<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

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

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

                                   FORM 10-K

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

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

               FOR THE FISCAL YEAR ENDED JANUARY 31, 2001

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

             FOR THE TRANSITION PERIOD FROM             TO

                    COMMISSION FILE NUMBER 0-16438
</TABLE>

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

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

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

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

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

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

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

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

    Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  /X/

    Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  YES /X/  NO / /

    The aggregate market value of the voting stock held by non-affiliates of the
Registrant at April 8, 2001 was approximately $12,280,000

    The number of shares of Registrant's Common Stock outstanding on April 18,
2001 was 8,511,625.

    Portions of the Proxy Statement of the Company for the Annual Meeting of
Shareholders to be held on June 27, 2001, are incorporated by reference into
Part III of this report.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                        NATIONAL TECHNICAL SYSTEMS, INC.

                           ANNUAL REPORT (FORM 10-K)

                        FOR YEAR ENDED JANUARY 31, 2001

                                     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 that supplies technical services and
solutions to a variety of industries including aerospace, defense, automotive,
electronics, nuclear, computers and telecommunications. Through its wide range
of testing facilities, staffing solutions and certification services, NTS helps
its customers reduce their time to market and enhance their overall
competitiveness.

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

    The Company's principal executive offices are located at 24007 Ventura
Boulevard, Suite 200, Calabasas, CA 91302 (telephone:818-591-0776).

    B.  HISTORY

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

    Unless indicated otherwise, the term "Company" or "NTS" includes
NTS, Inc.--CA and its wholly owned subsidiaries, NTS California, Acton
Environmental Testing Corporation, a Massachusetts corporation, Approved
Engineering Test Laboratories, Inc., a California corporation, ETCR Inc., a
California corporation, XXCAL, Inc., a California corporation, XXCAL Limited, a
United Kingdom corporation, National Quality Assurance--USA, Inc. (NQA), a 50%
owned Massachusetts corporation and NTS--CS, a Delaware corporation, which was
sold to NQA, Inc. on October 31, 2000 (See Note 2 to Consolidated Financial
Statements attached hereto as Exhibits A (i) and A (ii)). On December 31, 2000,
the Company merged National Technical Services Inc. (formerly S&W Technical
Services) a Florida corporation into

                                       1
<PAGE>
Wise and Associates, Inc. a Texas corporation, which was merged into
XXCAL, Inc. a California corporation.

    The Company's primary businesses comprise of conformity assessment
activities. These services are provided domestically to a wide range of
industries (telecommunications, medical, computer, automotive, aerospace,
defense and nuclear, among others).

    The Company, also performs information technology ("IT") managed services
which includes technical staffing on a temporary or permanent basis, project
management and consulting. In addition, the Company provides management
registration services to national and internationally accepted standards.

    During fiscal 1998, in response to the intention of the U.S. Air Force to
privatize McClellan Air Force base located in Sacramento, California, the
Company took over the operations and employees of the Science and Engineering
Test Laboratories at McClellan. During fiscal 2000, the Company experienced a
significant loss of business at its McClellan Air Force base facility due to the
government decision to transfer work, planned for that operation, to another Air
Force base. The Company, facing losses in attempting to maintain the operation,
decided to close its operations in Sacramento. (See Note 2 to the Consolidated
Financial Statements attached hereto as Exhibits A (i) and A (ii)). All
information presented herein has been restated to exclude the effects of the
Sacramento operation.

    In fiscal 2000, the Company acquired Reintexas Laboratories, a Plano, Texas
facility owned by Reintech Laboratories. The operation performs NEBS 1089
compliance testing for the telecommunications industry. Also in fiscal 2000,
through its NTS-CS subsidiary, the Company acquired the quality management
registration business of Davy Registrar Services and Scott Quality Systems
Registrars, a Pittsburgh, Pennsylvania based registration business. In fiscal
2001, the Company sold its NTS-CS subsidiary to NQA, Inc (See Note 2 to
Consolidated Financial Statements attached hereto as Exhibits A (i) and A (ii)).
NTS also shut down the Rye Canyon operation in fiscal 2001 as a result of a
change in direction by the owner of the use of the property.

    C.  FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

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

    D.  DESCRIPTION OF BUSINESS

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

    The E&E Group of NTS is one of the largest independent conformity assessment
and management system registration organizations in the U. S., with facilities
throughout the country, as well as England and Japan, and provides highly
trained technical personnel for product certification, product safety testing,
product evaluation to allow clients to sell their products in world markets. In
addition, the E&E Group performs management registration and certification
services to ISO related standards. NTS is accredited by numerous national and
international technical organizations which allows the Company to have its test
data accepted in the European Union, Taiwan, Japan, Singapore, Australia, United
States and Canada.

    The E&E Group serves a large variety of high technology industries,
including aerospace, defense, automotive, nuclear, electronics, computers and
telecommunications. In these industries, the ability to provide the
certification activities and provide test data that is accepted in world
markets, is critical. The physical test activity related to the certification
process entails specialized abilities and equipment including a full spectrum of
EMI chambers and acquisition systems, a full spectrum of environmental
simulation equipment, seismic simulators, environmental chambers, fire chambers
and mixed gas flow chambers.

    The E&E Group services also include the development of effective product
screening procedures, design and fabrication of test fixtures plus failure
analysis and design modification support. The E&E

                                       2
<PAGE>
Group is also one of the leading independent providers of fluid component and
systems testing. The E&E Group designs and builds custom facilities and advanced
instrumentation and data acquisition systems to support all types of flow
testing for gases, liquids and cryogenics. The E&E Group is capable of
performing structural testing and analysis, and, in particular, structural
loading of large articles such as complete airframes. The E&E Group also
performs fatigue testing of critical hardware items such as engine blades and
high-pressure fluid components. The E&E Group offers clients a way to minimize
their personnel, testing time and costs by utilizing The E&E Group's on-site
climatic, dynamic, safety and electromagnetic compatibility test capabilities.
The E&E Group provides a "one stop" resource and single source responsibility
for all conformity assessment requirements in the several markets it serves.

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

    The rapid expansion of the telecommunications industry's need for product
assessment and certification has led the E&E Group to become actively involved
in the certification and evaluation of a broad array of telecommunications
equipment and systems for major manufacturers of such equipment. The E&E Group's
services are performed in accordance with the Network Equipment Building Systems
specifications (NEBS), as required by the telecommunications industry. This past
year, the E&E Group invested in developing complete one stop physical test
capability in Massachusetts, California and Texas. In fiscal year 2002, to
augment the physical testing capability, the Company will be investing in the
development and enhancement of its functional test capability in California.

    The E&E Group also provides international registration of companies
requiring quality and environmental management system registration. With the
ever increasing globalization of industry and trade, the international community
has developed, and continually updates, management system standards to insure
that products manufactured conform to acceptable standards when sold anywhere in
the world. These standards, developed by the International Standards
Organization (ISO), and applicable to different industries, such as aerospace,
automotive and environmental, are used to provide compliance by manufacturers
certified by third party registrants. Third party registrants are accredited by
industry regulated accreditation bodies. The E&E Group is certified to provide
third party registrations to a variety of industries. To accomplish
certification, The E&E Group audits a company's quality policy, quality system
documentation and quality records through on-site assessment. Such assessment
determines whether the quality system is defined, documented, deployed and
consistently implemented, and that the required documentation and records are
current and available. If the client's quality system is verified to conform to
the requirements of the applicable ISO standard, NQA, USA issues a certificate
describing the scope of the client's quality system which has been certified.
The client is then entitled to display the Registrar's mark on advertising and
stationery as evidence that it has achieved ISO registration. Thereafter, the
E&E Group performs periodic follow-up surveillance assessments to assure that
the client remains in compliance.

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

    The E&E Group provides its Engineering and Evaluation services through 15
independent testing facilities in North America, England and Japan, NTS
laboratories in Acton and Boxborough, MA, Los Angeles, Fullerton, Culver City
and Saugus, CA, Camden, AR, Detroit, MI, Fredericksburg, VA, Largo, FL, Tinton
Falls, NJ, Plano, TX, Tempe, AZ, Letchworth, United Kingdom and Yokohama, Japan.

                                       3
<PAGE>
INDUSTRY OVERVIEW

    Manufacturers are increasingly fulfilling more of their evaluation testing
on an outsourcing basis in order to reduce costs, avoid large capital
expenditures, save time and remain competitive. Due to regulations requiring
third party certification, manufacturers are using third party certifiers to
position their products to sell in world markets. NTS is currently
geographically located to serve clients at locations close to their plants and
NTS facilities are capable of providing the complete conformity assessment
activity necessary to reduce product handling costs.

BUSINESS STRATEGY

    To meet its clients' needs, the E&E Group is committed to maintaining its
position at the cutting-edge of technology by continuously upgrading its
facilities, equipment and personnel in line with market requirements. In
addition, the E&E Group's continuous movement into new technological areas will
require it to invest in equipment needed to adequately service clients' needs.
Through close consultation with NTS's existing and prospective clients to
ascertain their needs for the future, the E&E Group is able to better determine
its needs. At the same time, the E&E Group continues to maintain its excellent
relations with its staff of experienced engineers and technicians by offering
attractive benefit programs and opportunities for advancement and professional
learning. NTS is also using technology as a platform for its clients to access
the Company in a timely and effective manner. The NTS website now allows clients
to request pricing electronically as well as providing continuous feedback on
their experience with NTS.

GROWTH STRATEGY

    NTS has developed a new growth strategy. It is called "Navigate a Short
Course to Global Markets". NTS's present clientele sell their products
worldwide. Each of their customers, based upon their worldwide markets, have
different requirements for product safety and product performance. NTS's
customers need to know the appropriate certification procedures they must apply
to their products to make them acceptable. NTS, as a test, certification,
auditing company, is in excellent position to help technology companies perform
their functions. NTS's personnel work with customers in evaluating their
products, thereby developing strong relationships with their customers.

    The E&E Group's growth strategy is to expand internally this year. This
strategy is mainly geared toward the computer, telecommunication and electronic
markets. NTS has also expanded its registration strategic business unit into the
area of management system training and development, and laboratory accreditation
to ISO/IEC Guide 25 and 17025. The training services are offered as public or
private courses, depending on the customers' needs. The suite of customized
training courses is designed to service the aerospace, environmental, laboratory
accreditation, occupational health and safety sectors and can be expanded
relative to market conditions and the customers' present and future management
system needs.

    Laboratory accreditation services are a natural extension of the
registration activities, as they include an assessment of the customers'
management system, documentation, procedures and records to the requirements of
ISO Guide 25 and 17025. The assessments also include an evaluation of the
laboratory's technical competency related to personnel, testing or inspection
practices.

        (ii) TECHNICAL STAFFING

    The Technical Staffing segment provides a variety of staffing and workforce
management services and solutions, including contract, contract-to- hire and
full time placements to meet its clients' information technology ("IT"),
information systems ("IS") and software engineering needs. The Group's objective
is to build long-term relationships with companies and employees and to maximize
talent processes and technology for client organizations.

                                       4
<PAGE>
    During the second half of fiscal 2001, the Company consolidated its staffing
business by moving to a "virtual office" model in anticipation of movement in
technology towards the new Internet era of "E-Cruiting" with regional
"Hubs"providing the necessary administrative support. The Company is starting to
benefit from this new business model by reducing the costs of doing business and
at the same time increasing productivity of the staff.

INDUSTRY OVERVIEW

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

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

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

    During the past several years, the United States has enjoyed an unusually
low unemployment level and the demand for skilled technical employees has been
at an all-time high. This demand is expected to drop in 2001, however the talent
gap in the IT industry remains large, with hiring managers anticipating
thousands of IT positions remaining unfilled. According to the Staffing
Industry' Fourth Quarter 2000 Report, annualized revenues of all major public
staffing companies is approximately $100 billion.

