10-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

_____________________________________________________

FORM 10-K/A

Amendment No. 1

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended January 31, 2011

Commission file number 0-16438

____________________________________________________

NATIONAL TECHNICAL SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

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

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

(818) 591-0776

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common stock-no par value	The NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act:

None

______________________________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o  No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o  No 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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes o  No o

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.o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “ large accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer  o	Non-accelerated filer  o	Smaller reporting company  x
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of Act).  Yes o   No x

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter - $58,102,000 (as of July 30, 2010).

The number of shares of registrant's Common Stock outstanding on April 26, 2011 was 10,242,565.

Documents Incorporated by Reference

None.

NATIONAL TECHNICAL SYSTEMS, INC.

FORM 10-K

FISCAL YEAR ENDED JANUARY 31, 2011

EXPLANATORY NOTE		ii
PART I		1
ITEM 1.	BUSINESS.	1
ITEM 1A.	RISK FACTORS.	7
ITEM 1B.	UNRESOLVED STAFF COMMENTS.	10
ITEM 2.	PROPERTIES.	11
ITEM 3.	LEGAL PROCEEDINGS.	12
ITEM 4.	(REMOVED AND RESERVED).	12
PART II		12
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.	12
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	15
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	22
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.	23
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.	44
ITEM 9A.	CONTROLS AND PROCEDURES.	44
ITEM 9B.	OTHER INFORMATION.	45
PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.	46
ITEM 11.	EXECUTIVE COMPENSATION.	51
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.	55
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.	57
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES.	58
PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES.	61
SIGNATURES		63

This report contains certain statements that relate to future plans, events or performance. These forward-looking statements involve risks and uncertainties, including risks associated with uncertainties pertaining to customer orders, demand for services and products, development of markets for the companies’ services and products and other risks identified in Item 1A included in this report.  Actual results, events and performance may differ materially.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.  The companies undertake no obligation to release publicly the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

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EXPLANATORY NOTE.

This Amendment No. 1 (“Amendment No. 1”) to the Annual Report on Form 10-K for the fiscal year ended January 31, 2011 of National Technical Systems, Inc., originally filed with the Securities and Exchange Commission (“SEC”) on May 2, 2011 (the “Original Form 10-K”), amends the Original Form 10-K in the manner described below.

Amendment No. 1 is being filed solely to include the information required in Part III (Items 10, 11, 12, 13 and 14) of Form 10-K that was previously omitted from the Original Form 10-K. General Instruction G(3) to Form 10-K allows such omitted information to be filed as an amendment to a Form 10-K or incorporated by reference from a company’s definitive proxy statement which involves the election of directors not later than 120 days after the end of the fiscal year covered by the Form 10-K. Because our definitive proxy statement for our 2011 annual meeting of shareholders will not be filed with the SEC within 120 days after the end of our fiscal year ended January 31, 2011, the information required by Part III of Form 10-K cannot be incorporated by reference from our definitive proxy statement and, therefore, must be included as part of the Form 10-K. Accordingly, this Amendment No. 1 is being filed to include such omitted information as part of the Form 10-K.

For convenience, Amendment No. 1 includes our complete Annual Report on Form 10-K. However, no information in the Original Form 10-K is being modified or amended by Amendment No. 1 other than changes to Part III (Items 10, 11, 12, 13 and 14) and the exhibit list included in Item 15 of Part IV. Further, unless indicated otherwise, Amendment No. 1 does not reflect events occurring after May 2, 2011, which is the filing date of the Original Form 10-K. Accordingly, Amendment No. 1 should be read in conjunction with our other filings with the SEC.

Pursuant to SEC rules, we have included currently-dated certifications from our chief executive officer and our chief financial officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.

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NATIONAL TECHNICAL SYSTEMS, INC.

Annual Report (Form 10-K)

For Year Ended January 31, 2011

PART I

ITEM 1.              BUSINESS.

General

National Technical Systems, Inc. (NTS or the Company) is a leading provider of engineering and testing services to the aerospace, defense, telecommunications, automotive and high technology markets. Through a broad network of resources, NTS provides full product life-cycle support, offering advanced design engineering, compliance, testing, certification, quality registration and program management.

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.

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

Description of Business

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 sets the strategy and maintains overall supervision, coordination and financial control, and manages development of new services and acquisitions.

Overview

NTS is one of the largest engineering and testing organizations in the U.S., with facilities throughout the country and at locations in Japan, Vietnam, Germany and Canada. NTS provides highly trained technical personnel for product design and evaluation, safety testing, certification and supply chain management to enable customers to sell their products in world markets. In addition, NTS performs management registration and certification services to ISO related standards. NTS is accredited by numerous national and international technical organizations which allow the Company to have its test data accepted in most countries. The Company did not have revenues from a single customer in fiscal year 2011 which represented in excess of 10% of total Company revenues.

Acquisitions

NTS’ growth strategy includes the acquisition of businesses to increase capacity and capability, provide complimentary service offerings, broaden its customer base, and expand its geographic reach.  A significant portion of the Company’s growth comes from acquisitions.  In the past three years, NTS has made four acquisitions, as follows:

On December 16, 2010, the Company acquired Mechtronic Solutions, Inc. (MSI), an engineering services company, located in Albuquerque, New Mexico.  The addition of MSI advances the Company’s full-service integrated engineering services capabilities and provides additional established customers.

On November 30, 2009, NQA, Inc., a 50% owned consolidated subsidiary of NTS, acquired Unitek Technical Services, Inc., located in Centreville, Virginia.  This acquisition broadened the Company’s service offerings to include supply chain management.

On June 6, 2008, the Company acquired Elliott Laboratories, Inc., The acquisition enhanced NTS’ capabilities and capacities in electromagnetic compatibility (EMC), product safety and wireless regulatory testing.  The acquisition included two full-service facilities in the Silicon Valley. The addition of Elliott Laboratories to the NTS organization created one of the largest independent providers of EMC design, test and evaluation services in North America.

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 On April 21, 2008, NQA, Inc., a 50% owned consolidated subsidiary of NTS, acquired the assets of International Management Systems, Inc. The acquisition broadened NQA’s customer base and provided NQA a strategic presence for the support of its current and new customers in the Southeast region.

Divestitures

                On November 3, 2008, the Company completed the sale of contracts and certain other assets from its Technical Solutions segment that were associated with information technology services and information technology consulting.  The divestiture of this segment allowed the Company to focus on core competencies and other services that better fit with the Company’s strategy.

Markets

NTS serves customers primarily in the defense, aerospace, telecommunications, automotive, energy, consumer products and industrial products markets. Defense and aerospace markets combined accounted for approximately 66% of the Company’s revenues for the year ended January 31, 2011.

Defense. NTS plays an active role in numerous U.S. defense-related programs, performing a wide variety of defense technology research, development, test, and evaluation (RDT&E) services for the Department of Defense (DOD), military, government and commercial industry.  These services evaluate the weapons, ordnance, munitions, avionics, electronics, hydraulic and pneumatic controls, engines and communication systems that make up the elements of today’s modern battlefield.  The testing platforms include fixed wing aircraft, helicopters, submarines, aircraft carriers and other naval ships, tanks and other tracked vehicles, trucks and road vehicles, command, control and communication systems and missiles and weapons systems.  Testing includes associated system and component level tests of structures, hardware, electronics, personal protective equipment, armor, weapons and ammunition.

NTS has facilities that are specially constructed to store, handle, and test ordnance, munitions and hazardous materials.  Routine testing includes live fire, function, environmental, dynamics, safety, MIL-STD-901 shipboard shock, insensitive munitions (IM), hazard classification, transportation and packaging safety.  These tests are done for prototype, developmental, qualification and production/lot acceptance testing (LAT).  Multiple NTS facilities around the country provide 200 v/m up to 40 GHz EMI/EMC testing of electronic and communications equipment.  Custom designed NTS data acquisition systems are capable of collecting data at speeds of 2,000,000 data points per second and digital photography capability of over 160,000 color photos per second.

NTS’ defense group is expanding to include energetic and prototype engineering services, including 2D and 3D CAD modeling; technical data package (TDP) development and modification; finite element analysis (FEA), projectile design and analysis; interior and exterior ballistics analysis, and design and development of custom test hardware and fixturing.  Other services include support of, and procurement and delivery of precision metal parts and explosive loading of prototype hardware.  Additional defense services include design, development, fabrication, and fielding of specialized high speed instrumentation and diagnostics for energetics and hazardous materials and ordnance testing.  This includes custom sensor suite design, fabrication and deployment, often through specialized test facility design.

Aerospace.  NTS offers integrated life cycle product services to the aerospace market.  These services include engineering, testing and supply chain management.  From concept development and design, through detail design, certification, production and in-service life, NTS provides support throughout the full life cycle of the aerospace product.  These integrated services fill the capability gaps that have developed in the aerospace supply chains after years of large scale integration, outsourcing and globalization.

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Testing services include a range of capabilities for structures and airborne equipment.  For structures, NTS has extensive testing capability and expertise in large component static and fatigue, full scale airframe static and fatigue, sonic fatigue, vibration, modal, ground vibration, high pressure/high flow air and fluid compatibility.  Airborne equipment testing spans the full range of RTCA DO-160 requirements, including static and dynamic, electromagnetic effects (EME, EMI, EMC), electrostatic discharge (ESD), environmental, material and system compatibility, high intensity radiated field (HIRF), indirect lightning effects and highly accelerated life testing/stress screening (HALT/HASS).

NTS’ engineering services consist of design and analysis of aerospace structures, systems, components and detailed parts as part of customers’ design teams or as a fixed-price work package.  In all cases, NTS’ work product belongs to the customer who retains approval authority and certification responsibility.  Specific capabilities include engineering program management, managed engineering services (on-site management of customer engineering teams), design engineering, analysis, test engineering, test system engineering, failure forensics and expert witnessing.

Supply chain management services span a wide range of development, oversight, and certification/accreditation activities including product inspection, production monitoring and expediting, test witnessing and support, corrective action follow-up, supplier surveillance, sub-tier supplier management, new supplier surveys, systems evaluations and audits (including special processes), development of quality assurance protocols, supplier development and improvement, quality management system audit, certification and registration.

The Company’s initial aerospace market sector focus for offering integrated life cycle product services is in the large commercial transport and general aviation sectors.  Once established, NTS intends to expand its capabilities to broaden its offerings into other sectors such as regional transports, rotorcraft, spacecraft, military fighters and transports and unmanned aerial vehicles.

Telecommunications. NTS provides certification and evaluation of a broad array of telecommunications equipment and systems for manufacturers of central office equipment and the carriers. The Company’s services are performed in accordance with the network equipment building systems (NEBS) specifications and fiber optics general requirements (GRs) as required by the telecommunications industry. NTS is also an independent test laboratory certified and recognized by most carriers, which allows manufacturers to use NTS as a market channel for products tested at original equipment manufacturers’ (OEM) facilities that are being developed for use in the regional bell operating companies’ (RBOCs) central offices.  The Company has been approved as an independent test laboratory (ITL) by the carriers to test and certify central office equipment developed by manufacturers to the NEBS specifications. The Company is currently providing this service at laboratories in California, Massachusetts, Texas, Calgary, Canada and Munich, Germany.  The Company has been approved as an exclusive ITL to offer  Internet TV Setup Box and in home CPE certification of telecom products  based on multimedia over coax (MoCA) certification. The Company is the exclusive certifications provider for Sirius/XM Radio Ready program.   NTS is also a smart grid test compliance provider covering the deployment of  “in-home” smart metering.

Automotive. NTS supports the commercial and military vehicle industries with testing, including dynamometer operations on  power train components, vibration and shock on mechanical and electrical assemblies, thermal and corrosion exposures on control and monitoring systems,  pressure pulsing and burst on fluid handling items and fatigue and ultimate strength on mechanical components.  NTS performs testing to support requirements in emerging markets of pure electric vehicles and electrical hybrid vehicles. This includes electric motors, integrated motor/transmissions, specialized high speed transmissions, batteries and control/distribution modules.   It also performs highly accelerated life tests (HALT) and highly accelerated stress screen (HASS). These tests combine extremes of temperature, rapid temperature change, and multi-axis vibration to rapidly expose design weaknesses and process flaws. NTS is accredited to ISO 17025 through the American Accreditation of Laboratories Association (A2LA). This accreditation allows NTS automotive test reports to be accepted in the U.S. and internationally.

Energy. NTS provides certification and evaluation services to nuclear utilities and suppliers worldwide. NTS offers a full range of products, engineering and testing services under our NUPIC and NIAC audited 10CFR50, Appendix B Quality Program. These services include seismic, environmental, EMI/RFI, radiation, equipment qualification, commercial grade dedication, mechanical aging, thermal aging, vacuum testing, leak detection, and nuclear steam accident simulations such as loss of cooling accident (LOCA) and high expansion line breaks (HELB).  Seismic and vibration simulation tests conducted on our single axis, dependent biaxial systems, or independent tri-axial and electro-mechanical shaker tables are used for a variety of customer products.

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The Company’s engineering capabilities and services include field support, training, obsolescence evaluations, alternative product selection, finite element analysis, reliability simulation, data acquisition and firmware software validation and verification.  NTS is active in industry task groups that influence the latest dedication guidelines. NTS engineers and technicians involved in the dedication process meet ANSI N45.2.6 Level II Inspectors guidelines.   The Company is actively involved with many vendors in the qualification of parts and components for the next generation of nuclear power plant designs.

Consumer Products. NTS provides certification and evaluation of a broad array of consumer products normally procured for personal use in a residence, school and recreation or otherwise.  This typically includes computer equipment, peripherals, printers and USB enabled devices. These products are subjected to a wide range of electromagnetic compatibility, safety, reliability, usability and interoperability tests to assure reliable and effective use.   Dramatic population growth and income gains in regions such as Asia, Latin America and Africa, coupled with urbanization and global macroeconomic shifts  are growing the market space to which manufacturers are seeking to sell. NTS offers regulatory approval and testing services for these products, offering a “one-stop-shop” service to their customers.  This ensures a shorter time to market for NTS customers.

Industrial Products. NTS provides certification and evaluation of a broad array of industrial products normally procured for light and heavy industrial applications. This covers a wide range of industries from shipbuilding to semiconductor manufacturing equipment, automation, robotics and materials handling devices. Various types of commercial grade electronic, hydraulic and pneumatic systems are subjected to electrical, environmental and safety testing to ensure safe and reliable use.  Special combined mechanical and environmental testing processes such as highly accelerated life testing (HALT) are used to accelerate the effects of aging and wear to allow manufacturers to produce a more reliable product.  Once this has been accomplished, similar highly accelerated stress screening (HASS) testing can be used to ensure consistent quality on the production line.  NTS offers a complete turnkey testing service for industrial products including electromagnetic compatibility, electrical safety, mechanical, environmental, HALT, HASS and customer driven requirements.

Industry Overview

Manufacturers often fulfill their evaluation testing needs 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 use third party certifiers to position their products for sale in world markets.  NTS is geographically located to serve customers at locations close to their plants and NTS facilities are capable of providing the conformity assessment activity necessary to reduce product-handling costs and serve as a market gateway for manufacturers to sell products globally. NTS provides a “one stop” resource and single source responsibility for all conformity assessment requirements in the several markets it serves.

Geographic Locations

In the U.S., NTS’ facilities are located in 23 domestic cities and in 4 international cities. See “Item 2. Properties.”

Business Strategy

Over the last few years, NTS restructured its executive leadership team and initiated a new growth strategy to provide significant focus on corporate development activities within the mid-to longer-term time horizon, while continuing to drive efficiencies and market penetration within the shorter-term fiscal planning time horizon.  The result of this new growth strategy has been to accelerate growth in the Company’s core testing business and expand the Company into high-value adjacent services, such as engineering services, while simultaneously reducing focus on staffing and lower value operations.

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NTS’ strategies for continued growth include (1) increasing market share through superior service that distinguishes it from its competition; (2) investing in human resources and physical assets to strengthen existing capabilities; (3) adding new, innovative service offerings to the Company’s repertoire; (4) expanding NTS’ reach across the globe; and (5) implementing a sophisticated, deliberate process to seek, evaluate and acquire companies that can add significant value upon integration with NTS.  These strategies derive from a set of principles and core values that lay the foundation for excellence, growth and value creation for shareholders, employees, customers and society.

Strategies to drive growth and excellence:

To increase revenue, net income, earnings per share and earnings before interest, taxes, depreciation and amortization (EBITDA) NTS focuses on superior capability, outstanding customer service and operational excellence as an enterprise strategy.

Major initiatives in NTS’ business strategy relating to capabilities are:

Innovating around new services and emerging technology markets.  This strategy deals with taking new ideas and converting them into value for customers.  Examples of recent innovative initiatives that have been successful are the high intensity radiated frequency (HIRF) testing, solar loading testing, pyro shock testing for the aerospace market and thermal modeling, simulation and test (TMST), a certification program for the telecom industry to produce more energy efficient network equipment.  Future innovation projects will include evaluating expansion into Asia, liquid hydrogen testing for space launch vehicles, reliability testing for the oil and gas industry, environmental and compliance testing for the smart grid HAN (Home Area Network), energy and test support on renewable energy and cyber security.

Growth through acquisitions.  This strategy deals with acquiring test labs and niche engineering service organizations to increase capacity and capability, broaden our customer base, and expand our geographic reach.  NTS has made several acquisitions over the last three years, and the Company’s ability to successfully integrate operations and retain technical staff and leadership, particularly when acquiring complementary and competitive testing organizations, has helped NTS grow and has provided strong financial returns.

           Major initiatives in the Company’s business strategy to deploy outstanding customer service are:

Access. This strategy deals with the concept of “easy to do business with.”  Access is more than a geographical location.  Even though NTS currently has 27 locations situated geographically so customers have local access to services, it means giving customers the ability to interact with NTS where, when and how they want and providing a professional environment that includes convenient hours, cleanliness, good maintenance and lay-out of facilities.  NTS has also developed a software program, “LabInsight” that allows customers to witness testing while never leaving their location and receive test data streamed live via a web connection.

Understanding customers’ changing needs and requirements. This strategy deals with gaining an understanding of the changing product and test specifications and developing services to fulfill these future requirements.  NTS uses its technical and sales relationships to identify future needs and the information is analyzed in the innovation platform for determining if there is a solid business case for creating value.  This strategy allows NTS to maintain a high level of customer retention.

In addition to NTS’ strategy of having the best capability and providing exceptional customer service NTS is also focused on operational excellence.

Major initiatives in the Company’s business strategy to deploy operational excellence are:

Process Improvement. This strategy deals with automation, lean process, and efficient and effective workspace.  Automation is about using technology to enhance our service and do things faster, more efficiently and at a reduced cost.  NTS is striving to do more for less and simultaneously enhance the overall quality of our service.  Lean process is about driving waste out of process by eliminating non value-added tasks.  Efficient and effective workspace is about simplifying work areas and reducing time by having support equipment and tooling readily available for use.

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Enhance Utilization of Resources. This strategy is about having the right balance of resources (people and equipment) across the enterprise so that the Company can perform work at the level customers require and at the appropriate level NTS needs to meet the Company’s strategic goals.  NTS is currently in the process of implementing an Enterprise Resource Planning (ERP) system that will allow measurement of equipment utilization thereby enhancing enterprise scheduling.  This ERP system will also be deployed across all business departments and replace our current outdated system.  The deployment of the ERP system is a major investment for the company. In fiscal year 2011, the Company rolled out the customer relationship module and the quoting module. The Company expects to finalize the development work for the financial module and roll this module out in fiscal year 2012.

Management formally reviews our strategic initiatives on a quarterly basis and management and the full board reviews the strategic plan annually.

Competition

In the aerospace and defense markets, the main competition for independent laboratories is the customers’ internal laboratories, including government laboratories. NTS also competes with a small number of large conformity assessment organizations, within each of the markets it serves, including multinational companies.  It also competes with a large number of small niche oriented test laboratories.  It has competitive advantages in several areas which include the following:  (i) ability to service customers at facilities close to their locations; (ii) ability to provide complete conformity assessment activities at a single location, which reduces product-handling cost for the customers and enhances timeliness of service; (iii) diverse and technically competent employees; and (iv) accreditations that allow NTS test data to be accepted worldwide. Customers can use the Company’s complete services, including quality registration, to position their products for world markets.

Backlog

The Company's backlog was $58,183,000 and $55,331,000 for the years ended January 31, 2011 and 2010, respectively.  Backlog as of January 31, 2010 was adjusted to include backlog of $3,350,000 from the Unitek acquisition.

Intellectual Property

NTS’ technical services and products are not generally dependent upon patent protection, although the Company does selectively seek patent protection. NTS claims a proprietary interest in certain products, software programs, methodologies and know-how. This proprietary information is protected by copyrights, trade secrets, licenses, contracts and other means. The Company has registered its service mark "NTS" with the U.S. Patent and Trademark Office.

Environmental Effect

NTS is subject to various federal, state, local and foreign government requirements regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. It is our policy to comply with these requirements, and we believe that, as a general matter, our policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage, and of resulting financial liability, in connection with our business. Some risk of environmental impact, however, is inherent in some of our operations, as it is with other companies engaged in similar businesses.

The Company's Santa Clarita, California test facility is located immediately adjacent to property owned by a third party which has been the subject of extensive environmental remediation.  Environmental testing was conducted at the Company’s facility in the fall of 2008, in cooperation with the government agency having oversight responsibility for the adjacent site.  Additional soil vapor testing and water sampling were conducted in 2009, and resulted in the California Department of Toxic Substances Control (DTSC) issuing a letter on January 6, 2010, stating that no further action is required by the Company.  Effective March 12, 2010, the DTSC terminated the Voluntary Compliance Agreement entered into by NTS in 2006.  There are no pending environmental issues at the Santa Clarita, California test facility.

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Seasonal Effect

The Company experiences no material seasonal effects.

Employees

The Company employed 1,095 individuals at January 31, 2011 and 1,033 at January 31, 2010, as follows:

	2011		2010
Employees		784		701
Project Employees*		311		332
		1,095		1,033

*The employee count in last year's annual report on Form 10-K did not include 174 project employees from the Unitek acquisition.

AVAILABLE INFORMATION

Our website address is http://www.nts.com. We make available, free of charge through our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (SEC). References to our website addressed in this report are provided as a convenience and do not constitute, or should be viewed as, an incorporation by reference of the information contained on, or available through, the website. Therefore, such information should not be considered part of this report.

Our filings may also be read and copied at the SEC's Public Reference Room at 100 F Street NE, Room 1580 Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that website is www.sec.gov.

ITEM 1A.           RISK FACTORS.

The factors discussed below are cautionary statements that identify important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements in this report. Any of the following risks may have a material negative impact on the Company’s financial condition.

NTS faces competition that can impact the Company’s ability to obtain contracts and negatively impact future revenues and growth prospects.

NTS faces competition from both the Company’s customers’ and competitors.  Some customers have their own in-house testing laboratories. For government related work, the Company also competes with the U.S. Government’s own testing laboratories. If customers increase utilization of existing in-house testing laboratories or expand their own internal testing capacity and capabilities, the amount of work outsourced to NTS could decrease.

NTS may also encounter increased competition from other conformity assessment organizations that may be more specialized and able to concentrate their resources on particular areas.  To remain competitive NTS must consistently provide superior service and performance on a cost-effective basis to our customers.

NTS may fail to attract, train and retain a qualified workforce, including our management team, which would adversely affect our ability to execute our strategy.

To remain competitive, the Company must be able to respond effectively to technological changes and be able to hire, train and retain highly skilled sales, engineering and technical personnel. Any failure to do this could impair our ability to perform our contractual obligations efficiently and timely and to meet our customers’ needs and win new business, which could adversely affect our future results.

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NTS may pursue or complete acquisitions which represent additional risk and could impact future financial results.

NTS’ growth strategy includes the likelihood of future acquisitions.  Acquisitions involve a number of risks including the integration of the acquired company with NTS’ operations. NTS completes an extensive due-diligence process prior to acquiring companies but may not be able to anticipate all liabilities or contingencies related to the acquired company.  NTS cannot ensure that the expected benefits of any future acquisitions will be realized.  Costs could be incurred on pursuits of proposed acquisitions that have not yet or may not close which could significantly impact the Company’s future results.

Additionally, after acquisitions are made, unforeseen issues could arise which would adversely affect anticipated future cash flows, causing impairment to goodwill and other intangible assets. Total goodwill and intangible assets account for approximately $31 million or 24% of the Company’s total assets as of January 31, 2011.  An impairment charge could negatively impact the Company’s future earnings.

Anti-takeover provisions could make it more difficult for a third-party to acquire the Company.

NTS adopted a shareholders rights plan which is intended to protect the Company and its shareholders from efforts to obtain control of the Company that are inconsistent with the best interests of the Company and its shareholders. The rights will be exercisable ten days following the earlier of the public announcement that a shareholder has acquired 15% or more of the Company's common stock without Board approval and the announcement of a tender offer which results in the ownership of 15% or more of the Company's common stock.  The rights also will become exercisable if a person or group that already owns 15% or more of the Company's common stock, without Board approval, acquires any additional shares (other than pursuant to the Company's employee benefit plans). If the rights become exercisable, all rights holders (other than the person triggering the rights) will be entitled to acquire Company securities at a 50% discount.

The rights will trade with the Company's common stock, unless and until they are separated upon the occurrence of certain future events.  The rights expire September 20, 2020, unless redeemed for $0.001 per right or exchanged earlier by the Board.  The Board may terminate the Rights Plan prior to the time the rights are triggered.

Because the rights may substantially dilute the stock ownership of a person or group attempting to take over the Company without the approval of the Board of Directors, the rights plan could make it more difficult for a third-party to acquire the Company or a significant percentage of the outstanding capital stock, without first negotiating with the Board of Directors.

The use, handling or disposal of hazardous substances could expose the company to potentially significant liabilities.

The Company’s operations sometimes involve the use, handling or disposal of hazardous substances.  NTS is subject to various federal, state, local and foreign government requirements regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. It is our policy to comply with these requirements, and we believe that, as a general matter, our policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage, and resulting financial liability, in connection with our business. Some risk of environmental impact, however, is inherent in some of our operations, as it is with other companies engaged in similar businesses. Failure to comply with regulations could result in civil, criminal, administrative or contractual sanctions, including fines and penalties.

8

Business disruptions caused by natural disasters and other crises could adversely affect our profitability.

The Company has significant operations located in regions of the United States that may be exposed to earthquakes and other natural disasters, such as hurricanes, tornadoes, blizzards, flooding, wildfires or lightning strikes.  The Company’s California facilities, including its principal executive offices, are located near major earthquake fault lines. A major earthquake or any other natural disaster in a region near any of the Company’s facilities, could materially and adversely affect the Company’s business.  Business could also be disrupted by pandemics and other national or international crises.  Although preventative measures may help mitigate damage, the damage and disruption to our business resulting from any of these events may be significant.  If our insurance is not sufficient to recover all costs, including loss of revenues from sales to customers, we could experience a material adverse impact to our future results.

NTS may not be able to procure sufficient insurance to cover operational and contractual risks.

