1,662,000      1,868,000      1,459,000
      Amortization of goodwill                                  31,000         17,000         15,000
      State income taxes, net of federal benefits              184,000        268,000        197,000
      XXCAL, Inc. Sub chapter S non-taxable income            (196,000)      (144,000)      (211,000)
      Other                                                     61,000          5,000        128,000
                                                           -----------    -----------    -----------
      Income tax expense                                   $ 1,742,000    $ 2,014,000    $ 1,588,000
                                                           ===========    ===========    ===========
</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 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>
                                                     1999                        1998 
                                          ------------------------   -------------------------

      Deferred tax asset:                    Current    Non-current     Current     Non-current
      -------------------                    -------    -----------     -------     -----------
      <S>                                  <C>          <C>           <C>           <C>     
      Bad debt reserve                     $  304,000   $     --      $  203,000    $     --
      Vacation accrual                        192,000         --         185,000          --
      State taxes                              91,000       27,000       135,000        37,000
      Deferred compensation                   332,000         --            --            --
                                           ----------  -----------    ----------   ----------- 
      Total deferred tax asset                919,000       27,000       523,000        37,000
      Valuation allowance                        --           --            --            --
      Deferred tax liability:
      Tax over book depreciation                 --     (2,592,000)         --      (2,340,000)
                                           ----------  -----------    ----------   ----------- 
      Net deferred tax asset (liability)   $  919,000  ($2,565,000)   $  523,000   ($2,303,000)
                                           ==========  ===========    ==========   =========== 


</TABLE>





                                 Page 44 of 68
<PAGE>


(5)   Stock Options and Pension Plans

      The Company has one employee incentive stock option plan: the 1994 stock
      option plan. The Company also has a new qualified plan related to the
      XXCAL, Inc. pooling of interest transaction as of October 31, 1998. The
      XXCAL, Inc. stock options were exchanged for options of National Technical
      Systems, Inc.

      Under the 1994 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, are as follows:

<TABLE>
<CAPTION>
                                                           1999                            1998
                                                           ----                            ----
                                                                  Weighted                       Weighted
                                                                   Average                        Average
                                                  Shares    Exercise Price       Shares    Exercise Price
                                               ----------------------------------------------------------
      <S>                                      <C>                   <C>        <C>                 <C>  
      Beginning Balance                          490,966             $3.19      643,545             $2.38
      Grants                                     854,755              4.61       98,469              5.38
      Exercises                                  (50,346)             2.20     (219,486)             1.94
      Canceled or expired                         (7,450)             4.39      (31,562)             2.24
                                               ---------             -----      -------             -----
      Ending balance                           1,287,925             $4.16      490,966             $3.19
                                               =========             =====      =======             =====
      Reserve for future grants at year end      121,198                        121,198
      Exercisable                                404,075             $2.25      145,168             $2.43
                                               =========             =====      =======             =====
</TABLE>

      The range of exercise prices for options outstanding at January 31, 1999
      was $0.70 to $7.00. The range of exercise prices for options is wide due
      primarily to the increasing price of the Company's stock over the period
      of the grants.



                                 Page 45 of 68
<PAGE>


      The following tables summarize information about options outstanding at
      January 31, 1999:

<TABLE>

<CAPTION>
              Outstanding at   Weighted Avg.
Range of             January Remaining contract  Weighted Avg.       Number  Weighted Avg.
exercise prices      31,1999   life in yrs.      Exercise Price  Exercisable Exercise Price
-------------------------------------------------------------------------------------------
<S>                  <C>           <C>                    <C>        <C>              <C>  
$0.70 to $2.00       220,121       3.4                    $1.40      160,421          $1.30

$2.01 to $3.00       316,882       6.1                    $2.71      213,977          $2.66

$3.01 to $4.00        23,720       2.6                    $3.16       11,860          $3.16

$5.01 to $6.00       548,969       9.3                    $5.46       17,817          $5.19

$6.01 to $7.00       178,223       9.3                    $6.29         --              --
</TABLE>


      These options will expire if not exercised at specific dates ranging from
      June 1999 to November 2008. Prices for options exercised during the
      two-year period ended January 1999 ranged from $2.00 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:
 