BUSINESS STRATEGY

    To meet its clients' comprehensive IT needs, the Technical Staffing Group is
dedicated to providing solutions to meet its clients' systems, applications,
development, and other specialized technical needs.

    NTS's business strategy encompasses the following elements, which management
believes are necessary to ensure high-quality standards and to achieve
consistently strong financial performance:

        1)  Recruit, develop and retain qualified technical consultants. A key
    element to 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 to its technical consultants competitive
    wages and an opportunity to purchase a comprehensive employee benefits
    package. However, qualified technical consultants are in great demand
    worldwide and, accordingly, competition for

                                       5
<PAGE>
    individuals with proven technical skills is intense. NTS attracts new
    consultants in its established markets primarily through referrals from
    other technical consultants and the Internet via its website and direct and
    indirect recruiting capabilities outside the United States. Through these
    sources, NTS has compiled a very strong database which includes thousands of
    qualified technical consultants who become potential resources to place on
    assignment.

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

GROWTH STRATEGY

    NTS's growth strategy is to continuously improve profit margins and returns
by rigorously focusing on industries, geographies and customers that have the
strongest long-term growth opportunities, increasing productivity by improving
its internal processes, diversifying 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.

    Part of NTS's growth strategy is to create a company wide sales force that
will promote cross-selling and lead generation between existing clients of one
business unit and another. In addition, NTS intends to open technical staffing
offices by co-locating with the current NTS facilities.

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

        (iii) COMPETITION.

    The Company exists in a marketplace servicing several industries. Within
each of these industries NTS competes with a small number of large conformity
assessment organizations. NTS also competes with a large number of small niche
oriented test laboratories. NTS's competitive advantages are as follows.
(1) Ability to service the clients at locations that are close the Company's
clients. We currently have 15 locations as described earlier in this report.
(2) Ability to provide complete conformity assessment activities at a single
location. This reduces product handling cost for our clients and enhances
timeliness of service. (3) Diverse and technically competent employees. NTS can
solve clients conformity problems from the design stage through the shipment of
products to world markets. NTS can also provide them on a temporary or permanent
basis staff to augment their employment needs. (4) Accreditations that allow NTS
test data to be accepted worldwide. Clients can use are complete services
including quality registration to position their products for the world markets.

    Potential customers for services offered by the Technical Staffing Group are
from a broad base of high technology and manufacturing companies. Competition in
this segment comes from a large number of public and privately held companies.
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.

                                       6
<PAGE>
    Many large companies are increasingly using one employment service provider
(or primary supplier) to fulfill all their staffing needs. NTS competes and, in
certain relationships, teams up with other major staffing companies in actively
pursuing primary supplier relationships with large customers in its existing
markets. These relationships can have a significant impact on the Company's
revenues and operating profits.

    In the Quality Audit field, the Company's NQA USA division is the ninth
largest ISO assessment Company in North America. The Company believes that NQA
USA has less than 10% of the total registration market.

        (iv) BACKLOG.

    The Company's backlog at January 31, 2001 and 2000 is as follows

<TABLE>
<CAPTION>
                                                        2001          2000
                                                     -----------   -----------
<S>                                                  <C>           <C>
Engineering & Evaluation...........................  $23,947,000   $28,718,000
Technical Staffing.................................    6,126,000     6,527,000
                                                     -----------   -----------
Total Backlog......................................  $30,073,000   $35,245,000
                                                     ===========   ===========
</TABLE>

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

The Company estimates that approximately 85% of the backlog at January 31, 2001
will be completed by January 31, 2002.

        (V) GENERAL.

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

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

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

    (d)  EMPLOYEES.  The Company employed 751 individuals at January 31, 2001
and 812 at January 31, 2000, as follows:

<TABLE>
<CAPTION>
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Engineering & Evaluation....................................    427        418
Technical Staffing..........................................    309        377
Corporate Administration....................................     15         17
                                                                ---        ---
Total.......................................................    751        812
                                                                ===        ===
</TABLE>

    Approximately 130 of the Company's Engineering and Evaluation employees
occupy management professional positions. The Technical Staffing total for 2001
includes 228 contract employees and 38 subcontractors, as compared to 276
contract employees and 18 subcontractors for 2000. None of the employees of the
Company is represented by a union. The Company considers its relationship with
its employees to be good.

                                       7
<PAGE>
ITEM 2.   PROPERTIES.

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

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

<CAPTION>
                            LEASED PROPERTIES               BUILDINGS     LAND
    STATE                          CITY                     (SQ.FT.)    (ACRES)
--------------  ------------------------------------------  ---------   --------
<S>             <C>                                         <C>         <C>
Arizona         Tempe.....................................    17,100      n/a
Arkansas        Camden....................................    22,400      216
California      Calabasas.................................     6,600      n/a
                Culver City...............................    24,100      n/a
                Fullerton.................................    20,200      n/a
                Los Angeles (LAX).........................    16,000        2
Florida         Largo.....................................    16,000      n/a
Louisiana       Baton Rouge...............................     1,500      n/a
Michigan        Detroit...................................    64,900      n/a
New Jersey      Tinton Falls..............................     7,600      n/a
Texas           Austin....................................     3,000      n/a
                Plano.....................................    24,000      n/a
                San Antonio...............................     3,100      n/a
United Kingdom  Letchworth................................     2,600      n/a
                                                             -------      ---
TOTAL LEASED PROPERTIES                                      229,100      218
                                                             =======      ===
</TABLE>

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

    C.  INVESTMENT PROPERTIES.

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

ITEM 3.   LEGAL PROCEEDINGS.

    The Company is, from time to time, the subject of claims and suits arising
out of matters occurring during the operation of the Company's business. In the
opinion of management, no pending claims or suits would materially affect the
financial position or the results of the operations of the Company. (See Note 9
to the Consolidated Financial Statements attached hereto as Exhibits A (i) and A
(ii)).

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

    Not applicable.

                                       8
<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, 2001 and 2000 is
presented below:

<TABLE>
<CAPTION>
                                                             2001                  2000
                                                      -------------------   -------------------
                                                        HIGH       LOW        HIGH       LOW
                                                      --------   --------   --------   --------
<S>                                                   <C>        <C>        <C>        <C>
First Quarter.......................................    4.73       2.71       6.25       4.31
Second Quarter......................................    4.11       3.05       5.50       3.44
Third Quarter.......................................    3.50       2.75       4.25       2.78
Fourth Quarter......................................    3.69       2.25       7.00       2.75
</TABLE>

    B.  HOLDERS OF COMMON STOCK.

    As of the close of business on April 23, 2001, there were 935 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 February 4, 2000, pursuant to the Company's current dividend policy, the
Company's Board of Directors authorized the regular semiannual cash dividend of
$0.02 per share, that was paid on March 15, 2000 to shareholders of record at
the close of business on February 28, 2000. The second semi-annual dividend of
$0.02 per share was paid on August 2, 2000 to shareholders of record at the
close of business on July 14, 2000. This brought the total cash dividends for
fiscal 2001, to $0.04 per share. On February 6, 2001, the Company's Board of
Directors announced the discontinuance of the Company's policy of paying
ordinary and special dividends.

    On January 26, 1999, the Company's Board of Directors adopted a regular
annual dividend policy and declared an initial annual dividend of $0.04 per
share, payable semi-annually. The initial semi-annual dividend of $0.02 per
share was paid on March 2, 1999 to shareholders of record at the close of
business on February 15, 1999. The second semi-annual dividend of $0.02 per
share was paid on August 4, 1999 to shareholders of record at the close of
business on July 15, 1999. In addition, On June 14, 1999, the Company's Board of
Directors declared a special cash dividend of $0.03 per share which was paid on
August 4, 1999 to shareholders of record at the close of business on July 15,
1999. This brought the total cash dividends for fiscal 2000 to $0.07 per share.

    In fiscal 2000, a distribution of $120,000 was made to the former subchapter
S shareholders of XXCAL, Inc. This distribution was the last distribution made
to these shareholders. In fiscal 1999, $442,000 in distributions were made to
subchapter S shareholders of XXCAL, Inc..

    For the Year ended January 31, 2000, a dividend in the amount of $25,000 was
paid to NQA UK, the 50% shareholder of NQA-USA. In fiscal 1999, the dividend
paid to NQA-UK was $17,000.

                                       9
<PAGE>
ITEM 6.   SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>
                                                                  YEAR ENDED JANUARY 31,
                                                   ----------------------------------------------------
                                                     2001       2000       1999       1998       1997
                                                   --------   --------   --------   --------   --------
                                                         (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S>                                                <C>        <C>        <C>        <C>        <C>
INCOME STATEMENT DATA:
Net revenues.....................................  $84,804    $84,124    $86,813    $80,921    $74,413
Gross profit.....................................   27,784     23,995     25,983     23,660     20,894
Operating income.................................    3,199      5,090      5,493      6,572      5,496
Interest expense.................................    2,050      1,544      1,253      1,245      1,161
Income from continuing operations before income
  taxes and minority interest....................      823      1,817      4,331      5,445      4,291
Income taxes.....................................      353        722      1,544      1,996      1,588
                                                   -------    -------    -------    -------    -------
Income from continuing operations before minority
  interest.......................................      470      1,095      2,787      3,449      2,703
Minority interest................................      (39)       (16)       (24)       (26)        10
Income (loss) from discontinued operations, net
  of income taxes................................       --       (274)       358         32       (684)
Cumulative effect of change in accounting for
  start-up expense, net of income taxes..........       --         --       (482)        --         --
                                                   -------    -------    -------    -------    -------
Net income.......................................  $   431    $   805    $ 2,639    $ 3,455    $ 2,029
                                                   =======    =======    =======    =======    =======
Basic earnings (loss) per common share:
  Continuing operations..........................  $  0.05    $  0.13    $  0.34    $  0.43    $  0.34
  Discontinued operations........................       --      (0.03)      0.04         --      (0.09)
  Cumulative effect of change in accounting......       --         --      (0.06)        --         --
                                                   -------    -------    -------    -------    -------
Net income*......................................  $  0.05    $  0.10    $  0.32    $  0.43    $  0.26
                                                   =======    =======    =======    =======    =======
Diluted earnings (loss) per common share:
  Continuing operations..........................  $  0.05    $  0.13    $  0.32    $  0.41    $  0.33
  Discontinued operations........................       --      (0.03)      0.04         --      (0.08)
  Cumulative effect of change in accounting......       --         --      (0.06)        --         --
                                                   -------    -------    -------    -------    -------
Net income*......................................  $  0.05    $  0.09    $  0.31    $  0.41    $  0.25
                                                   =======    =======    =======    =======    =======
Weighted average common shares outstanding.......    8,497      8,345      8,236      8,061      7,902
Dilutive effect of stock options.................      135        194        374        389        264
                                                   -------    -------    -------    -------    -------
Weighted average common shares outstanding,
  assuming dilution..............................    8,632      8,539      8,610      8,450      8,166
                                                   =======    =======    =======    =======    =======
Cash dividends paid per common share.............  $  0.04    $  0.07    $  0.07    $  0.06    $  0.05
                                                   =======    =======    =======    =======    =======

BALANCE SHEET DATA:
Working capital..................................  $15,751    $16,232    $16,951    $15,912    $11,265
Total assets.....................................   61,321     58,631     49,831     46,112     40,377
Long-term debt, excluding current installments...   19,782     18,639     13,076     12,859      9,324
Shareholders' equity.............................   25,127     24,463     24,102     22,042     18,791
</TABLE>

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

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

                                       10
<PAGE>
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS.

GENERAL

    NTS is a diversified services company that supplies conformity assessment
and personnel to a variety of industries including aerospace, defense,
automotive, electronics, computers and telecommunications. Through its wide
range of testing facilities, staffing solutions and certification services, NTS
helps its customers reduce their time to market and enhance their overall
competitiveness.