The Company may not have sufficient insurance to cover operational and contractual risks.  There is also a risk that commercially available insurance will not continue to be available to the Company at a reasonable cost.  While the Company feels it has adequate insurance coverage, if liability claims were to exceed our current available insurance coverage, future earnings could be negatively impacted.

Disruptions or failures in the Company’s management information systems could adversely affect business.

The Company is currently undergoing a conversion to a new Enterprise Resource Planning (ERP) System. Any system or service disruptions, including those caused by projects to improve our information technology systems, if not anticipated and appropriately mitigated, could have a material impact on operation and accounting functions  such as quoting jobs, billing customers for work complete, collecting amounts that are owed to the Company, and preparing timely and accurate financial reports.

A decline in the U.S. Government defense budget could negatively impact future revenues.

The Company experienced significant growth in recent years, partly due to domestic and worldwide political and economic developments that have positively affected the markets for defense and advanced technology systems. Homeland security and defeating terrorism have been among the Department of Defense’s main initiatives. A slowing in defense spending due to political or budget shifts will put downward pressure on the Company’s revenues and gross margins. Current spending levels for defense related programs by the U.S. Government may not be sustainable and future levels of spending may fail to increase or may actually decrease.  An overall decline in the U.S. government defense budget would negatively impact future earnings.

Adverse general economic and market conditions could cause decreases in the Company’s revenues and earnings.

The Company is subject to the effects of general economic and market conditions (including economic disruption caused by terrorist acts).  A severe and/or prolonged economic downturn or a negative or uncertain political climate could adversely affect the Company’s operating results and financial condition.  In addition, any decreased collectability of accounts receivable whether resulting from customer bankruptcies or otherwise due to the current economic conditions, could negatively impact future earnings.

The Company’s earnings and profit may be adversely impacted by failure to accurately estimate and manage costs, time and resources.

NTS derives revenues from various types of contracts, including fixed price, cost reimbursement and time and materials contracts.  To the extent management does not accurately forecast the level of effort required to complete a contract, or individual tasks within a contract, and the Company is unable to negotiate additional billings with a customer for cost over-runs, the Company may incur losses on individual contracts.

9

Adverse judgments or settlements in legal disputes could require NTS to pay potentially large damage awards, which would adversely affect cash balances and profitability.

The Company is subject to a variety of litigation or other claims and suits that arise from time to time in the ordinary course of our business.  Adverse judgments or settlements could result in significant monetary damages.  If our insurance is not sufficient to recover all costs, including related legal expense, there could be a negative impact to the Company’s cash balance and profitability.

The Company’s credit facility contains restrictive covenants that could limit our ability to pursue our business strategies.

If NTS does not meet its covenants, the bank may not advance additional borrowings and may require the Company to pay down outstanding loans.  If this occurred it would limit our ability to pursue our acquisition strategy, limit capital expenditures and would negatively impact the Company’s overall performance.

Stock price devaluation could significantly impact the Company’s ability to raise capital.

A decrease in the Company’s stock price would make it more difficult for the company to raise capital through equity financing, which could impact the Company’s growth strategy.

ITEM 1B.           UNRESOLVED STAFF COMMENTS.

None.

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ITEM 2.              PROPERTIES.

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

	Owned Properties	Buildings		Land
State	City	(Sq.Ft.)		(Acres)
California	Fullerton		36,000		3
	Santa Clarita		60,000		145
Massachusetts	Acton		30,000		5
	Boxborough		25,000		4
Texas	Plano		1,000		1
Total owned properties			152,000		158
	Leased Properties	Buildings		Land
State	City	(Sq.Ft.)		(Acres)
Arizona	Tempe		17,000		n/a
Arkansas	Camden		30,000		561
California	Calabasas		7,000		n/a
	Culver City		24,000		n/a
	Dana Point		900		n/a
	Fremont		26,400		n/a
	Fullerton		42,300		n/a
	Los Angeles (LAX)		16,000		2
	Newark		30,200		n/a
	Ventura		870		n/a
Colorado	Littleton		5,000		n/a
Indiana	Indianapolis		11,000		n/a
Kansas	Wichita		14,600		n/a
Massachusetts	Boxborough		24,000		n/a
Michigan	Detroit		65,000		n/a
New Jersey	Tinton Falls		17,000		n/a
New Mexico	Albuquerque		33,000		2
Texas	Plano		48,000		n/a
Virginia	Rustburg		8,000		33
	Alexandria		1,300		n/a
	Centreville		5,000		n/a
International
Canada	Calgary		14,000		n/a
Germany	Munich		300		n/a
Japan	Yokohama		500		n/a
Vietnam	Ho Chi Minh		1,000		n/a
Total leased properties			442,370		598

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.

Investment Properties

The Company owns approximately 118 acres of unused land in Santa Clarita, California. Since this property does not meet all the criteria for accounting classification as an "asset held for sale" it was classified as land in the accompanying consolidated financial statements.

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The Company sold the Fredericksburg, Virginia property on April 22, 2010 for a sales price of $3,395,000.  The gain of $3,017,000 from the sale of the property was included in other income in fiscal year 2011.

ITEM 3.  LEGAL PROCEEDINGS.

The Company is, from time to time, the subject of claims and suits arising out of matters occurring during the operation of the Company’s business.  In the opinion of management, no pending claims or suits would materially affect the financial position or the results of the operations of the Company.

ITEM 4.  (REMOVED AND RESERVED).

PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

A.        Market Information

The Company's common stock is traded on the Nasdaq Global Market under the symbol "NTSC".  The range of high and low sales prices as reported by the Nasdaq Global Market for each of the quarters of the fiscal years ended January 31, 2011 and 2010 is presented below:

	2011				2010
	High		Low		High		Low
First Quarter	$	5.97	$	4.90	$	3.99	$	2.75
Second Quarter	$	9.01	$	5.00	$	4.46	$	2.53
Third Quarter	$	8.90	$	6.39	$	5.99	$	3.96
Fourth Quarter	$	8.35	$	6.88	$	6.00	$	4.98

B.         Holders

As of the close of business on April 26, 2011, there were 697 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

The Company paid a special $0.07 cash dividend per common share on July 19, 2010 to shareholders of record on July 6, 2010. In the prior year, the Company paid a special $0.06 cash dividend per common share on June 12, 2009 to shareholders of record on May 28, 2009. The Company does not have a policy regarding a regular dividend payment and any future dividends declared will be at the discretion of the NTS board.

D.          Sales of Unregistered Securities

On December 16, 2010, the Company acquired Mechtronic Solutions, Inc. (MSI).  The purchase price paid at closing was $6,500,000 in cash and $500,000 in shares of the Company's common stock, which were issued to MSI shareholders.  The $500,000 in stock consisted of 65,703 unregistered shares of the Company's common stock valued at $7.61 per share. The foregoing issuance did not involve any underwriters, underwriting discounts or commissions, and the issuance was exempt from the registration requirements of the Securities Act of 1933 in reliance on Section 4(2) thereof and the rules and regulations promulgated thereunder as a transaction by an issuer not involving a public offering.  The recipients of the shares were accredited or sophisticated and either received adequate information about the Company or had access, through their relationships with the Company, to such information.  The shares are subject to appropriate stops on transfer.

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E.          Repurchases of Equity Securities

On July 10, 2009, the NTS board approved a share repurchase plan whereby the Company may repurchase up to 200,000 shares of its common stock. There were no share repurchases in fiscal year 2011.

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ITEM 6.              SELECTED FINANCIAL DATA.

The following selected consolidated financial data are derived from and should be read in conjunction with the Company’s consolidated financial statements and related notes set forth in Item 8 below.

	Year Ended January 31,
	2011			2010			2009			2008			2007
	(in thousands except per share amounts)
INCOME STATEMENT DATA:
Net revenues	$	144,069		$	122,724		$	119,920		$	100,857		$	91,004
Gross profit		38,939			33,940			32,081			26,223			23,006
Operating income		7,747			6,700			7,470			5,941			5,102
Interest expense, net		1,219			1,305			2,053			1,950			1,801
Income before income taxes and noncontrolling interests		10,459			5,703			5,402			4,405			3,412
Income taxes		4,676			2,292			2,342			1,709			1,500
Income from continuing operations before noncontrolling interests		5,783			3,411			3,060			2,696			1,912
Less: Net income attributable to noncontrolling interests		(433	)		(106	)		(82	)		(84	)		(88	)
Income from continuing operations		5,350			3,305			2,978			2,612			1,824
Income (loss) from discontinued operations, net of tax		-			-			662			3			(243	)
Net income	$	5,350		$	3,305		$	3,640		$	2,615		$	1,581
Basic earnings per common share
Income from continuing operations	$	0.54		$	0.35		$	0.33		$	0.30		$	0.21
Income (loss) from discontinued operations		-			-			0.07			0.00			(0.03	)
Net income	$	0.54		$	0.35		$	0.40		$	0.30		$	0.18
Diluted earnings per common share
Income from continuing operations	$	0.51		$	0.34		$	0.31		$	0.28		$	0.19
Income (loss) from discontinued operations		-			-			0.07			0.00			(0.03	)
Net income*	$	0.51		$	0.34		$	0.38		$	0.28		$	0.17
Weighted average common shares outstanding		9,861			9,334			9,141			8,795			8,705
Dilutive effect of stock options		535			415			456			662			800
Weighted average common shares outstanding, assuming dilution		10,396			9,749			9,597			9,457			9,505
Cash dividends paid per common share	$	0.07		$	0.06		$	0.02		$	-		$	-
BALANCE SHEET DATA:
Working capital	$	30,641		$	22,005		$	23,379		$	19,145		$	15,087
Total assets		129,326			110,001			106,522			90,892			74,839
Long-term debt, excluding current installments		39,766			31,560			33,913			32,274			19,238
Shareholders' equity		54,727			46,849			43,251			37,355			33,779
* Per share data may not always summate because each figure is independently calculated.

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

Except for the historical information contained herein, the matters addressed in this Item 7 contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These matters contain certain statements that relate to future plans, events or performance. These forward-looking statements involve risks and uncertainties, including risks associated with uncertainties pertaining to customer orders, demand for services and products, development of markets for the companies’ services and products and other risks identified in Item 1A included in this report.  Actual results, events and performance may differ materially.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.  The companies undertake no obligation to release publicly the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

OVERVIEW

  The Company is a diversified business to business services organization that supplies technical services to the defense, aerospace, telecommunications, automotive, energy and high technology markets. Through its wide range of testing facilities and certification services, the Company’s services allow its customers the ability to sell their products globally and enhance their overall competitiveness. NTS is accredited by numerous national and international technical organizations which allow the Company to have its test data accepted in most countries.  The Company operates facilities throughout the United States and in Japan, Vietnam, Canada and Germany, providing highly trained technical personnel for engineering services, product certification, product safety testing and product evaluation. In addition, it performs management registration and certification services to ISO related standards.

   On December 16, 2010, the Company acquired Mechtronic Solutions, Inc. (MSI), an engineering services company, located in Albuquerque, New Mexico.  The purchase price paid at closing was $6,500,000 in cash and $500,000 in Company stock.  The Company agreed to pay an additional maximum amount of $1,600,000 (earn-out) if MSI achieves a certain level of revenue and EBITDA over the next three years. The results of operations for Mechtronic Solutions, Inc. are included in the Company’s consolidated statements of income from December 16, 2010 to January 31, 2011.

In fiscal 2011, the Company’s total revenues increased 17.4% over fiscal year 2010 to approximately $144 million. This increase was comprised of 8.2% in acquisition revenue growth and 9.2% in organic growth, which was primarily due to strong performance in the aerospace and defense markets and the Company’s continued investment in additional capabilities and capacity.

Summary of Revenues for fiscal years 2011 and 2010:

	FY 2011		FY 2010		Change		% Change
	(Dollars in thousands)
Total Revenues	$	144,069	$	122,724	$	21,345		17.4	%

The Company is one of the largest independent conformity assessment organizations in the United States. Revenues are primarily generated from testing services which include simulation of harsh environments such as high/low temperature, shock, vibration, seismic and electromagnetic interference, and functional testing which requires test equipment such as environmental chambers, shakers, switches, routers, servers and high bandwidth access to the Internet to subject telecommunication equipment to a full spectrum of performance type testing. With the recent acquisition of MSI the Company has increased its engineering services offerings, which include design, analysis and program management. Revenues also include managed services, registration services and supply chain management services.

Summary of Cash Flows for fiscal years 2011 and 2010:

	FY 2011			FY 2010			Change
	(Dollars in thousands)
Net cash provided by operating activities	$	11,725		$	10,067		$	1,658
Net cash used in investing activities		(17,998	)		(10,191	)		(7,807	)
Net cash provided (used) by financing activities		8,115			(2,121	)		10,236
Effect of exchange rate changes on cash		(20	)		(17	)		(3	)
Net increase (decrease) in cash	$	1,822		$	(2,262	)	$	4,084

15

Cash provided by operating activities was $11,725,000 in fiscal year 2011, compared to $10,067,000 in fiscal year 2010.  In fiscal 2011, the Company increased its borrowing, primarily to finance the acquisition of MSI, which contributed to the increase in financing activities and investing activities. Net cash increased by $1,822,000 in fiscal year 2011, compared to a decrease of $2,262,000 in fiscal year 2010.

Critical Accounting Policies

The consolidated financial statements of the Company are prepared in accordance with U.S. generally accepted accounting principles (GAAP), which require the Company to make certain estimates and assumptions (see Note 1 to the consolidated financial statements in Item 8). Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Recognition of Revenue and Related Costs

The majority of the Company’s revenues are derived from fixed price contracts. Revenues from fixed price testing contracts are generally recorded upon completion of the contracts, which are typically short-term, or upon completion of identifiable contractual tasks. At the time the Company enters into a contract that includes multiple tasks, the Company estimates the amount of actual labor and other costs that will be required to complete each task. Revenues from contracts which are time and materials based are recorded as effort is expended.

Billings in excess of amounts earned are deferred. Any anticipated losses on contracts are charged to income when identified and can be reasonably estimated. To the extent management does not accurately forecast the level of effort required to complete a contract, or individual tasks within a contract, and the Company is unable to negotiate additional billings with a customer for cost over-runs, the Company may incur losses on individual contracts.

Reimbursements made to the Company by customers under contract provisions, including those related to travel and other out-of-pocket expenses are recorded as revenues. An equivalent amount of reimbursable expenses is recorded as cost of sales.

Allowance for Uncollectible Receivables

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. The Company uses a combination of write-off history, aging analysis and identification of any specific known troubled accounts in determining the allowance. If the financial condition of customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances could be required.

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. Such inventories for each contract are reviewed on a monthly basis over the life of the contract and additional write-downs of inventories are made if there are insufficient revenues remaining on the contract.

Accounting for Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We record a valuation allowance, if necessary, to reduce deferred tax assets to an amount management believes is more likely than not to be realized.

16

To the extent that we have deferred tax assets, we must assess the likelihood that our deferred tax assets will be recovered from taxable temporary differences, tax strategies or future taxable income and to the extent that we believe that recovery is not likely, we must establish a valuation allowance. As of January 31, 2011, we have established a $24,000 valuation allowance against our Canadian deferred tax asset.  There was no valuation allowance as of January 31, 2010. In the future, we may adjust our estimates of the amount of valuation allowance needed and such adjustment would impact our provision for income taxes in the period of such change.

Goodwill and Intangible Assets

Goodwill represents the excess of cost over fair value of assets of an acquired business.  Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized.  Intangible assets with estimable useful lives are amortized over their respective estimated useful lives.

Goodwill and intangible assets not subject to amortization are tested annually for impairment.  The goodwill test for impairment consists of a two-step process that begins with an estimation of the fair value of the reporting unit using the discounted cash flow approach.  The first step of the test is a screen for potential impairment and the second step measures the amount of impairment, if any.  The first step of the goodwill impairment test includes a comparison of the fair value of each reporting unit that has associated goodwill with the carrying value of the reporting unit.  The Company has identified eight reporting units, which constitute components of its business that include goodwill.  The process of evaluating the potential impairment of goodwill is subjective and requires judgment at many points during the test including future revenue forecasts and discount rates.  The Company completed its annual goodwill impairment test in the fourth quarter and has determined that the fair value of each of the reporting units exceeded the reporting unit’s carrying amount, and no impairment was indicated.

Recent Accounting Pronouncements

Effective February 1, 2009, the Company adopted Financial Accounting Standards Board (FASB) ASC topic 810 (formerly SFAS No. 160) related to noncontrolling interests which clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. It requires consolidated net income to be reported at amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated statement of income, amounts of consolidated net income attributable to the parent and to the noncontrolling interest. The adoption primarily affected disclosure requirements and did not impact the Company’s financial position or results from operations.

Effective February 1, 2009, the Company adopted FASB ASC topic 805 (formerly SFAS No. 141(R)) related to business combinations. New requirements under the revised standard include: (i) the fair value of stock provided as consideration be measured as of the acquisition date instead of the announcement date; (ii) acquisition-related costs be recognized separately from the acquisition, generally as an expense, instead of treated as a part of the cost of the acquisition that was allocated to the assets acquired and the liabilities assumed;  (iii) restructuring costs that the acquirer expected, but was not obligated to incur, be recognized separately from the acquisition instead of recognized as if they were a liability assumed at the acquisition date; (iv) contingent consideration be recognized at the acquisition date, measured at its fair value at that date, instead of recognized when the contingency was resolved and consideration was issued or became issuable; (v) recognizing a gain when the fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred instead of allocating the “negative goodwill” amount as a pro rata reduction of the amounts that otherwise would have been assigned to particular assets acquired; (vi) research and development assets acquired in a business combination will be recognized at their acquisition-date fair values as assets acquired in a business combination instead of being measured at their acquisition-date fair values and then immediately charged to expense; and (vii) changes in the amount of deferred tax benefits created in a business combination, outside of the valuation period, will be recognized either in income from continuing operations or directly in contributed capital, depending on the circumstances, instead of recognized through a corresponding reduction to goodwill or certain noncurrent assets or an increase in so-called negative goodwill. In fiscal year 2011, there was an additional $658,000 in acquisition related legal, earn-out and accounting expenses that would have previously been recorded to the balance sheet.  In fiscal year 2010, there was $78,000 in acquisition related legal expense.

17

Off-Balance Sheet Arrangements

The Company does not have any special purpose entities or off-balance sheet financing arrangements.

Results of Operations

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

REVENUES	2011		% Change			2010
Twelve months ended January 31,
(Dollars in thousands)
Total Revenues	$	144,069		17.4	%	$	122,724

For the year ended January 31, 2011, revenues increased by $21,345,000 or 17.4% as compared to the prior year. Organic growth of $11,222,000 or 9.2% was primarily due to strong performance in the aerospace and defense markets for the first nine months of the year, as a result of the Company’s investments in additional capability and capacity, improvement in the automotive market and an increase in the registration service business. $10,123,000, or 8.2% of this increase, came from acquisitions.

GROSS PROFIT
Twelve months ended January 31,	2011			% Change			2010
(Dollars in thousands)
Total	$	38,939			14.7	%	$	33,940
% to total revenues		27.0	%					27.7	%

For the year ended January 31, 2011, gross profit increased by $4,999,000 or 14.7%.  This was primarily due to the increase in revenues discussed above.  Gross profit as a percentage of revenues decreased by 0.6%.  Fluctuations in gross margin reflect changes in the mix of services sold and lower margins from recent acquisitions.

SELLING, GENERAL & ADMINISTRATIVE
Twelve months ended January 31,	2011			% Change			2010
(Dollars in thousands)
Total	$	30,923			13.8	%	$	27,179
% to total revenues		21.5	%					22.1	%

For the year ended January 31, 2011, selling, general and administrative expenses increased by $3,744,000 or 13.8%.  Selling, general and administrative expenses at Unitek and MSI, acquired on November 30, 2009, and December 16, 2010 respectively, comprised $1,000,000 or 3.7% of the increase. The remaining increase of $2,744,000 or 10.1% in selling, general and administrative expenses was primarily due to increased legal expense related to certain shareholder matters, acquisition costs, a fee dispute and an employment matter. The increase also included compensation and other sales costs associated with the investment in the engineering services group, innovation and marketing activities and costs and incentive compensation related to the increase in revenues.  These increases were partially offset by a decrease in bonus expense.

Equity Loss from Non-Consolidated Subsidiary

For the year ended January 31, 2011, equity loss was $269,000 compared to $61,000 in the prior year. The loss from the Company’s non-consolidated 50% owned subsidiary in Japan in the current year was primarily due to lower revenues and a write-down of deferred taxes.

OPERATING INCOME
Twelve months ended January 31,	2011			% Change			2010
(Dollars in thousands)
Total	$	7,747			15.6	%	$	6,700
% to total revenues		5.4	%					5.5	%

18

For the year ended January 31, 2011, operating income increased by $1,047,000 or 15.6%.  The increase was primarily a result of the increase in gross profit, partially offset by the increase in selling, general and administrative expenses.

Interest Expense

Interest expense decreased by $86,000 in fiscal 2011 when compared to fiscal 2010, primarily due to lower interest rates during fiscal year 2011.

Other Income

For the year ended January 31, 2011, other income was $3,931,000, compared to $308,000 in the prior year.  Other income in the current year was primarily comprised of the gain on the sale of the Company’s Virginia property of $3,017,000 and the net gain recognized from insurance recovery related to fires at the Company’s Fullerton and Plano facilities in the prior year, partially offset by other non-recurring expenses.

Income Taxes

The provisional income tax rate for fiscal year 2011 is 44.7%, compared to 40.2% in the prior year. The increase in the income tax rate in fiscal 2011 was primarily due to tax expense recognized on life insurance policy redemptions and an increase in non tax deductible acquisition related costs. FASB ASC topic 805 (formerly SFAS No. 141(R)) requires acquisition-related costs be recognized separately from the acquisition, generally as an expense under GAAP accounting, instead of treated as a part of the cost of the acquisition that was allocated to the assets acquired and the liabilities assumed. For tax purposes, these types of acquisition related costs must still be capitalized as part of the cost of the acquisition.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, net of valuation allowance, will be realized on the basis of offsetting it against deferred tax liabilities and future income.  The Company analyzes the value of the deferred income tax asset quarterly in conjunction with external reporting.

Net Income

For the year ended January 31, 2011, net income was $5,783,000 compared to $3,411,000 in the prior year, an increase of $2,372,000 or 69.5%.  This increase was primarily due to the $3,623,000 increase in other income and the $1,047,000 increase in operating income, partially offset by higher income taxes.

Net Income Attributable to Noncontrolling Interests

For the year ended January 31, 2011, net income attributable to noncontrolling interests was $433,000 compared to $106,000 in the prior year, an increase of $327,000 or 308.5%.  This increase was due to higher net income for the Company’s 50% owned NQA, Inc. subsidiary in fiscal year 2011.

Net Income Attributable to Controlling Interests

For the year ended January 31, 2011, net income attributable to controlling interests was $5,350,000 compared to $3,305,000 in the prior year, an increase of $2,045,000 or 61.9%.  This increase was due to higher net income in the current year, discussed above, partially offset by higher net income attributable to noncontrolling interests.

Business Environment

AEROSPACE MARKET

The aerospace market generates approximately 33% of the Company’s overall revenue.  NTS views the aerospace sector as having nine definable sectors: large commercial transports, regional transports, business aircraft, general aviation, rotorcraft, military fighters, military transports, unmanned aerial vehicles and systems (UAVs and UASs) and space (launch vehicles and payloads).  Each has its own dynamics depending on social and economic circumstances and NTS tailors its service offerings accordingly, though certain trends cross over market sectors.  For example, original equipment manufacturers continue to move toward large scale integration, consolidation around core competencies, outsourcing, and globalization.  These trends have provided and will continue to present significant opportunity for NTS to fill capability gaps that have emerged in the product development cycles of its customers.  The careful positioning of NTS’ life cycle product services-engineering, testing, and supply chain services-enables the Company to profit in both down and up markets.  In the down market, NTS fills the capability gaps that its customers cannot afford to maintain on a full-time basis.  When the market turns up, NTS fills capacity gaps during these surge periods.

19

The large commercial transport sector accounts for the bulk of NTS’ aerospace revenue. The delay in delivery of the first production versions of the Boeing 787 Dreamliner and lack of market enthusiasm for the Airbus A380 continue to suppress the rebound of the sector.  This has been offset somewhat in the last year by increased production rates of the Boeing 737 and Airbus A320.  Market conditions are expected to improve with the Dreamliner now nearing completion of flight test and its competitor, the Airbus A350 XWB, now in early stages of production.  Aging, fuel-inefficient fleets will need to be replaced.   Forecasts call for some 29,000 new commercial aircraft valued at over $3.2 trillion through 2020.

With the exception of the UAV/UAS sector, all others are flat to declining.  For example, the regional transport sector is forecast to shrink through 2020 relative to the previous ten years by 8-10% to around 3,000 aircraft. Declining defense budgets and the uncertain future of the Joint Strike Fighter will shrink the mil-aero sectors. The space sector is transitioning from 30 years of dominance by the NASA shuttle program which winds down in 2011. However, currently NTS is experiencing an increase in proposals for the heavy lift vehicle.

Despite the relatively austere market conditions, NTS is positioned to make gains as market participants consolidate and non-core skills are outsourced.  Successful contributions to Boeing’s family of commercial airplanes are leading to follow-on revenue opportunities and we are also experiencing an increase in orders related to the A350 aircraft. In addition, the company is focusing on the growing UAV/UAS market and has built relationships with several of the major companies building UAVs providing testing for the vehicle and design, assembly and testing for payloads. Also, NTS expects to participate in the $3.5 billion KC 46-A tanker contract awarded to Boeing by the U.S. Air Force.

DEFENSE MARKET

The defense market generates approximately 34% of the Company’s overall revenue and has grown by 66% in the last three years. The defense market remains subject to the funding uncertainties of the current administration but the propensity for in-sourcing in many areas is significantly decreasing.  Although the current U.S. defense budget is the highest share of the budget compared to GDP since World War II, severe political pressure has increased cost consciousness in the Department of Defense with heavy scrutiny on maintaining test and production schedules. This is leading to increased outsourcing from government-run test facilities to independent private sector test labs.  Likewise, major defense prime contractors are beginning to outsource more testing and engineering services opportunities to lean out their operations.   In addition the U.S. is engaged in two expeditionary efforts in Iraq and Afghanistan that are likely to continue through CY2014.  As directed by the President, the Pentagon will undertake a review of current capabilities and strategies that will shape the U.S. defense budget of the future.  This review will focus on real world conditions that are not improving in the foreseeable future. NTS is strategically positioned to take full advantage of this environment. The Company’s unique life cycle product services value proposition acts counter to defense market economic cycles, providing opportunities to fill gaps in declining market conditions. Although the U.S. defense budget is expected to decline in the near future, market conditions are such that NTS anticipates that it will increase revenues by growing market share. Our competitive cost structure, breadth of capability, and continued investment in research to understand our clients changing needs and then aggressively developing capability to support these needs has resulted in increased defense related market share. The NTS defense market is well positioned to continue to expand market share and maintain our excellent growth history.