                                     1999     1998     1997
                                     ----     ----     ----
      Expected life (in years)        5        5         5
      Risk-free interest rate       4.99%    6.01%    6.14%
      Expected volatility             61%      62%      78%
      Expected dividend yield         82%      72%      86%

      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


                                 Page 46 of 68
<PAGE>


      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 1999 and 1998 was $4.47 and $2.98 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, 1999  January 31, 1998  January 31, 1997
                                          -----------------------------------------------------
      <S>                                       <C>               <C>               <C>       
      Net Income
        As reported                             $2,639,000        $3,455,000        $2,029,000
        Pro forma                               $2,528,000        $3,367,000        $1,999,000
      Basic earnings per common share
        As reported                                  $0.32             $0.43             $0.26
        Pro forma                                    $0.31             $0.42             $0.25
      Diluted earnings per common share
        As reported                                  $0.31             $0.41             $0.25
        Pro forma                                    $0.29             $0.40             $0.24
</TABLE>

      The Company has an employee stock ownership plan covering all employees.
      Contributions by the Company are at the discretion of the Board of
      Directors. The Company did not make contributions in 1999, 1998 or 1997.

      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 1999, the Board of
      Directors and management of the Company approved a contribution to the
      401(k) profit sharing plan of $253,600 as compared to $258,500 in 1998 and
      $155,400 in 1997.

      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.



                                 Page 47 of 68
<PAGE>


      The 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 the president is eligible to retire
      within the next 12 months.

      The deferred compensation benefits are accrued and recognized over each
      employee's expected term of employment. The Company's total deferred
      compensation expenses were $67,000, $119,000 and $46,000 for the years
      ended January 31, 1999, 1998 and 1997, respectively. Included in other
      assets is $1,150,000 and $995,000 for the cash surrender value as of
      January 31, 1999 and 1998, respectively.

(6)   Capital Stock

      As of January 31, 1999 and 1998, the Company had 20,000,000 authorized
      common shares with no par value. 8,319,000 shares and 8,168,000 shares
      were issued and outstanding at January 31, 1999 and January 31, 1998,
      respectively.

      Holders of common stock generally 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
      2007. 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 $1,843,000 in 1999, $1,542,000 in 1998, and $1,311,000 in 1997.

      At January 31, 1999, minimum rental payment obligations under operating
      leases were as follows:

                  2000             $ 1,684,000
                  2001               1,012,000
                  2002                 843,000
                  2003                 761,000
                  2004                 490,000
                  Thereafter           421,000
                                   -----------
                                   $ 5,211,000
                                   ===========




                                 Page 48 of 68
<PAGE>


(8)   Accrued Expenses

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

                                                        1999               1998
                                                 ------------------------------
      Compensation and employee benefits          $2,734,000         $2,318,000
      Other                                        1,051,000          1,072,000
                                                   ---------          ---------
                                                  $3,785,000         $3,390,000

(9)   Contingencies

      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.
      On or about February 12, 1999, a customer of the Company asserted a
      written claim against the Company for damages in the amount of
      approximately $2.4 million allegedly resulting from damage caused to
      certain customer hardware while it was being tested by the Company. The
      Company believes that the damages asserted by the customer greatly exceed
      the actual cost of replacing the hardware. The Company has denied that
      damage to the customer hardware, if any, was caused by any negligence or
      failure of the Company to exercise reasonable care in testing the customer
      hardware. No formal action has been taken by the customer. In the event
      formal action is commenced, the Company believes it has meritorious
      defenses to such action and would vigorously defend any such action. The
      Company believes that all or a substantial portion of any damages that
      might be assessed against the Company as a result of such action would be
      covered by insurance. Failure of the Company to obtain a favorable
      resolution of the claim, unless covered by insurance, could have a
      material adverse effect on the Company's results of operations. Currently,
      the amount of such material adverse effect cannot be reasonably estimated.

(10)  Segment of Business Information

      The Company maintains two core operating segments: Engineering &
      Evaluation and IT Solutions.

      The Engineering & Evaluation segment operates test laboratories in
      various states 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.