    NTS operates in two segments: "Engineering & Evaluation" and "Technical
Staffing". The business of the Company is conducted by a number of operating
units, each with its own organization. Each segment is under the direction of
its own executive and operational management team.

    The Engineering & Evaluation segment is one of the largest U. S. based
independent product and systems assessment organizations, with facilities
throughout the country as well as England and Japan, and provides a complete
spectrum of conformity assessment and registration services. These services
include physical testing which requires simulation of harsh environments such as
high/low temperature, shock, vibration, seismic and electromagnetic
interference. Functional testing which requires equipment such as an Agilent
1371A Docsis test set, switches, routers, servers and high bandwidth access to
the Internet to subject telecommunication equipment to a full spectrum of
performance type testing. Registration services which performs quality
management audits to ISO 9000, quality training and laboratory accreditation.

    The Technical Staffing segment provides a variety of staffing and workforce
management services and solutions, including contract services, temporary and
full time placements to meet its clients' information technology ("IT"),
information systems ("IS") and software engineering needs. The Company supplies
professionals in support of customers who need help-desk analysts and managers,
relational database administrators and developers, application and systems
programmers, configuration and project managers, and multiple levels of system
operations personnel.

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

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

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

                                       11
<PAGE>
    The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto.

    RESULTS OF OPERATIONS

REVENUES

<TABLE>
<CAPTION>
                                    2001      % CHG          2000      % CHG          1999
                                  --------   --------      --------   --------      --------
                                                    (DOLLARS IN THOUSANDS)
<S>                               <C>        <C>           <C>        <C>           <C>
Engineering & Evaluation........  $58,277      17.4 %      $49,637         - %      $49,652
Technical Staffing..............   26,527     (23.1)%       34,487      (7.2)%       37,161
                                  -------                  -------                  -------
TOTAL...........................  $84,804       0.8 %      $84,124      (3.1)%      $86,813
                                  =======                  =======                  =======
</TABLE>

    For the year ended January 31, 2001, total revenues increased $680,000 or
0.8% when compared with fiscal 2000.

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

ENGINEERING & EVALUATION:

    Revenues in the Engineering & Evaluation segment increased $8,640,000 or
17.4% in fiscal 2001 when compared with fiscal 2000 primarily due to increased
business generated from the telecommunications, automotive, aerospace and
defense markets as well as an increase in business in registration and
certification services. This increase was also due to the addition of a new
testing facility in Texas in the fourth quarter of fiscal 2000 and the benefits
the Company is receiving from its increased investment in equipment at some of
its facilities during the past two years.

    For the year ended January 31, 2000, revenues in the Engineering &
Evaluation segment remained unchanged when compared with fiscal 1999. Revenues
in the aerospace and defense industries declined as some of the Company's
aerospace customers are retaining programs in-house and government laboratories
are becoming more aggressive in competing with private industry for programs.
The decline in aerospace and defense revenues was offset by an increase in
registration services revenues and an increase from telecommunications and
computer hardware testing as a direct result of the strategic focus by the
Company on that fast growing market.

TECHNICAL STAFFING:

    Revenues in the Technical Staffing segment decreased by $7,960,000 or 23.1%
in fiscal 2001 compared to fiscal 2000 primarily due to the closure of several
non-performing staffing offices, the cessation of Year 2000 related projects and
competitive pricing pressures in the staffing industry which forced the Company
to lower its prices to maintain existing relationships with several valued
clients.During the last quarter of fiscal 2001, the Company consolidated its
staffing business by moving to a "virtual office" model in anticipation of
movement in technology towards the new Internet era of "E-Cruiting" with
regional "Hubs"providing the necessary administrative support. The Company
believes it is starting to benefit from this new business model by reducing the
costs of doing business and at the same time increasing productivity of the
staff.

    For the year ended January 31, 2000, revenues in the Technical Staffing
segment decreased by $2,674,000 or 7.2% when compared with fiscal 1999 due to
the industry-wide Year 2000 projects slowdown coupled with the low availability
of employees resulting from the reduced level of unemployment. In addition,
fiscal 2000 revenues were affected by a significant reduction in fees at two of
the Company's largest customers and the loss of a major contract, which the
company had for a number of years, due to

                                       12
<PAGE>
increased competition. In an effort to reposition itself in this industry and
become more competitive, the Company made structural changes which resulted in
the closing of four offices.

GROSS PROFIT

<TABLE>
<CAPTION>
                                2001         % CHG          2000         % CHG          1999
                              --------      --------      --------      --------      --------
                                                   (DOLLARS IN THOUSANDS)
<S>                           <C>           <C>           <C>           <C>           <C>
Engineering & Evaluation....  $15,660          6.7 %      $14,672         (2.9)%      $15,110
% to segment revenues.......     26.9%                       29.6%                       30.4%
Technical Staffing..........    6,124        (34.3)%        9,323        (14.3)%       10,873
% to segment revenues.......     23.1%                       27.0%                       29.3%
                              -------                     -------                     -------
TOTAL.......................  $21,784         (9.2)%      $23,995         (7.7)%      $25,983
                              =======                     =======                     =======
% to net revenues...........     25.7%                       28.5%                       29.9%
</TABLE>

    For the year ended January 31, 2001, total gross profit decreased 2,211,000
or 9.2% when compared with fiscal 2000.

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

ENGINEERING & EVALUATION:

    Gross profit for the Engineering & Evaluation segment increased by $988,000
or 6.7% in fiscal 2001 when compared with fiscal 2000 as a result of the
increased revenues and the strong performances in the telecommunications
operations. This increase was partially offset by decreases in gross profit,
particularly in the fourth quarter, due to unfavorable events that affected the
results of two of the testing facilities. These events primarily consisted of
the California based Saugus test facility which experienced 20 separate
shutdowns during the year, 11 in the fourth quarter due to the current
California energy crisis, the inability to perform on two contracts that
resulted in cost overruns, the permanent shutdown of the Rye Canyon facility and
the ice storm and ensuing flood in Arkansas, which closed our facility in
Camden, Arkansas for approximately three weeks.

    For the year ended January 31, 2000, gross profits for the Engineering &
Evaluation segment slightly decreased by $438,000 or 2.9% when compared with
fiscal 1999 as a result of the competitive pressures from other companies and
government laboratories, combined with the revenue slowdown in the aerospace and
defense industries discussed above. This decrease was partially offset by
increases in gross profit generated from registration services and
telecommunications testing.

TECHNICAL STAFFING

    Gross profit for the Technical Staffing segment decreased by $3,199,000 or
34.3% in fiscal 2001 when compared to the same period in 2000 due to the
decrease in revenues and increased competitive pricing pressures. Gross profit
was also affected by costs incurred in servicing one customer which were deemed
to be un-reimbursable as a result of fraud perpetrated against the Company (see
operating income below).

    For the year ended January 31, 2000, gross profit for the Technical Staffing
segment decreased by $1,550,000 or 14.3% when compared to the same period in
1999 due primarily to the decrease in revenues and competitive pricing pressures
due to the tight recruiting market.

                                       13
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE

<TABLE>
<CAPTION>
                                 2001         % CHG          2000         % CHG          1999
                               --------      --------      --------      --------      --------
                                                    (DOLLARS IN THOUSANDS)
<S>                            <C>           <C>           <C>           <C>           <C>
Engineering & Evaluation.....  $11,278         22.9%       $ 9,180         (2.4)%      $ 9,405
% to segment revenues........     19.4%                       18.5%                       18.9%
Technical Staffing...........    7,307        (24.9)%        9,725         (4.5)%       10,178
% to segment revenues........     27.5%                       28.2%                       27.4%
                               -------                     -------                     -------
TOTAL........................  $18,585         (1.7)%      $18,905         (3.5)%      $19,583
                               =======                     =======                     =======
% to net revenues............     21.9%                       22.5%                       22.6%
</TABLE>

    For the year ended January 31, 2001, total selling, general and
administrative expenses decreased $320,000 or 1.7% when compared with fiscal
2000.

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

ENGINEERING & EVALUATION:

    Selling, general and administrative expenses increased by $2,098,000 or
22.9% in fiscal 2001 when compared with fiscal 2000 primarily due to the
programs established by the Company to hire specialists to expand the base of
business into new technology areas and increases in bad debt expense. The
Company has now accomplished its goal in expanding into new technology areas and
becoming a more diversified organization with added testing capabilities
particularly in the telecommunications and computer testing fields and becoming
one of the largest certification and evaluation companies in the United States.
Thus, while it continues to look for talented specialists, the Company has ended
the previously established expansion programs to hire additional specialists
until such time the economic climate shows significant improvement.

    For the year ended January 31, 2000, selling, general and administrative
expenses for the Engineering and Evaluation segment slightly decreased by
$225,000 or 2.4% in fiscal 2000 when compared with fiscal 1999. This decrease
was primarily due to the Company's cost containment efforts offset by increases
in costs to expand the base of business into new technology areas.

TECHNICAL STAFFING:

    Selling, general and administrative expenses decreased by $2,418,000 or
24.9% in fiscal 2001 when compared with fiscal 2000 as a result of the closure
of several non-performing staffing offices and the consolidation of its
operations in an effort to streamline this business. This decrease was offset by
an increase in bad debt expense as a result of fraud perpetrated against the
Company (see Operating Income (Loss)--Technical Staffing).

    For the year ended January 31, 2000, selling, general and administrative
expenses for the Technical Staffing segment decreased by $453,000 or 4.5% when
compared with fiscal 1999 primarily due to the cost reduction efforts made to
partially offset the reduction in revenues.

                                       14
<PAGE>
OPERATING INCOME (LOSS)

<TABLE>
<CAPTION>
                                 2001         % CHG          2000         % CHG          1999
                               --------      --------      --------      --------      --------
                                                    (DOLLARS IN THOUSANDS)
<S>                            <C>           <C>           <C>           <C>           <C>
Engineering & Evaluation.....   $4,382         (20.2)%      $5,492           9.4%       $5,019
% to segment revenues........      7.5%                       11.1%                       10.1%
Technical Staffing...........   (1,183)       (194.3)%        (402)       (184.8)%         474
% to segment revenues........     (4.5)%                      (1.2)%                       1.3%
                                ------                      ------                      ------
TOTAL........................   $3,199         (37.2)%      $5,090          (7.3)%      $5,493
                                ======                      ======                      ======
% to net revenues............      3.8%                        6.1%                        6.3%
</TABLE>

    For the year ended January 31, 2001, operating income decreased $1,891,000
or 37.2% when compared with fiscal 2000.

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

ENGINEERING & EVALUATION:

    Operating income decreased by $1,110,000 or 20.2% in fiscal 2001 when
compared with fiscal 2000 primarily due to the increase in selling, general and
administrative expenses discussed above.

    For the year ended January 31, 2000, operating income increased by $473,000
or 9.4% when compared with fiscal 1999 primarily due to the lack of merger costs
in fiscal 2000 compared to $686,000 in merger costs in fiscal 1999. This
increase was offset by a slight decrease in gross profit in fiscal 2000 when
compared to fiscal 1999.

TECHNICAL STAFFING:

    Operating income decreased by $781,000 in fiscal 2001 or 194.3%when compared
with fiscal 2000 primarily as a result of the decrease in gross profit partially
offset by a decrease in selling and general and administrative expenses
discussed above. Operating income (loss) was also affected by costs incurred in
servicing one customer which were deemed to be un-reimbursable as a result of
fraud perpetrated against the Company. The Company has concluded its
investigation into this matter and has submitted a claim to its insurance
carrier under its employee dishonesty policy. The effect on operating loss was
approximately $880,000. The Company has provided for the balance of this
customer's accounts receivable in the second quarter and does not anticipate any
additional bad debt expense related to this customer.