TELECOMMUNICATIONS MARKET

The telecommunications market is showing some signs of improvement. The wireless market, a subset of the telecommunications market, is continuing to show a strong rebound. Carriers are delivering voice, video and data using fiber networks and other high-speed delivery methods. New means of delivery may increase the demand for certification of suppliers’ premises equipment, and certification of new central office equipment. The growing demand for cloud-based services may provide new opportunities for carriers and service providers to help businesses extend their budgets. The Company, with multiple telecommunications facilities, including its recent NEBS approval from Verizon as a result of the expansion of   the Silicon Valley facility and the addition of NEBS fire testing at Plano Texas facilities, is well equipped to grow in this market.

20

ENERGY MARKET

The NTS Energy Market currently offers multi-disciplinary expertise and capabilities to provide smart solutions to complex engineering and scientific problems in the areas of nuclear energy and smart grid. NTS will be transitioning into other energy services such as transmission and distribution, battery and energy storage, renewable generation, oil and gas, and other clean technologies. NTS also provides dedication and certification work for the domestic and international communities and believes this market has a very positive outlook as consumers, commercial businesses, industries and governments search for alternative energy solutions. NTS offers a full range of products, engineering and testing solutions. These services include seismic, environmental, EMI/RFI, radiation, equipment qualification, commercial grade dedication, mechanical aging, thermal aging, vacuum testing, leak detection, and nuclear steam accident simulations such as loss of cooling accident (LOCA) and high expansion line breaks (HELB).  Seismic and vibration simulation tests are conducted on our single axis, dependent biaxial system, or independent tri-axial and electro-mechanical shaker tables and are used for a variety of customer products and applications. NTS provides technical functional knowledge of engineering fundamentals: mechanical, structural, electrical, reliability, and high technology communication and security software system test and monitoring solutions, with supply chain management focusing on assuring product integrity through quality process and product auditing, supplier improvement plans, and management of quality systems. NTS is currently evaluating new opportunities for performance testing of wind turbines and reliability and life duration testing support on products for petroleum, liquid and gas applications.

AUTOMOTIVE MARKET

In the automotive industry, alternative fuel vehicle testing is presenting signs of growth especially in the pure electric and electric hybrid propulsion devices; the industry in general is in a rebound mode and gaining traction due to high fuel costs. NTS has experienced an increase in revenues over the past year as a result of increased traditional fuel efficient and hybrid vehicle sales.  NTS offers the commercial and military vehicle industries design engineering services, product testing, and verification and qualification services providing a one stop-shop for our customers. NTS’s testing services included dynamometer operations on power train components, vibration and shock on mechanical and electrical assemblies, thermal and corrosion exposures on control and monitoring systems, pressure pulsing and burst on fluid handling items and fatigue and ultimate strength on mechanical components. NTS performs testing to support requirements in emerging markets of pure electric vehicles and electrical hybrid vehicles. This includes electric motors, integrated motor/transmissions, specialized high speed transmissions, batteries and control/distribution modules.   NTS also performs highly accelerated life tests (HALT) highly accelerated stress screen (HASS) and lithium battery testing to comply with UN T1-T8 test requirements (as specified on the transportation of dangerous goods manual). These tests combine extremes of temperature, rapid temperature change, and multi-axis vibration to rapidly expose design weaknesses and process flaws. NTS is accredited to ISO 17025 through the American Accreditation of Laboratories Association (A2LA). This accreditation allows NTS automotive test reports to be accepted in the U.S. and internationally.

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

Summary of cash flows:

	FY 2011			FY 2010			Change
	(Dollars in thousands)
Net cash provided by operating activities	$	11,725		$	10,067		$	1,658
Net cash used in investing activities		(17,998	)		(10,191	)		(7,807	)
Net cash provided (used) by financing activities		8,115			(2,121	)		10,236
Effect of exchange rate changes on cash		(20	)		(17	)		(3	)
Net increase (decrease) in cash	$	1,822		$	(2,262	)	$	4,084

Net cash provided by operating activities of $11,725,000 in fiscal 2011 consisted of net income of $5,783,000, adjusted for non-cash items of $7,384,000 in depreciation and amortization, deferred income taxes of $2,318,000, share-based compensation of $471,000, life insurance premium of $61,000 and loss on disposal of assets of $16,000, partially offset by gain on sale of assets of $3,017,000, changes in working capital of $626,000, recoveries of receivables of $451,000 and gain on investments of $214,000. Net cash provided by operating activities of $10,067,000 in fiscal 2010 consisted of net income of $3,411,000, adjusted for non-cash items of $7,265,000 in depreciation and amortization, share-based compensation of $299,000, loss on disposal of assets of $262,000 and life insurance premium of $48,000, partially offset by changes in working capital of $704,000, recoveries of receivables of $274,000, gain on sale of securities of $233,000 and deferred income taxes of $7,000.

21

Net cash used in investing activities in fiscal 2011 of $17,998,000 was primarily attributable to capital spending of $11,693,000, cash used for acquisitions of $6,500,000, cash used for earn-out payment of $3,149,000, cash used for investment in retirement funds of $750,000 and investment in life insurance of $25,000, partially offset by proceeds from sale of Virginia property of $2,293,000 and proceeds from sales of life insurance of $1,826,000. Capital spending is generally comprised of purchases of machinery and equipment, building, leasehold improvements, computer hardware, software and furniture and fixtures. Net cash used in investing activities in fiscal 2010 of $10,191,000 was primarily attributable to capital spending of $6,794,000, cash used for acquisitions of $2,445,000, cash used for investment in retirement funds of $750,000 and investment in life insurance of $202,000.

Net cash provided by financing activities in fiscal 2011 of $8,115,000, consisted primarily of proceeds from borrowing of $44,121,000, proceeds from stock options exercised of $879,000 and tax benefit from stock options exercised of $344,000, partially offset by repayment of debt of $36,320,000 and cash dividends paid of $909,000. Net cash used by financing activities in fiscal 2010 of $2,121,000, consisted primarily of repayment of debt of $5,957,000, cash dividends paid of $566,000 and common stock repurchase of $58,000, partially offset by proceeds from borrowing of $4,275,000, proceeds from stock options exercised of $103,000 and tax benefit from stock options exercised of $82,000.

On November 10, 2010, the Company secured a senior credit facility of up to $65 million from a banking group led by Comerica Bank that includes Bank of the West and U.S. Bank. The credit facility includes a $20 million term loan, a $25 million revolving credit line and a $20 million acquisition line.  This credit facility, which will mature in 5 years, amends and restates the former credit facility which consisted of a $16.5 million revolving credit line and approximately $16.3 million in existing outstanding term debt.  Interest rates under the new credit agreement are at either LIBOR plus a range of 175 to 275 basis points, or at Comerica Bank's prime rate plus a range of 75 to 175 basis points.  See Note 3: Debt.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Risk

The Companyis exposed to changes in interest rates primarily from its long-term revolving line of credit arrangement. Under its current policies, the Company does not use interest rate derivative instruments to manage exposure to interest rate changes. A hypothetical one percentage point adverse move in interest rates along the entire interest rate yield curve would adversely affect interest expense by $382,000 at January 31, 2011 as compared to $326,000 at January 31, 2010.

Impact of Inflation

The Company continues to incur increased costs in the areas of wages, insurance, workers compensation, and utilities which are difficult to pass along to customers in the current economic environment. To date, these increases have been partially offset by reductions in other operating areas through improved efficiencies.  The Company can give no assurances, however, that in the future it can offset such increased costs.

22

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Index to Consolidated Financial Statements and Schedule

Report of Independent Registered Public Accounting Firm

Financial Statements:

Consolidated Balance Sheets - January 31, 2011 and 2010

Consolidated Statements of Income - Years ended January 31, 2011 and 2010

Consolidated Statements of Shareholders' Equity - Years ended January 31, 2011 and 2010

Consolidated Statements of Cash Flows - Years ended January 31, 2011 and 2010

Notes to Consolidated Financial Statements

Schedule

Schedule Supporting Financial Statements:

II

Valuation and Qualifying Accounts and Reserves

__________________________

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

23

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of

National Technical Systems, Inc.

We have audited the accompanying consolidated balance sheets of National Technical Systems, Inc. and Subsidiaries as of January 31, 2011 and 2010, and the related consolidated statements of income, shareholders' equity, and cash flows for the years then ended.  Our audits also included the financial statement schedule listed in the Index at Item 15(a).  These financial statements and schedule are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements and schedule based on our audits.  We did not audit the financial statements of NQA, Inc., a 50% consolidated subsidiary, which statements reflect total assets of $8,917,000 and $7,492,000 as of January 31, 2011 and 2010, respectively, and total revenues of $22,791,000 and $11,917,000, for the years then ended.  Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for NQA, Inc., is based solely on the report of the other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the 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, 2011 and 2010, and the consolidated results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.  Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

	/s/ Ernst & Young LLP
Los Angeles, California
May 2, 2011

24

NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

January 31,

ASSETS	2011			2010
CURRENT ASSETS:
Cash and cash equivalents	$	8,924,000		$	7,102,000
Investments		2,796,000			1,893,000
Accounts receivable, less allowance for doubtful accounts of $549,000 at January 31, 2011 and  $1,000,000 at January 31, 2010		28,452,000			27,777,000
Income taxes receivable		1,427,000			115,000
Inventories, net		4,270,000			2,659,000
Deferred income taxes		3,681,000			3,561,000
Prepaid expenses		1,639,000			963,000
Total current assets		51,189,000			44,070,000
Property, plant and equipment, at cost
Land		1,449,000			1,677,000
Buildings		7,726,000			9,035,000
Machinery and equipment		91,753,000			82,619,000
Leasehold improvements		16,056,000			14,219,000
Property, plant and equipment, at cost		116,984,000			107,550,000
Less: accumulated depreciation		(72,699,000	)		(68,804,000	)
Net property, plant and equipment		44,285,000			38,746,000
Goodwill		20,004,000			14,769,000
Intangible assets, net		11,110,000			8,374,000
Other assets		2,738,000			4,042,000
TOTAL ASSETS	$	129,326,000		$	110,001,000
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	7,023,000		$	5,798,000
Accrued expenses		8,230,000			10,920,000
Deferred income		1,790,000			1,437,000
Current installments of long-term debt		3,505,000			3,910,000
Total current liabilities		20,548,000			22,065,000
Long-term debt, excluding current installments		39,766,000			31,560,000
Deferred income taxes		11,956,000			7,835,000
Deferred compensation		1,373,000			1,169,000
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 2,000,000 shares authorized; none issued		-			-
Common stock, no par value.  Authorized, 20,000,000 shares; issued and outstanding, 10,243,000 as of January 31, 2011 and  9,449,000 as of January 31, 2010		20,754,000			17,297,000
Retained earnings		34,120,000			29,679,000
Accumulated other comprehensive loss		(147,000	)		(127,000	)
Total shareholders' equity		54,727,000			46,849,000
Noncontrolling interests		956,000			523,000
Total equity		55,683,000			47,372,000
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	129,326,000		$	110,001,000

See accompanying notes.

25

NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Statements of Income

for Twelve Months Ended January 31,

	2011			2010
Net revenues	$	144,069,000		$	122,724,000
Cost of sales		105,130,000			88,784,000
Gross profit		38,939,000			33,940,000
Selling, general and administrative expense		30,923,000			27,179,000
Equity loss from non-consolidated subsidiary		269,000			61,000
Operating income		7,747,000			6,700,000
Other income (expense):
Interest expense, net		(1,219,000	)		(1,305,000	)
Other income, net		3,931,000			308,000
Total other income (expense), net		2,712,000			(997,000	)
Income before income taxes and noncontrolling interests		10,459,000			5,703,000
Income taxes		4,676,000			2,292,000
Net income		5,783,000			3,411,000
Net income attributable to noncontrolling interests		(433,000	)		(106,000	)
Net income attributable to controlling interests	$	5,350,000		$	3,305,000
Net income per common share:
Basic	$	0.54		$	0.35
Diluted	$	0.51		$	0.34
Weighted average common shares outstanding		9,861,000			9,334,000
Dilutive effect of stock options and nonvested shares		535,000			415,000
Weighted average common shares outstanding, assuming dilution		10,396,000			9,749,000
Cash dividends per common share	$	0.07		$	0.06

See accompanying notes.

26

NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders' Equity

										Accumulated
				Common						Other			Total NTS
	Number of			Stock			Retained			Comprehensive			Shareholders'			Noncontrolling		Total
	Shares			Amount			Earnings			Loss			Equity			Interests		Equity
Balance at January 31, 2009		9,299,000		$	16,421,000		$	26,940,000		$	(110,000	)	$	43,251,000		$	417,000	$	43,668,000
Net income		-			-			3,305,000			-			3,305,000			106,000		3,411,000
Foreign currency translation		-			-			-			(17,000	)		(17,000	)		-		(17,000	)
Comprehensive income		-			-			-			-			3,288,000			-		3,394,000
Stock retired for option exercise		(24,000	)		(138,000	)		-			-			(138,000	)		-		(138,000	)
Stock options exercised		74,000			241,000			-			-			241,000			-		241,000
Stock issued for acquisition of Elliott Laboratories, Inc.		79,000			450,000			-			-			450,000			-		450,000
Vesting of restricted stock		36,000			-			-			-			-			-		-
Issuance of restricted stock		-			271,000			-			-			271,000			-		271,000
Share-based compensation		-			28,000			-			-			28,000			-		28,000
Tax benefit from stock options exercise		-			82,000			-			-			82,000			-		82,000
Stock repurchase		(15,000	)		(58,000	)		-			-			(58,000	)		-		(58,000	)
Dividends		-			-			(566,000	)		-			(566,000	)		-		(566,000	)
Balance at January 31, 2010		9,449,000		$	17,297,000		$	29,679,000		$	(127,000	)	$	46,849,000		$	523,000	$	47,372,000
Net income		-			-			5,350,000			-			5,350,000			433,000		5,783,000
Foreign currency translation		-			-			-			(20,000	)		(20,000	)		-		(20,000	)
Comprehensive income		-			-			-			-			5,330,000			-		5,763,000
Stock retired for option exercise		(65,000	)		(468,000	)		-			-			(468,000	)		-		(468,000	)
Stock options exercised		471,000			1,347,000			-			-			1,347,000			-		1,347,000
Stock issued for acquisition of Elliott Laboratories, Inc.		230,000			1,263,000			-			-			1,263,000			-		1,263,000
Stock issued for acquisition of Mechtronic Solutions, Inc.		66,000			500,000			-			-			500,000			-		500,000
Vesting of restricted stock		62,000			-			-			-			-			-		-
Issuance of restricted stock		-			306,000			-			-			306,000			-		306,000
Issuance of common stock		30,000			165,000			-			-			165,000			-		165,000
Tax benefit from stock options exercise		-			344,000			-			-			344,000			-		344,000
Dividends		-			-			(909,000	)		-			(909,000	)		-		(909,000	)
Balance at January 31, 2011		10,243,000		$	20,754,000		$	34,120,000		$	(147,000	)	$	54,727,000		$	956,000	$	55,683,000
See accompanying notes.

27

NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

for the Twelve Months Ended January 31,

	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	5,783,000		$	3,411,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,384,000			7,265,000
Bad debt recoveries, net		(451,000	)		(274,000	)
Gain on sale of assets		(3,017,000	)		-
Loss on retirement of assets		16,000			262,000
Gain on investments		(214,000	)		(233,000	)
Life insurance premium		61,000			48,000
Deferred income taxes		2,318,000			(7,000	)
Share based compensation		471,000			299,000
Changes in operating assets and liabilities (net of acquisitions):
Accounts receivable		824,000			(1,923,000	)
Inventories		(1,317,000	)		814,000
Prepaid expenses		(637,000	)		499,000
Other assets		458,000			293,000
Accounts payable		1,166,000			(943,000	)
Accrued expenses		(365,000	)		1,003,000
Income taxes payable		-			(1,088,000	)
Deferred income		353,000			462,000
Deferred compensation		204,000			157,000
Income taxes receivable		(1,312,000	)		22,000
Net cash provided by operating activities		11,725,000			10,067,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(11,693,000	)		(6,794,000	)
Investment in life insurance		(25,000	)		(202,000	)
Proceeds from sale of life insurance		1,826,000			-
Acquisitions of businesses		(6,500,000	)		(1,736,000	)
Acquisition earn-out and holdback payments		(3,149,000	)		(709,000	)
Proceeds from sale of assets		2,293,000			-
Investment in retirement funds		(750,000	)		(750,000	)
Net cash used in investing activities		(17,998,000	)		(10,191,000	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from current and long-term debt		44,121,000			4,275,000
Repayments of current and long-term debt		(36,320,000	)		(5,957,000	)
Net cash dividends paid by NQA, Inc.		(200,000	)		-
Cash dividends paid		(709,000	)		(566,000	)
Proceeds from stock options exercised		879,000			103,000
Tax benefit from stock options exercised		344,000			82,000
Common stock repurchase		-			(58,000	)
Net cash provided by (used in) financing activities		8,115,000			(2,121,000	)
Effect of exchange rate changes on cash		(20,000	)		(17,000	)
Net increase (decrease) in cash and cash equivalents		1,822,000			(2,262,000	)
Beginning cash and cash equivalents balance		7,102,000			9,364,000
ENDING CASH AND CASH EQUIVALENTS BALANCE	$	8,924,000		$	7,102,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments during the year for:
Interest	$	1,377,000		$	1,502,000
Income taxes	$	3,353,000		$	3,347,000

See accompanying notes.

28

NATIONAL TECHNICAL SYSTEMS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

January 31, 2011

(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 that are wholly owned or controlled by the Company. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company has consolidated NQA, Inc., a 50% owned subsidiary for which the distribution of profits and losses is 50.1% to the Company, and 49.9% to the other shareholder.  NTS controls the management decisions and elects the president of NQA, Inc. and therefore has operating control of the subsidiary.

XXCAL Japan is a 50% owned subsidiary which started in fiscal 1999 and is accounted for under the equity method since NTS does not have operating control.  XXCAL Japan’s financial statements are prepared in accordance with generally accepted accounting principles in Japan.  There are no material adjustments that need to be made to XXCAL Japan’s financial statements for them to be in conformity with U.S. generally accepted accounting principles.  The equity investment recorded in the accompanying balance sheets is $655,000 and $924,000 at January 31, 2011 and 2010, respectively.  The Company’s equity loss recorded in the accompanying income statements totaled $269,000 and $61,000 for the years ended January 31, 2011 and 2010, respectively.

In accordance with authoritative guidance released by the Financial Accounting Standards Board (FASB) clarifying that a noncontrolling interest held by others in a subsidiary is to be part of the equity of the controlling group and is to be reported on the balance sheet within the equity section as a distinct item separate from the Company’s equity, minority interests have been re-captioned to noncontrolling interests and are reported separately on the balance sheet.  Net income attributable to noncontrolling interests was $433,000 and $106,000 for years ended January 31, 2011 and 2010, respectively.  Noncontrolling interests balances were $956,000 as of January 31, 2011 and $523,000 as of January 31, 2010.

Risks, Uncertainties and Concentrations

The preparation of financial statements in conformity with U.S. 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, the valuation of goodwill and other intangible assets useful lives for depreciation and amortization, share-based compensation and accounting for income taxes.  Actual results could differ from those estimates.

The Company did not have revenues from a single customer in fiscal year 2011which represented in excess of 10% of the Company’s total revenues.  Total revenues from customers in foreign countries were $6,916,000 in fiscal 2011 and $7,881,000 in fiscal 2010.

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

Fair Value of Financial Instruments

The carrying values of financial instruments such as cash and cash equivalents, accounts receivable, and accounts payable approximate fair value at January 31, 2011 and 2010, due to their short-term maturities and the relatively stable interest rate environment.

29

The fair values of the Company’s investment securities and contingent consideration obligations on past acquisitions are disclosed in Note 5.

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 qualification of safety related systems and components, and ISO 9000 certification services.

Revenue from fixed price testing contracts is generally recorded upon completion of the contracts, which are typically short-term, or upon completion of identifiable contractual tasks. At the time the Company enters into a contract that includes multiple tasks, the Company estimates the amount of actual labor and other costs that will be required to complete each task based on historical experience. Revenues are recognized which provide for a profit margin relative to the testing performed. Revenue relative to each task and from contracts which are time and materials based is recorded as effort is expended. Revenues on billings in excess of amounts earned are deferred. Any anticipated losses on contracts are charged to income when identified and can be reasonably estimated. All selling, general and administrative costs are treated as period costs and expensed as incurred.

Reimbursements made to the Company by customers under contract provisions, including those related to travel and other out-of-pocket expenses are recorded as revenues. An equivalent amount of reimbursable expenses is recorded as cost of sales.

Cash and Cash Equivalents

Cash and Cash Equivalents include currency and bank deposits. Cash equivalents include highly liquid investments with original maturities of three months or less. Cash and cash equivalents are held by large financial institutions. The balance in the accounts may, at times, exceed federally insured limits. The Company has not experienced any losses on its accounts and does not believe it is exposed to any significant credit risk on its cash balances.

As of January 31, 2011, $450,000 of cash and cash equivalents was in escrow pending the result of a contractual negotiation with a third party.

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. Such inventories for each contract are reviewed on a monthly basis over the life of the contract and additional write-downs of inventories are made if there are insufficient revenues remaining on the contract.

Property, Plant and Equipment

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

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

Other Receivables

On April 22, 2010, the Company sold its property in Fredericksburg, Virginia for a total sales price of $3,395,000.  The sale included a note receivable of $1,000,000 to be paid to the Company in 120 monthly installments under a promissory note at an 8.5% interest rate. As of January 31, 2011 the outstanding balance on the note receivable was $951,000. The long term portion of $880,000 was recorded in other assets and the short term portion of $71,000 was recorded in accounts receivable.

30

On November 5, 2009 there was a fire at the Company’s Fullerton facility.  The fire damaged the building containing equipment related to mechanical testing.  The company has sufficient insurance to recover its losses, including interruption of its business due to the fire.  As of January 31, 2011 the Company had insurance proceeds receivable of $1,137,000 recorded in accounts receivable.

Goodwill and Intangible Assets

Goodwill represents the excess of cost over fair value of assets of an acquired business.  Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized, but instead are tested for impairment at least annually.  Intangible assets with estimable useful lives are amortized over their respective estimated useful lives.

Goodwill and intangible assets not subject to amortization are tested annually for impairment.  The goodwill test for impairment consists of a two-step process that begins with an estimation of the fair value of the reporting unit using the discounted cash flow approach.  The first step of the test is a screen for potential impairment and the second step measures the amount of impairment, if any.  The first step of the goodwill impairment test includes a comparison of the fair value of each reporting unit that has associated goodwill with the carrying value of the reporting unit.  The Company has identified eight reporting units, which constitute components of its business that include goodwill.  The process of evaluating the potential impairment of goodwill is subjective and requires judgment at many points during the test including future revenue forecasts and discount rates.  The Company completed its annual goodwill impairment test in the fourth quarter and has determined that the fair value of each of the reporting units exceeded the reporting unit’s carrying amount, and no impairment was indicated.

Long-Lived Assets

The Company periodically evaluates the recoverability of the carrying amount of long-lived assets (including property, plant and equipment, and intangible assets with determinable lives) whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable.  The Company evaluates events or changes in circumstances based on a number of factors including operating results, business plans and forecasts, general and industry trends and economic projections and anticipated cash flows.  An impairment loss is recorded when the undiscounted expected future cash flows derived from an asset are less than its carrying amount.  Impairment losses are measured as the amount by which the carrying value of an asset exceeds its fair value and are recognized in earnings.

Share-Based Compensation

No stock options have been granted by the Company during fiscal years 2011 or 2010. Any stock options granted to existing and newly hired employees or directors will generally vest over a four-year period from the date of grant. Any share-based compensation expense relating to stock options incurred by the Company in fiscal years 2011 or 2010 was from stock options granted in prior years.  The Company may use other types of equity incentive awards, such as restricted stock.  The Company’s equity incentive plan also allows for performance-based vesting for equity incentive awards.

Compensation expense for stock options is based on the Black-Scholes-Merton option pricing model for estimating fair value of stock options and non-vested shares granted under the Company’s equity incentive plans and rights to acquire stock granted under the Company’s stock participation plan.

Compensation expense related to non-vested shares represents the fair value of the shares at the date of the grant, net of assumptions regarding estimated future forfeitures, and is charged to earnings over the vesting period.

31

The Company adjusts share-based compensation on a quarterly basis for changes to the estimate of expected equity award forfeitures based on actual forfeiture experience. The effect of adjusting the forfeiture rate is recognized in the period the forfeiture estimate is changed. The effect of forfeiture adjustments for fiscal years 2011 and 2010 was immaterial.

Restricted shares are granted to Directors as part of their compensation package. Restricted shares generally vest over a four-year period from the date of grant. Compensation expense, representing the fair market value of the shares at the date of grant, net of assumptions regarding estimated future forfeitures, is charged to earnings over the vesting period.

Accounting for Income Taxes

Deferred income taxes are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded, if necessary, to reduce deferred tax assets to an amount management believes is more likely than not to be realized. The Company’s policy is to reflect penalties and interest as part of income tax expense when and if they become applicable.

The Company has reviewed its positions in recording income and expenses and has no reason to record a liability for income tax uncertainties. The Company files income tax returns in the U.S. on a federal basis and in many U.S. states and foreign jurisdictions. Certain tax years remain open to examination by the major taxing jurisdictions to which the Company is subject. The Company does not anticipate that its total unrecognized tax benefits will significantly change due to the settlement of examinations or the expiration of statutes of limitations during the next twelve months.

Comprehensive Loss

Accumulated other comprehensive loss on the Company’s consolidated balance sheets consists of cumulative equity adjustments from foreign currency translation.

Earnings Per Share

Basic and diluted net income per common share is computed using the weighted average number of shares of common stock outstanding during the year. Basic earnings per share exclude any dilutive effects of stock options and non-vested restricted shares.  Diluted earnings per share exclude any non-vested restricted shares with an anti-dilutive effect.

Foreign Currency

The accounts of the foreign divisions are translated into U.S. dollars. All balance sheet accounts, except for certain fixed assets accounts, have been translated using the current rate of exchange at the balance sheet date.  Certain fixed assets accounts are held at the exchange rate in place at the date of purchase.  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 recorded in accumulated other comprehensive loss. The translation of the balance sheet accounts resulted in $20,000 and $17,000 in unrealized loss in fiscal years 2011 and 2010, respectively.  In addition, a transaction gain of $5,000 and a transaction loss of $86,000 for the fiscal years 2011 and 2010, respectively, are included in operating income for each period.

Related Party Transactions

NTS provides management and consulting services to NQA, Inc. for an agreed-upon management fee.  Such services include, but are not limited to, advice and assistance concerning any and all aspects of the operations of the Company.  Management fees earned by the Company for fiscal 2011 and 2010 were $602,000 and $592,000, respectively.

32

Ascertiva Group Limited, formerly NICEIC Group Limited, the minority shareholder of NQA, Inc., provides certification oversight and advice and processes and issues ISO registration certificates.  Ascertiva Group Limited charges NQA, Inc. an agreed-upon fee for each certificate in place at the beginning of the year and issued during the year together with the appropriate United Kingdom Accreditation Service (UKAS) and Raad voor Accreditatie (RVA) levy.  Certification fees for fiscal 2011 and 2010 were $602,000 and $592,000, respectively.