                                 Page 49 of 68
<PAGE>


      The IT Solutions segment includes the newly acquired XXCAL which was
      combined with the operations of the NTS Technical Staffing division. This
      segment operates in various states in the U.S. and the United Kingdom and
      Japan. IT Solutions 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. 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 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 Company's Chief Executive Officer utilizes the
      information reported below in evaluating results and allocating resources
      pertaining to segment operations.

      The accounting policies of the segments are the same as those described in
      the summary of significant accounting policies in footnote 1.

      The following table illustrates each segments operating income for 1999,
      1998 and 1997. Assets by segment are those assets that are used in the
      Company's operations in each segment. Corporate assets consist of cash,
      accounts receivable, investments in securities, real estate, fixed assets
      not allocated to segments and net assets of discontinued operations.
      Corporate general and administrative expenses were allocated on the basis
      of sales, fixed assets and payroll expenses of the respective segments.
      Interest expense is allocated to the segments based on average borrowing
      rates and segment advances.

      Direct and indirect revenues of Engineering & Evaluation from federal
      agencies of approximately $25,945,000 in 1999, $25,290,000 in 1998 and
      $23,024,000 in 1997, 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
      $548,000, $369,000 and $253,000 in 1999, 1998, and 1997, respectively.
      Assets utilized in the foreign (UK) subsidiaries were $485,000, $257,000
      and $151,000 as of January 31, 1999, 1998, and 1997, respectively.

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








                                 Page 50 of 68
<PAGE>

<TABLE>
         JANUARY 31, 1999 
         ---------------- 
<CAPTION>
                                                                ENGINEERING
                                                               & EVALUATION    IT SOLUTIONS     CORPORATE          TOTAL
                                                               ---------------------------------------------------------
<S>                                                            <C>             <C>             <C>          <C>         
Net revenues                                                   $ 43,684,000    $ 45,853,000    $     --     $ 89,537,000
                                                               ============    ============    ==========   ============
Gross profit                                                     12,530,000      14,024,000          --       26,554,000
Selling, general and administrative expense                       7,421,000      12,177,000          --       19,598,000
Merger costs                                                        686,000         221,000          --          907,000
                                                               ------------    ------------    ----------   ------------
Operating income                                                  4,423,000       1,626,000          --        6,049,000
Other Income (expense):
    Interest expense, net                                        (1,191,000)        (62,000)         --       (1,253,000)
    Other                                                           555,000        (464,000)         --           91,000
                                                               ------------    ------------    ----------   ------------
Income before income taxes, minority interest and cumulative
effect of change in accounting for start-up expenses           $  3,787,000    $  1,100,000    $     --     $  4,887,000
                                                               ============    ============    ==========   ============
Assets                                                         $ 31,579,000    $ 12,344,000    $5,908,000   $ 49,831,000
                                                               ============    ============    ==========   ============
Equity Investments                                             $       --      $     75,000    $     --     $     75,000
                                                               ============    ============    ==========   ============
Expenditures for long-lived assets                             $  3,770,000    $    359,000    $  268,000   $  4,397,000
                                                               ============    ============    ==========   ============
Depreciation and amortization                                  $  2,364,000    $    392,000    $  178,000   $  2,934,000
                                                               ============    ============    ==========   ============
</TABLE>