    For the year ended January 31, 2000,operating income decreased by $876,000
when compared to fiscal 1999 primarily due to the lower revenues and gross
profit in fiscal 2000 offset by a reduction in selling, general and
administrative expenses in fiscal 2000 as well as the lack of merger costs in
fiscal 2000.

MERGER COSTS

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

INTEREST EXPENSE

    Interest expense increased $506,000 in fiscal 2001 when compared to fiscal
2000. This increase was principally due to higher average debt balances in
fiscal 2001 along with slightly higher interest rates. Interest expense
increased $291,000 in fiscal 2000 when compared to fiscal 1999. This increase
was principally due to higher average debt balances in fiscal 2000 along with
slightly higher interest rates.

                                       15
<PAGE>
SETTLEMENT AND RELATED LEGAL EXPENSES

    During the fourth quarter of fiscal 2000, the Company recorded an unusual
charge of $1,598,000 which included a one time cash payment of $1,020,000 to
Tecstar and $578,000 for the Company's legal and defense costs. The Company has
retained legal counsel on a contingent-fee basis to pursue a possible recovery
from its insurance companies. Action has been brought against the Company's
insurance carrier.

INCOME TAXES

    The income tax rate for fiscal years 2001, 2000 and 1999 reflects a rate in
excess of the federal statutory rate primarily due to the inclusion of state
income taxes and certain non-deductible expenses. The Company's fiscal 2001
income tax provision was $369,000 less than fiscal 2000 because of a decrease in
income.

    The fiscal 2000 income tax provision was $822,000 less than fiscal 1999 due
to the decrease in income. See Note 4 to the consolidated financial statements
for a reconciliation of the provision for income taxes from continuing
operations at the statutory rate to the provision for income taxes from
continuing operations.

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

START-UP EXPENSES

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

DISCONTINUED OPERATIONS

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

    During the fourth quarter of fiscal 2000 the Company decided to discontinue
this line of business and close its operations in Sacramento as it experienced a
significant loss of business due to the government decision to transfer work,
planned for that operation, to another Air Force base. (See Note 2 to the
Consolidated Financial Statements attached hereto as Exhibits A (i) and A (ii)).
NTS also shut down the Rye Canyon operation in fiscal 2001 as a result of a
change in direction by the owner of the use of the property.

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

                                       16
<PAGE>
NET INCOME

    The decrease in net income for fiscal 2001 compared to fiscal 2000 was due
primarily to the decrease in gross profits and the increase in interest expense.

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

BUSINESS ENVIRONMENT

ENGINEERING & EVALUATION:

    The Company's basic service is to provide conformity assessment services.
The Company is well positioned to service the needs of each of these markets
with its current locations and certification, registration and test capability.
Market needs do change, and NTS is well positioned to reallocate resources which
include test equipment and personnel to meet the market demands.

    The Company anticipates that its growth in fiscal year 2002 will be derived
primarily from the functional certification and test activity, provided to its
customers in the telecommunication market.

TECHNICAL STAFFING:

    The Company provides a variety of staffing and workforce management services
and solutions, including contract, contract-to- hire and full time placements to
meet its clients' needs. The Company has moved from the traditional "bricks and
mortar" model of a business to a "virtual office" model with regional
"Hubs"providing the necessary administrative support to the virtual offices. The
Company believes that this new business model will reduce the costs of doing
business and at the same time increase productivity of the staff. However, the
shortage of qualified temporary and permanent candidates is still an obstacle to
a healthy growth in this highly competitive business. The opportunity for growth
is a strategy to leverage off our Engineering & Evaluation clients and provide
technical and engineering personnel as a complete package to the certification,
registration and test services we currently provide. The goal is to align NTS as
a complete solution to the clients' product development needs which will include
consultants and technical experts provided by our staffing division.

    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 2001, cash provided by operations increased by $924,000 when
compared to fiscal 2000. Primary factors contributing to this were an increase
in depreciation, provision for losses on receivables as well as increases in the
change in income taxes, inventories, accrued expenses and deferred compensation.
These changes were partially offset by a decrease in net income and decreases in
the change in accounts receivable, prepaid expenses and accounts payable. In
fiscal 2000, cash provided by operations increased by $66,000 when compared to
fiscal 1999. Primary factors contributing to this were an increase in
depreciation, as well as increases in the change in accounts receivable,
accounts payable and accrued expenses offset by a decrease in net income and
decreases in the change in inventories, prepaid expenses and income taxes.

    Net cash used in investing activities in fiscal 2001 decreased by $3,211,000
as compared to fiscal 2000, primarily due to decreases in purchases of property,
plant and equipment. Net cash used in investing activities in fiscal 2000
increased by $5,670,000 as compared to fiscal 1999, primarily due to increases
in purchases of property, plant and equipment, the acquisition of the assets of
Reintexas Laboratories in Plano, Texas and the acquisitions of Davy Registrar
Services and Scott Quality Systems Registrars.

                                       17
<PAGE>
    Net cash provided by financing activities in fiscal 2001 consisted
principally of proceeds from bank loans, the equity infusion from NQA-UK and
issuance of stock upon the exercise of stock options and related tax benefit,
offset by repayments of debt and cash dividends to shareholders. Net cash
provided by financing activities decreased by $4,420,000 in fiscal 2001 as
compared to fiscal 2000 primarily due to the decrease in borrowings in current
and long term debt in fiscal 2001 as compared to fiscal 2000 and the increase in
repayments in current and long term debt in fiscal 2001 as compared to fiscal
2000.

    In September 1997, the Company negotiated with Sanwa Bank California, as
agent, and Mellon Bank, for a credit agreement which included a $6,000,000
revolving line of credit at an interest rate equal to the bank's reference rate
plus 0.25%. On October 30, 1998, the credit agreement was amended to extend the
term of the revolving line to September 8, 2000 and to increase the revolving
line amount from $6,000,000 to $8,000,000 at an interest rate equal to the
bank's reference rate. A flat fee of $18,750 was charged to set up the new
revolving line and a facility fee of 0.5% of the total line is charged on a
quarterly basis. On October 29, 1999, the credit agreement was amended again to
extend the term of the revolving line to September 8, 2001 and to increase the
revolving line amount from $8,000,000 to $10,000,000 at an interest rate equal
to the bank's reference rate. Effective October 31, 2000, the credit agreement
was amended again to extend the term of the revolving line to November 1, 2002
and to increase the line amount to $11,000,000 which was amended back to
$10,000,000 on April 24, 2001. The outstanding balance at January 31, 2001 was
$9,157,000 compared with an outstanding balance of $7,507,000 at January 31,
2000. This balance is reflected in the accompanying consolidated balance sheets
as long-term.

    In November 1997, the Company entered into an equipment line of credit
agreement with Mellon US Leasing (interest rates of 7.60% to 10.21%) to finance
various test equipment with terms of 60 months for each equipment schedule. In
April 1999, Mellon US Leasing extended an additional $2,000,000 of credit under
the same terms as the original agreement. The outstanding balance at
January 31, 2001 is $2,400,000. The note payable to Mellon Bank is
collateralized by equipment with a net book value of $2,300,000 at January 31,
2001. During fiscal 2001, the Company entered into new equipment line of credit
agreements with Bank of America and the Fifth Third Leasing Company. The
outstanding balances at January 31, 2001on these notes were $827,000 and
$791,000, respectively. Other secured notes payable at January 31, 2001 amounted
to $708,000.

    Maturities of long-term debt consist of regularly scheduled payments on the
Company's term loans to its banks and notes payable. Of the $13,991,000 shown in
the maturities of long term debt (see note 3 to the consolidated financial
statements) due in fiscal 2003, $9,157,000 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.

    Historically, the Company has relied on debt financing to meet its capital
requirements. As of January 31, 2001, the Company was out of compliance with two
of its covenants. The Company requested and received a waiver from its Bank and
negotiated a new set of covenants to its credit agreement. Management is not
aware of any significant demands for capital funds that may adversely affect its
covenants 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
has substantially reduced its capital expenditures commitments for fiscal year
2002, which will improve working capital requirements. The Company's future
working capital will be provided from operations and the current bank revolving
line of credit, which had $1,843,000 available at January 31, 2001.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    The Company is exposed to changes in interest rates primarily from its
long-term debt arrangements. Under its current policies, the Company does not
use interest rate derivative instruments to manage exposure to interest rate
changes. A hypothetical 100 basis point adverse move in interest rates along the

                                       18
<PAGE>
entire interest rate yield curve would adversely affect the net fair value of
all interest sensitive financial instruments by $92,000 at January 31, 2001.

ENVIRONMENTAL MATTERS

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

IMPACT OF INFLATION

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

ITEM 8.  FINANCIAL STATEMENT AND SUPPLEMENTARY DATA.

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

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

    None.

                                       19
<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 27, 2001 are incorporated herein by
reference.

    EXECUTIVE OFFICERS OF THE COMPANY

<TABLE>
<CAPTION>
NAME                          AGE                               POSITION
----                        --------   -----------------------------------------------------------
<S>                         <C>        <C>
Lloyd Blonder.............     61      Senior Vice President and Chief Financial Officer,
                                       Treasurer. Has been associated with the Company since 1983.
Doug Briskie..............     37      Vice President, Western Operations. Has been associated
                                       with the Company since 1987.
Aaron Cohen...............     64      Senior Vice President, Corporate Development. Has been
                                         associated with the Company since 1961.
Martin Dresser............     54      Vice President, President Software Hardware Division. Has
                                       been associated with the Company since 1999.
Richard Dunne.............     36      Vice President, Sales. Has been associated with the Company
                                         since 1991.
Arthur Edelstein..........     63      Senior Vice President, Chief Technical Officer. Has been
                                         associated with the Company since 1962.
Marvin Hoffman............     67      Vice President, Chief Information Officer. Has been
                                       associated with the Company since 1998.
Andrea Korfin.............     54      Corporate Secretary, President Staffing division. Has been
                                         associated with the Company since 1982.
Jack Lin..................     68      Chief Executive Officer of the Company. Has been associated
                                         with the Company continuously since 1961.
Raffy Lorentzian..........     45      Vice President, Chief Accounting Officer. Has been
                                       associated with the Company since 1997.
William McGinnis..........     42      President and Chief Operating Officer of the Company. Has
                                       been associated with the Company since 1980.
Dwight Moore..............     38      Vice President, Eastern Operations. Has been associated
                                       with the Company since 1997.
Richard Short.............     58      Senior Vice President. Has been associated with the Company
                                         since 1961.
William Traw..............     63      Senior Vice President. Has been associated with the Company
                                         since 1963.
</TABLE>

ITEM 11.   EXECUTIVE COMPENSATION.

    The section entitled "Remuneration of Directors and Officers" in the
Company's definitive Proxy Statement to be furnished to shareholders in
connection with the Annual Meeting of Shareholders to be held on June 27, 2001
is incorporated herein by reference.

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

    The sections entitled "Voting Securities and Principal Holders Thereof" and
"Nomination and Election of Directors" in the Company's definitive Proxy
Statement to be furnished to shareholders in connection with the Annual Meeting
of Shareholders to be held on June 27, 2001 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 27, 2001
is incorporated herein by reference.

                                       20
<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, 2001 and 2000 and for each of the years in the
            three-year period ended January 31, 2001.

        (ii) Consolidated Financial Statement Schedule.

             II Valuation and Qualifying Accounts and Reserves

    B.  REPORTS ON FORM 8-K.

    There were no reports on Form 8-K filed during the fourth quarter ended
January 31, 2001.

    C.  EXHIBITS.

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

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

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

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

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

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

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

                                       21
<PAGE>
<TABLE>
<C>                     <S>
         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).

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

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

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

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

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

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

        10.6            Fourth Amendment to Credit Agreement between Sanwa Bank
                        California, Mellon Bank and NTS dated April 27, 2000, (filed
                        on April 28, 2000 and is incorporated herein by reference
                        thereto).