NQA, Inc. leases space from NTS and was assessed $81,000 and $71,000 for rent and utilities in fiscal years 2011 and 2010, respectively.

Reclassifications

Certain amounts in the prior year financial statements have been reclassified to conform to the current year financial statement presentation.

Recent Accounting Pronouncements

Effective February 1, 2009, the Company adopted Financial Accounting Standards Board (FASB) ASC topic 810 (formerly SFAS No. 160) related to noncontrolling interests which clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. It requires consolidated net income to be reported at amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated statement of income, amounts of consolidated net income attributable to the parent and to the noncontrolling interest. The adoption primarily affected disclosure requirements and did not impact the Company’s financial position or results from operations.

Effective February 1, 2009, the Company adopted FASB ASC topic 805 (formerly SFAS No. 141(R)) related to business combinations. New requirements under the revised standard include: (i) the fair value of stock provided as consideration be measured as of the acquisition date instead of the announcement date; (ii) acquisition-related costs be recognized separately from the acquisition, generally as an expense, instead of treated as a part of the cost of the acquisition that was allocated to the assets acquired and the liabilities assumed;  (iii) restructuring costs that the acquirer expected, but was not obligated to incur, be recognized separately from the acquisition instead of recognized as if they were a liability assumed at the acquisition date; (iv) contingent consideration be recognized at the acquisition date, measured at its fair value at that date, instead of recognized when the contingency was resolved and consideration was issued or became issuable; (v) recognizing a gain when the fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred instead of allocating the “negative goodwill” amount as a pro rata reduction of the amounts that otherwise would have been assigned to particular assets acquired; (vi) research and development assets acquired in a business combination will be recognized at their acquisition-date fair values as assets acquired in a business combination instead of being measured at their acquisition-date fair values and then immediately charged to expense; and (vii) changes in the amount of deferred tax benefits created in a business combination, outside of the valuation period, will be recognized either in income from continuing operations or directly in contributed capital, depending on the circumstances, instead of recognized through a corresponding reduction to goodwill or certain noncurrent assets or an increase in so-called negative goodwill. In fiscal year 2011, there was an additional $658,000 in acquisition related legal, earn-out and accounting expenses that would have previously been recorded to the balance sheet.  In fiscal year 2010, there was $78,000 in acquisition related legal expense.

(2)           Business Acquisitions

Acquisition of Mechtronic Solutions, Inc.

On December 16, 2010, the Company acquired Mechtronic Solutions, Inc. (MSI), an engineering services company, located in Albuquerque, New Mexico.  The addition of MSI advances the Company’s full-service integrated engineering services capabilities and provides additional established customers. The purchase price paid at closing was $6,500,000 in cash and $500,000 in Company stock.  The $500,000 in Company stock consisted of 65,703 shares of common stock calculated at the closing price as of the acquisition date.  The Company agreed to pay an additional maximum amount of $1,600,000 (earn-out) if MSI achieves a certain level of revenue and EBITDA over the next three years. The Company estimates that the fair market value of the earn-out is $500,000, and has recorded this estimate as part of the purchase price. The Company incurred $130,000 in legal expense related to this acquisition. Amortization of the goodwill on this transaction is not tax deductible.  The results of operations for Mechtronic Solutions, Inc. are included in the Company’s consolidated statements of income from December 16, 2010 to January 31, 2011.

33

The aggregate purchase price is comprised of the following:

Cash paid	$	6,500,000
Stock issued to sellers		500,000
Estimated fair value of earn-out		500,000
	$	7,500,000

The purchase price allocation has not been finalized pending further information that may impact the valuation of certain assets or liabilities. The Company has preliminarily allocated the aggregate purchase price of $7,500,000 to the estimated fair value at the date of acquisition of the acquired tangible and intangible assets and assumed liabilities of Mechtronic Solutions, Inc. as follows:

Accounts receivable	$	932,000
Other current assets		48,000
Inventories		294,000
Property, plant and equipment, net		534,000
Goodwill		3,865,000
Intangible assets		3,700,000
Deposits		11,000
Accounts payable		(59,000	)
Accrued expenses		(61,000	)
Other current liabilities		(81,000	)
Deferred income taxes, non-current		(1,683,000	)
	$	7,500,000

United States Test Laboratory, LLC earn-out consideration

Payment of earn-out consideration for United States Test Laboratory, LLC (USTL) of $2,053,000 was made on March 5, 2010. The earn-out consideration was previously added to the purchase price and recorded as an increase to goodwill in fiscal 2010.

Elliott Laboratories, Inc. earn-out consideration

Payment of earn-out consideration for Elliott Laboratories, Inc. of $1,359,000 was made on June 24, 2010.  The earn-out consisted of Company stock of 230,000 shares or $1,263,000 and cash of $96,000.  This was added to the purchase price and recorded as an increase to goodwill in the second quarter.

Unitek Technical Services, Inc. earn-out consideration

Payment of earn-out consideration for Unitek Technical Services, Inc. of $1,000,000 was made on January 26, 2011.  The estimated fair value of the earn out at January 31, 2010 was $775,000.  Additional expense of $225,000 was recorded in the current year, and there was no impact to goodwill.

 (3)           Debt

On November 10, 2010, the Company secured a senior credit facility of up to $65 million from a banking group led by Comerica Bank that includes Bank of the West and U.S. Bank. The credit facility includes a $20 million term loan, a $25 million revolving credit line and a $20 million acquisition line.  This credit facility, which will mature in 5 years, amends and restates the former credit facility which consisted of a $16.5 million revolving credit line and approximately $16.3 million in existing outstanding term debt.  Interest rates under the new credit agreement are at either LIBOR plus a range of 175 to 275 basis points, or at Comerica Bank's prime rate plus a range of 75 to 175 basis points.  Commitment fees on the revolving credit line and acquisition line are 25 basis points and 35 basis points, respectively.

34

Long-term debt as of January 31, 2011 and 2010 consisted of the following:

	2011		2010
Revolving credit line (a)	$	10,023,000	$	13,500,000
Term loan (b)		20,000,000		-
Acquistition credit line (c)		8,215,000		-
Term loan A		-		5,970,000
Term loan B		-		8,725,000
Term loan C		-		4,396,000
Secured and other notes payable		5,033,000		2,879,000
Subtotal		43,271,000		35,470,000
Less current installments		3,505,000		3,910,000
Total	$	39,766,000	$	31,560,000

(a) The Company is required to repay the outstanding principal under the revolving credit line on November 10, 2015, the  maturity date. Interest accrues at the Company’s option at either (i) the Base Rate plus a specified margin ranging between 75 and 150 basis points depending on the Company’s consolidated total debt to consolidated EBITDA ratio or (ii) the Eurodollar Rate plus a specified margin ranging between 175 and 250 basis points depending on the Company’s consolidated total debt to consolidated EBITDA ratio.  In the case of interest that is based on the Base Rate, interest is payable monthly in arrears on the first day of each month.  In the case of interest that is based on the Eurodollar Rate, interest is payable at the end of each interest period, which is defined as one, two, three or six months after the applicable advance is disbursed to the Company (except that with respect to six month interest periods, interest is payable at three month intervals).  The revolving credit line is limited to 85% of eligible accounts receivable, which equates to $14,363,000 as of January 31, 2011.  The available amount on the revolving credit line was $4,340,000 as of January 31, 2011. The interest rate applicable at January 31, 2011 was 2.28%.

(b) The Company is required to repay the $20 million five-year term loan in equal quarterly principal installments of $500,000 commencing on February 1, 2011 until November 10, 2015, the maturity date, when all remaining outstanding principal plus accrued interest thereon is due and payable in full. Interest accrues at a specified margin plus either: (i) the greatest of (a) the prime rate announced by Comerica Bank, (b) the federal funds effective rate as published by the Federal Reserve Bank of New York plus 1.0%, and (c) a daily adjusting LIBOR rate plus 1.0%; or (ii) a rate based on LIBOR. The Company refers to the rates described in clauses (i) and (ii) in the preceding sentence, respectively, as the "Base Rate" and as the "Eurodollar Rate." The specific per annum interest rate will be, at the Company’s option, either (I) the Base Rate plus a specified margin ranging between 100 and 175 basis points depending on the Company’s consolidated total debt to consolidated EBITDA ratio or (II) the Eurodollar Rate plus a specified margin ranging between 200 and 275 basis points depending on the company’s consolidated total debt to consolidated EBITDA ratio. In the case of interest that is based on the Base Rate, interest is payable monthly in arrears on the first day of each month.  In the case of interest that is based on the Eurodollar Rate, interest is payable at the end of each interest period, which is defined as one, two, three or six months after the applicable loan is disbursed to the Company (except that with respect to six month interest periods, interest is payable at three month intervals).  The interest rate applicable at January 31, 2011 was 2.53%.

(c) With respect to any credit advance under this line that is used to finance eligible acquisitions, the Company is required to make quarterly principal payments commencing one year after the date such credit advance is made, until November 10, 2015, the maturity date (when all remaining outstanding principal plus accrued interest thereon is due and payable in full). No principal payments are due during the first year. The amount of such quarterly principal payments is 1.25% of the aggregate original principal amount of such credit advance during the second year, increasing to 2.50% during the third year and increasing to 3.75% during the fourth and fifth years.  The interest rate applicable at January 31, 2011 was 2.53%.

35

Interest on the acquisition credit line accrues at the Company’s option at either (i) the Base Rate plus a specified margin ranging between 100 and 175 basis points depending on the Company’s consolidated total debt to consolidated EBITDA ratio or (ii) the Eurodollar Rate plus a specified margin ranging between 200 and 275 basis points depending on the Company’s consolidated total debt to consolidated EBITDA ratio. In the case of interest that is based on the Base Rate, interest is payable monthly in arrears on the first day of each month following the disbursement of an advance.  In the case of interest that is based on the Eurodollar Rate, interest is payable at the end of each interest period, which is defined as one, two, three or six months after the applicable advance is disbursed to us (except that with respect to six month interest periods, interest is payable at three month intervals). The outstanding balance from acquisitions at January 31, 2011 was $6,500,000.

With respect to any credit advance under this line that is used to finance the purchase of eligible machinery and equipment, the Company is required to make principal payments in an amount equal to 5% of the aggregate original principal amount of such credit advance. Such principal payments are due quarterly after the date such credit advance is made, until November 10, 2015, the maturity date (when all remaining outstanding principal plus accrued interest thereon is due and payable in full). The outstanding balance from equipment credit advances at January 31, 2011 was $1,715,000.

Fees related to debt are expensed over the life of the loans.  As of January 31, 2011 the net amount of capitalized loan fees was $853,000.

In addition to the Comerica agreement, the Company has an additional $3,366,000 in equipment line balances which were used to finance various test equipment with terms of 60 months for each equipment schedule at interest rates ranging from 4.39% to 7.42%.

The Company’s 50% owned subsidiary, NQA, Inc., has total borrowings of $1,667,000 at January 31, 2011, for the acquisitions of Unitek Technical Services, Inc., TRA Certification, Inc. and International Management Systems, Inc. (IMS). Advances under the business acquisitions line of credit bear interest, at the option of NQA, at a fluctuating rate equal to the lender’s corporate base rate plus 0.5% or at a fixed rate based on the Federal Home Loan Bank Advance Rate plus 3.0%.  The outstanding balances on the business acquisitions line of credit at January 31, 2011 and 2010 bore interest at the weighted average fixed rate of 5.06% and 5.27%, respectively. Advances under the business acquisitions line of credit are due and payable, at the option of NQA, 3 or 5 years from the advance date and are subject to additional interest charges in the event of prepayment.

Substantially all the assets of the Company are pledged as collateral.

Maturities of long-term debt for five fiscal years subsequent to January 31, 2011 are as follows:

2012	$	3,505,000
2013	$	3,648,000
2014	$	3,545,000
2015	$	3,746,000
2016	$	28,827,000
Thereafter	$	-
	$	43,271,000

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 variable rate debt, including borrowings under the Company’s revolving lines of credit, approximate their fair values.

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

	2011		2011		2010		2010
	Carrying		Estimated		Carrying		Estimated
	amount		fair value		amount		fair value
Secured and other notes payable	$	33,248,000	$	33,141,000	$	21,970,000	$	21,012,000
Revolving lines of credit		10,023,000		10,023,000		13,500,000		13,500,000

(4)           Income Taxes

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

	2011		2010
Current:
Federal	$	1,530,000	$	1,857,000
State		825,000		523,000
Foreign		4,000		(80,000	)
		2,359,000		2,300,000
Deferred:
Federal	$	2,220,000	$	49,000
State	$	97,000	$	(57,000	)
		2,317,000		(8,000	)
Income tax expense	$	4,676,000	$	2,292,000

The provisional income tax rate for fiscal year 2011 was 44.7%, which is higher than the previous year's provisional tax rate of 40.2%. This increase was primarily due to tax expense recognized on life insurance policy redemptions and an increase in non tax deductible acquisition related costs. FASB ASC topic 805 (formerly SFAS No. 141(R)) requires acquisition-related costs be recognized separately from the acquisition, generally as an expense under GAAP accounting, instead of treated as a part of the cost of the acquisition that was allocated to the assets acquired and the liabilities assumed. For tax purposes, these types of acquisition related costs must still be capitalized as part of the cost of the acquisition.

Foreign operations had a pre-tax loss of $263,000 in fiscal 2011 compared with $166,000 in pre-tax loss in fiscal 2010.  The earnings associated with the Company’s foreign subsidiary in Japan are reported net of tax and are included in operating income.

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:

	2011		2010
Income before income taxes and noncontrolling interest		10,459,000		5,703,000
Federal income tax computed at statutory rate		3,556,000		1,939,000
State income taxes, net of federal benefits		608,000		307,000
Foreign Income not subject to US Tax		89,000		56,000
Foreign Tax		4,000		(80,000	)
Other, principally non-deductible expenses		419,000		70,000
Income tax expense	$	4,676,000	$	2,292,000

Deferred income taxes on the consolidated balance sheets reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The primary components of the Company's deferred tax assets and liabilities at January 31 were as follows:

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	2011						2010
	Current			Non-current			Current			Non-current
Deferred tax assets:
Bad debts reserves	$	214,000	$	-			$	364,000	$	-
Vacation accrual		915,000		-				821,000		-
State taxes		567,000		-				432,000		-
Deferred Compensation		1,301,000		-				1,365,000		-
Net operating loss		211,000		-				211,000		-
Accrued costs on discontinued operations		188,000		-				188,000		-
Acquisition costs		127,000		-				-		-
Other		158,000		-				180,000		-
Total deferred tax assets		3,681,000		-				3,561,000	$		-
Deferred tax liabilities:
Goodwill & other intangibles		-			(3,562,000	)	$	-			(1,885,000	)
Gain on involuntary conversion		-			(572,000	)		-			(159,000	)
Tax over book depreciation		-			(7,345,000	)		-			(5,764,000	)
Sale of Property		-			(428,000	)		-			-
Other	$	-			(49,000	)	$	-			(27,000	)
Total deferred tax liabilities	$	-	$		(11,956,000	)	$	-	$		(7,835,000	)
Net deferred tax asset (liability)	$	3,681,000	$		(11,956,000	)	$	3,561,000	$		(7,835,000	)

The Company has reviewed its positions in recording income and expenses and has no reason to record a liability for income tax uncertainties.  The Company files income tax returns in the U.S. on a federal basis and in many U.S. states and foreign jurisdictions. Certain tax years remain open to examination by the major taxing jurisdictions to which the Company is subject. The Company does not anticipate that its total unrecognized tax benefits will significantly change due to the settlement of examinations or the expiration of statutes of limitations during the next twelve months.

 (5)          Stock Options, Equity Incentive and Pension Plans

The Company has two employee incentive stock option plans; the “2002 stock option plan” and the “1994 stock option plan.”

Under both stock option plans, officers, key employees, non-employee directors and consultants may be granted options to purchase shares of the Company’s authorized but unissued common stock.  The number of shares approved for issuance under the 2002 stock option plan was 1,000,000 shares.  During fiscal 2011 and 2010 there were no shares granted under the 2002 stock option plan. The 1994 stock option plan is terminated. No additional options will be granted under either plan.

Outstanding options under all plans are exercisable at 100% or more of fair market value (as determined by the compensation committee of the Board of Directors) at the date of grant.  The options are contingent upon continued employment and are exercisable, unless otherwise specified, on a cumulative basis of one-fourth of the total shares each year, commencing one year from the date of grant.  Options currently expire five to ten years from the date of grant.  Proceeds received by the Company from the exercises are credited to common stock.  A summary of option activity under the plan as of January 31, 2011, and changes during the two years then ended is presented below:

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	Shares			Weighted Avg. Exercise Price		Weighted Avg. Remaining Contract Life in years		Aggregate Intrinsic Value
Outstanding at January 31, 2009		1,330,386		$	3.59		3.29	$	4,771,000
Granted		-			-
Exercised		(74,000	)		3.26
Canceled, forfeited or expired		(184,769	)		4.02
Outstanding at January 31, 2010		1,071,617		$	3.53		2.85	$	2,269,000
Granted		-			-
Exercised		(470,542	)		2.86
Canceled, forfeited or expired		(18,875	)		2.99
Outstanding at January 31, 2011		582,200		$	4.09		2.86	$	2,077,000
Exercisable at January 31, 2011		582,200		$	4.09		2.86	$	2,077,000

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the aggregate difference between the closing stock price of the Company’s common stock at the end of each fiscal year and the exercise price for in-the-money options) that would have been received by the option holders if all in-the-money options had been exercised at the end of each fiscal year.

The total intrinsic value of options exercised during the years ended January 31, 2011 and 2010 was $1,990,000 and $174,000, respectively.

The range of exercise prices for options outstanding at January 31, 2011 was $1.35 to $5.58.  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 table summarizes information about options outstanding at January 31, 2011:

Range of exercise prices		Outstanding at January 31, 2011		Weighted Avg. Remaining contract life in yrs.		Weighted Avg. Exercise Price		Number Exercisable		Weighted Avg. Exercisable Price
$	1.00 to $2.00		31,750		0.7	$	1.67		31,750	$	1.67
$	2.01 to $3.00		101,600		1.1	$	2.41		101,600	$	2.41
$	3.01 to $4.00		-		0.0	$	-		-	$	-
$	4.01 to $5.00		405,350		3.4	$	4.60		405,350	$	4.60
$	5.01 to $6.00		43,500		3.7	$	5.09		43,500	$	5.09
			582,200						582,200

These options will expire if not exercised at specific dates ranging from May 2011 to December 2015.  During the year ended January 31, 2011, 470,542 options were exercised at prices from $1.40 to $5.17 per share.

The Company has an equity incentive plan, the 2006 Equity Incentive Plan (EIP), under which a total of 300,000 new shares of common stock were reserved for issuance. As of January 31, 2011, 277,725 shares of the Company’s common stock had been issued under the 2006 EIP and 22,275 shares were reserved for future issuance.  Shares are issued under the EIP as compensation to certain employee and non-employee directors of the Company.

The Company’s non-vested shares have a vesting period of four years. Compensation expense, representing the fair market value of the shares at the date of grant, net of assumptions regarding estimated future forfeitures, is charged to earnings over the vesting period.  Compensation expense included in general and administrative expenses in the Company’s consolidated statement of income, relating to the equity incentive plan was $306,000 for fiscal year 2011 and $271,000 for fiscal year 2010.

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The following table summarizes the non-vested shares transactions for fiscal year 2011:

	Number of Shares			Weighted-Average Grant Date Fair Value
Non-vested shares:
Outstanding at January 31, 2009		114,299		$	5.82
Granted		102,777		$	3.36
Vested		(35,975	)	$	6.08
Forfeited		-
Outstanding at January 31, 2010		181,101		$	4.38
Granted		28,064		$	7.92
Vested		(61,674	)	$	4.95
Forfeited		-
Outstanding at January 31, 2011		147,491		$	4.81

Total share based compensation amounts of $471,000 and $299,000 were recorded as a credit to common stock during fiscal years 2011 and 2010, respectively.  In addition, the tax benefit realized for the tax deduction from option exercises and restricted stock totaled $344,000 and $82,000 for fiscal years 2011 and 2010, respectively and were credited to common stock. As of January 31, 2011, there were no unrecognized compensation costs related to stock options granted under the Company’s equity incentive plans and there were $542,000 of total unrecognized compensation costs related to the share-based compensation arrangements granted under the 2006 Equity plan.  That cost is expected to be recognized over 42 months.

The Company offers two defined contribution employee benefit plans: National Technical Systems 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 a portion 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 2011, the Company contributed $436,000 to the 401(k) profit sharing plan as compared to $389,000 in 2010.

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 $70,000 and $82,000 for the years ended January 31, 2011 and 2010, respectively. Included in other assets is $1,126,000 and $2,891,000 for the cash surrender values as of January 31, 2011 and 2010, respectively.

In fiscal year 2007, the Company started a Senior Executive Retirement Plan (SERP). The Company contributed to the plan $750,000 in fiscal year 2011 and $750,000 in fiscal year 2010  and paid premium charges of $61,000 and $49,000 in fiscal years 2011 and 2010, respectively, for life insurance policies with the Company designated as the beneficiary.  The SERP includes investments with a fair value of $2,796,000 at January 31, 2011, consisting of money market and mutual funds.

The FASB’s authoritative guidance establishes a framework for measuring fair value and requires disclosures about fair value measurements by establishing a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

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Basis of Fair Value Measurement at Reporting Date Using:

Level 1	Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2	Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3	Unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

The following inputs were used to determine the fair value of the Company’s investment securities and contingent consideration obligations at January 31, 2011:

	Total		(Level 1)		(Level 2)		(Level 3)
SERP investment in mutual funds	$	2,796,000	$	2,796,000	$	-	$	-
Earn-out for MSI acquisition		500,000						500,000
Total	$	3,296,000	$	2,796,000	$	-	$	500,000

In fiscal year 2010 the Unitek earn-out, a Level 3 obligation, was $775,000.  $225,000 was recorded as expense in fiscal year 2011 and the final earn-out of $1,000,000 was paid on January 26, 2011.  A new Level 3 obligation was added in fiscal year 2011 for the contingent consideration obligation related to the Mechtronic Solutions Inc. acquisition. The fair value of the contingent consideration of $500,000 was estimated by applying the income approach. That measure is based on significant inputs not observable in the market, which are referred to as Level 3 inputs.  Key assumptions include the discount rate and probability adjusted revenues.

(6)           Capital Stock

As of January 31, 2011 and 2010, the Company had 20,000,000 authorized common shares with no par value. At January 31, 2011 and January 31, 2010, 10,243,000 shares and, 9,449,000 were issued and outstanding, respectively.

During fiscal year 2011, there were 471,000 stock options exercised, 65,000 shares retired, 62,000 shares of restricted stock became vested under the 2006 equity incentive plan and 30,000 shares of common stock were issued for services rendered. In addition, 230,000 shares were issued as part of the earn-out payment for Elliott Laboratories, Inc and 66,000 shares were issued for the acquisition of MSI.  During fiscal year 2010, there were 74,000 options exercised, 24,000 shares retired, 36,000 shares of restricted stock became vested under the 2006 equity incentive plan and the Company repurchased 15,000 shares. In addition, 79,000 were issued for the acquisition of Elliott Laboratories, Inc.

Holders of common stock vote 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 under operating leases which principally expire at various dates through fiscal year 2020.  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.  Total rental expense was $4,034,000 and $4,150,000 for the years ended January 31, 2011 and 2010, respectively.

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At January 31, 2011, minimum rental payment obligations under operating leases were as follows:

2012	$	3,685,000
2013	$	3,177,000
2014	$	1,918,000
2015	$	1,516,000
2016	$	1,363,000
Thereafter	$	1,537,000
	$	13,196,000

(8)           Intangible Assets

As of January 31, 2011  and January 31, 2010, the Company had the following acquired intangible assets:

	January 31, 2011							January 31, 2010
	Gross				Net		Estimated	Gross				Net		Estimated
	Carrying		Accum.		Carrying		Useful	Carrying		Accum.		Carrying		Useful
	Amount		Amort.		Amount		Life	Amount		Amort.		Amount		Life
Intangible assets subject to amortization:
Covenants not to compete	$	890,000	$	531,000	$	359,000	3-10 years	$	879,000	$	490,000	$	389,000	3-10 years
Customer relationships		11,947,000		2,438,000		9,509,000	3-15 years		9,147,000		1,628,000		7,519,000	3-15 years
Accreditations and certifications		20,000		13,000		7,000	5 years		20,000		9,000		11,000	5 years
Trademarks and tradenames		58,000		23,000		35,000	3 years		58,000		3,000		55,000	3 years
GSA Schedule		800,000		-		800,000	10 years
Total	$	13,715,000	$	3,005,000	$	10,710,000		$	10,104,000	$	2,130,000	$	7,974,000
Intangible assets not subject to amortization:
Goodwill					$	20,004,000						$	14,769,000
Trademarks and tradenames						400,000							400,000
Total					$	20,404,000						$	15,169,000

Amortization expense for intangible assets was $964,000 and $891,000 for the twelve months ended January 31, 2011 and 2010, respectively.  The aggregate amortization for the next five years is estimated to be $1,222,000, $854,000, $808,000, $774,000 and $774,000 for fiscal years 2012 through 2016, respectively.

The changes in the carrying amount of goodwill were as follows:

Net balance as of January 31, 2009	$	12,070,000
Acquisitions and other (a)		2,699,000
Net balance as of January 31, 2010		14,769,000
Acquisitions and other (b)		5,235,000
Net balance as of January 31, 2011	$	20,004,000
(a) Acquisitions and other include $2,041,000 related to USTL earn-out, $499,000 related to the acquisition of Unitek and $159,000 related to IMS earn-out.
(b) Acquisitions and other include $3,865,000 in Goodwill from the Mechtronic Solutions acquisition, $1,359,000 related to Elliott Laboratories earn-out and $11,000 related to the USTL earn-out.

(9)           Accrued Expenses

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

	2011		2010
Compensation and employee benefits	$	5,876,000	$	6,162,000
Other		2,354,000		4,758,000
Total accrued expenses	$	8,230,000	$	10,920,000

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The accrual for compensation and employee benefits decreased in fiscal year 2011 primarily due to a decrease in expected bonus payments. Other accrued expenses in fiscal year 2010 included accrued earn-out payable of $2,041,000 for the acquisition of USTL, which was subsequently paid.

(10)         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.

 (11)        Quarterly Financial Data (Unaudited)

2011	Three months ended,
	Apr 30		Jul 31		Oct 31		Jan 31
Net revenues	$	36,132,000	$	34,525,000	$	39,022,000	$	34,390,000
Gross profit		10,784,000		9,313,000		10,713,000		8,129,000
Net income (loss) attributable to controlling interests		3,546,000		993,000		1,132,000		(321,000	)
Earnings (loss) per common share
Basic*		0.37		0.10		0.11		(0.03	)
Diluted*		0.35		0.10		0.11		(0.03	)
Weighted average common shares outstanding		9,465,000		9,705,000		10,096,000		10,179,000
Dilutive effect of stock options		559,000		577,000		484,000		446,000
Weighted average common shares outstanding, assuming dilution		10,024,000		10,282,000		10,580,000		10,625,000
* Per share data may not always add to the total for the year because each figure is independently calculated.