<TABLE>
         JANUARY 31, 1998
         ----------------
<CAPTION>
                                                                ENGINEERING
                                                               & EVALUATION    IT SOLUTIONS     CORPORATE          TOTAL
                                                               ---------------------------------------------------------
<S>                                                            <C>             <C>             <C>         <C>         
Net revenues                                                   $ 42,750,000    $ 38,547,000    $     --    $ 81,297,000
                                                               ============    ============    ==========  ============
Gross profit                                                     11,953,000      11,759,000          --      23,712,000
Selling, general and administrative expense                       6,315,000      10,775,000          --      17,090,000
                                                               ------------    ------------    ----------  ------------
Operating income                                                  5,638,000         984,000          --       6,622,000
Other Income (expense):
    Interest expense, net                                        (1,135,000)       (110,000)         --      (1,245,000)
    Other                                                           536,000        (418,000)         --         118,000
                                                               ------------    ------------    ----------  ------------
Income before income taxes and minority interest               $  5,039,000    $    456,000    $     --    $  5,495,000
                                                               ============    ============    ==========  ============
Assets                                                         $ 29,770,000    $ 10,001,000    $6,341,000  $ 46,112,000
                                                               ============    ============    ==========  ============
Expenditures for long-lived assets                             $  3,938,000    $    153,000    $   34,000  $  4,125,000
                                                               ============    ============    ==========  ============
Depreciation and amortization                                  $  2,095,000    $    252,000    $   90,000  $  2,437,000
                                                               ============    ============    ==========  ============
</TABLE>
                                 Page 51 of 68
<PAGE>
<TABLE>

         JANUARY 31, 1997
         ----------------
<CAPTION>
                                                                ENGINEERING
                                                               & EVALUATION    IT SOLUTIONS     CORPORATE          TOTAL
                                                               ---------------------------------------------------------
<S>                                                            <C>             <C>             <C>           <C>         
Net revenues                                                   $ 37,716,000    $ 36,697,000    $     --      $ 74,413,000
                                                               ============    ============    ==========    ============
Gross profit                                                      9,486,000      11,408,000          --        20,894,000
Selling, general and administrative expense                       5,690,000       9,708,000          --        15,398,000
                                                               ------------    ------------    ----------    ------------
Operating income                                                  3,796,000       1,700,000          --         5,496,000
Other Income (expense):
    Interest expense, net                                        (1,021,000)       (140,000)         --        (1,161,000)
    Other                                                           545,000        (589,000)         --           (44,000)
                                                               ------------    ------------    ----------    ------------
Income before income taxes and minority interest               $  3,320,000    $    971,000    $     --      $  4,291,000
                                                               ============    ============    ==========    ============
Assets                                                         $ 25,913,000    $  9,242,000    $5,222,000    $ 40,377,000
                                                               ============    ============    ==========    ============
Expenditures for long-lived assets                             $  2,268,000    $    146,000    $  255,000    $  2,669,000
                                                               ============    ============    ==========    ============
Depreciation and amortization                                  $  1,948,000    $    378,000    $   64,000    $  2,390,000
                                                               ============    ============    ==========    ============
</TABLE>














                                 Page 52 of 68
<PAGE>


(11)     Quarterly Financial Data (Unaudited)

<TABLE>
         THREE MONTHS ENDED
         ------------------
<CAPTION>

1999                                                          APRIL 30        JULY 31     OCTOBER 31      JANUARY 31
--------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>            <C>            <C>             <C>         
Net revenues                                              $ 21,669,000   $ 23,153,000   $ 23,230,000    $ 21,485,000
Gross profit                                                 6,356,000      6,650,000      6,624,000       6,924,000
Income before cumulative effect of change in accounting      1,047,000        896,000          5,000       1,173,000
Net income                                                   1,047,000        801,000       (373,000)      1,164,000
Basic earnings (loss) per common share                            0.13           0.10          (0.05)           0.14
Diluted earnings (loss) per common share                          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>

<TABLE>

                 THREE MONTHS ENDED
                 ------------------
<CAPTION>

1998                                                          APRIL 30        JULY 31     OCTOBER 31      JANUARY 31
--------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>            <C>            <C>             <C>         
Net revenues                                              $ 18,932,000   $ 20,157,000   $ 21,443,000    $ 20,765,000
Gross profit                                                 5,345,000      5,899,000      6,320,000       6,148,000
Net income                                                     860,000        903,000        993,000         699,000
Basic earnings per common share                                   0.11           0.11           0.12            0.09
Diluted earnings per common share                                 0.11           0.11           0.12            0.08
Weighted average common shares outstanding                   7,941,000      7,994,000      8,144,000       8,166,000
Dilutive effect of stock options                               176,000        283,000        486,000         445,000
Weighted average common shares outstanding,
   assuming dilution                                         8,117,000      8,277,000      8,630,000       8,611,000
                                                           ===========    ===========    ===========     ===========