        10.7            Fifth Amendment to Credit Agreement between Sanwa Bank
                        California, Mellon Bank and NTS effective August 3, 2000,
                        (filed on December 13, 2000 and is incorporated herein by
                        reference thereto).

        10.8            Sixth Amendment to Credit Agreement between Sanwa Bank
                        California, Mellon Bank and NTS effective September 19,
                        2000, (filed on December 13, 2000 and is incorporated herein
                        by reference thereto).

        10.9            Seventh Amendment to Credit Agreement between Sanwa Bank
                        California, Mellon Bank and NTS effective October 31, 2000,
                        (filed on December 13, 2000 and is incorporated herein by
                        reference thereto).

        10.10           Eighth Amendment to Credit Agreement between Sanwa Bank
                        California, Mellon Bank and NTS dated February 2000.

        10.11           Ninth Amendment to Credit Agreement between Sanwa Bank
                        California, Mellon Bank and NTS effective April 24, 2001.

        21              Subsidiaries of the Company.

        23.1            Consent of Ernst & Young LLP, Independent Auditors.

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

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

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

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

                                       22
<PAGE>
                                   SIGNATURES

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

<TABLE>
<S>                                                    <C> <C>
April 27, 2001                                         NATIONAL TECHNICAL SYSTEMS, INC.

                                                       By                 /s/ JACK LIN
                                                           ------------------------------------------
                                                                            Jack Lin,
                                                                   PRINCIPAL EXECUTIVE OFFICER
                                                                      CHAIRMAN OF THE BOARD
</TABLE>

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Company and in the capacities indicated on April 27, 2001.

<TABLE>
<S>                                               <C>
                /s/ JACK LIN                                    /s/ AARON COHEN
-------------------------------------------       -------------------------------------------
                 Jack Lin,                                        Aaron Cohen,
      (PRINCIPAL EXECUTIVE OFFICER &                 VICE CHAIRMAN OF THE BOARD AND SENIOR
           CHAIRMAN OF THE BOARD)                               VICE PRESIDENT

            /s/ WILLIAM MCGINNIS                               /s/ MARVIN HOFFMAN
-------------------------------------------       -------------------------------------------
             William McGinnis,                                  Marvin Hoffman,
     PRESIDENT, CHIEF OPERATING OFFICER             CHIEF INFORMATION OFFICER AND DIRECTOR
               AND DIRECTOR

             /s/ LLOYD BLONDER
-------------------------------------------       -------------------------------------------
               Lloyd Blonder,                                  Arthur Edelstein,
    SENIOR VICE PRESIDENT AND TREASURER              EXECUTIVE VICE PRESIDENT AND DIRECTOR
       (PRINCIPAL FINANCIAL OFFICER)

            /s/ RICHARD D SHORT                                /s/ ROBERT I. LIN
-------------------------------------------       -------------------------------------------
             Richard D. Short,                                   Robert I. Lin,
     SENIOR VICE PRESIDENT AND DIRECTOR                             DIRECTOR

             /s/ WILLIAM L TRAW                               /s/ RALPH F CLEMENTS
-------------------------------------------       -------------------------------------------
              William L. Traw,                                 Ralph F. Clements,
    SENIOR VICE PRESIDENT AND DIRECTOR                              DIRECTOR

           /s/ SHELDON M. FECHTOR                            /s/ DONALD J. TRINGALI
-------------------------------------------       -------------------------------------------
            Sheldon M. Fechtor,                               Donald J. Tringali,
                  DIRECTOR                                          DIRECTOR

            /s/ RAFFY LORENTZIAN
-------------------------------------------
             Raffy Lorentzian,
 VICE PRESIDENT, CHIEF ACCOUNTING OFFICER
</TABLE>

                                       23
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

<TABLE>
<S>                                                           <C>
Report of Independent Auditors..............................     25

Financial Statements:

  Consolidated Balance Sheets--January 31, 2001 and 2000....     26

  Consolidated Statements of Income--Years ended
    January 31, 2001, 2000 and 1999.........................     27

  Consolidated Statements of Shareholders' Equity--Years
    ended January 31, 2001, 2000 and 1999...................     28

  Consolidated Statements of Cash Flows--Years ended
    January 31, 2001, 2000 and 1999.........................     29

Notes to Consolidated Financial Statements..................     30

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

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

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

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

                                       24
<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, 2001 and 2000, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended January 31, 2001. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits 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, 2001 and 2000
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended January 31, 2001, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

                                          /s/ Ernst & Young LLP

Woodland Hills, California
April 13, 2001, except for item (b) of Note 3,
  as to which the date is April 24, 2001

                                       25
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                           JANUARY 31, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                 2001          2000
                                                              -----------   -----------
<S>                                                           <C>           <C>
                                        ASSETS
CURRENT ASSETS:
  Cash......................................................  $ 3,344,000   $ 3,133,000
  Accounts receivable, less allowance for doubtful accounts
    of $1,230,000 in 2001 and $803,000 in 2000..............   19,856,000    20,114,000
  Income taxes receivable...................................      676,000     1,387,000
  Inventories...............................................    1,714,000     1,804,000
  Deferred tax assets.......................................    1,387,000       847,000
  Prepaid expenses..........................................      740,000       719,000
                                                              -----------   -----------
  Total current assets......................................   27,717,000    28,004,000
Property, plant and equipment
  Land......................................................    1,460,000     1,460,000
  Buildings.................................................    8,639,000     8,484,000
  Machinery and equipment...................................   53,540,000    48,803,000
  Leasehold improvements....................................    6,358,000     4,600,000
                                                              -----------   -----------
      Total property, plant and equipment...................   69,997,000    63,347,000
  Less: accumulated depreciation............................   40,313,000    36,310,000
                                                              -----------   -----------
    Net property, plant and equipment.......................   29,684,000    27,037,000
Property held for sale......................................      544,000       544,000
Intangible assets, net......................................      997,000     1,077,000
Other assets................................................    2,379,000     1,969,000
                                                              -----------   -----------
      TOTAL ASSETS..........................................  $61,321,000   $58,631,000
                                                              ===========   ===========

                         LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable..........................................  $ 4,900,000   $ 5,249,000
  Accrued expenses..........................................    3,494,000     3,222,000
  Income taxes payable......................................           --       106,000
  Current installments of long-term debt....................    3,572,000     3,195,000
                                                              -----------   -----------
      Total current liabilities.............................   11,966,000    11,772,000
Long-term debt, excluding current installments..............   19,782,000    18,639,000
Deferred income taxes, net..................................    3,534,000     3,075,000
Deferred compensation.......................................      806,000       615,000
Minority interest...........................................      106,000        67,000
Commitments and contingencies
SHAREHOLDERS' EQUITY:
  Common stock, no par value. Authorized, 20,000,000 shares;
    issued and outstanding 8,512,000 in 2001 and 8,404,000
    in 2000.................................................   12,381,000    11,764,000
  Retained earnings.........................................   12,798,000    12,706,000
  Accumulated other comprehensive income (loss).............      (52,000)       (7,000)
                                                              -----------   -----------
      Total shareholders' equity............................   25,127,000    24,463,000
                                                              -----------   -----------
      TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............  $61,321,000   $58,631,000
                                                              ===========   ===========
</TABLE>

                            See accompanying notes.

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

                       CONSOLIDATED STATEMENTS OF INCOME

                  YEARS ENDED JANUARY 31, 2001, 2000 AND 1999

<TABLE>
<CAPTION>
                                                           2001          2000          1999
                                                        -----------   -----------   -----------
<S>                                                     <C>           <C>           <C>
Net revenues..........................................  $84,804,000   $84,124,000   $86,813,000
Cost of sales.........................................   63,020,000    60,129,000    60,830,000
                                                        -----------   -----------   -----------
Gross profit..........................................   21,784,000    23,995,000    25,983,000
Selling, general and administrative expense...........   18,585,000    18,905,000    19,583,000
Merger costs..........................................           --            --       907,000
                                                        -----------   -----------   -----------
Operating income......................................    3,199,000     5,090,000     5,493,000
Other income (expense):
  Interest expense....................................   (2,050,000)   (1,544,000)   (1,253,000)
  Settlement and related legal expenses...............           --    (1,598,000)           --
  Other...............................................     (326,000)     (131,000)       91,000
                                                        -----------   -----------   -----------
                                                         (2,376,000)   (3,273,000)   (1,162,000)
Income from continuing operations before income taxes
 and minority interest................................      823,000     1,817,000     4,331,000
Income taxes..........................................      353,000       722,000     1,544,000
                                                        -----------   -----------   -----------
Income from continuing operations before minority
 interest.............................................      470,000     1,095,000     2,787,000
Minority interest.....................................      (39,000)      (16,000)      (24,000)
                                                        -----------   -----------   -----------
Income from continuing operations.....................      431,000     1,079,000     2,763,000
Income (loss) from discontinued operations, net of
 income taxes (benefit) of ($226,000) and $198,000 in
 2000 and 1999, respectively..........................           --      (274,000)      358,000
Cumulative effect of change in accounting for start-up
 costs, net of income taxes (benefit) of ($483,000)...           --            --      (482,000)
                                                        -----------   -----------   -----------
Net income............................................  $   431,000   $   805,000   $ 2,639,000
                                                        ===========   ===========   ===========
Basic earnings (loss) per common share:
  Continuing operations...............................  $      0.05   $      0.13   $      0.34
  Discontinued operations.............................           --         (0.03)         0.04
  Cumulative effect of change in accounting...........           --            --         (0.06)
                                                        -----------   -----------   -----------
Net income *..........................................  $      0.05   $      0.10   $      0.32
                                                        ===========   ===========   ===========
Diluted earnings (loss) per common share:
  Continuing operations...............................  $      0.05   $      0.13   $      0.32
  Discontinued operations.............................           --         (0.03)         0.04
  Cumulative effect of change in accounting...........           --            --         (0.06)
                                                        -----------   -----------   -----------
Net income *..........................................  $      0.05   $      0.09   $      0.31
                                                        ===========   ===========   ===========
Weighted average common shares outstanding............    8,497,000     8,345,000     8,236,000
Dilutive effect of stock options......................      135,000       194,000       374,000
                                                        -----------   -----------   -----------
Weighted average common shares outstanding, assuming
 dilution.............................................    8,632,000     8,539,000     8,610,000
                                                        ===========   ===========   ===========
</TABLE>

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

                            See accompanying notes.