2010	Three months ended,
	Apr 30		Jul 31		Oct 31		Jan 31
Net revenues	$	28,692,000	$	28,736,000	$	32,801,000	$	32,495,000
Gross profit		7,406,000		8,136,000		9,330,000		9,068,000
Net income attributable to controlling interests		540,000		852,000		1,125,000		788,000
Earnings per common share
Basic		0.06		0.09		0.12		0.08
Diluted		0.06		0.09		0.11		0.08
Weighted average common shares outstanding		9,299,000		9,303,000		9,319,000		9,417,000
Dilutive effect of stock options		152,000		303,000		581,000		577,000
Weighted average common shares outstanding, assuming dilution		9,451,000		9,606,000		9,900,000		9,994,000

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(12)          Subsequent Events

Subsequent to January 31, 2011, the Company paid advances to a potential acquisition target of approximately $900,000, partially secured by assets of the target and personal guaranties. The advances will be credited against the purchase price. The financial impact of the transaction cannot be estimated at this time.   While it is anticipated that this transaction will be consummated in fiscal year 2012, there is no certainty that this will occur and no adjustments have been made to the accompanying financial statements to reflect this transaction.

Subsequent events have been evaluated up to and including the date these financial statements were issued.

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

None.

ITEM 9A.  CONTROLS AND PROCEDURES.

Not applicable.

Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer carried out an evaluation with the participation of the Company’s management, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

Changes in Internal Controls Over Financial Reporting

As required by Rule 13a-15(d) under the Exchange Act, the Company’s Chief Executive Officer and Chief Financial Officer, with the participation of the Company’s management, also conducted an evaluation of the Company’s internal controls over financial reporting to determine whether any changes occurred during the Company’s fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.  Based on that evaluation, there has been no such change during the Company’s fourth fiscal quarter.

Limitations of the Effectiveness

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met.  Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.  Notwithstanding these limitations, the Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.  The Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were, in fact, effective at the “reasonable assurance” level as of the end of the period covered by this report.

Management’s Annual Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, for the Company. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States. However, all internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and reporting.

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Management assessed the effectiveness of the Company’s internal control over financial reporting as of January 31, 2011. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, management believes that the Company’s internal control over financial reporting was effective as of January 31, 2011.

Our management’s report on internal control over financial reporting is furnished with this annual report and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act or Exchange Act.

ITEM 9B.  OTHER INFORMATION.

        None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

MEMBERS OF THE BOARD OF DIRECTORS

The following sets forth, as of May 20, 2011, the names of, and certain information concerning the Company's directors:

Name	Age	Position or Office	Director Since	End of Term
Class I Directors:
John Gibbons	62	Independent Consultant	2003	2012
William McGinnis	52	Chief Executive Officer and President of the Company	1994	2012
Donald Tringali	53	Chairman of the Board of the Company and President of Augusta Advisory Group	1999	2012
Class II Directors:
Aaron Cohen (1)	74	Co-founder and Vice Chairman of the Board of the Company	1975	2013
Dr. John Foster	52	Chairman and Chief Executive Officer of Innovative Micro Technology, Inc.	2009	2013
Dan Yates	50	President and Chief Executive Officer of Regents Bank	2003	2013
Class III Directors: (2)
Robert Lin	53	President and Chief Executive Officer of MTI Marketing Techniques, Inc.	1988	2011
Norman Wolfe	63	President and Chief Executive Officer of Quantum Leaders, Inc.	2001	2011

(1) Mr. Cohen began serving as a director of the Company in 1975 and has served every year since then, except for the period of time from June 1988 until 1997 when he served as a director of the Company's spin off United Education & Software, Inc. (UES). Small Business Administration regulations prohibited Mr. Cohen from serving as a director of the Company while he served on the board of UES.

(2) Dr. Jack Lin served as a Class III director until his resignation on April 7, 2011.

John Gibbons has been an independent consultant since April 2004. Prior to April 2004, Mr. Gibbons was Vice Chairman of TMC Communications, Inc., a long distance, data and internet services provider. He is a director of Deckers Outdoor Corporation, (NASDAQ: DECK), a designer, producer and brand manager of innovative, high-quality footwear. The Nominating Committee believes that Mr. Gibbons' extensive experience as a chief executive officer of several companies, directorship of other public companies and background as a certified public accountant, together with his financial experience and acumen, provide substantial support for his nomination and service as a director of the Company.

William McGinnis is President and Chief Executive Officer of the Company since 2005. He has been associated with the Company continuously since 1980. The Nominating Committee believes that Mr. McGinnis' extensive management, operational and engineering experience and acumen, his long history with the Company and his proven record of attaining operational and financial objectives under a variety of economic and competitive conditions, provide substantial support for his nomination and service as a director of the Company.

Donald Tringali became Chairman of the Board effective May 1, 2010. Prior to that, he was Vice Chairman of the Board from June 1996. He also has been President of the Augusta Advisory Group, a management consulting company, for more than five years. The Nominating Committee believes that Mr. Tringali's extensive experience as a senior corporate officer of a public company, consulting work with various businesses and organizations, experience as a lawyer and broad knowledge of financial matters affecting public companies, provide substantial support for his nomination and service as a director of the Company.

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Aaron Cohen is a founder, Vice Chairman of the Board and Senior Vice President, Corporate Development of the Company. He has been associated with the Company since 1961. The Nominating Committee believes that Mr. Cohen's long - time history with and significant knowledge of the Company as one of its founders, his experience as a chief executive officer of a public company and a prior Chairman of the Board of the Company and extensive expertise in engineering operations provide significant support for his nomination and service as a director of the Company.

Dr. John Foster has been the Chairman and Chief Executive Officer of Innovative Micro Technology, Inc., a MEMS (micro-electromechanical systems) contract manufacturer and foundry, for more than five years. The Nominating Committee believes that Dr. Foster's background and experience in technology-driven companies, his public company chief executive officer experience, foreign company operational responsibilities and development of innovative technologies provide substantial support for his nomination and service as a director of the Company.

Dan Yates is President and Chief Executive Officer of Regents Bank, which he helped establish in 2001. The Nominating Committee believes that Mr. Yates' significant experience as president of a commercial bank and his extensive knowledge of commercial lending and intimate knowledge of financing of a variety of commercial businesses and attainment of financial objectives provide substantial support for his nomination and service as a director of the Company.

Robert Lin has been President and Chief Executive Officer of MTI-Marketing Techniques, Inc., a manufacturer and distributor of products for the advertising specialty and premium markets, for more than five years. The Nominating Committee believes that Mr. Robert Lin's substantial service as the chief executive officer of a manufacturing and distribution company, operational responsibilities, significant employment experience with the Company and track record of achievement provide substantial support for his nomination and service as a director of the Company.

Norman Wolfe has been President and Chief Executive Officer of Quantum Leaders, Inc., a management consulting firm specializing in strategy execution, for more than five years. Mr. Wolfe holds an Advanced Professional Director Certification from the American College of Corporate Directors, a public company director education and credentialing organization. The Nominating Committee believes that Mr. Wolfe's substantial experience as chief executive officer of a company, extensive experience in providing consulting services to a broad spectrum of businesses, and deep knowledge and experience in corporate governance matters provide substantial support for his nomination and service as a director of the Company.

CORPORATE GOVERNANCE AND OTHER MATTERS

Leadership Structure

Effective May 1, 2010, the Company's Board of Directors appointed Mr. Tringali as its Chairman. Mr. Tringali, an independent, nonexecutive director, was formerly a Vice Chairman of the Board of Directors and has been a director of the Company since 1999. We believe that the separation of the roles of the Chairman and the Chief Executive Officer presents the best governance structure for the Company and provides for independent oversight of management at the Board leadership level. The Chairman role provides our outside directors with a platform to control agendas and discussion for board meetings. In addition, the role creates a focal point for efficient communication between the directors and Company management.

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The Board of Directors and Committees

The Board of Directors is responsible for the supervision of the overall affairs of the Company. The Board of Directors held ten meetings during the last fiscal year. Each director attended at least 75 percent of the meetings of the Board of Directors and each Committee on which he served during the fiscal year ended January 31, 2011.

Audit Committee

The Company's Board of Directors has an Audit Committee consisting of Messrs. Gibbons, Foster and Yates. Mr. Gibbons is Chairman of the Audit Committee. The function of the Audit Committee is to meet with the independent registered public accounting firm engaged by the Company to review (a) the scope and findings of the annual audit, (b) accounting policies and procedures and the Company's financial reports, and (c) the internal controls employed by the Company. The Audit Committee heldeightmeetings during the year. The Board has determined that all Audit Committee members are "independent," as defined under the applicable Nasdaq listing standards and SEC rules and regulations. The Board of Directors has determined that John Gibbons qualifies as an "audit committee financial expert" under SEC rules and regulations. A copy of the written charter of the Audit Committee, adopted by the Board of Directors, is available on our corporate website at www.nts.com. The charter may be found as follows: from our main web page, click on “Corporate Governance” at the bottom of the page.

Compensation Committee

The Company's Board of Directors has a Compensation Committee consisting of Messrs. Gibbons, Foster and Yates. Dr. Foster is the Chairman of the Compensation Committee. The function of the Compensation Committee is to consider and make recommendations to the Board of Directors on salaries, bonuses, and other forms of compensation for the Company's executive officers and to review Board compensation. The Compensation Committee also administers the Company's stock option plan, long term incentive plan and senior executive retirement plan. The Compensation Committee held three meetings during the year. The Board of Directors has determined that all Compensation Committee members are "independent," as defined under the applicable Nasdaq listing standards and SEC rules and regulations. The Compensation Committee operates under a written charter adopted by the Board of Directors. A copy of such charter is available on our corporate website at www.nts.com. The charter may be found as follows: from our main web page, click on “Corporate Governance” at the bottom of the page.

In order to ensure the Company is compensating its executives and directors appropriately, the Compensation Committee has retained Vision Link Advisory group to assist the Committee with its responsibilities regarding the Company's executive and director compensation programs. Vision Link's fees for the consulting services provided to the Committee in fiscal year 2011 were $25,000 related to advice on executive compensation and $11,150 for additional services.

Governance Committee

The Company's Board of Directors has a Governance Committee consisting of Messrs. Wolfe, Yates and Tringali. Mr. Wolfe is Chairman of the Governance Committee. The function of the Governance Committee is to consider and make recommendations on matters related to the practices, policies and procedures of the Board of Directors and to take a leadership role in shaping the corporate governance of the Company. The Governance Committee also assesses the size and structure of the Board of Directors and Board committees and coordinates evaluation of Board performance. The Governance Committee held three meetings during the year.

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The Governance Committee periodically reviews the composition of the board and identifies those qualities, including diversity that supports the Company’s strategic direction. Although the Committee does not have a formal diversity policy, it believes that diversity is an important consideration in evaluating board composition. Among the factors considered are personal, professional and cultural experiences that will ensure the board as a whole contributes a diversity of perspectives that represents the variety of stakeholders we serve.

The Board of Directors has determined that all Governance Committee members are "independent," as defined under the applicable Nasdaq listing standards. The Governance Committee operates under a written charter adopted by the Board of Directors. A copy of such charter is available on our corporate website at www.nts.com. The charter may be found as follows: from our main web page, click on “Corporate Governance” at the bottom of the page.

Nominating Committee

The Nominating Committee assists the Board of Directors in the selection of nominees for election to the Board. The Nominating Committee consists of Messrs. Gibbons, Tringali and Yates. Mr. Tringali is Chairman of the Nominating Committee. Each of Messrs. Gibbons, Tringali and Yates were and are deemed to be "independent," as defined under the applicable NASDAQ listing standards. The Nominating Committee held one meeting during the 2011 fiscal year.

In evaluating potential nominees for the Board, the Nominating Committee considers a variety of factors, including high personal integrity and business ethics; strong interpersonal and problem solving skills; ability to contribute based on business experience and contacts; financial literacy and understanding of business metrics; ability to provide a different perspective to issues; knowledge of the company’s business and/or industry; and corporate governance standards established by NASDAQ. Among the factors to be considered in evaluating a candidate, are personal, professional and cultural experiences that will insure that the Board as a whole contributes a diversity of perspectives. A copy of the Nominating Committee charter is available on our corporate website at www.nts.com. The charter may be found as follows: from our main web page, click on “Corporate Governance” at the bottom of the page.

Effective April 7, 2011, Dr. Jack Lin, a co-founder of the Company and former Chairman of the Board resigned his position as a Class III director. Since that time, the Nominating Committee has worked closely with the independent directors and the entire board to identify a nominee to fill the board vacancy created by Dr. Lin’s resignation. The Nominating Committee has met formally on two occasions since the beginning of the current fiscal year, and has had many informal discussions, to address potential candidates for the slate of directors to be nominated by the Company at the next annual meeting of shareholders and to fill the vacancy created by Dr. Lin’s resignation. Members of the Nominating Committee have interviewed potential candidates and will continue to do so until the Company’s nominees for the next election are selected by the board.

Code of Ethics

The Company has adopted a Code of Ethics applicable to the principal executive officer and senior financial executives, including the Chief Financial Officer and corporate controller, of the Company, as well as all employees and directors of the Company. The Code of Ethics is published on the Company's website at www.nts.com, under "Corporate Governance." The Company intends to disclose future amendments to, or waivers from, certain provisions of the Code of Ethics applicable to senior financial executives on its website within four business days following the date of such amendment or waiver.

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Board Effectiveness

It is important that the Company’s Board of Directors and its committees are performing effectively and in the best interests of our company and our stockholders. To that end, our Board of Directors performs an annual self-assessment, led by the chair of the Governance Committee, to evaluate its effectiveness in fulfilling its obligations.

Board’s Role in Risk Oversight

The Board of Directors has an oversight role in managing our risk. The Board’s role in risk oversight of the Company is consistent with the Company’s leadership structure, with the Chief Executive Officer and other members of senior management having responsibility for assessing and managing the Company’s risk exposure, and the Board and its committees providing oversight in connection with those efforts.

Director Attendance at Annual Meeting

The Company does not have a policy regarding director attendance at the Company's annual meetings of shareholders, although it encourages all directors to attend. All current directors attended the Company's 2010 annual meeting of shareholders. Jack Lin, a director at the time, did not attend the 2010 annual meeting of shareholders.

EXECUTIVE OFFICERS

The following table sets forth, as of May 20, 2011, the names of, and certain information concerning the Company's executive officers who do not also serve as directors:

Name	Age	Position
Douglas Briskie	47	Senior Vice President, Corporate Development. Mr. Briskie has served as Senior Vice President Corporate Development since 2007, and has been associated with the Company since 1987.
Derek Coppinger	41	Senior Vice President, Corporate Development. Mr. Coppinger has been Senior Vice President Corporate Development since 2007, and has been associated with the Company since 1998.
Raffy Lorentzian	55	Senior Vice President, Chief Financial Officer, Chief Accounting Officer and Corporate Secretary. Mr. Lorentzian has been the Chief Financial Officer since 2007. He has been associated with the Company since 1997.
Dwight Moore	48	Senior Vice President, Chief Operating Officer. Mr. Moore has been the Chief Operating Officer since 2006 and has been associated with the Company since 1997.

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None of the executive officers was selected pursuant to any arrangement or understanding other than with the Company's executive officers acting within their capacities as such.

ITEM 11. EXECUTIVE COMPENSATION.

Summary Compensation Table

The table below summarizes the total compensation paid or earned by each of our named executive officers for each of the two fiscal years ended January 31, 2011 and 2010.

Name and Principal Position	Fiscal Year End	Salary ($)		Bonus ($)(1)		Stock Awards ($)(2)		Option Awards ($)(3)		Non-Equity Incentive Plan Compensation ($)(4)		All Other Compensation ($)			Total ($)
William McGinnis,	2011	$	347,162	$	100,742		----		----	$	158,855	$	83,325	(5)	$	690,084
President and Chief Executive Officer	2010	$	324,450	$	110,313		----		----	$	194,007	$	71,195		$	699,965
Dwight Moore,	2011	$	241,900	$	67,035		----		----	$	93,043	$	22,492	(6)	$	424,470
Sr.Vice President and Chief Operating Officer	2010	$	205,000	$	69,700		----		----	$	115,839	$	15,863		$	406,402
Raffy Lorentzian,	2011	$	220,420	$	63,963		----		----	$	100,860	$	36,257	(6)	$	421,500
Sr.Vice President and Chief Financial Officer	2010	$	206,000	$	70,040		----		----	$	132,572	$	24,372		$	432,984

(1) Certain executives were awarded bonuses in accordance with the Company’s existing short term bonus plan which is based on the Company achieving certain profit targets.

(2) We did not grant any stock awards to our named executive officers for the fiscal years ended January 31, 2011 and 2010.

(3) We did not grant any stock option awards to our named executive officers for the fiscal years ended January 31, 2011 and 2010.

(4) The Non-Equity Incentive Plan Compensation represents the amount earned by the named executive officers pursuant to the "Long-Term Incentive Plan" (LTIP) adopted by the Company in fiscal year 2007. The amounts reflected on the "Summary Compensation Table" represent amounts vested and not amounts paid. In general, LTIP participants only receive payments under the plan if the Company’s earnings per share increase over the award period (three years).

(5) Includes annual vested amount of $49,708 pursuant to the Company’s 2006 Supplemental Executive Retirement Plan, reimbursements of uninsured medical expenses of $24,517 and premiums towards life insurance of $9,100.

(6) Represents annual vested amount pursuant to the Company’s 2006 Supplemental Executive Retirement Plan.

Outstanding Equity Awards

The table below summarizes the current holdings of option awards and stock awards by our named executive officers for fiscal year ending January 31, 2011. Each equity grant has a 10 year life and is shown separately for each named executive officer and vests at a rate of 25% on each anniversary of the date of grant.

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	Option Awards							Stock Awards
	Number of Securities Underlying Unexercised Options Exercisable		Number of Securities Underlying Options UnExercisable		Option Exercise Price		Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested		Market Value of Shares or Units of Stock That Have Not Vested		Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested		Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
Name	(#)		(#)		($)			(#)		($)		(#)		($)
William McGinnis		22,000		-	$	4.45	6/27/2013		-		-		-		-
		15,000		-	$	4.56	6/28/2014		-		-		-		-
		25,000		-	$	4.76	12/1/2015		-		-		-		-
Dwight Moore		350		-	$	2.04	6/27/2011		-		-		-		-
		3,750		-	$	1.81	8/3/2011		-		-		-		-
		11,000		-	$	4.45	6/27/2013		-		-		-		-
		5,000		-	$	4.56	6/28/2014		-		-		-		-
		17,500		-	$	4.76	12/1/2015		-		-		-		-
Raffy Lorentzian		5,000		-	$	2.04	6/27/2011		-		-		-		-
		3,500		-	$	1.81	8/3/2011		-		-		-		-
		5,000		-	$	2.92	12/13/2012		-		-		-		-
		4,000		-	$	4.45	6/27/2013		-		-		-		-
		5,000		-	$	4.56	6/28/2014		-		-		-		-
		13,000		-	$	4.76	12/1/2015		-		-		-		-

Employment Agreements

The Company has not entered into employment agreements with any of its named executive officers.

Change-in-Control Agreements

The Company has entered into change-in-control agreements with certain executive officers and key employees of the Company. These agreements are intended to provide the continuity of management in the event of a change-in-control of the Company. The agreements provide that the covered executive officers and key employees could be entitled to certain severance benefits following a change in control of the Company, if they are terminated by the Company without cause. Under the severance agreements, a change-in-control would include any of the following events: (i) any "person," as defined in the Securities Exchange Act of 1934, as amended, acquires 50 percent or more of the Company's voting securities or (ii) shareholders approve certain mergers, or liquidation, or sale of the Company's assets.

Pursuant to the change in control agreement, if one of our executive officer’s employment terminates without cause within twelve months following a change in control of our Company, he or she will receive a payment equal to two times his or her annual compensation, payment of medical and related benefits for a period of two years, and full accelerated vesting of all outstanding stock options. If the termination without cause occurs more than twelve but less than twenty-four months following a change in control, the executive will receive a payment equal to his or her annual compensation, payment of medical and related benefits for a period of one year, and full accelerated vesting of all outstanding stock options.

Compensation on Separation of Employment

Regardless of the manner in which an executive officer terminates, he or she is entitled to receive amounts earned during his or her term of employment. Such amounts include:

• non-equity incentive compensation earned during the fiscal year, to the extent vested;

• equity awarded pursuant to the “1994 stock option plan”, the “2002 stock option plan” and the LTIP to the extent vested;

• amounts contributed and vested under our qualified retirement plan; and

• unused vacation pay.

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Pursuant to the supplemental executive retirement plan, each of our executive officers participating in the plan is entitled to the vested value of his or her account upon retirement, death or disability. Additionally, vesting is fully accelerated if his or her termination is due to attaining retirement age, death or disability. Finally, all unvested benefits become fully vested if the executive officer has ten or more years of employment with our Company at a time the Company has a change in control.

Pursuant to the LTIP, each of our executive officers participating in the plan is entitled to the vested value of his or her account balance upon termination of employment. Additionally, vesting is fully accelerated if the executive officer dies, becomes disabled or the executive is terminated without cause within twenty four months following a change in control of the Company.

Risk Considerations in our Compensation Programs

Our Compensation Committee has discussed the concept of risk as it relates to our compensation program and does not believe our compensation program encourages excessive or inappropriate risk taking. We structure our pay to consist of primarily fixed compensation with cash and non-cash incentive programs. The base salary portion of compensation is designed to provide a steady income regardless of our stock price performance, so that executives do not feel pressured to focus exclusively on stock price performance to the detriment of other important business metrics. Our cash incentive program has traditionally been weighted on multiple financial metrics including revenues, operating income and new customer retention. Those metrics are evaluated each year based on perceptions of operating issues most critical to the Company's short and long term success. Our equity incentive grants have traditionally been structured to provide longer term incentive. Our Compensation Committee feels that this compensation package strikes a balance between providing secure compensation and appropriate short term and long term incentives, such that our executives are not encouraged to take unnecessary or excessive risks.

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DIRECTOR COMPENSATION

We use a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on our Board. In setting director compensation, we consider the significant amount of time that our directors spend fulfilling their duties to our Company as well as the skill level required by our Board members.

We believe that our director compensation is competitive with the compensation offered by our peer group of companies and is fair and appropriate in light of the responsibilities and obligations of our independent directors.

Cash Compensation Paid to Board Members

For the fiscal year ended January 31, 2011, members of our Board who are not employees of our Company received an annual cash retainer and additional cash compensation based upon committee memberships and chairmanships. Directors who are also our employees, other than Dr. Lin during his tenure, receive no compensation for their services as directors.

Restricted Stock Program

Our compensation philosophy has been moving away from making grants of stock options. Therefore, no option awards were granted in the fiscal year ended January 31, 2011. Our directors did, however, receive restricted stock awards. Restricted stock awards vest over four years of service at the rate of 25% annually on the anniversary of the date of grant.

Director Summary Compensation

The table below summarizes the compensation we paid to our non-employee directors for the fiscal year ended January 31, 2011.

	Fees Earned or Paid in Cash		Stock Awards		Option Awards		Total
Name (1)	($)		($)(2)		($)(3)		($)
John Foster		38,011		31,752		-		69,763
John Gibbons		67,511		59,302		-		126,813
Robert Lin		28,011		31,752		-		59,763
Donald Tringali		64,011		201,254		-		265,265
Norman Wolfe		42,011		31,752		-		73,763
Dan Yates		46,261		31,752		-		78,013

(1) William McGinnis is an executive officer of our Company and, therefore, his compensation is not reflected in this table. Mr. McGinnis receives no additional compensation for the services he renders as a director. Aaron Cohen is a director and an executive officer of our Company, but he is not a named executive officer. He receives no additional compensation for his services provided as a director. Dr. Jack Lin served as a director until his resignation on April 7, 2011.

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(2) Reflects the value as of the grant date of stock awards received in fiscal year 2011. As of January 31, 2011, each director has the following number of non-vested restricted stock awards outstanding: John Foster: 10,009; John Gibbons: 15,352; Robert Lin: 15,352; Donald Tringali: 30,702; Norman Wolfe: 15,352 and Dan Yates: 15,352.  During fiscal 2011, Mr. Tringali received 25,000 shares and Mr. Gibbons received 5,000 shares (valued at $137,750 and $27,550, respectively) as compensation related to special committee services.

(3) We granted no stock option awards to our directors for the fiscal year ended January 31, 2011. As of January 31, 2011, each director has the following number of outstanding options: John Gibbons: 17,500; Robert Lin: 12,500; Donald Tringali: 10,000; Norman Wolfe: 22,500 and Dan Yates: 17,500.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Beneficial Ownership of Common Stock

The following table presents information concerning the beneficial ownership of the shares of our common stock as of May 20, 2011 by:

• each person we know to be the beneficial owner of 5% or more of the outstanding shares of our common stock;

• each of our named executive officers (as defined below);

• each of our directors; and

• all of our current executive officers and directors as a group.

Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power over securities. Except in cases where community property laws apply or as indicated in the footnotes to this table, we believe that each stockholder identified in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the stockholder. The address for each of our directors and named executive officers is c/o National Technical Systems, Inc., 24007 Ventura Boulevard, Calabasas, California 91302.

The percentage of beneficial ownership is based on a total 10,397,550 shares, which consists of 10,252,063 common shares outstanding and 145,487 non-vested restricted shares on May 20, 2011. Shares of common stock subject to options that are currently exercisable or exercisable within 60 days of May 20, 2011 are considered outstanding and beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

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Beneficial Owner	Title of Class of Stock	Amount and Nature of Beneficial Ownership			Percent of Class
5% Shareholders
Dr. Jack Lin	Common Stock		1,100,024	(1)		10.5	%
24780 Hermosilla Court,
Calabasas, California 91302
Sandler Capital Management	Common Stock		820,489	(2)		7.9	%
711 Fifth Avenue
New York, NY 10022
Dimensional Fund Advisors Inc.	Common Stock		651,723	(3)		6.3	%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Luis Antonio Hernandez	Common Stock		620,160	(4)		6.0	%
3069 Misty Harbour Drive,
Las Vegas, Nevada 89117
Sidney Meltzner	Common Stock		608,002	(5)		5.8	%
404 21st Street
Santa Monica, California 90402
Current Directors and Named Executive Officers:
Aaron Cohen	Common Stock		1,338,861	(6)(7)		12.9	%
William McGinnis	Common Stock		194,892	(6)		1.9	%
Robert Lin	Common Stock		160,435	(6)(7)		1.5	%
Donald Tringali	Common Stock		138,174	(6)(7)		1.3	%
John Gibbons	Common Stock		61,070	(6)(7)		**
Raffy Lorentzian	Common Stock		58,000	(6)		**
Norman Wolfe	Common Stock		55,080	(6)(7)		**
Dwight Moore	Common Stock		52,356	(6)		**
Dan Yates	Common Stock		45,309	(6)(7)		**
Dr. John Foster	Common Stock		12,009	(6)		**
All current directors and executive officers as a group (twelve persons)	Common Stock		2,200,686	(6)(7)		20.6	%

** Indicates less than 1.0%

(1) Includes 42,000 shares covered by options exercisable within 60 days of May 20, 2011 and 22,684 in non-vested restricted shares.