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



                                 Page 53 of 68
<PAGE>

<TABLE>

                                                          Schedule II


                                               NATIONAL TECHNICAL SYSTEMS, INC.
                                                       AND SUBSIDIARIES

                                        Valuation and Qualifying Accounts and Reserves

                                         Years ended January 31, 1999, 1998 and 1997

<CAPTION>

       COLUMN A                      COLUMN B                      COLUMN C                    COLUMN D               COLUMN E
       --------                      --------                      --------                    --------               --------
     Description               Balance at beginning       Additions - charged to costs   Deductions - describe      Balance at end
                                    of period                     and expenses                    (a)                 of period
----------------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful
accounts receivable:
         <S>                    <C>                               <C>                         <C>                      <C>       
         1999                   $   741,000                       $   289,000                 $  (126,000)             $  904,000
                                ===========                       ===========                 ===========              ==========
         1998                   $   750,000                       $   235,000                 $  (244,000)             $  741,000
                                ===========                       ===========                 ===========              ==========
         1997                   $   642,000                       $   349,000                 $  (241,000)             $  750,000
                                ===========                       ===========                 ===========              ==========

(a)  Write-off of uncollectible accounts receivable, net of recoveries.
</TABLE>

























                                 Page 54 of 68
<PAGE>
                                  EXHIBIT INDEX

Exhibit No.        Description                                       Page No.
--------------------------------------------------------------------------------

   2       Agreement and Plan of Merger of National Technical          n/a
           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,         n/a
           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    n/a
           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,      n/a
           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     n/a
           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,    n/a
           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).


                                 Page 55 of 68
<PAGE>

   3.2     Amendment No. 1 to Articles of Incorporation of National    n/a
           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    n/a
           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).

   10.1    Form of the Company's 1994 Stock Option Plan (filed as      n/a
           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    n/a
           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    Form of the Company's 1988 Stock Option Plan (filed as      n/a
           Exhibit A to the Company's Proxy Statement for Annual
           Meeting of June 18, 1988, and is incorporated herein by
           reference thereto

   10.4    National Technical Systems Credit Agreement between         n/a
           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).

   10.5    Second Amendment to Credit Agreement between Sanwa Bank     n/a
           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)

   21      Subsidiaries of the Company.                                57

   23.1    Consent of Ernst & Young LLP, Independent Auditors.         58

   23.2    Consent of Duitch, Franklin & Co., LLP, Independent  
           Auditors.                                                   59

   27      Financial Data Schedule.                                    68

   99.1    Undertakings incorporated by reference into Form S-8
           Registration Statement No. 33-48211.                        60

   99.2    Undertakings incorporated by reference into Form S-8
           Registration Statement No. 2-83778.                         62

   99.3    Undertakings incorporated by reference into Form S-8
           Registration Statement No. 333-04905.                       64

   99.4    Undertakings incorporated by reference into Form S-8
           Registration Statement No. 333-67743.                       66

                                 Page 56 of 68
<PAGE>


                                  EXHIBIT 21

                       NATIONAL TECHNICAL SYSTEMS, INC.

                             LIST OF SUBSIDIARIES



                    NTS Technical Systems, a California Corp.
           (Formerly National Technical Systems, a California Corp.)

        Acton Environmental Testing Corporation, a Massachusetts Corp.

       Approved Engineering Test Laboratories, Inc., a California Corp.

                         ETCR Inc., a California Corp.

                 NTS Technical Services, Inc., a Florida Corp.
           (Formerly S&W Technical Services, Inc., a Florida Corp.)

                   Wise and Associates, Inc., a Texas Corp.

    PECS (QA) North America, Inc. (formerly NTS Registration Services, Inc.,
            a Massachusetts Corp.) (Operations combined with National
                   Technical Systems - Certification Services)

      National Technical Systems-Certification Services, a Delaware Corp.

                       XXCAL, Inc., a California Corp.

                          XXCAL Limited, a UK Corp.