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

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                  YEARS ENDED JANUARY 31, 2001, 2000 AND 1999

<TABLE>
<CAPTION>
                                                COMMON STOCK
                                          ------------------------
                                                        ADDITIONAL                  ACCUMULATED        TOTAL
                              NUMBER OF                  PAID-IN      RETAINED     COMPREHENSIVE   SHAREHOLDERS'
                               SHARES       AMOUNT       CAPITAL      EARNINGS     INCOME (LOSS)      EQUITY
                              ---------   -----------   ----------   -----------   -------------   -------------
<S>                           <C>         <C>           <C>          <C>           <C>             <C>
Balance at January 31,
 1998.......................  8,169,000   $11,119,000   $ 165,000    $10,758,000      $     --      $22,042,000
Net income..................         --            --          --      2,639,000            --        2,639,000
Earnings from merged entity
 not include in net
 income.....................         --            --          --        181,000            --          181,000
Stock options exercised.....    150,000       188,000          --             --            --          188,000
XXCAL Common stock change to
 no par.....................         --       165,000    (165,000)            --            --               --
Distributions to
 subchapter S
 shareholders...............         --            --          --       (442,000)           --         (442,000)
Cash dividends NQA-UK.......         --            --          --        (17,000)           --          (17,000)
Cash dividends..............         --            --          --       (489,000)           --         (489,000)
                              ---------   -----------   ---------    -----------      --------      -----------
Balance at January 31,
 1999.......................  8,319,000    11,472,000          --     12,630,000            --       24,102,000
Net income..................         --            --          --        805,000            --          805,000
Foreign currency
 translation................         --            --          --             --        (7,000)          (7,000)
                                                                                                    -----------
  Comprehensive income......                                                                            798,000
Stock options exercised.....     95,000       171,000          --             --            --          171,000
Stock retired for option
 exercise...................    (10,000)      (56,000)         --             --            --          (56,000)
Tax benefit from stock
 options exercise...........         --       177,000          --             --            --          177,000
Distributions to
 subchapter S
 shareholders...............         --            --          --       (120,000)           --         (120,000)
Cash dividends NQA-UK.......         --            --          --        (25,000)           --          (25,000)
Cash dividends..............         --            --          --       (584,000)           --         (584,000)
                              ---------   -----------   ---------    -----------      --------      -----------
Balance at January 31,
 2000.......................  8,404,000    11,764,000          --     12,706,000        (7,000)      24,463,000
Net income..................         --            --          --        431,000            --          431,000
Foreign currency
 translation................         --            --          --             --       (45,000)         (45,000)
                                                                                                    -----------
  Comprehensive income......                                                                            386,000
Stock options exercised.....    108,000       152,000          --             --            --          152,000
Tax benefit from stock
 options exercise...........         --       165,000          --             --            --          165,000
NQA equity infusion.........         --       300,000          --             --            --          300,000
Cash dividends..............         --            --          --       (339,000)           --         (339,000)
                              ---------   -----------   ---------    -----------      --------      -----------
Balance at January 31,
 2001.......................  8,512,000   $12,381,000   $      --    $12,798,000      $(52,000)     $25,127,000
                              =========   ===========   =========    ===========      ========      ===========
</TABLE>

                            See accompanying notes.

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

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                  YEARS ENDED JANUARY 31, 2001, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                 2001           2000          1999
                                                              -----------   ------------   -----------
<S>                                                           <C>           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income from continuing operations.....................  $   431,000   $  1,079,000   $ 2,763,000
  Adjustments to reconcile net income to cash provided by
    operating activities:
    Depreciation and amortization...........................    4,197,000      3,477,000     2,934,000
    Provisions for losses (recoveries) on receivables.......      427,000       (101,000)      163,000
    Loss on retirement of assets............................       37,000          9,000       100,000
    Earnings from merged entity not included in net
      income................................................           --             --       181,000
    Undistributed earnings of affiliate.....................       39,000         16,000        24,000
    Deferred income taxes...................................      (81,000)       582,000      (134,000)
    Tax benefit from stock options exercised................      165,000        177,000            --
    Changes in assets and liabilities:
      Accounts receivable...................................     (169,000)       330,000    (1,901,000)
      Inventories...........................................       90,000       (164,000)      220,000
      Prepaid expenses......................................      (21,000)       380,000      (180,000)
      Other assets..........................................     (224,000)      (306,000)      (90,000)
      Accounts payable......................................     (349,000)     1,712,000       117,000
      Income taxes..........................................      605,000     (1,338,000)       92,000
      Deferred compensation.................................      191,000         60,000        60,000
      Accrued expenses......................................      272,000       (953,000)      395,000
                                                              -----------   ------------   -----------
  Cash provided by continuing operations....................    5,610,000      4,960,000     4,744,000
    Gain (loss) from discontinued operations................           --       (274,000)      358,000
    Loss from cumulative effect of start-up costs...........           --             --      (482,000)
                                                              -----------   ------------   -----------
  Cash provided by operating activities.....................    5,610,000      4,686,000     4,620,000
                                                              -----------   ------------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property, plant and equipment.................   (6,720,000)    (8,242,000)   (4,397,000)
  Investment in life insurance..............................     (186,000)      (174,000)     (155,000)
  Acquisition of business, net of cash......................      (81,000)    (1,782,000)           --
  Proceeds from sale of assets..............................           --             --        24,000
                                                              -----------   ------------   -----------
  Cash used for investing activities........................   (6,987,000)   (10,198,000)   (4,528,000)
                                                              -----------   ------------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from current and long-term debt..................    7,277,000     10,471,000     7,283,000
  Proceeds from stock options exercised.....................      152,000        115,000       188,000
  Cash dividends paid to NQA-UK.............................           --        (25,000)      (17,000)
  Cash dividends paid.......................................     (339,000)      (584,000)     (489,000)
  Equity infusion from NQA-UK...............................      300,000             --            --
  Distributions to subchapter S shareholders................           --       (120,000)     (442,000)
  Repayments of current and long-term debt..................   (5,757,000)    (3,804,000)   (6,526,000)
                                                              -----------   ------------   -----------
  Cash provided by (used for) financing activities..........    1,633,000      6,053,000        (3,000)
                                                              -----------   ------------   -----------
  Effect of exchange rate changes on cash and cash
    equivalents.............................................      (45,000)        (7,000)           --
                                                              -----------   ------------   -----------
Net increase in cash........................................      211,000        534,000        89,000
BEGINNING CASH BALANCE......................................    3,133,000      2,599,000     2,510,000
                                                              -----------   ------------   -----------
ENDING CASH BALANCE.........................................  $ 3,344,000   $  3,133,000   $ 2,599,000
                                                              ===========   ============   ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments during the year for:
  Interest..................................................    2,068,000      1,575,000     1,271,000
  Income taxes..............................................      618,000      1,076,000     1,301,000
Cash received during the year for:
  Income taxes..............................................      963,000          3,000         2,000
</TABLE>

                            See accompanying notes.

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        JANUARY 31, 2001, 2000 AND 1999

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

    The consolidated financial statements include the accounts of National
Technical Systems, Inc. (NTS or the "Company") and its subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation. Certain 1999 amounts have been reclassified to conform with the
2001 and 2000 presentation.

    The Company has consolidated NQA-USA, a 50% owned subsidiary for which the
distribution of profits and losses is 61% to the Company, and 39% 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 $132,000. On October 30, 1998, NTS completed its merger with
XXCAL, Inc. and acquisition of XXCAL Limited (together, "XXCAL"). The statements
for fiscal 1999 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.

RISKS AND UNCERTAINTIES

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

REVENUE RECOGNITION

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

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

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.

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

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2001, 2000 AND 1999

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY HELD FOR SALE

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

PROPERTY, PLANT AND EQUIPMENT

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

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

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

INTANGIBLE ASSETS

    Intangible assets consist primarily of the excess of cost over net assets
acquired and are amortized over 5 to 20 years using the straight-line method.
Accumulated amortization was $602,000 as of January 31, 2001 and $465,000 as of
January 31, 2000.

    The carrying value of goodwill and intangible assets is reviewed on a
regular basis for the existence of facts and circumstances, both internally and
externally, that may suggest impairment. To date, no such impairment has been
indicated. Should there be an impairment in the future, the Company will measure
the amount of the impairment based on undiscounted expected future cash flows
from the impaired asset. The cash flow estimates that will be used will contain
management's best estimate, using appropriate and customary assumptions and
projections at the time.

LONG-LIVED ASSETS

    In accordance with Statement of Financial Accounting Standards No. 121
"Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of" ("SFAS
No. 121"), long-lived and certain identifiable intangible assets held and used
by the Company will be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The recoverability test will be performed on undiscounted net cash
flows of the entities acquired over the remaining amortization period. Based on
the Company's analysis under SFAS No. 121, the Company believes that no
impairment of the carrying value of its long-lived assets inclusive of goodwill
existed at January 31, 2001.

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

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2001, 2000 AND 1999

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME

    As of February 1, 1998, the Company adopted Statement No.130, "Reporting
Comprehensive Income" (SFAS No. 130). SFAS No.130 establishes new rules for the
reporting and display of comprehensive income and its components. It requires
display of unrealized gains or losses on available-for-sale securities and
foreign currency translation adjustments. Accumulated other comprehensive loss
was $52,000 as of January 31, 2001 due to foreign currency translation
adjustments and $7,000 as of January 31, 2000 due to foreign currency
translation adjustments.

SEGMENT INFORMATION

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

EARNINGS PER SHARE

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

FOREIGN CURRENCY TRANSLATION

    The accounts of the foreign divisions are translated into United States
dollars in accordance with Statement of Financial Accounting Standard No. 52,
"Foreign Currency Translation" (FAS 52). All balance sheet accounts have been
translated using the current rate of exchange at the balance sheet date. Results
of operations have been translated using the average rates prevailing throughout
the year. Translation gains or losses resulting from the changes in the exchange
rates from year-to-year are accumulated in a separate component of shareholders'
equity. Translation losses were $45,000 in fiscal year 2001and $7,000 in fiscal
year 2000.

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.

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

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2001, 2000 AND 1999

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 as one-time charge the cumulative
effect of changes in accounting of $482,000 ($0.06 per basic share and diluted
share) net of taxes of $483,000 to expense all start-up costs.

RECENTLY ISSUED ACCOUNTING STANDARDS

    In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments and hedging activities. The Statement
requires the recognition of all derivatives on the Company's balance sheet at
fair value. The Company adopted the new Statement effective February 1, 2001.
There was no impact on the Company's financial statements.

    In July 2000, the Emerging Issues Task Force ("EITF") issued EITF 00-15,
"Classification in the Statement of Cash Flows of the Income Tax Benefit
Realized by a Company upon Employee Exercise of Nonqualified Stock Options",
which requires companies to classify the income tax benefits related to employee
exercises of nonqualified stock options as an operating activity in the
statement of cash flows for both current and prior periods. Prior to the
adoption of EITF 00-15, the Company had classified these amounts in financing
activities in the statement of cash flows. In addition, the Company has included
the income tax benefits related to disqualifying dispositions of incentive stock
options within this reclassification. The adoption of EITF 00-15 had no effect
on the Company's results of operations or financial position.

(2)  BUSINESS DISPOSITION AND ACQUISITION

QUALITY REGISTRATION AND CERTIFICATION COMPANIES

    In March 1999, NTS-CS a subsidiary of the Company acquired the Assets of
Davy Registrar Services and Scott Quality Systems Registrars, a Pittsburgh,
Pennsylvania based quality registration business, for $482,000 cash. The
companies acquired provide quality registration and certification services for
various industries including electronics, telecommunications, and medical
products. The transaction was accounted for as a purchase of assets and resulted
in goodwill of $483,000. Additional consideration of $26,000 was paid in fiscal
2001 as additional purchase price.

    On October 31, 2000, NTS, Inc. sold its wholly owned subsidiary NTS-CS to
NQA, Inc. which is 50% owned by NTS, Inc. and 50% owned by NQA Limited, a
British Company. NTS-CS provides ISO 9000 certification audits and on-going
surveillance site visits. NTS-CS's name was changed to NQA Training and
Development (NQA T&D). The accounting transaction consisted of transferring the
net book value of NTS-CS at October 31, 2000 of $77,000 to NQA T&D. In
connection with this transaction, NQA Limited contributed $300,000 to NQA, Inc.
as an equity infusion.

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

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2001, 2000 AND 1999

(2)  BUSINESS DISPOSITION AND ACQUISITION (CONTINUED)
MCCLELLAN AIR FORCE BASE, SACRAMENTO, CALIFORNIA

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

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

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

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

TELECOMMUNICATIONS TESTING LABORATORY

    In November 1999, the Company acquired the assets and assumed certain
liabilities of Reintexas Laboratories, a Plano, Texas facility owned by Reintech
Laboratories for $1,300,000 cash and an additional consideration not to exceed
$300,000 if the revenues exceed certain targeted levels. Such additional
consideration amounted to $55,000 and was paid and recorded in fiscal 2001 as
additional purchase price. The operation performs electromagnetic compatibility
testing for the telecommunications industry. The fixed assets consisted
primarily of electromagnetic compatibility testing equipment which complement
one of the Company's primary business segments. The transaction was accounted
for as a purchase of assets and resulted in goodwill of $368,000.