(2) Based on Schedule 13D/A filed by this holder with the SEC on January 4, 2011.

(3) Based on Schedule 13G/A filed by this holder with the SEC on February 11, 2011.

(4) Based on Schedule 13D/A filed by this holder with the SEC on April 7, 2011. According to the Schedule 13D/A includes (a) 518,000 shares of common stock held by Mr. Hernandez jointly with his spouse, Jacqueline Hernandez, over which Mr. and Mrs. Hernandez share voting and dispositive power, and (b) an aggregate of 102,160 shares of common stock of the issuer held in the names of Mr. Hernandez’s four children, over which Mr. Hernandez and his children share voting and dispositive power. Mr. Hernandez disclaims beneficial ownership of the shares held by his children.

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(5) Based on Schedule 13D/A filed by this holder with the SEC on April 7, 2011. According to the Schedule 13D/A includes (a) 17,500 shares of common stock held by Mr. Meltzner jointly with his spouse, Carole Meltzner, over which Mr. and Mrs. Meltzner share voting and dispositive power, and (b) 338,002 shares of common stock of the issuer directly held by CAS Foundation, over which Mr. Meltzner, as trustee of CAS Foundation, has sole voting and dispositive power. Mr. Meltzner disclaims beneficial ownership of the shares held by CAS Foundation.

(6) Includes shares covered by options exercisable within 60 days of May 20, 2011, as follows: Cohen, 21,000; Gibbons, 17,500; R. Lin, 12,500; Lorentzian, 35,500; McGinnis, 62,000; Moore, 37,600; Tringali, 10,000; Wolfe, 22,500 and Yates, 17,500.

(7) Includes non-vested restricted shares as to which the holder has the power to vote but does not have the power to dispose, as follows: Cohen, 22,684; Foster, 8,009; Gibbons, 15,352; R. Lin, 15,352; Tringali, 30,702; Wolfe, 15,352 and Yates, 15,352.

Section 16(a) Beneficial Ownership Reporting Compliance

The Company's officers, directors and consultants are required to file initial reports of ownership and reports of change in ownership with the SEC. Officers and directors are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.

Based solely on information provided to the Company by individual officers and directors, the Company believes that during the fiscal year ended January 31, 2011 all filing requirements applicable to officers and directors have been complied with.

Potential Change in Control

On April 7, 2011, Dr. Jack Lin, Mr. Sidney Meltzner, CAS Foundation and Mr. Luis Hernandez filed a Schedule 13D with the SEC indicating that the four shareholders control or share voting and dispositive power over an aggregate of 2,379,784 shares the Company’s outstanding common stock, and that they were acting together as a group. According to the Schedule 13D, the group has acquired their shares for investment intent. The group has also stated in a press release dated April 14, 2011 that they intend to propose a slate of Class III directors. If the shareholders are successful in securing any board positions they have stated that they will seek to have the Board of Directors engage an investment banker to solicit a sale of the Company.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Family Relationships

Effective April 7, 2011 Dr. Jack Lin a co-founder of the Company and former Chairman of the Board resigned his position as a director. Dr. Jack Lin is the father of Robert Lin. There are no family relationships among the Company's current directors and executive officers.

Policies for Review of Related Party Transactions

Our Board of Directors has approved a written policy for the review, approval or ratification of all related party transactions with a value above $120,000, including loans between us and our officers, directors and principal stockholders and their affiliates. Under the charter of the Governance Committee of our Board of Directors, that committee is responsible for considering conflicts of interest of Board members and senior management, and, to the extent a conflict constitutes a related party transaction, the committee refers the matter to the Audit Committee for review and recommendation of what action is to be taken, if any, by our Board of Directors. All related party transactions are to be on terms no less favorable to us than those that we could obtain from unaffiliated third parties. We believe that all of the transactions described below were reviewed and approved under the foregoing policies and procedures.

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Related Party Transactions

Except for compensation of our officers and directors reflected in the tables above, we had no related party transactions within the meaning of applicable SEC rules for the year ended January 31, 2011, except as follows.

Total payments of $15,700 were made to Quantum Leaders, Inc. during fiscal year 2011. Norman Wolfe, Director of the Company, is the President and Chief Executive Officer of Quantum Leaders, Inc.

Indemnification Agreements

Messrs. McGinnis, Moore and Lorentzian, the executive officers and the directors of the Company are parties to indemnification agreements with the Company. These agreements provide, among other things, that the Company shall (i) indemnify them against certain liabilities that may arise by reason of their status as executive officers or directors provided they acted in good faith and in a manner reasonably believed to be in the best interests of the Company and, with respect to any criminal action, had no cause to believe their conduct was unlawful, (ii) to advance the expenses actually and reasonably incurred as a result of any proceeding against them by third parties or by or in right of the Company, where the indemnitee acted in good faith in a manner the indemnitee believed to be in the best interest of the Company (subject to repayment if it is determined that the indemnitee is not entitled to indemnification), and (iii) to make a good faith attempt to obtain directors' and officers' insurance. There is not any action of proceeding pending or, to the knowledge of the Company, threatened which may result in a claim for indemnification by any director, officer, employee or agent of the Company.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Audit Fees and Other Fees

The Company paid the following fees to Ernst & Young LLP during fiscal years ending January 31, 2011 and 2010, respectively:

	2011		2010
Audit Fees	$	427,300	$	428,600
Audit-Related Fees		115,200		25,000
Tax-Related Fees		-		-
All Other Fees		-		-

The audit and audit-related fees for the years ended January 31, 2011 and January 31, 2010 were for professional services rendered for the audits of the consolidated financial statements of the Company, statutory audits, consents, financial due diligence on prospective transactions and assistance with review of documents filed with the SEC.

Policy on Pre-Approval of Audit and Non-Audit Services of Independent Registered Public Accounting Firm

The Audit Committee administers the Company's engagement of Ernst &Young LLP and pre-approves all audit and permissible non-audit services on a case-by-case basis. All services provided by Ernst & Young LLP during the fiscal years ended January 31, 2011 and 2010 were pre-approved by the Audit Committee. In approving non-audit services, the Audit Committee considers whether the engagement could compromise the independence of Ernst & Young LLP, and whether for reasons of efficiency or convenience it is in the best interest of the Company to engage its independent auditor to perform the services. The Audit Committee has determined that performance by Ernst & Young LLP of the non-audit services related to the fees on the table above did not affect their independence.

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Prior to engagement, the Audit Committee pre-approves all independent auditor services. The fees are budgeted and the Audit Committee requires the independent auditor and management to report actual fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent auditor for additional services not contemplated in the original pre-approval categories. In those instances, the Audit Committee requires specific pre-approval before engaging the independent auditor.

The Audit Committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.

REPORT OF THE AUDIT COMMITTEE

The Audit Committee of the Board of Directors is composed of three directors each of whom is "independent," as defined under the applicable Nasdaq listing standards and SEC rules and regulations. The Committee operates under a written charter adopted by the Board of Directors, a copy of which is available on our corporate website at www.nts.com.

The Committee recommends to the Board of Directors the appointment of the independent auditors, reviews the scope of audits, reviews significant changes to the Company's accounting principles and practices, reviews significant issues encountered in the course of audit work related to the adequacy of internal controls and oversees the internal audit function.

The Committee reviewed and discussed the audited financial statements with management of the Company and representatives of Ernst & Young LLP. The discussions with Ernst & Young LLP included the matters required to be discussed by Statement on Auditing Standards No. 61, as amended. In addition, the Audit Committee received the written disclosures and the letter regarding independence from Ernst & Young LLP as required by Rule 3526 of the Public Company Accounting Oversight Board and discussed with Ernst & Young LLP their independence.

Based on the review and discussions referred to above, the Committee recommended to the Board of Directors that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended January 31, 2011 for filing with the SEC.

The Committee also recommended to the Board of Directors, and the Board has appointed, Ernst & Young LLP to audit the corporation's financial statements for the fiscal year ending January 31, 2012, subject to shareholder ratification of that appointment.

AUDIT COMMITTEE

John Gibbons, Chairman

John Foster

Dan Yates

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The information contained in this Audit Committee report shall not be deemed to be "soliciting material" or to be "filed" with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates such information by reference in such filing.

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PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

A.  Consolidated Financial Statements and Schedules.

Financial statements required by Item 15 are included in Item 8 above.

Financial Statements:

Consolidated Balance Sheets - January 31, 2011 and 2010

Consolidated Statements of Income - Years ended January 31, 2011 and 2010

Consolidated Statements of Shareholders' Equity - Years ended January 31, 2011 and 2010

Consolidated Statements of Cash Flows - Years ended January 31, 2011 and 2010

Notes to Consolidated Financial Statements

Schedule

Schedule Supporting Financial Statements:

Valuation and Qualifying Accounts and Reserves

II

B. Exhibits.

2.1	Interests Purchase Agreement dated December 5, 2007 among NTS Technical Systems, the 2007 Richard W. Mouser Revocable Trust, the Richard W. Mouser Revocable Trust, the Debra S. Mouser Revocable Trust, Richard W. Mouser and Debra S. Mouser (filed with the Company’s 8-K on December 11, 2007 and is incorporated herein by reference).
2.2	Agreement and Plan of Merger dated June 6, 2008 by and among National Technical Systems, Inc., NTS Acquisition Corp., ELA, LLC, Elliott Laboratories, Inc, Thomas H. Parker, Edward J. Pavlu, III, Barry W. Klinger, Gerard J. Grenier, Thomas E. Wetzel, David W. Bare and The Gerard J. Grenier Revocable Trust (filed as an exhibit to the registrant’s Annual Report on Form 10-K for the period ending January 31, 2011 filed on May 2, 2011 and is incorporated herein by reference).
2.3	Agreement of Purchase and Sale of Stock dated November 30, 2009 by and between U.S. Laboratories, Inc. and NQA, Inc. (filed as an exhibit to the registrant’s Annual Report on Form 10-K for the period ending January 31, 2011 filed on May 2, 2011 and is incorporated herein by reference).
2.4	Stock Purchase Agreement dated December 16, 2010 among NTS Technical Systems, National Technical Systems, Inc., Mechtronic Solutions, Inc., La Luz Ascensions, LLC, Lemna Hunter, Richard Hunter, New Tech I, LP And Quatro Ventures, LLC. (filed as an exhibit to the registrant’s Annual Report on Form 10-K for the period ending January 31, 2011 filed on May 2, 2011 and is incorporated herein by reference).
3.1	Articles of Incorporation of the registrant, as amended to date. (filed as an exhibit to the registrant’s Annual Report on Form 10-K for the period ending January 31, 2011 filed on May 2, 2011 and is incorporated herein by reference).
3.2	Bylaws of the registrant, as amended to date.
3.3	Form of Certificate of Determination of the Series A Junior Participating Preferred Stock of the registrant (filed as an exhibit to the registrant’s Current Report on 8-K filed on September 22, 2010 and incorporated herein by reference).
4.1	Shareholder Rights Agreement dated September 21, 2010 between National Technical Systems, Inc. and Computershare Trust Company, N.A., as Rights Agent. (filed as an exhibit to the registrant’s Current Report on Form 8-K filed on September 22, 2010 and is incorporated herein by reference).
10.1#	National Technical Systems, Inc. 2002 Stock Option Plan.
10.2	Amended and Restated Credit Agreement made as of November 10, 2010, by and among the financial institutions from time to time signatory thereto, Comerica Bank, as Administrative Agent, Joint Lead Arranger and Bookrunner, U.S. Bank National Association, as Joint Lead Arranger and Syndication Agent, and National Technical Systems, Inc. and certain of its subsidiaries (filed as an exhibit to the registrant’s Current Report on Form 8-K filed on November 17, 2010 and incorporated herein by reference).
10.3	Amended and Restated Security Agreement dated November 10, 2010, by and among National Technical Systems, Inc. and certain of its subsidiaries in favor of Comerica Bank as administrative agent for and on behalf of the lenders (filed as an exhibit to the registrant’s Current Report on Form 8-K filed on November 17, 2010 and incorporated herein by reference).
10.4#	Employment agreement between National Technical Systems, Inc. and Dr. Jack Lin dated April 28, 2005 (filed as an exhibit to the registrant’s Current Report on Form 8-K filed on May 3, 2005 and incorporated herein by reference). (SEC file number 000-16438-05794532).
10.5#	National Technical Systems, Inc. 2006 Long-Term Incentive Plan, as amended and restated, effective December 31, 2008 (filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q filed on September 13, 2010 and incorporated herein by reference).
10.6#	National Technical Systems, Inc. 2006 Supplemental Executive Retirement Plan, as amended and restated, effective December 31, 2008 (filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q filed on September 13, 2010 and incorporated herein by reference).
10.7#	National Technical Systems Inc. 2006 Equity Incentive Plan (filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q filed on September 13, 2010 and is incorporated herein by reference).

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21.1	Subsidiaries of the registrant (filed as an exhibit to the registrant’s Annual Report on Form 10-K for the period ending January 31, 2011 filed on May 2, 2011 and is incorporated herein by reference).
23.1	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm (filed as an exhibit to the registrant’s Annual Report on Form 10-K for the period ending January 31, 2011 filed on May 2, 2011 and is incorporated herein by reference).
23.2	Consent of PKF, P.C., Independent Registered Public Accounting Firm (filed as an exhibit to the registrant’s Annual Report on Form 10-K for the period ending January 31, 2011 filed on May 2, 2011 and is incorporated herein by reference).
31.1	Certification of the Principal Executive Officer pursuant to rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Principal Financial Officer pursuant to rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 *	Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 *	Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
#	Indicates management contract or compensatory plan
*	These certifications are being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation by reference language in such filing.

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SIGNATURES

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

		NATIONAL TECHNICAL SYSTEMS, INC.
May 31, 2011	By:	/s/ William McGinnis
		William McGinnis
		Cheif Executive Officer
		(Prinicipal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Donald J. Tringali	/s/ Aaron Cohen
Donald J. Tringali,	Aaron Cohen,
Chairman of the Board	Senior Vice President and
May 31, 2011	Vice Chairman of the Board
	May 31, 2011
/s/ William McGinnis	/s/ Raffy Lorentzian
William McGinnis,	Raffy Lorentzian,
Chief Executive Officer	Senior Vice President and
(Principal Executive Officer)	Chief Financial Officer
May 31, 2011	(Principal Financial and Accounting Officer)
	May 31, 2011
/s/ Robert I. Lin	/s/ John Gibbons
Robert I. Lin,	John Gibbons,
Director	Director
May 31, 2011	May 31, 2011
/s/ Dan Yates	/s/ John S. Foster
Dan Yates,	John S. Foster,
Director	Director
May 31, 2011	May 31, 2011
/s/ Norman S. Wolfe
Norman S. Wolfe,
Director
May 31, 2011

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Schedule II

NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES

Valuation and Qualifying Accounts and Reserves

Years ended January 31, 2011 and 2010

Description	Balance at beginning of period		Additions - charged to costs and expenses		Write-offs net of recoveries			Balance at end of period
Allowance for doubtful accounts receivable:
Year ended January 31,
2011	$	1,000,000	$	60,000	$	(511,000	)	$	549,000
2010	$	1,274,000	$	440,000	$	(714,000	)	$	1,000,000

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EX-3.2

Exhibit 3.2

BYLAWS

OF

NATIONAL TECHNICAL SYSTEMS, INC.

ARTICLE I

OFFICES

Section 1.1 PRINCIPAL OFFICES. The board of directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside this state, and the corporation has one or more business offices in this state, the board of directors shall likewise fix and designate a principal business office in the State of California.

Section 1.2 OTHER OFFICES. The board of directors may at any time establish branch or subordinate offices at any place or places where the corporation is qualified to do business.

ARTICLE II

MEETINGS OF SHAREHOLDERS

Section 2.1 PLACE OF MEETINGS.

(a)            Meetings of shareholders shall be held at any place within or outside the State of California designated by the board of directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation.

(b)            At the discretion of the board of directors, and subject to such guidelines and procedures as the board of directors may adopt and as are required by applicable law, the corporation may permit any shareholder not physically present in person or by proxy at a meeting of shareholders to participate in a meeting of the shareholders by electronic transmission by and to the corporation or by electronic video screen communication, and the shareholder shall be deemed by such participation to be present in person or by proxy, and to vote at a meeting of shareholders.

(c)            Notwithstanding subsection 2.1(a) above, the corporation may conduct any shareholder meeting, in whole or in part, by electronic transmission by and to the corporation or by electronic video screen communication provided (1) the corporation has obtained from the shareholders the requisite consent under de of California, (2) the corporation implements reasonable measures to provide shareholders (in person or by proxy) a reasonable opportunity to participate in the meeting and to vote on matters submitted to the shareholders, including an opportunity to read or hear the proceedings of the meeting concurrently with those proceedings, and (3) if any shareholder votes or takes other action at the meeting by means of electronic transmission to the corporation or electronic video screen communication, a record of that vote or action is maintained by the corporation.

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Section 2.2 ANNUAL MEETINGS OF SHAREHOLDERS.

(a)            The corporation shall hold its annual meeting of shareholders each year at a time designated by the board of directors. At each annual meeting, directors shall be elected and any other proper business may be transacted.

(b)            Nominations of persons for election to the board of directors of the corporation and the proposal of business to be transacted by the shareholders may be made at an annual meeting of shareholders (i) pursuant to the corporation's notice with respect to such meeting, (ii) by or at the direction of the board of directors or (iii) by any shareholder of record of the corporation who was a shareholder of record at the time of the giving of the notice provided for in this Section 2.2, who is entitled to vote at the meeting and who has complied with the notice procedures set forth in this Section 2.2.

(c)            For nominations or other business to be properly brought before an annual meeting by a shareholder pursuant to clause (iii) of paragraph (b) of this Section 2.2, (i) the shareholder must have given timely notice of the nominations or proposed business in writing to the Secretary of the corporation, (ii) the business so proposed must be a proper matter for shareholder action under the General Corporation Law of the State of California, (iii) if the shareholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the corporation with a Solicitation Notice, as that term is defined in subclause (iv)(3) of paragraph (d) of this Section 2.2, the shareholder or beneficial owner must, in the case of a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the corporation's voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the corporation's voting shares reasonably believed by such shareholder or beneficial holder to be sufficient to elect the nominee or nominees proposed to be nominated by such shareholder, and must, in either case, have included in such materials the Solicitation Notice and (iv) if no Solicitation Notice relating thereto has been timely provided pursuant to this Section 2.2, the shareholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under paragraph (d) of this Section 2.2. To be timely, a shareholder's notice must be delivered to the Secretary at the principal executive offices of the corporation not less than 45 days nor more than 75 days prior to the first anniversary (the "Anniversary") of the date on which the corporation first mailed its proxy materials for the preceding year's annual meeting of shareholders; provided, however, that if the date of the annual meeting is advanced by more than 30 days prior to or delayed by more than 30 days after the anniversary of the preceding year's annual meeting, notice by the shareholder to be timely must be delivered not later than the close of business on the later of the 90th day prior to such annual meeting and the 10th day following the day on which public announcement of the date of such meeting is first made by the corporation.

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(d)            The shareholder's notice to be delivered pursuant to clause (i) of paragraph (c) of this Section 2.2 shall set forth (i) as to each person whom the shareholder proposes to nominate for election or reelection as a director, all information relating to such person as would be required to be disclosed in solicitations of proxies for election of such nominees as directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and such person's written consent to being named in the proxy statement as a nominee and to serve as a director if elected; (ii) as to any other business that the shareholder proposes to bring before the meeting, a brief description of such business, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; and (iv) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (1) the name and address of such shareholder, as they appear on the corporation's books, and of such beneficial owner, (2) the class and number of shares of the capital stock of the corporation that are owned beneficially and of record by such shareholder and such beneficial owner, and (3) whether either such shareholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of a proposal, at least the percentage of the corporation's voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the corporation's voting shares to elect such nominee or nominees (an affirmative statement of such intent, a "Solicitation Notice");

(e)            Notwithstanding anything in the second sentence of paragraph (c) of this Section 2.2 to the contrary, in the event that the number of directors to be elected to the board of directors is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased board of directors made by the corporation at least 55 days prior to the Anniversary, a shareholder's notice required by this Section 2.2 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive office of the corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the corporation.

(f)            Only persons nominated in accordance with the procedures set forth in these bylaws shall be eligible to serve as directors, and only such business shall be conducted at an annual meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in these bylaws. The chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting has been made in accordance with the procedures set forth in these bylaws and, if any proposed nomination or business is not in compliance with these bylaws, to declare that such defective proposed nomination or business shall not be presented for shareholder action at the meeting and shall be disregarded.

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(g)            For purposes of these bylaws, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

(h)            Notwithstanding the foregoing provisions of this Section 2.2, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.2. Nothing in this Section 2.2 shall be deemed to affect any rights of shareholders to request inclusion of proposals in the corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.

Section 2.3 SPECIAL MEETINGS. A special meeting of shareholders may be called at any time by the board of directors, or by the chairman of the board, or by the president, or by one or more shareholders holding shares in the aggregate entitled to cast not less than 10% of the votes at any such meeting.

If a special meeting is called by any person or persons other than the board of directors, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and no other business shall be transacted. The notice shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president or the secretary of the corporation. The officer receiving such request forthwith shall cause notice to be given to the shareholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of this Article II, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the board of directors may be held.

Whenever the corporation gives notice that the election of a director is to take place at a special meeting of shareholders, nominations may be made either (i) by or at the direction of the board of directors, or (ii) by any shareholder of record of the corporation who is a shareholder of record at the time of giving of notice provided for in this paragraph, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this bylaw. Nominations by shareholders of persons for election to the board of directors may be made at such a special meeting of shareholders if the shareholder's notice required by Section 2.2(d) of these bylaws shall be delivered to the Secretary at the principal executive office of the corporation not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting.

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Section 2.4 NOTICE OF SHAREHOLDERS' MEETINGS. All notices of meetings of shareholders shall be sent or otherwise given in accordance with Section 2.5 of this Article II not less than ten (10) nor more than sixty (60) days before the date of the meeting being noticed. The notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted, or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the shareholders. The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees which, at the time of the notice, the board of directors intends to present for election.

If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Corporations Code of California, (ii) an amendment of the articles of incorporation, pursuant to Section 902 of such Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of such Code, (iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of such Code, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of such Code, the notice shall also state the general nature of such proposal.

2.5            MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any meeting of shareholders shall be given not less than ten (10) (or, if sent by third-class mail, thirty (30)) nor more than sixty (60) days before the date of the meeting to each shareholder entitled to vote thereat. That notice shall state the place, date and hour of the meeting, the means of electronic transmission by and to the corporation or electronic video screen communication, if any, by which shareholders may participate in that meeting, and (1) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (2) in the case of the annual meeting, those matters that the board, at the time of the mailing of the notice, intends to present for action by the shareholders. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by the board for election.

Notice of a shareholders' meeting or any report shall be given personally, by electronic transmission by the corporation, or by first-class mail, or, if the corporation's outstanding shares are held of record by five hundred (500) or more persons (determined as provided in Section 605 of the Corporations Code of California) on the record date for the shareholders' meeting, notice may also be sent third-class mail, or other means of written communication, addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice; or if no address appears or is given, at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal executive office is located, provided that notice shall be delivered to a shareholder by electronic transmission only to the extent permitted by the Corporations Code of California. The notice or report shall be deemed to have been given at the time when delivered personally, sent by electronic transmission by the corporation, deposited in the mail, or sent by other means of written communication.

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An affidavit of mailing or electronic transmission by the corporation of any notice or report made in accordance with the provisions of these bylaws, executed by the secretary, assistant secretary or any transfer agent of the corporation giving such notice, shall be filed and maintained in the minute book of the corporation.

Section 2.5 QUORUM. The presence in person or by proxy of the holders of a majority of the shares entitled to vote at a meeting of shareholders shall constitute a quorum for the transaction of business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum.

Section 2.6 ADJOURNED MEETING AND NOTICE THEREOF. Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at such meeting, either in person or by proxy, but in the absence of a quorum, no other business may be transacted at such meeting, except as provided in Section 2.6 of this Article II.

When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at a meeting at which the adjournment is taken, unless a new record date for the adjourned meeting is fixed, or unless the adjournment is for more than forty-five (45) days from the date set for the original meeting, in which case the board of directors shall set a new record date. Notice of any such adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 2.4 and 2.5 of this Article II. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting.

Section 2.7 VOTING. The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 2.11 of this Article II, subject to the provisions of Sections 702 to 704, inclusive, of the Corporations Code of California (relating to voting shares held by a fiduciary, in the name of a corporation or in joint ownership). Such vote may be by voice vote or by ballot; provided, however, that all elections for directors must be by ballot upon demand by a shareholder at any election and before the voting begins. Any shareholder entitled to vote on any matter (other than elections of directors) may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the shareholder fails to specify the number of shares such shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares such shareholder is entitled to vote. Except as provided in Section 2.6 of this Article II, the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by the Corporations Code of California or the articles of incorporation.

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At a shareholders' meeting involving the election of directors, no shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which such shareholder normally is entitled to cast) unless (i) the right to cumulate votes is required by Corporations Code of California or the Articles of Incorporation, and (ii) such candidate or candidates' names have been placed in nomination prior to the voting and a shareholder has given notice at the meeting prior to the voting of the shareholder's intention to cumulate votes. If any shareholder has given such notice, then every shareholder entitled to vote may cumulate such shareholder's votes for candidates in nomination and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such shareholder's shares are normally entitled, or distribute the shareholder's votes on the same principle among any or all of the candidates, as the shareholder thinks fit. The candidates receiving the highest number of affirmative votes, up to the number of directors to be elected, shall be elected. Votes against a director and votes withheld shall have no legal effect.

Section 2.8 WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The transactions at any meeting of shareholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to a holding of the meeting, or an approval of the minutes thereof. The waiver of notice, consent to the holding of the meeting or approval of the minutes thereof need not specify either the business to be transacted or the purpose of any annual or special meeting of shareholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 2.4 of this Article II, the waiver of notice, consent to the holding of the meeting or approval of the minutes thereof shall state the general nature of such proposal. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.

Attendance of a person at a meeting shall also constitute a waiver of notice of and presence at such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the Corporations Code of California to be included in the notice but which were not included in the notice, if such objection is expressly made at the meeting.

Section 2.9 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. In the case of election of directors, such consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors; provided, however, that a director may be elected at any time to fill a vacancy not filled by the directors by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. All such consents shall be filed with the secretary of the corporation and shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholder's proxy holders, or a transferee of the shares or a personal representative of the shareholder or their respective proxy holders, may revoke the consent by a writing received by the secretary of the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the secretary.

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If the consents of all shareholders entitled to vote have not been solicited in writing, and if the unanimous written consent of all such shareholders shall not have been received, the secretary shall give prompt notice of the corporate action approved by the shareholders without a meeting. Such notice shall be given in the manner specified in Section 2.5 of this Article II. In the case of approval of (i) contracts or transactions in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Corporations Code of California, (ii) indemnification of agents of the corporation, pursuant to Section 317 of such Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of such Code, and (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of such Code, such notice shall be given at least ten (10) days before the consummation of any such action authorized by any such approval.