         National Quality Assurance - USA, Inc., a Massachusetts Corp.
                                  (50% owned)















                                 Page 57 of 68
<PAGE>





                                                                  Exhibit 23.1


              CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 2-83778, Form S-8 No. 33-48211, Form S-8 No. 333-04905 and Form
S-8 No. 333-67743) pertaining to the National Technical Systems, Inc. Employee
Stock Ownership Plan, the National Technical Systems, Inc. 1988 Stock Option
Plan, the National Technical Systems, Inc. 1994 Stock Option Plan and the XXCAL,
Inc. Stock Option Plan in the related Prospectuses of our report dated April 9,
1999, with respect to the consolidated financial statements of National
Technical Systems, Inc. included in the Annual Report (Form 10-K) for the year
ended January 31, 1999.


                                                /s/ Ernst & Young LLP

Woodland Hills, California
April 28, 1999












                                 Page 58 of 68
<PAGE>



                                                                  Exhibit 23.2


              CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


As the independent certified public accountants, we hereby consent to the
incorporation in the form 10-K of National Technical Systems, Inc. for the
fiscal year ended January 31, 1999 of our report June 19, 1998 on the financial
statements of XXCAL, Inc. as of and for the year ended December 31, 1997.



/s/ Duitch, Franklin & Co, LLP

Los Angeles, California
April 28, 1999














                                 Page 59 of 68
<PAGE>


                                                                    EXHIBIT 99.1


                 To be Incorporated By Reference Into Form S-8
                      Registration Statement No. 33-48211

                                  UNDERTAKINGS
(a)  The undersigned registrant hereby undertakes:

     (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
         (i) To include any prospectus required by section 10(a)(3) of the
         Securities Act of 1933; 
         (ii) To reflect in the prospectus any facts or events arising after 
         the effective date of registration statement (or the most recent
         post-effective amendment thereof) which, individually or in the
         aggregate, represents a fundamental change in the information set
         forth in the registration statement; 
         (iii) To include any material information with respect to the plan
         of distribution not previously disclosed in the registration statement
         or any material change to such information in the registration
         statement; 
     PROVIDED, HOWEVER, that paragraphs (a)(1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8 and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to section 13 or section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.

     (2) That, for the purposes of determining any liability under the 
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering such securities at that time shall be deemed to be the initial bona
fide offering thereof.

     (3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.

(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(f)  EMPLOYEE PLANS ON FORM S-8.
     (1) The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the prospectus to each employee to whom the prospectus is sent
or given a copy of the registrant's annual report to stockholders for its last
fiscal year, unless such employee otherwise has received a copy of such report,
in which case the registrant shall state in the prospectus that it will promptly



                                 Page 60 of 68
<PAGE>


furnish, without charge, a copy of such report on written request of the
employee. If the last fiscal year of the registrant has ended within 120 days
prior to the use of the prospectus, the annual report of the registrant for the
preceding fiscal year may be so delivered, but within such 120 day period the
annual report for the last fiscal year will be furnished to each such employee.

     (2) The undersigned registrant hereby undertakes to transmit or cause to 
be transmitted to all employees participating in the plan who do not otherwise
receive such material as stockholders, copies of all reports, proxy statements
and other communications distributed to its stockholders generally.

     (3) Where interests in a plan are registered herewith, the undersigned
registrant and plan hereby undertake to transmit or cause to be transmitted
promptly, without charge, to any participant in the plan who makes a written
request; a copy of the then latest annual report of the plan filed pursuant to
section 15(d) of the Securities Exchange Act of 1934 (Form 11-K). If such report
is filed separately on Form 11-K, such form shall be delivered upon written
request. If such report is filed as a part of the registrant's annual report on
Form 10-K, that entire report (excluding exhibits) shall be delivered upon
written request. If such report is filed as a part of the registrant's annual
report to stockholders delivered upon written request. If such report is filed
as a part of the registrant's annual report to stockholders delivered upon
written request. If such report is filed as a part of the registrant's annual
report to stockholders delivered pursuant to paragraph 91) or (2) of this
undertaking, additional delivery shall be required.

(i) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
by a director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.