INFORMATION TECHNOLOGY MANAGED SERVICES COMPANY

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

    The financial statements are presented based on the "pooling of interests"
method of accounting pursuant to Opinion No. 16 of the Accounting Principles
Board (APB 16). They include the combined

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

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2001, 2000 AND 1999

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

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

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

(3)  DEBT

    Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                 2001          2000
                                                              -----------   -----------
<S>                                                           <C>           <C>
Revolving lines of credit(a)................................  $ 9,157,000   $ 7,507,000
Term loans payable to banks(b)..............................    6,033,000     8,333,000
Notes payable (interest rates of 8.50% to 10.95%),
  collateralized by land and buildings, with a net book
  value of $2,891,000.......................................    3,075,000     1,772,000
Secured notes payable(c)....................................    4,726,000     3,834,000
Loans from employee and officers(d).........................      363,000       388,000
                                                              -----------   -----------
Subtotal....................................................   23,354,000    21,834,000
Less current installments...................................    3,572,000     3,195,000
                                                              -----------   -----------
Total.......................................................  $19,782,000   $18,639,000
                                                              ===========   ===========
</TABLE>

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

(a) The Credit Agreement includes a $6,000,000 revolving line of credit at an
    interest rate equal to the bank's reference rate plus 0.25%. On October 30,
    1998, the Credit Agreement was amended to extend the term of the revolving
    line to September 8, 2000 and to increase the revolving line amount from
    $6,000,000 to $8,000,000 at an interest rate equal to the bank's reference
    rate. A flat fee of $18,750 was charged to set up the new revolving line and
    a facility fee of 0.5% of the total line is charged on a quarterly basis. On
    October 29, 1999, the Credit Agreement was amended again to extend the term
    of the revolving line to September 8, 2001 and to increase the revolving
    line amount from $8,000,000 to $10,000,000 at an interest rate equal to the
    bank's reference rate. Effective October 31, 2000, the credit agreement was
    amended again to extend the term of the revolving line to November 1, 2002
    and to increase the line amount to $11,000,000. The outstanding balance at
    January 31, 2001 is $9,157,000 compared with an outstanding balance of
    $7,507,000 at January 31, 2000. This balance is reflected in the
    accompanying consolidated balance sheets as long-term.

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

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2001, 2000 AND 1999

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

    The term loan and line of credit noted above are subject to certain
    covenants and require the maintenance of certain working capital,
    debt-to-equity, earnings-to-expense and cash flow ratios. Under these
    agreements, the Company may declare and pay cash dividends up to 40% of net
    income. The Company may not make any distribution other than dividends to
    its shareholders or repurchase any of the Company's stock without the banks'
    prior approval. As of January 31, 2001, the Company was in violation of
    certain of these covenants for which the Company has received a waiver and
    amended the covenants on April 24, 2001 in order for the Company to be in
    compliance through January 31, 2002, based on the Company's projections for
    the year ended January 31, 2002. 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. In accordance with the amendment, the line of credit was
    reduced from $11,000,000 to $10,000,000.

(c) In November 1997, the Company entered into an equipment line of credit
    agreement with Mellon US Leasing (interest rates of 7.60 % to 10.25%) to
    finance various test equipment with terms of 60 months for each equipment
    schedule. In April of 1999, Mellon US Leasing extended an additional
    $2,000,000 of credit under the same terms of the original agreement. The
    outstanding balance at January 31, 2001 is $2,400,000. The note payable to
    Mellon Bank is collateralized by equipment with a net book value of
    $2,300,000 at January 31, 2001.

    During fiscal 2001 the Company entered into new equipment line of credit
    agreements with Bank of America and the Fifth Third Leasing Company
    (interest rates of 7.47% to 9.81%) in order to finance various equipment
    with terms of 60 months for each equipment schedule. The outstanding
    balances at January 31, 2001 on these notes were $827,000 and $791,000,
    respectively.

    Other secured notes payable at January 31, 2001 amounted to $708,000.

(d) The Company has unsecured demand notes payable to two officers of the
    Company and one employee in the aggregate amount of $363,000 as of
    January 31, 2001. The interest on the officer note is payable monthly and is
    based on the bank's reference rate less three basis points and the interest
    on the other two notes is payable monthly and ranges from 8% to 9% per
    annum.

    The weighted average interest rate on the Company's short-term debt in 2001
    and 2000 is approximately 8.83% and 8.82%, respectively.

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

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2001, 2000 AND 1999

(3)  DEBT (CONTINUED)
    Maturities of long-term debt for five years subsequent to January 31, 2001
    are as follows:

<TABLE>
<CAPTION>

    <S>                                                          <C>
    2002.......................................................  $ 3,572,000
    2003.......................................................   13,991,000
    2004.......................................................    2,089,000
    2005.......................................................    1,438,000
    2006.......................................................      320,000
    Thereafter.................................................    1,944,000
                                                                 -----------
                                                                 $23,354,000
                                                                 ===========
</TABLE>

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

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

<TABLE>
<CAPTION>
                                                   2001         2001         2000         2000
                                                 CARRYING    ESTIMATED     CARRYING    ESTIMATED
                                                  AMOUNT     FAIR VALUE     AMOUNT     FAIR VALUE
                                                ----------   ----------   ----------   ----------
    <S>                                         <C>          <C>          <C>          <C>
    Term loans payable to banks...............  $6,033,000   $6,448,000   $8,333,000   $8,684,000
    Notes payable.............................   3,075,000    3,091,000    1,772,000    1,904,000
    Secured notes payable.....................   4,726,000    4,864,000    3,834,000    3,999,000
    Revolving lines of credit.................   9,157,000    9,157,000    7,507,000    7,507,000
    Loans from employee and officer...........     363,000      363,000      388,000      388,000
</TABLE>

(4)  INCOME TAXES

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

    Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes.
Pre-tax income generated from foreign operations was ($51,000), $354,000 and
$252,000 in fiscal 2001, 2000 and 1999, respectively. Accumulated foreign
earnings were $683,000 as of January 31, 2001. 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. As of January 31,
2001, the company has net operating loss carryforward of approximately
$1,611,037 for Federal purpose, which begin to expire in 2020.

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

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2001, 2000 AND 1999

(4)  INCOME TAXES (CONTINUED)

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

<TABLE>
<CAPTION>
                                               2001        2000         1999
                                             --------   ----------   ----------
<S>                                          <C>        <C>          <C>
Current:
  Federal..................................  $264,000   $   (1,000)  $1,333,000
  State....................................    38,000       35,000      294,000
  Foreign..................................   (26,000)     106,000       51,000
                                             --------   ----------   ----------
                                              276,000      140,000    1,678,000

Deferred:
  Federal..................................    53,000      462,000     (102,000)
  State....................................    24,000      120,000      (32,000)
                                             --------   ----------   ----------
                                               77,000      582,000     (134,000)
                                             --------   ----------   ----------
Income tax expense.........................  $353,000   $  722,000   $1,544,000
                                             ========   ==========   ==========
</TABLE>

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

<TABLE>
<CAPTION>
                                                              2001         2000         1999
                                                           ----------   ----------   ----------
<S>                                                        <C>          <C>          <C>
Income from continuing operations before income taxes....  $  823,000   $1,817,000   $4,331,000
                                                           ==========   ==========   ==========
Federal income tax computed at statutory rate............  $  280,000   $  618,000   $1,473,000
Amortization of goodwill.................................      11,000        3,000       31,000
State income taxes, net of federal benefits..............      46,000       31,000      184,000
XXCAL, Inc. Subchapter S non-taxable income..............          --           --     (196,000)
Other, principally non-deductible expenses...............      16,000       70,000       52,000
                                                           ----------   ----------   ----------
Income tax expense.......................................  $  353,000   $  722,000   $1,544,000
                                                           ==========   ==========   ==========
</TABLE>

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

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

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2001, 2000 AND 1999

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

<TABLE>
<CAPTION>
                                          2001                      2000
                                ------------------------   ----------------------
                                 CURRENT     NON-CURRENT   CURRENT    NON-CURRENT
                                ----------   -----------   --------   -----------
<S>                             <C>          <C>           <C>        <C>
DEFERRED TAX ASSET:
Bad debt reserve..............  $  441,000   $        --   $262,000   $        --
Vacation accrual..............     194,000            --    226,000            --
State taxes...................      35,000        71,000     13,000        68,000
Deferred compensation.........     373,000            --    346,000            --
Net operating loss............     344,000       327,000         --            --
                                ----------   -----------   --------   -----------
Total deferred tax asset......   1,387,000       398,000    847,000        68,000
Valuation allowance...........          --            --         --            --

DEFERRED TAX LIABILITY:
Tax over book depreciation....          --    (3,932,000)        --    (3,143,000)
                                ----------   -----------   --------   -----------
NET DEFERRED TAX ASSET
  (LIABILITY).................  $1,387,000   ($3,534,000)  $847,000   ($3,075,000)
                                ==========   ===========   ========   ===========
</TABLE>

(5)  STOCK OPTIONS AND PENSION PLANS

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

    Under the 1994 stock option plan, officers, key employees, non-employee
directors and consultants may be granted options to purchase shares of the
Company's authorized but unissued common stock. At the annual meeting held on
June, 23, 2000, the number of shares reserved for issuance under the 1994 plan
was increased by 500,000 shares.

    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

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

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2001, 2000 AND 1999

(5)  STOCK OPTIONS AND PENSION PLANS (CONTINUED)
five to ten years from the date of grant. Proceeds received by the Company from
the exercises are credited to common stock. Additional information with respect
to the option plans as of January 31, is as follows:

<TABLE>
<CAPTION>
                                                           2001                         2000
                                                --------------------------   --------------------------
                                                               WEIGHTED                     WEIGHTED
                                                               AVERAGE                      AVERAGE
                                                 SHARES     EXERCISE PRICE    SHARES     EXERCISE PRICE
                                                ---------   --------------   ---------   --------------
<S>                                             <C>         <C>              <C>         <C>
Beginning Balance.............................  1,370,940        $4.18       1,287,925        $4.16
Grants........................................    489,592         2.96         279,581         3.72
Exercises.....................................   (108,038)        1.44         (94,966)        1.80
Canceled or expired(*)........................   (156,810)        4.80        (101,600)        4.86
                                                ---------        -----       ---------        -----
Ending balance................................  1,595,684        $3.93       1,370,940        $4.18
                                                =========        =====       =========        =====
Reserve for future grants at year end.........    269,995                      103,869
Exercisable...................................    669,840        $4.01         532,127        $3.42
                                                =========        =====       =========        =====
</TABLE>

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

*   Includes 1,092 cancelled options from the stock option plan from the XXCAL
    merger in 1998.

    The range of exercise prices for options outstanding at January 31, 2001 was
$1.20 to $7.00. The range of exercise prices for options is wide due primarily
to the fluctuating price of the Company's stock over the period of the grants.