Section 2.10 RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING CONSENTS. For purposes of determining the shareholders entitled to notice of any meeting or to vote or entitled to give consent to corporate action without a meeting, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days prior to the date of any such meeting nor more than sixty (60) days prior to such action without a meeting, and in such case only shareholders at the close of business on the record date so fixed are entitled to notice and to vote or to give consents, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date fixed as aforesaid, except as otherwise provided in the Corporations Code of California.

If the board of directors does not so fix a record date:

(a)            The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.

(b)            The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, (i) when no prior action by the board has been taken, shall be the day on which the first written consent is given, or (ii) when prior action of the board has been taken, shall be at the close of business on the day on which the board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later.

Section 2.11 PROXIES. Every person entitled to vote for directors or on any other matter shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the corporation. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the shareholder or the shareholder's attorney in fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) revoked by the person executing it, prior to the vote pursuant thereto, by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by the person executing the prior proxy and presented to the meeting, or as to any meeting by attendance at such meeting and voting in person by the person executing the proxy; or (ii) written notice of the death or incapacity of the maker of such proxy is received by the corporation before the vote pursuant thereto is counted; provided, however, that no such proxy shall be valid after the expiration of eleven (11) months from the date of such proxy, unless otherwise provided in the proxy. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 705(e) and (f) of the Corporations Code of California.

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Section 2.12 INSPECTORS OF ELECTION. Before any meeting of shareholders, the board of directors may appoint any persons other than nominees for office to act as inspectors of election at the meeting or its adjournment. If no inspectors of election are so appointed, the chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill such vacancy.

The duties of these inspectors shall be as follows:

(a)            Determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies;

(b)            Receive votes, ballots or consents;

(c)            Hear and determine all challenges and questions in any way arising in connection with the right to vote;

(d)            Count and tabulate all votes or consents;

(e)            Determine when the polls shall close;

(f)            Determine the result; and

(g)           Do any other acts that may be proper to conduct the election or vote with fairness to all shareholders.

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ARTICLE III

DIRECTORS

Section 3.1 POWERS. Subject to the provisions of the Corporations Code of California and any limitations in the articles of incorporation and these bylaws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors.

Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the directors shall have the power and authority to:

(a)            Select and remove all officers, agents, and employees of the corporation, prescribe such powers and duties for them as may not be inconsistent with law, with the articles of incorporation or these bylaws, fix their compensation, and require from them security for faithful service.

(b)            Change the principal executive office or the principal business office in the State of California from one location to another; cause the corporation to be qualified to do business in any other state, territory, dependency, or foreign country and conduct business within or outside the State of California; designate any place within or without the State of California for the holding of any shareholders' meeting, or meetings, including annual meetings; adopt, make and use a corporate seal, and prescribe the forms of certificates of stock, and alter the form of such seal and of such certificates from time to time as in their judgment they may deem best, provided that such forms shall at all times comply with the provisions of law.

(c)            Authorize the issuance of shares of stock of the corporation from time to time, upon such terms as may be lawful, in consideration of money paid, labor done or services actually rendered, debts or securities cancelled or tangible or intangible property actually received.

(d)            Borrow money and incur indebtedness for the purposes of the corporation, and cause to be executed and delivered therefor, in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations, or other evidences of debt and securities therefor.

Section 3.2 NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number of directors shall be not less than NINE (9) nor more than SEVENTEEN (17). The exact number of authorized directors shall be set from time to time by the board of directors. An amendment to this bylaw adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote which reduces the number of directors to a number less than five (5) cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of action by written consent, are equal to more than 16-2/3% of the outstanding shares entitled to vote.

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Section 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS.

The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist of an equal or close to equal number of directors. The term of the initial Class I directors shall terminate on the date of the 1997 annual meeting of shareholders; the term of the initial Class II directors shall terminate on the date of the 1998 annual meeting of shareholders; and the term of the initial Class III directors shall terminate on the date of the 1999 annual shareholders. At each annual meeting of shareholders beginning in 1997, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional directors of any class elected to fill a vacancy resulting from an increase in such a class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office.

Section 3.4 VACANCIES. Any vacancy on the Board of Directors, howsoever resulting, may be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy shall hold office for a term that shall coincide with the term of the class to which such director shall have been elected.

A vacancy or vacancies in the board of directors shall be deemed to exist in the case of the death, resignation or removal of any director, or if the board of directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony, or if the authorized number of directors be increased, or if the shareholders fail at any meeting of shareholders at which any director or directors are elected, to elect the full authorized number of directors to be voted for at that meeting.

The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election by written consent shall require the consent of a majority of the outstanding shares entitled to vote.

Any director may resign effective upon giving written notice to the chairman of the board, the president, the secretary or the board of directors, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective.

No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of his term of office.

Section 3.5 PLACE OF MEETINGS AND TELEPHONIC MEETINGS. Regular meetings of the board of directors may be held at any place within or without the State of California that has been designated from time to time by resolution of the board. In the absence of such designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board shall be held at any place within or without the State of California that has been designated in the notice of the meeting or, if not stated in the notice or there is no notice, at the principal executive office of the corporation. Any meeting, regular or special, may be held by conference telephone, electronic video screen communication, or electronic transmission by and to the corporation.

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(a)            Participation in a meeting through use of conference telephone or electronic video screen communication shall constitute presence in person at that meeting as long as all members participating in the meeting are able to hear one another.

(b)            Participation in a meeting through electronic transmission by and to the corporation (other than conference telephone and electronic video screen communication) constitutes presence in person at that meeting as long as (i) each member participating in the meeting can communicate with all of the other members concurrently, and (ii) Each member is provided the means of participating in all matters before the board, including, without limitation, the capacity to propose, or to interpose an objection to, a specific action to be taken by the corporation.

Section 3.6 ANNUAL MEETING. Immediately following each annual meeting of shareholders, the board of directors shall hold a regular meeting for the purpose of organization, any desired election of officers and the transaction of other business. Notice of this meeting shall not be required.

Section 3.7 OTHER REGULAR MEETINGS. Other regular meetings of the board of directors shall be held without call at such time as shall from time to time be fixed by the board of directors. Such regular meetings may be held without notice.

Section 3.8 SPECIAL MEETINGS. Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board or the president or any vice president or the secretary or any two directors.

Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail, telegram or by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, electronic mail, or other electronic means, charges pre-paid, addressed to each director at his or her address as it is shown upon the records of the corporation. In case such notice is mailed, it shall be deposited in the United States mail at least four (4) days prior to the time of the holding of the meeting. In case such notice is delivered personally, or by telegram, telephone, facsimile, electronic mail or other electronic means, it shall be delivered at least forty-eight (48) hours prior to the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated to either the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting nor the place if the meeting is to be held at the principal executive office of the corporation.

Section 3.9 QUORUM. A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as hereinafter provided. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the board of directors, subject to the provisions of Section 310 of the Corporations Code of California (approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 of that Code (appointment of committees), and Section 317(e) of that Code (indemnification of directors). A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting.

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Section 3.10 WAIVER OF NOTICE. Notice of a meeting need not be given to any director who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice. The waiver of notice or consent need not specify the purpose of the meeting. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting.

Section 3.11 ADJOURNMENT. A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place.

Section 3.12 NOTICE OF ADJOURNMENT. Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty-four hours, in which case notice of such time and place shall be given prior to the time of the adjourned meeting, in the manner specified in Section 3.8 of this Article III, to the directors who were not present at the time of the adjournment.

Section 3.13 ACTION WITHOUT MEETING. Any action required or permitted to be taken by the board of directors may be taken without a meeting, if all members of the board shall individually or collectively consent in writing to such action. Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors. Such written consent or consents shall be filed with the minutes of the proceedings of the board.

Section 3.14 FEES AND COMPENSATION OF DIRECTORS. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement of expenses, as may be fixed or determined by resolution of the board of directors. Nothing contained herein shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation for such services.

ARTICLE IV

COMMITTEES

Section 4.1 COMMITTEES OF DIRECTORS. The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any such committee, to the extent provided in the resolution of the board, shall have all the authority of the board, except with respect to:

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(a)            the approval of any action which, under the Corporations Code of California, also requires share holders' approval or approval of the outstanding shares;

(b)            the filling of vacancies on the board of directors or in any committee;

(c)            the fixing of compensation of the directors for serving on the board or on any committee;

(d)            the amendment or repeal of bylaws or the adoption of new bylaws;

(e)            the amendment or repeal of any resolution of the board of directors which by its express terms is not so amendable or repealable;

(f)            a distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the board of directors; or

(g)           the appointment of any other committees of the board of directors or the members thereof.

Section 4.2 MEETINGS AND ACTION OF COMMITTEES. Meetings and action of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Sections 3.5 (place of meetings), 3.7 (regular meetings), 3.8 (special meetings and notice), 3.9 (quorum), 3.10 (waiver of notice), 3.11 (adjournment), 3.12 (notice of adjournment) and 3.13 (action without meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members, except that the time of regular meetings of committees may be determined by resolution of the board of directors as well as by resolution of the committee; special meetings of committees may also be called by resolution of the board of directors; and notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.

ARTICLE V

OFFICERS

Section 5.1 OFFICERS. The officers of the corporation shall be a president, a secretary and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more vice-presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 5.3 of this Article V. Any number of offices may be held by the same person.

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Section 5.2 ELECTION OF OFFICERS. The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of this Article V, shall be chosen by the board of directors, and each shall serve at the pleasure of the board, subject to the rights, if any, of an officer under any contract of employment.

Section 5.3 SUBORDINATE OFFICERS, ETC. The board of directors may appoint, and may empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the bylaws or as the board of directors may from time to time determine.

Section 5.4 REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors, at any regular or special meeting thereof, or, except in case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors.

Any officer may resign at any time by giving written notice to the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any such resignation is with out prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.

Section 5.5 VACANCIES IN OFFICES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to such office.

Section 5.6 CHAIRMAN OF THE BOARD. The chairman of the board, if such an officer be elected, shall, if present, preside at all meetings of the board of directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the board of directors or prescribed by the bylaws. If there is no president, the chairman of the board shall in addition be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.7 of this Article V.

Section 5.7 PRESIDENT. Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction and control of the business and the officers of the corporation. He shall preside at all meetings of the shareholders and, in the absence of the chairman of the board, or if there be none, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the board of directors or the bylaws.

Section 5.8 VICE PRESIDENTS. In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president, and when so acting shall have all the powers of, and be subject to all restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors or the bylaws, the president or the chairman of the board.

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Section 5.9 SECRETARY. The secretary shall keep or cause to be kept, at the principal executive office or such other place as the board of directors may order, a book of minutes of all meetings and actions of directors, committees of directors and shareholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors' and committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof.

The secretary shall keep, or cause to be kept, at the principal executive office or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation.

The secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the board of directors required by the bylaws or by law to be given, and he shall keep the seal of the corporation, if one be adopted, in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by the bylaws.

Section 5.10 CHIEF FINANCIAL OFFICER. The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director.

The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his transactions as chief financial officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or the bylaws.

ARTICLE VI

INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES

AND OTHER AGENTS

Section 6.1 INDEMNIFICATION - THIRD PARTY PROCEEDINGS. The corporation shall indemnify any person (the "Indemnitee") who is or was a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the corporation to procure a judgment in its favor) by reason of the fact that Indemnitee is or was a director or officer of the corporation, or any subsidiary of the corporation, and the corporation may indemnify a person who is or was a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the corporation to procure a judgment in its favor) by reason of the fact that such person is or was an employee or other agent of the corporation (the "Indemnitee Agent") by reason of any action or inaction on the part of Indemnitee or Indemnitee Agent while an officer, director or agent or by reason of the fact that Indemnitee or Indemnitee Agent is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including subject to Section 6.19, attorneys' fees and any expenses of establishing a right to indemnification pursuant to this Article VI or under California law), judgments, fines, settlements (if such settlement is approved in advance by the corporation, which approval shall not be unreasonably withheld) and other amounts actually and reasonably incurred by Indemnitee or Indemnitee Agent in connection with such proceeding if Indemnitee or Indemnitee Agent acted in good faith and in a manner Indemnitee or Indemnitee Agent reasonably believed to be in or not opposed to the best interests of the corporation and, in the case of a criminal proceeding, if Indemnitee or Indemnitee Agent had no reasonable cause to believe Indemnitee's or Indemnitee Agent's conduct was unlawful. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that Indemnitee or Indemnitee Agent did not act in good faith and in a manner which Indemnitee or Indemnitee Agent reasonably believed to be in or not opposed to the best interests of the corporation, or with respect to any criminal proceedings, would not create a presumption that Indemnitee or Indemnitee Agent had reasonable cause to believe that Indemnitee's or Indemnitee Agent's conduct was unlawful.

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Section 6.2 INDEMNIFICATION - PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION. The corporation shall indemnify Indemnitee and may indemnify Indemnitee Agent if Indemnitee, or Indemnitee Agent, as the case may be, was or is a party or is threatened to be made a party to any threatened, pending or completed action by or in the right of the corporation or any subsidiary of the corporation to procure a judgment in its favor by reason of the fact that Indemnitee or Indemnitee Agent is or was a director, officer, employee or other agent of the corporation, or any subsidiary of the corporation, by reason of any action or inaction on the part of Indemnitee or Indemnitee Agent while an officer, director or agent or by reason of the fact that Indemnitee or Indemnitee Agent is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including subject to Section 6.19, attorneys' fees and any expenses of establishing a right to indemnification pursuant to this Article VI or under California law) and, to the fullest extent permitted by law, amounts paid in settlement, in each case to the extent actually and reasonably incurred by Indemnitee or Indemnitee Agent in connection with the defense or settlement of the proceeding if Indemnitee or Indemnitee Agent acted in good faith and in a manner Indemnitee or Indemnitee Agent believed to be in or not opposed to the best interests of the corporation and its shareholders, except that no indemnification shall be made with respect to any claim, issue or matter to which Indemnitee (or Indemnitee Agent) shall have been adjudged to have been liable to the corporation in the performance of Indemnitee's or Indemnitee Agent's duty to the corporation and its shareholders, unless and only to the extent that the court in which such proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee (or Indemnitee Agent) is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine.

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Section 6.3 SUCCESSFUL DEFENSE ON MERITS. To the extent that Indemnitee (or Indemnitee Agent) without limitation has been successful on the merits in defense of any proceeding referred to in Sections 6.1 or 6.2 above, or in defense of any claim, issue or matter therein, the corporation shall indemnify Indemnitee (or Indemnitee Agent) against expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee (or Indemnitee Agent) in connection therewith.

Section 6.4 CERTAIN TERMS DEFINED. For purposes of this Article VI, references to "other enterprises" shall include employee benefit plans, references to "fines" shall include any excise taxes assessed on Indemnitee or Indemnitee Agent with respect to an employee benefit plan, and references to "proceeding" shall include any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative. References to "corporation" include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation, so that any person who is or was a director, officer, employee, or other agent of such a constituent corporation or who, being or having been such a director, officer, employee or other agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article VI with respect to the resulting or surviving corporation as such person would if he or she had served the resulting or surviving corporation in the same capacity.

Section 6.5 ADVANCEMENT OF EXPENSES. The corporation shall advance all expenses incurred by Indemnitee and may advance all or any expenses incurred by Indemnitee Agent in connection with the investigation, defense, settlement (excluding amounts actually paid in settlement of any action, suit or proceeding) or appeal of any civil or criminal action, suit or proceeding referenced in Sections 6.1 or 6.2 hereof. Indemnitee or Indemnitee Agent hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall be determined ultimately that Indemnitee or Indemnitee Agent is not entitled to be indemnified by the corporation as authorized hereby. The advances to be made hereunder shall be paid by the corporation (i) to Indemnitee within twenty (20) days following delivery of a written request therefor by Indemnitee to the corporation; and (ii) to Indemnitee Agent within twenty (20) days following the later of a written request therefor by Indemnitee Agent to the corporation and determination by the corporation to advance expenses to Indemnitee Agent pursuant to the corporation's discretionary authority hereunder.

Section 6.6 NOTICE OF CLAIM. Indemnitee shall, as a condition precedent to his or her right to be indemnified under this Article VI, and Indemnitee Agent shall, as a condition precedent to his or her ability to be indemnified under this Article VI, give the corporation notice in writing as soon as practicable of any claim made against Indemnitee or Indemnitee Agent, as the case may be, for which indemnification will or could be sought under this Article VI. Notice to the corporation shall be directed to the secretary of the corporation at the principal business office of the corporation (or such other address as the corporation shall designate in writing to Indemnitee). In addition, Indemnitee or Indemnitee Agent shall give the corporation such information and cooperation as it may reasonably require and as shall be within Indemnitee's or Indemnitee Agent's power.

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Section 6.7 ENFORCEMENT RIGHTS. Any indemnification provided for in Sections 6.1 or 6.2 or 6.3 shall be made no later than sixty (60) days after receipt of the written request of Indemnitee. If a claim or request under this Article VI, under any statute, or under any provision of the corporation's Articles of Incorporation providing for indemnification is not paid by the corporation, or on its behalf, within sixty (60) days after written request for payment thereof has been received by the corporation, Indemnitee may, but need not, at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim or request, and subject to Section 6.19, Indemnitee shall also be entitled to be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the corporation to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the corporation, and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 6.5 unless and until such defense may be finally adjudicated by court order or judgment for which no further right of appeal exists. The parties hereto intend that if the corporation contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be a decision for the court, and no presumption regarding whether the applicable standard has been met will arise based on any determination or lack of determination of such by the corporation (including its Board or any subgroup thereof, independent legal counsel or its shareholders). The board of directors may, in its discretion, provide by resolution for similar or identical enforcement rights for any Indemnitee Agent.

Section 6.8 ASSUMPTION OF DEFENSE. In the event the corporation shall be obligated to pay the expenses of any proceeding against the Indemnitee (or Indemnitee Agent), the corporation, if appropriate, shall be entitled to assume the defense of such proceeding with counsel approved by Indemnitee (or Indemnitee Agent), which approval shall not be unreasonably withheld, upon the delivery to Indemnitee (or Indemnitee Agent) of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee (or Indemnitee Agent) and the retention of such counsel by the corporation, the corporation will not be liable to Indemnitee (or Indemnitee Agent) under this Article VI for any fees of counsel subsequently incurred by Indemnitee (or Indemnitee Agent) with respect to the same proceeding, unless (i) the employment of counsel by Indemnitee (or Indemnitee Agent) is authorized by the corporation, (ii) Indemnitee (or Indemnitee Agent) shall have reasonably concluded that there may be a conflict of interest of such counsel retained by the corporation between the corporation and Indemnitee (or Indemnitee Agent) in the conduct of such defense, or (iii) the corporation ceases or terminates the employment of such counsel with respect to the defense of such proceeding, in any of which events then the fees and expenses of Indemnitee's (or Indemnitee Agent's) counsel shall be at the expense of the corporation. At all times, Indemnitee (or Indemnitee Agent) shall have the right to employ other counsel in any such proceeding at Indemnitee's (or Indemnitee Agent's) expense.

Section 6.9 APPROVAL OF EXPENSES. No expenses for which indemnity shall be sought under this Article VI, other than those in respect of judgments and verdicts actually rendered, shall be incurred without the prior consent of the corporation, which consent shall not be unreasonably withheld.

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Section 6.10 SUBROGATION. In the event of payment under this Article VI, the corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee (or Indemnitee Agent), who shall do all things that may be necessary to secure such rights, including the execution of such documents necessary to enable the corporation effectively to bring suit to enforce such rights.

Section 6.11 EXCEPTIONS. Notwithstanding any other provision herein to the contrary, the corporation shall not be obligated pursuant to this Article VI:

(a)            Excluded Acts. To indemnify Indemnitee (i) as to circumstances in which indemnity is expressly prohibited pursuant to California law, or (ii) for any acts or omissions or transactions from which a director may not be relieved of liability pursuant to California law; or

(b)            Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Article VI or any other statute or law or as otherwise required under the Corporations Code of California, but such indemnification or advancement of expenses may be provided by the corporation in specific cases if the board of directors has approved the initiation or bringing of such suit; or

(c)            Lack of Good Faith. To indemnify Indemnitee for any expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Article VI, if a court of competent jurisdiction determines that such proceeding was not made in good faith or was frivolous; or

(d)            Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the corporation; or

(e)            Claims Under Section 16(b). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute.

Section 6.12 PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of this Article VI to indemnification by the corporation for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred by the Indemnitee in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the corporation shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled.

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Section 6.13 COVERAGE. This Article VI shall, to the extent permitted by law, apply to acts or omissions of (i) Indemnitee which occurred prior to the adoption of this Article VI if Indemnitee was a director or officer of the corporation or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, at the time such act or omission occurred; and (ii) Indemnitee Agent which occurred prior to the adoption of this Article VI if Indemnitee Agent was an employee or other agent of the corporation or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise at the time such act or omission occurred. All rights to indemnification under this Article VI shall be deemed to be provided by a contract between the corporation and the Indemnitee in which the corporation hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the corporation's Articles of Incorporation, these Bylaws or by statute. Any repeal or modification of these Bylaws, the Corporations Code of California or any other applicable law shall not affect any rights or obligations then existing under this Article VI. The provisions of this Article VI shall continue as to Indemnitee and Indemnitee Agent for any action taken or not taken while serving in an indemnified capacity even though the Indemnitee or Indemnitee Agent may have ceased to serve in such capacity at the time of any action, suit or other covered proceeding. This Article VI shall be binding upon the corporation and its successors and assigns and shall inure to the benefit of Indemnitee and Indemnitee Agent and Indemnitee's and Indemnitee Agent's estate, heirs, legal representatives and assigns.

Section 6.14 NON-EXCLUSIVITY. Nothing herein shall be deemed to diminish or otherwise restrict any rights to which Indemnitee or Indemnitee Agent may be entitled under the corporation's Articles of Incorporation, these Bylaws, any agreement, any vote of shareholders or disinterested directors, or under the laws of the State of California.

Section 6.15 SEVERABILITY. Nothing in this Article VI is intended to require or shall be construed as requiring the corporation to do or fail to do any act in violation of applicable law. If this Article VI or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify Indemnitee or Indemnitee Agent to the fullest extent permitted by any applicable portion of this Article VI that shall not have been invalidated.

Section 6.16 MUTUAL ACKNOWLEDGMENT. Both the corporation and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the corporation from indemnifying its directors and officers under this Article VI or otherwise. Indemnitee understands and acknowledges that the corporation has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the corporation's right under public policy to indemnify Indemnitee.

Section 6.17 OFFICER AND DIRECTOR LIABILITY INSURANCE. The corporation shall, from time to time, make the good faith determination whether or not it is practicable for the corporation to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the corporation with coverage for losses from wrongful acts, or to ensure the corporation's performance of its indemnification obligations under this Article VI. Among other considerations, the corporation will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. Notwithstanding the foregoing, the corporation shall have no obligation to obtain or maintain such insurance if the corporation determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the corporation.

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Section 6.18 NOTICE TO INSURERS. If, at the time of the receipt of a notice of a claim pursuant to Section 6.6 hereof, the corporation has director and officer liability insurance in effect, the corporation shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The corporation shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

Section 6.19 ATTORNEYS' FEES. In the event that any action is instituted by Indemnitee under this Article VI to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that the action was not instituted in good faith or was frivolous. In the event of an action instituted by or in the name of the corporation under this Article VI, or to enforce or interpret any of the terms of this Article VI, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that Indemnitee's defenses to such action were not made in good faith or were frivolous. The board of directors may, in its discretion, provide by resolution for payment of such attorneys' fees to any Indemnitee Agent.

Section 6.20 NOTICE. All notices, requests, demands and other communications under this Article VI shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the addressee, on the date of such receipt, (ii) if sent by electronic transmission by the corporation, at the time sent, or (iii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked.

ARTICLE VII

RECORDS AND REPORTS

Section 7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER. The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, if either be appointed and as determined by resolution of the board of directors, a record of its share holders, giving the names and addresses of all shareholders and the number and class of shares held by each shareholder.

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A shareholder or shareholders of the corporation holding at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation may (i) inspect and copy the records of shareholders' names and addresses and shareholdings during usual business hours upon five days prior written demand upon the corporation, and/or (ii) obtain from the transfer agent of the corporation, upon written demand and upon the tender of such transfer agent's usual charges for such list, a list of the shareholders' names and addresses, who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which such list has been compiled or as of a date specified by the shareholder subsequent to the date of demand. Such list shall be made available by the transfer agent on or before the later of five (5) days after the demand is received or the date specified therein as the date as of which the list is to be compiled. The record of shareholders shall also be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any time during usual business hours, for a purpose reasonably related to such holder's interests as a shareholder or as the holder of a voting trust certificate. Any inspection and copying under this Section may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making such demand.

Section 7.2 MAINTENANCE AND INSPECTION OF BYLAWS. The corporation shall keep at its principal executive office, or if its principal executive office is not in the State of California at its principal business office in this state, the original or a copy of the bylaws as amended to date, which shall be open to inspection by the shareholders at all reason able times during office hours. If the principal executive office of the corporation is outside this State and the corporation has no principal business office in this state, the Secretary shall, upon the written request of any shareholder, furnish to such shareholder a copy of the bylaws as amended to date.

Section 7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. The accounting books and records and minutes of proceedings of the shareholders and the board of directors and any committee or committees of the board of directors shall be kept at such place or places designated by the board of directors, or, in the absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. Such minutes and accounting books and records shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any reasonable time during usual business hours, for a purpose reasonably related to such holder's interests as a shareholder or as the holder of a voting trust certificate. Such inspection may be made in person or by an agent or attorney, and shall include the right to copy and make extracts. The foregoing rights of inspection shall extend to the records of each subsidiary of the corporation.

Section 7.4 INSPECTION BY DIRECTORS. Every director shall have the absolute right at any reasonable time to inspect all books, records, and documents of every kind and the physical properties of the corporation and each of its subsidiary corporations. This inspection by a director may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts of documents.

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Section 7.5 ANNUAL REPORT TO SHAREHOLDERS. The annual report to shareholders referred to in Section 1501 of the Corporations Code of California is expressly dispensed with, but nothing herein shall be interpreted as prohibiting the board of directors from issuing annual or other periodic reports to the shareholders of the corporation as they deem appropriate.

Section 7.6 FINANCIAL STATEMENTS. A copy of any annual financial statement and any income statement of the corporation for each quarterly period of each fiscal year, and any accompanying balance sheet of the corporation as of the end of each such period, that has been prepared by the corporation shall be kept on file in the principal executive office of the corporation for twelve (12) months and each such statement shall be exhibited at all reasonable times to any shareholder demanding an examination of any such statement or a copy shall be mailed to any such shareholder.

If no annual report for the last fiscal year has been sent to shareholders, the corporation shall, upon the written request of any shareholder made more than 120 days after the close of such fiscal year, deliver or mail to such shareholder, within thirty (30) days after such request a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year.