                                  Exhibit 99.1

                                 Page 61 of 68
<PAGE>


                                                                    EXHIBIT 99.2

                  To be Incorporated By Reference Into Form S-8
                       Registration Statement No. 2-83778

                                  UNDERTAKINGS

(a)  The undersigned registrant hereby undertakes:
     (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
         (i) To include any prospectus required by section 10(a)(3) of the 
         Securities Act of 1933; 
         (ii) To reflect in the prospectus any facts or events arising after
         the effective date of registration statement (or the most recent
         post-effective amendment thereof) which, individually or in the
         aggregate, represents a fundamental change in the information set
         forth in the registration statement; 
         (iii) To include any material information with respect to the plan of
         distribution not previously disclosed in the registration statement or
         any material change to such information in the registration statement;
     PROVIDED, HOWEVER, that paragraphs (a)(1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8 and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to section 13 or section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.

     (2) That, for the purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering such securities at that time shall be deemed to be the initial bona
fide offering thereof.

     (3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.

(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(f)  EMPLOYEE PLANS ON FORM S-8.
     (1) The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the prospectus to each employee to whom the prospectus is sent
or given a copy of the registrant's annual report to stockholders for its last
fiscal year, unless such employee otherwise has received a copy of such report,
in which case the registrant shall state in the prospectus that it will promptly
furnish, without charge, a copy of such report on written request of the
employee. If the last fiscal year of the registrant has ended within 120 days
prior to the use of the prospectus, the annual report of the registrant for the
preceding fiscal year may be so delivered, but within such 120 day period the
annual report for the last fiscal year will be furnished to each such employee.


                                 Page 62 of 68
<PAGE>


     (2) The undersigned registrant hereby undertakes to transmit or cause
to be transmitted to all employees participating in the plan who do not
otherwise receive such material as stockholders, copies of all reports, proxy
statements and other communications distributed to its stockholders generally.

     (3) Where interests in a plan are registered herewith, the undersigned
registrant and plan hereby undertake to transmit or cause to be transmitted
promptly, without charge, to any participant in the plan who makes a written
request; a copy of the then latest annual report of the plan filed pursuant to
section 15(d) of the Securities Exchange Act of 1934 (Form 11-K). If such report
is filed separately on Form 11-K, such form shall be delivered upon written
request. If such report is filed as a part of the registrant's annual report on
Form 10-K, that entire report (excluding exhibits) shall be delivered upon
written request. If such report is filed as a part of the registrant's annual
report to stockholders delivered upon written request. If such report is filed
as a part of the registrant's annual report to stockholders delivered upon
written request. If such report is filed as a part of the registrant's annual
report to stockholders delivered pursuant to paragraph 91) or (2) of this
undertaking, additional delivery shall be required.

(i) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
by a director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.


                                  Exhibit 99.2

                                 Page 63 of 68
<PAGE>


                                                                    EXHIBIT 99.3

                  To be Incorporated By Reference Into Form S-8
                      Registration Statement No. 333-04905

                                  UNDERTAKINGS
(a)  The undersigned registrant hereby undertakes:

     (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
         (i) To include any prospectus required by section 10(a)(3) of the
         Securities Act of 1933; 
         (ii) To reflect in the prospectus any facts or events arising after 
         the effective date of registration statement (or the most recent
         post-effective amendment thereof) which, individually or in the 
         aggregate, represents a fundamental change in the information
         set forth in the registration statement;
         (iii) To include any material information with respect to the plan of
         distribution not previously disclosed in the registration statement or
         any material change to such information in the registration statement;
      PROVIDED, HOWEVER, that paragraphs (a)(1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8 and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to section 13 or section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.

     (2) That, for the purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering such securities at that time shall be deemed to be the initial bona
fide offering thereof.

     (3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.

(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(f)  EMPLOYEE PLANS ON FORM S-8.
     (1) The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the prospectus to each employee to whom the prospectus is sent
or given a copy of the registrant's annual report to stockholders for its last
fiscal year, unless such employee otherwise has received a copy of such report,
in which case the registrant shall state in the prospectus that it will promptly
furnish, without charge, a copy of such report on written request of the
employee. If the last fiscal year of the registrant has ended within 120 days


                                 Page 64 of 68
<PAGE>


prior to the use of the prospectus, the annual report of the registrant for the
preceding fiscal year may be so delivered, but within such 120 day period the
annual report for the last fiscal year will be furnished to each such employee.