    The following tables summarize information about options outstanding at
January 31, 2001:

<TABLE>
<CAPTION>
                                                  WEIGHTED AVG.
RANGE OF                     OUTSTANDING AT     REMAINING CONTRACT   WEIGHTED AVG.      NUMBER      WEIGHTED AVG.
EXERCISE PRICES             JANUARY 31, 2001       LIFE IN YRS.      EXERCISE PRICE   EXERCISABLE   EXERCISE PRICE
---------------             -----------------   ------------------   --------------   -----------   --------------
<S>                         <C>                 <C>                  <C>              <C>           <C>
$1.00 to $2.00............         55,399               2.7              $1.72           55,399         $1.72
$2.01 to $3.00............        668,919               8.2              $2.81          251,327         $2.72
$3.01 to $4.00............        243,658               8.6              $3.30           58,472         $3.28
$4.01 to $5.00............         80,000               8.5              $4.77           16,250         $4.94
$5.01 to $6.00............        382,475               7.2              $5.46          204,775         $5.44
$6.01 to $7.00............        165,233               7.5              $6.23           83,617         $6.24
</TABLE>

    These options will expire if not exercised at specific dates ranging from
September 2001 to December 2010. Prices for options exercised during the
two-year period ended January 31, 2001 ranged from $0.70 to $2.88. 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

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

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2001, 2000 AND 1999

(5)  STOCK OPTIONS AND PENSION PLANS (CONTINUED)
options granted reported below has been estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:

<TABLE>
<CAPTION>
                                                              2001          2000          1999
                                                            --------      --------      --------
<S>                                                         <C>           <C>           <C>
Expected life (in years)..............................           5             5             5
Risk-free interest rate...............................        4.80%         6.19%         4.99%
Expected volatility...................................          58%           57%           61%
Expected dividend yield...............................         .82%         1.39%         0.82%
</TABLE>

    The Black-Scholes option valuation model was developed for use in estimating
the fair value of the traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in the opinion of management, the
existing models do not necessarily provide a reliable single measure of the fair
value of its options. The weighted average estimated fair value of employee
stock options granted during 2001 was $2.96 per share. 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, 2001   JANUARY 31, 2000   JANUARY 31, 1999
                                   ----------------   ----------------   ----------------
<S>                                <C>                <C>                <C>
Net Income
  As reported....................      $431,000           $805,000          $2,639,000
  Pro forma......................      $212,000           $471,000          $2,461,000

Basic earnings per common share
  As reported....................      $   0.05           $   0.10          $     0.32
  Pro forma......................      $   0.02           $   0.06          $     0.30

Diluted earnings per common share
  As reported....................      $   0.05           $  0.09$                0.31
  Pro forma......................      $   0.02           $   0.06          $     0.29
</TABLE>

    The Company had an employee stock ownership plan covering all employees.
Contributions by the Company were at the discretion of the Board of Directors.
The Company did not make contributions in 2001, 2000 or 1999 and the Board of
Directors voted to terminate the Plan as of December 31, 1999 and distribute the
shares in the Plan to the participants.

    The Company offers three 401(k) profit sharing plans: National Technical
Systems 401(k) Profit Sharing Plan, XXCAL 401(k) Profit Sharing Plan and NQA
401(k) Pension Plan. The purpose of these plans is to provide retirement
benefits to all employees of the Company. The Company's employees can contribute
up to 15% of their salary into the 401(k) plan and the Company's Board of
Directors, at its discretion, will determine each year the amount of matching
contribution the Company will make. Employer contributions are allocated based
on participants own contribution percentage amount to the total amount
contributed by all employees in each plan. In fiscal 2001, the Board of
Directors and

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

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2001, 2000 AND 1999

(5)  STOCK OPTIONS AND PENSION PLANS (CONTINUED)
management of the Company approved a contribution to the 401(k) profit sharing
plan of $151,600 as compared to $152,100 in 2000 and $253,600 in 1999.

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

    The former president of XXCAL has elected to receive the cash surrender
value of life insurance owned by the Company on his life, in lieu of lifetime
periodic deferred compensation payments. The cash surrender value is included in
other assets and the deferred compensation liability is included in deferred
compensation.

    The deferred compensation benefits are accrued and recognized over each
employee's expected term of employment. The Company's total deferred
compensation expenses were $65,000, $94,000 and $67,000 for the years ended
January 31, 2001, 2000 and 1999, respectively. Included in other assets is
$1,510,000 and $1,324,000 for the cash surrender value as of January 31, 2001
and 2000, respectively.

(6)  CAPITAL STOCK

    As of January 31, 2001 and 2000, the Company had 20,000,000 authorized
common shares with no par value. At January 31, 2001 and January 31, 2000,
8,512,000 shares and 8,404,000 shares were issued and outstanding, respectively.

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

(7)  COMMITMENTS

    The Company leases certain of its operating facilities and equipment under
operating leases which principally expire at various dates to fiscal year 2011.
The leases are generally on a net-rent basis, whereby the Company pays taxes,
maintenance, insurance and other operating expenses. Management expects that, in
the normal course of business, leases that expire will be renewed or replaced by
other leases. Gross rental expense was $2,676,000 in 2001, $2,228,000 in 2000
and $1,843,000 in 1999.

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

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2001, 2000 AND 1999

(7)  COMMITMENTS (CONTINUED)
    At January 31, 2001, minimum rental payment obligations under operating
leases were as follows:

<TABLE>
<S>                                                           <C>
2002........................................................  $1,363,000
2003........................................................   1,195,000
2004........................................................     896,000
2005........................................................     721,000
2006........................................................     428,000
Thereafter..................................................     875,000
                                                              ----------
                                                              $5,478,000
                                                              ==========
</TABLE>

(8)  ACCRUED EXPENSES

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

<TABLE>
<CAPTION>
                                                          2001         2000
                                                       ----------   ----------
<S>                                                    <C>          <C>
Compensation and employee benefits...................  $2,220,000   $2,308,000
Other................................................   1,274,000      914,000
                                                       ----------   ----------
                                                       $3,494,000   $3,222,000
                                                       ==========   ==========
</TABLE>

(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. In the
opinion of management, no claims or suits would materially affect the financial
position or the results of the operations or cash flows of the Company.

(10)  SEGMENT OF BUSINESS INFORMATION

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

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

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

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2001, 2000 AND 1999

(10)  SEGMENT OF BUSINESS INFORMATION (CONTINUED)
    The Technical Staffing segment locates, recruits, and hires a wide variety
of technical personnel, engineers, drafters, designers, computer programmer
technicians and others and assigns them to clients either on a temporary or
permanent basis.

    The Company's reportable segments each represent strategic business units
that offer different, yet related services. They are managed differently because
each requires differing technical skills and sales strategies. Each segment is
led by a chief operating decision maker, who, in coordination with the Company's
Chief Executive Officer utilizes the information reported below in evaluating
results and allocating resources pertaining to segment operations.

    Direct and indirect revenues of the Engineering & Evaluation Group from
federal agencies of approximately $26,019,000 in 2001, $25,933,000 in 2000 and
$25,945,000 in 1999, consist principally of sales under subcontracts to
customers with government contracts. One major customer represented $3,336,000
of the 2001 Technical staffing net revenues. Total revenues from customers in
foreign (UK) operations were $394,000, $867,000 and $548,000 in 2001, 2000, and
1999, respectively. Assets utilized in the foreign (UK) subsidiaries were
$528,000, $807,000 and $485,000 as of January 31, 2001, 2000 and 1999,
respectively.

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

    The following table illustrates each segment's operating income for 2001,
2000 and 1999. Assets by segment are those assets that are used in the Company's
operations in each segment. Corporate assets consist of cash, accounts
receivable, income taxes receivable, investments in securities, real estate,
fixed assets not allocated to segments. Corporate general and administrative
expenses were allocated on the basis of revenues, gross profit, net property,
plant and equipment and payroll expenses of the respective segments. Interest
expense is allocated to the segments based on average borrowing rates and
segment advances.

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

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2001, 2000 AND 1999

<TABLE>
<CAPTION>
                                                              JANUARY 31, 2001
                                           ------------------------------------------------------
                                           ENGINEERING &    TECHNICAL
                                            EVALUATION      STAFFING     CORPORATE       TOTAL
                                           -------------   -----------   ----------   -----------
<S>                                        <C>             <C>           <C>          <C>
Net revenues.............................   $58,277,000    $26,527,000   $      --    $84,804,000
                                            ===========    ===========   ==========   ===========

Gross profit.............................    15,660,000      6,124,000          --     21,784,000

Selling, general and administrative
  expense................................    11,278,000      7,307,000          --     18,585,000
                                            -----------    -----------   ----------   -----------

Operating income (loss)..................     4,382,000     (1,183,000)         --      3,199,000

Other income (expense):

  Interest expense, net..................    (1,828,000)      (222,000)         --     (2,050,000)

  Other..................................      (255,000)       (71,000)         --       (326,000)
                                            -----------    -----------   ----------   -----------

Income (loss) before income taxes,
  minority interest, discontinued
  operations and cumulative effect of
  change in accounting for start-up
  expenses...............................   $ 2,299,000    $(1,476,000)  $      --    $   823,000
                                            ===========    ===========   ==========   ===========

Assets...................................   $45,052,000    $ 9,225,000   $7,044,000   $61,321,000
                                            ===========    ===========   ==========   ===========

Equity Investments.......................   $   132,000    $        --   $      --    $   132,000
                                            ===========    ===========   ==========   ===========

Expenditures for long-lived assets.......   $ 6,282,000    $   311,000   $ 127,000    $ 6,720,000
                                            ===========    ===========   ==========   ===========

Depreciation and amortization............   $ 3,540,000    $   418,000   $ 239,000    $ 4,197,000
                                            ===========    ===========   ==========   ===========
</TABLE>

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

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2001, 2000 AND 1999

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

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

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2001, 2000 AND 1999

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

                                       47
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2001, 2000 AND 1999

(11)  QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED
                                            -----------------------------------------------------
2001                                         APRIL 30       JULY 31     OCTOBER 31    JANUARY 31
----                                        -----------   -----------   -----------   -----------
<S>                                         <C>           <C>           <C>           <C>
Net revenues..............................  $21,190,000   $20,606,000   $22,103,000   $20,905,000
Gross profit..............................    6,000,000     5,637,000     5,740,000     4,407,000
Income (loss) from continuing
  operations..............................      762,000       150,000       424,000      (905,000)
Net income (loss).........................      762,000       150,000       424,000      (905,000)
Basic earnings (loss) per common share
  Continuing operations...................         0.09          0.02          0.05         (0.11)
Net Income (loss)*........................         0.09          0.02          0.05         (0.11)
Diluted earnings (loss) per common share
  Continuing operations...................         0.09          0.02          0.05         (0.11)
Net Income (loss)*........................         0.09          0.02          0.05         (0.11)
Weighted average common shares
  outstanding.............................    8,460,000     8,509,000     8,509,000     8,510,000
Dilutive effect of stock options..........       84,000        69,000        22,000            --
Weighted average common shares
  outstanding, assuming dilution..........    8,544,000     8,578,000     8,531,000     8,510,000
</TABLE>

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

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

                                       48
<PAGE>
               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        JANUARY 31, 2001, 2000 AND 1999

(11)  QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)

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

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

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

                                       49
<PAGE>
                                  SCHEDULE II

               NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

                  YEARS ENDED JANUARY 31, 2001, 2000 AND 1999

<TABLE>
<CAPTION>
                  COLUMN A                     COLUMN B        COLUMN C         COLUMN D      COLUMN E
--------------------------------------------  ----------   ----------------   ------------   ----------
                                              BALANCE AT     ADDITIONS--                     BALANCE AT
                                              BEGINNING    CHARGED TO COSTS   DEDUCTIONS--      END
DESCRIPTION                                   OF PERIOD      AND EXPENSES     DESCRIBE(A)    OF PERIOD
-----------                                   ----------   ----------------   ------------   ----------
<S>                                           <C>          <C>                <C>            <C>
Allowance for doubtful accounts receivable:
  2001......................................   $803,000       $1,540,000      $(1,113,000)   $1,230,000
                                               ========       ==========      ===========    ==========
  2000......................................   $904,000       $  454,000      $  (555,000)   $  803,000
                                               ========       ==========      ===========    ==========
  1999......................................   $741,000       $  289,000      $  (126,000)   $  904,000
                                               ========       ==========      ===========    ==========
</TABLE>

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

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

                                       50