     (2) The undersigned registrant hereby undertakes to transmit or cause
to be transmitted to all employees participating in the plan who do not
otherwise receive such material as stockholders, copies of all reports, proxy
statements and other communications distributed to its stockholders generally.

     (3) Where interests in a plan are registered herewith, the undersigned
registrant and plan hereby undertake to transmit or cause to be transmitted
promptly, without charge, to any participant in the plan who makes a written
request; a copy of the then latest annual report of the plan filed pursuant to
section 15(d) of the Securities Exchange Act of 1934 (Form 11-K). If such report
is filed separately on Form 11-K, such form shall be delivered upon written
request. If such report is filed as a part of the registrant's annual report on
Form 10-K, that entire report (excluding exhibits) shall be delivered upon
written request. If such report is filed as a part of the registrant's annual
report to stockholders delivered upon written request. If such report is filed
as a part of the registrant's annual report to stockholders delivered upon
written request. If such report is filed as a part of the registrant's annual
report to stockholders delivered pursuant to paragraph 91) or (2) of this
undertaking, additional delivery shall be required.

(i) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
by a director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

                                  Exhibit 99.3

                                 Page 65 of 68
<PAGE>


                                                                    EXHIBIT 99.4


                 To be Incorporated By Reference Into Form S-8
                      Registration Statement No. 333-67743

                                 UNDERTAKINGS
(a)  The undersigned registrant hereby undertakes:

     (1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
         (i) To include any prospectus required by section 10(a)(3) of the
         Securities Act of 1933;
         (ii) To reflect in the prospectus any facts or events arising after the
         effective date of registration statement (or the most recent
         post-effective amendment thereof) which, individually or in the
         aggregate, represents a fundamental change in the information set forth
         in the registration statement;
         (iii) To include any material information with respect to the plan of
         distribution not previously disclosed in the registration statement or
         any material change to such information in the registration statement;
     PROVIDED, HOWEVER, that paragraphs (a)(1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8 and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to section 13 or section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.

      (2) That, for the purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering such securities at that time shall be deemed to be the initial bona
fide offering thereof.

     (3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(f)  EMPLOYEE PLANS ON FORM S-8.
     (1) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus to each employee to whom the prospectus is sent or
given a copy of the registrant's annual report to shareholders for its last
fiscal year, unless such employee otherwise has received a copy of such report,
in which case the registrant shall state in the prospectus that it will promptly
furnish, without charge, a copy of such report on written request of the
employee. If the last fiscal year of the registrant has ended within 120 days


                                 Page 66 of 68
<PAGE>


prior to the use of the prospectus, the annual report of the registrant for the
preceding fiscal year may be so delivered, but within such 120 day period the
annual report for the last fiscal year will be furnished to each such employee.

     (2) The undersigned registrant hereby undertakes to transmit or cause to be
transmitted to all employees participating in the plan who do not otherwise
receive such material as shareholders, copies of all reports, proxy statements
and other communications distributed to its shareholders generally.

     (3) Where interests in a plan are registered herewith, the undersigned
registrant and plan hereby undertake to transmit or cause to be transmitted
promptly, without charge, to any participant in the plan who makes a written
request; a copy of the then latest annual report of the plan filed pursuant to
section 15(d) of the Securities Exchange Act of 1934 (Form 11-K). If such
report is filed separately on Form 11-K, such form shall be delivered upon
written request. If such report is filed as a part of the registrant's annual
report on Form 10-K, that entire report (excluding exhibits) shall be delivered
upon written request. If such report is filed as a part of the registrant's
annual report to shareholders delivered upon written request. If such report is
filed as a part of the registrant's annual report to shareholders delivered upon
written request. If such report is filed as a part of the registrant's annual
report to shareholders delivered pursuant to paragraph 91) or (2) of this
undertaking, additional delivery shall be required.

(i)Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
by a director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
                                 Exhibit 99.4

                                 Page 67 of 68