If a shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of stock of the corporation make a written request to the corporation for an income statement of the corporation for the three-month, six-month or nine-month period of the then current fiscal year ended more than thirty (30) days prior to the date of the request and a balance sheet of the corporation as of the end of such period and, in addition, if no annual report for the last fiscal year has been sent to shareholders, a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year, then, the chief financial officer shall cause such statements to be prepared, if not already prepared, and shall deliver personally or mail such statement or statements to the person making the request within thirty (30) days after the receipt of such request.

The income statements and balance sheets referred to in this section shall be accompanied by the report thereon, if any, of any independent accountants engaged by the corporation or the certificate of an authorized officer of the corporation that such financial statements were prepared without audit from the books and records of the corporation.

Section 7.7 ANNUAL STATEMENT OF GENERAL INFORMATION. The corporation shall file annually with the Secretary of State of the State of California, on the prescribed form, a statement setting forth the names and complete business or residence addresses of all incumbent directors, the number of vacancies on the board of directors, if any, the names and complete business or residence addresses of the chief executive officer, secretary and chief financial officer, the street address of its principal executive office or principal business office in this state and the general type of business constituting the principal business activity of the corporation, together with a designation of the agent of the corporation for the purpose of service of process, all in compliance with Section 1502 of the Corporations Code of California.

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ARTICLE VIII

GENERAL CORPORATE MATTERS

Section 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For purposes of determining the share holders entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action (other than action by shareholders by written consent without a meeting), the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days prior to any such action, and in such case only shareholders of record on the date so fixed are entitled to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date fixed as aforesaid, except as otherwise provided in the Corporations Code of California.

If the board of directors does not so fix a record date, the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such action, whichever is later.

Section 8.2 CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board of Directors.

Section 8.3 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances; and, unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

Section 8.4 CERTIFICATES FOR SHARES. A certificate or certificates for shares of the capital stock of the corporation shall be issued to each shareholder when any such shares are fully paid, and the board of directors may authorize the issuance of certificates for shares as partly paid provided that such certificates shall state the amount of the consideration to be paid therefor and the amount paid thereon. All certificates shall be signed in the name of the corporation by the chairman of the board or vice chairman of the board or the president or a vice president and by the chief financial officer or an assistant treasurer or the secretary or any assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue.

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If the shares of the corporation are classified, or if any class of shares has two or more series, there shall appear on the certificate one of the following: (i) a statement of the rights, preferences, privileges, and restrictions granted to or imposed upon each class or series of shares authorized to be issued and upon the holders thereof; (ii) a summary of rights, preferences, privileges, and restrictions with reference to the provisions of the articles of incorporation and any certificates of determination establishing the same; or (iii) a statement setting forth the office or agency of the corporation from which shareholders may obtain, upon request and without charge, a copy of the statement referred to in (i) above.

There shall also appear on the certificate the following statements (if applicable): (i) that the shares are subject to restrictions upon transfer; (ii) if the shares are assessable or are not fully paid, that they are assessable or, on partly paid shares, the total amount of the consideration to be paid and the amount previously paid; (iii) that the shares are subject to a close corporation voting agreement, or an irrevocable proxy, or restrictions upon voting rights contractually imposed by the corporation; (iv) that the corporation is a close corporation, whose shareholders of record cannot exceed a specified amount; (v) that the shares are redeemable; and (vi) that the shares are convertible and the period for conversion. Any statement on the face of the certificate required by this paragraph shall be conspicuous.

When the corporation’s articles of incorporation are amended in any way affecting the statements contained in the certificates for outstanding shares, or it becomes desirable for any reason, in the discretion of the Board of Directors, to cancel any outstanding certificate for shares and issue a new certificate therefor conforming to the rights of the holder, the Board of Directors may order any holders of outstanding certificates for shares to surrender and exchange them for new certificates within a reasonable time to be fixed by the Board of Directors.

Notwithstanding anything contained in this Article VIII, Section 8.4 to the contrary, the corporation may adopt, in accordance with Section 416(b) of the California General Corporation Law, a system of issuance, recordation, and transfer of its shares by electronic or other means not involving any issuance of certificates.

Section 8.5 LOST CERTIFICATES. Except as herein after in this Section provided, no new certificates for shares shall be issued in lieu of an old certificate unless the latter is surrendered to the corporation and cancelled at the same time. The board of directors may in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of a new certificate in lieu thereof, upon such terms and conditions as the board may require including provision for indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate.

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Section 8.6 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The chairman of the board, the president, or any vice president, or any other person authorized by resolution of the board of directors by any of the foregoing designated officers, is authorized to vote on behalf of the corporation any and all shares of any other corporation or corporations, foreign or domestic, standing in the name of the corporation. The authority herein granted to said officers to vote or represent on behalf of the corporation any and all shares held by the corporation in any other corporation or corporations may be exercised by any such officer in person or by any person authorized to do so by proxy duly executed by said officer.

Section 8.7 CONSTRUCTION AND DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Corporations Code of California shall govern the construction of these bylaws. Without limiting the generality of the foregoing, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person.

Section 8.8 TIME NOTICE GIVEN OR SENT. Any reference in these bylaws to the time a notice is given or sent means, unless otherwise expressly provided herein or by law, the time a written notice (a) is deposited in the United States mail, is personally delivered to the recipient, or is delivered to a common carrier for transmission; (b) is actually transmitted to the recipient by the person giving the notice by electronic transmission; or (c) is communicated, in person or by telephone, to the recipient or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient

Section 8.9 ELECTRONIC TRANSMISSION BY OR TO THE CORPORATION.

(a) When used in these bylaws, the term "electronic transmission by the corporation" means a communication (a) delivered by (1) facsimile telecommunication or electronic mail when directed to the facsimile number or electronic mail address, respectively, for that recipient on record with the corporation, (2) posting on an electronic message board or network which the corporation has designated for those communications, together with a separate notice to the recipient of the posting, which transmission shall be validly delivered upon the later of the posting or delivery of the separate notice thereof, or (3) other means of electronic communication, (b) to a recipient who has provided an unrevoked consent to the use of those means of transmission for communications under or pursuant to the Corporations Code of California, (c) that creates a record that is capable of retention, retrieval, and review, and that may thereafter be rendered into clearly legible tangible form, and (d) that satisfies the requirements applicable to consumer consent to electronic records as set forth in the Electronic Signatures in Global and National Commerce Act (15 U.S.C. Sec. 7001(c)(1)), or any similar law that replaces such act.

(b)            When used in these bylaws, "electronic transmission to the corporation" means a communication (a) delivered by (1) facsimile telecommunication or electronic mail when directed to the facsimile number or electronic mail address, respectively, which the corporation has provided from time to time to shareholders or members and directors for sending communications to the corporation, (2) posting on an electronic message board or network which the corporation has designated for those communications, and which transmission shall be validly delivered upon the posting, or (3) other means of electronic communication, (b) as to which the corporation has placed in effect reasonable measures to verify that the sender is the shareholder or member (in person or by proxy) or director purporting to send the transmission, and (c) that creates a record that is capable of retention, retrieval, and review, and that may thereafter be rendered into clearly legible tangible form.

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ARTICLE IX

AMENDMENTS

Section 9.1 AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or these bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the articles of incorporation of the corporation set forth the number of authorized directors of the corporation, the authorized number of directors may be changed only by an amendment of the articles of incorporation.

Section 9.2 AMENDMENT BY DIRECTORS. Subject to the rights of the shareholders as provided in Section 9.1 of this Article IX, bylaws, other than a bylaw or an amendment thereof changing the authorized number of directors, may be adopted, amended or repealed by the board of directors.

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EX-10.1

Exhibit 10.1

NATIONAL TECHNICAL SYSTEMS, INC.

2002 STOCK OPTION PLAN

1.             Purpose of the Plan. The purpose of this Plan is to offer certain Service Providers the opportunity to acquire a proprietary interest in the Company by the grant of options to purchase Common Stock. Through the Plan, the Company and its Affiliates seek to attract, motivate, and retain highly competent persons. The success of the Company and its Affiliates are dependent upon the efforts of these persons. An Option granted under the Plan may be a Non-Statutory Stock Option or an Incentive Stock Option, as determined by the Administrator.

2.             Definitions.

"Administrator" shall mean the Board or any one of the Committees.

"Affiliate" shall mean any parent or subsidiary (as defined in Sections 424(e) and (f) of the Code) of the Company.

"APB 25" shall mean Opinion 25 of the Accounting Principles Board, as amended, and any successor thereof.

"Board" shall mean the Board of Directors of the Company.

"Cause" shall have the meaning given to it under California law, as interpreted by the Administrator.

"Change in Control"shall mean: (i) the acquisition by any entity, person, or group (other than the Company, any one of its Affiliates, or an employee benefit plan maintained by the Company or any one of its Affiliates) of beneficial ownership of 50% or more of the outstanding voting stock (other than preferred stock) of the Company; (ii) the occurrence of a transaction requiring shareholder approval for the acquisition of the Company by the purchase of stock or assets, or by merger, or otherwise; or (iii) the election during any period of 24 months or less of 50% or more of the members of the Board without the approval of the nomination of such members by a majority of the Board consisting of members who were serving at the beginning of such period.

"Code"shall mean the Internal Revenue Code of 1986, as amended.

"Committee" shall mean a committee appointed by the Board in accordance with Section 3 below.

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"Common Stock" shall mean the common stock of the Company.

"Company"shall mean National Technical Systems, Inc.

"Consultant" shall mean any natural person who performs bona fide services for the Company or an Affiliate as a consultant or advisor, excluding Employees and Non-Employee Directors.

"Date of Exercise" shall mean the date on which the Company shall have received written notice of the Option exercise accompanied by the Exercise Price.

"Date of Grant" shall mean the effective date on which the Administrator grants an Option to an Optionee.

"Disability" shall mean total and permanent disability as defined in Section 22(e)(3) of the Code.

"Employee"shall mean any individual who is a common-law employee of the Company or an Affiliate.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

"Exercise Price" shall mean the exercise price of a share of Optioned Stock.

"Fair Market Value"shall mean, as of any date, the value of Common Stock determined as follows:

(i)             If the Common Stock is listed on any established stock exchange or a national market system, including without limitation, the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or

(ii)            In the absence of an established market for the Common Stock, its Fair Market Value shall be determined, in good faith, by the Administrator.

"FASB" shall mean the Financial Accounting Standards Board.

"Incentive Stock Option" shall mean an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.

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"Mature Shares" shall mean Shares that had been held by the Optionee for a meaningful period of time such as six months or such other period of time that is consistent with FASB's interpretation of APB 25.

"Non-Employee Director" shall mean a non-employee member of the Board.

"Non-Statutory Stock Option"shall mean an Option not intended to qualify as an Incentive Stock Option.

"Option" shall mean a stock option granted pursuant to the Plan.

"Option Agreement"shall mean a written agreement that evidences an Option in such form as the Administrator shall approve from time to time.

"Optioned Stock" shall mean the Common Stock subject to an Option.

"Optionee"shall mean a person to whom an Option is granted pursuant to the Plan or, if applicable, such person who holds an outstanding Option.

"Person" shall be construed broadly and shall include, without limitation, an individual, a partnership, an investment fund, a limited liability company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, and a governmental entity or any department, agency or political subdivision thereof.

"Plan"shall mean the National Technical Systems, Inc. 2002 Stock Option Plan.

"Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3.

"Securities Act" shall mean the Securities Act of 1933, as amended.

"Service"shall mean the performance of services for the Company (or any Affiliate) by an Employee, Non-Employee Director, or Consultant, as determined by the Administrator in its sole discretion. Service shall not be considered interrupted in the case of: (i) a change of status (i.e., from Employee to Consultant, Non-Employee Director to Consultant, or any other combination); (ii) transfers between locations of the Company or between the Company and any Affiliate; or (iii) a leave of absence approved by the Company or an Affiliate. A leave of absence approved by the Company or an Affiliate shall include sick leave, military leave, or any other personal leave approved by an authorized representative of the Company or an Affiliate.

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"Service Provider" shall mean an Employee, Non-Employee Director, or Consultant.

"Share" shall mean a share of Common Stock.

"Taxes" shall mean the federal, state, and local income and employment tax liabilities incurred by the Optionee in connection with his/her Options.

"10% Shareholder" shall mean the owner of stock (as determined under Section 424(d) of the Code) possessing more than 10% of the total combined voting power of all classes of stock of the Company (or any Affiliate).

"Termination Date" shall mean the date on which an Optionee's Service terminates, as determined by the Administrator in its sole discretion.

3.             Administration of the Plan.

(a)            Administration by Board. The Plan shall be administered by the Board or a committee appointed by the Board.

(b)            Multiple Administrative Bodies. The Plan may be administered by different Committees with respect to different groups of Service Providers.

(i)             Section 162(m). To the extent that the Administrator determines that it is desirable to qualify Options as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more "outside directors" within the meaning of Section 162(m) of the Code.

(ii)            Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3.

(iii)           Other Administration. Other than as provided for above, the Plan shall be administered by (A) the Board or (B) a Committee, which Committee shall be constituted to satisfy applicable laws.

(c)            Powers of the Administrator. Subject to the provisions of the Plan and in the case of specific duties delegated by the Administrator, and subject to the approval of relevant authorities, including the approval, if required, of any stock exchange or national market system upon which the Common Stock is then listed, the Administrator shall have the authority, in its sole discretion:

(i)             to determine the Fair Market Value of the Common Stock;

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(ii)            to select the Service Providers to whom Options may, from time to time, be granted under the Plan;

(iii)           to determine whether and to what extent Options are granted under the Plan;

(iv)           to determine the number of Shares that are covered by an Option;

(v)            to approve the terms of the Option Agreements;

(vi)           to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Option. Such terms and conditions may include, but are not limited to, the Exercise Price, the status of an Option (Non-Statutory Stock Option or Incentive Stock Option), the time or times when the Option may be exercised, any vesting acceleration, and any restriction or limitation regarding the Option or the Shares relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;

(vii)          to determine the method of payment of the Exercise Price;

(viii)         to reduce the Exercise Price of any Option to the then current Fair Market Value if the Fair Market Value of the Optioned Stock has declined since the Date of Grant of such Option;

(ix)           to delegate to others responsibilities to assist in administering the Plan; and

(x)             to construe and interpret the terms of the Plan, Option Agreements, and any other documents related to the Options.

(d)            Effect of Administrator's Decision. All decisions, determinations, and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options. The Administrator's decisions and determinations under the Plan need not be uniform and may be made selectively among Optionees whether or not such Optionees are similarly situated.

(e)            Liability. No member of the Committee shall be personally liable by reason of any contract or other instrument executed by such member or on his/her behalf in his/her capacity as a member of the Committee for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless each member of the Committee and each other employee, officer or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan unless arising out of such person's own fraud or bad faith. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any power the Company may have to indemnify them or hold them harmless.

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4.             Stock Subject To The Plan.

(a)            Basic Limitation. The total number of Shares subject to issuance under the Plan may not exceed 1,000,000 subject to adjustments as provided for in the Plan.

(b)            Source of Shares. Shares to be delivered under the Plan may consist, in whole or in part, of authorized but unissued Shares, or Shares purchased by the Company on the open market.

(c)            Additional Shares. In the event that any outstanding Option expires or is canceled or otherwise terminated, the Shares allocable to the unexercised portion of such Option shall again be available for the purposes of the Plan, except that the aggregate number of Shares which may be issued upon the exercise of Incentive Stock Options shall in no event exceed 1,000,000 Shares, subject to adjustment, pursuant to Section 8 below.

5.             Eligibility.

(a)            Eligibility for Options. The persons eligible to participate in the Plan shall be limited to Employees, Non-Employee Directors, and Consultants who have the potential to impact the long-term success of the Company and/or its Affiliates and who have been selected by the Administrator to participate in the Plan.

(b)            Section 162(m) Limitation. No Employee may be granted (in any calendar year) Options to purchase more than 100,000 Shares, subject to adjustment, pursuant to Section 8 below.

(c)            Consultants. A Consultant shall not be eligible for the grant of an Option if, at the time of grant, a Form S-8 Registration Statement under the Securities Act ("Form S-8") is not available to register either the offer or the sale of the Company's securities to such Consultant because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by the rules governing the use of Form S-8, unless the Company determines both (i) that such grant (A) shall be registered in another manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or (B) does not require registration under the Securities Act in order to comply with the requirements of the Securities Act, if applicable, and (ii) that such grant complies with the securities laws of all other relevant jurisdictions.

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6.             Option Terms. Each Option shall be evidenced by an Option Agreement, in the form approved by the Administrator and may contain such provisions as the Administrator deems appropriate; provided, however, that each Option Agreement shall comply with the terms specified below. Each Option Agreement evidencing an Incentive Stock Option shall, in addition, be subject to Section 7 below.

(a)            Exercise Price.

(i)             The Exercise Price of an Option shall be determined by the Administrator but shall not be less than 100% of the Fair Market Value of a Share on the Date of Grant of such Option.

(ii)            The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator and may consist of (A) cash, (B) check, (C) Mature Shares, or (D) any other form of legal consideration that is acceptable to the Administrator.

(b)            Vesting. Any Option granted hereunder shall be exercisable and shall vest at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement.

(c)            Term of Options. No Option shall have a term in excess of 10 years measured from the Date of Grant of such Option.

(d)            Procedure for Exercise. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option Agreement by the person entitled to exercise the Option and full payment of the applicable Exercise Price for the Share being exercised has been received by the Administrator. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Subsection (a)(ii) above.

(e)            Effect of Termination of Service.

(i)             Termination of Service. Upon termination of an Optionee's Service, other than due to death, Disability, or Cause, the Optionee may exercise his/her Option, but only on or prior to the date that is three months following the Optionee's Termination Date, and only to the extent that the Optionee was entitled to exercise such Option on the Termination Date (but in no event later than the expiration of the term of such Option, as set forth in the Notice of Stock Option Grant to the Option Agreement). If, on the Termination Date, the Optionee is not entitled to exercise the Optionee's entire Option, the Shares covered by the unexercisable portion of the Option shall revert to the Plan. If, after termination of Service, the Optionee does not exercise his/her Option within the time specified herein, the Option shall terminate, and the Optioned Stock shall revert to the Plan.

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(ii)            Disability of Optionee. In the event of termination of an Optionee's Service due to his/her Disability, the Optionee may exercise his/her Option, but only on or prior to the date that is twelve months following the Termination Date, and only to the extent that the Optionee was entitled to exercise such Option on the Termination Date (but in no event later than the expiration date of the term of his/her Option, as set forth in the Notice of Stock Option Grant to the Option Agreement). To the extent the Optionee is not entitled to exercise the Option on the Termination Date, or if the Optionee does not exercise the Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Optioned Stock shall revert to the Plan.

(iii)           Death of Optionee. In the event that an Optionee should die while in Service, the Optionee's Option may be exercised by the Optionee's estate or by a person who has acquired the right to exercise the Option by bequest or inheritance, but only on or prior to the date that is twelve months following the date of death, and only to the extent that the Optionee was entitled to exercise the Option at the date of death (but in no event later than the expiration date of the term of his/her Option, as set forth in the Notice of Stock Option Grant to the Option Agreement). If, at the time of death, the Optionee was not entitled to exercise his/her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If after death, the Optionee's estate or a person who acquires the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Optioned Stock shall revert to the Plan.

(iv)           Cause. In the event of termination of an Optionee's Service due to Cause, the Optionee's Options shall terminate on the Termination Date, unless otherwise determined by the Administrator.

(v)            The Administrator shall have complete discretion, exercisable either at the time an Option is granted or at any time while the Option remains outstanding, to:

(A)            extend the period of time for which the Option is to remain exercisable following the Optionee's cessation of Service from the limited exercise period otherwise in effect for that Option to such greater period of time as the Administrator shall deem appropriate, but in no event beyond the expiration of the Option term; and/or

(B)            permit the Option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested Shares for which such Option is exercisable at the time of the Optionee's cessation of Service but also with respect to one or more additional installments in which the Optionee would have vested had the Optionee continued in Service.

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(f)            Shareholder Rights. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 8 below.

(g)            Non-transferability of Options. Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent and distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee.

7.            Incentive Stock Options. The terms specified below shall be applicable to all Incentive Stock Options, and these terms shall, as to such Incentive Stock Options, supercede any conflicting terms in Section 6 above. Options which are specifically designated as Non-Statutory Stock Options when issued under the Plan shall not be subject to the terms of this Section.

(a)            Eligibility. Incentive Stock Options may only be granted to Employees.

(b)            Exercise Price. The Exercise Price of an Incentive Stock Option shall not be less than 100% of the Fair Market Value of a Share on the Date of Grant of such Option, except as otherwise provided in Section 7(d) below.

(c)            Dollar Limitation. In the case of an Incentive Stock Option, the aggregate Fair Market Value of the Optioned Stock (determined as of the Date of Grant of each Option) with respect to Options granted to any Employee under the Plan (or any other option plan of the Company or any Affiliate) that may for the first time become exercisable as Incentive Stock Options during any one calendar year shall not exceed the sum of $100,000. To the extent the Employee holds two or more such Options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such Options as Incentive Stock Options shall be applied on the basis of the order in which such Options are granted. Any Options in excess of such limitation shall automatically be treated as Non-Statutory Stock Options.

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(d)            10% Shareholder. If any Employee to whom an Incentive Stock Option is granted is a 10% Shareholder, then the Exercise Price shall not be less than 110% of the Fair Market Value of a Share on the Date of Grant of such Option, and the Option term shall not exceed five years measured from the Date of Grant of such Option.

(e)            Change in Status. In the event of an Optionee's change of status from Employee to Consultant or to Non-Employee Director, an Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Non-Statutory Stock Option three months and one day following such change of status.

(f)             Approved Leave of Absence. If an Optionee is on an approved leave of absence, and the Optionee's reemployment upon expiration of such leave is not guaranteed by statute or contract, including Company policies, then on the 91st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Non-Statutory Stock Option.

8.             Adjustments Upon Changes in Capitalization.

(a)            Changes in Capitalization. The number of Shares covered by each outstanding Option, the number of Shares which have been authorized for which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, the maximum number of Shares which may be optioned to an Employee in any year, and the Exercise Price per Share covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding Shares resulting from a stock split, reverse stock split, stock dividend, recapitalization, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued and outstanding Shares, effected without the receipt of consideration by the Company. Such adjustment shall be made by the Administrator so that the adjustment shall not result in an accounting consequence under APB 25 and FASB Interpretation No. 44, as amended, and any successor thereof. The Administrator's determination with respect to the adjustment shall be final, binding, and conclusive.

(b)            Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. In such event, the Administrator, in its discretion, may provide for an Optionee to fully vest in his/her Option. To the extent it has not been previously exercised, an Option will terminate upon termination or liquidation of the Company.

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9.             Change in Control.

(a)            Except as otherwise provided for in the Optionee's Option Agreement, in the event of a Change in Control, the Company and the successor corporation, if any, may agree (without the Optionee's consent):

(i)             that, subject to Subsection (b) below, all Options that are outstanding on the date that immediately precedes the date of the Change in Control shall become exercisable on the date that immediately precedes the date of the Change in Control and the Administrator shall notify the Optionees of their Options' exercisability at least 21 days prior to the date of the Change in Control so that the Optionees can decide whether or not to exercise their Options on the date that immediately precedes the date of the Change in Control. Effective as of the date of the Change in Control, the Plan shall terminate and all unexercised Options shall be cancelled;

(ii)            to terminate the Plan and cancel all outstanding Options effective as of the date of the Change in Control without the payment of any consideration; provided, however, that the Company shall notify the Optionees of their Options' cancellation at least 21 days prior to the date of the Change in Control so that the Optionees can exercise those Options that are otherwise exercisable before they are cancelled;

(iii)           that the successor corporation or its parent shall assume the Plan and all outstanding Options effective as of the date of the Change in Control;

(iv)           to terminate the Plan and cancel all outstanding Options effective as of the date of the Change in Control and replace such Options with comparable options in the successor corporation or parent thereof (the determination of comparability shall be made by the Administrator, and its determination shall be final, binding, and conclusive);

(v)            to terminate the Plan and cancel all outstanding Options effective as of the date of the Change in Control and, subject to Subsection (b) below, deliver to the Optionee in lieu thereof the difference between the Fair Market Value of a Share on the date of the Change in Control and the Exercise Price of the Optionee's Option, multiplied by the number of Shares to which the Option relates; or

(vi)           to terminate the Plan and cancel all outstanding Options effective as of the date of the Change in Control and deliver to the Optionee in lieu thereof the difference between the Fair Market Value of a Share on the date of the Change in Control and the Exercise Price of the Optionee's Option, multiplied by the number of vested Shares that the Optionee would have received had he/she exercised the Option.

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(b)            Notwithstanding the foregoing, no acceleration of exercisability or payment shall occur under Subsection (a) above to the extent that such acceleration or payment would, after taking into account any other payments in the nature of compensation to which the Optionee would have a right to receive from the Company and any other Person contingent upon the occurrence of such Change in Control, result in a "parachute payment" as defined in Section 280G(b)(2) of the Code.

(c)            The outstanding Options shall in no way affect the right of the Company to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

10.           Cancellation and Regrant of Options. The Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected Optionee, the cancellation of any or all outstanding Options and to grant in substitution new Options covering the same or a different number of Shares but with an Exercise Price per Share based on the Fair Market Value per Share on the new Date of Grant of the Option.

11.           Tax Withholding.

(a)            The Company's obligation to deliver Shares upon the exercise of Options shall be subject to the satisfaction of all applicable federal, state and local income and employment tax withholding requirements.

(b)            The Administrator may, in its discretion, provide any or all holders of Non-Statutory Stock Options with the right to use previously vested Shares in satisfaction of all or part of the Taxes incurred by such holders in connection with the exercise of their Options or the vesting of their Shares; provided, however, that this form of payment shall be limited to the withholding amount calculated using the minimum statutory rates. Such right may be provided to any such holder in either or both of the following formats:

(i)             Stock Withholding: The election to have the Company withhold, from the Shares otherwise issuable upon the exercise of such Non-Statutory Stock Option, a portion of those Shares with an aggregate Fair Market Value equal to the Taxes calculated using the minimum statutory rates.

(ii)            Stock Delivery: The election to deliver to the Company, at the time the Non-Statutory Stock Option is exercised, one or more Shares previously acquired by such holder (other than in connection with the Option exercise or Share vesting triggering the Taxes) with an aggregate Fair Market Value equal to the Taxes calculated using the minimum statutory rates.

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12.           Effective Date and Term of the Plan. The Plan shall become effective as of April 12, 2002, the date of its adoption by the Board, subject to ratification by the shareholders of the Company within 12 months of the adoption date. Unless sooner terminated by the Administrator, the Plan shall continue until the day prior to the tenth anniversary of the date on which the Board adopted the Plan or the date on which the shareholders of the Company approved the Plan, which ever is earlier. When the Plan terminates, no Options shall be granted under the Plan thereafter. The termination of the Plan shall not affect any Shares previously issued or any Option previously granted under the Plan.

13.           Time of Granting Options. The Date of Grant of an Option shall, for all purposes, be the date on which the Administrator makes the determination to grant such Option, or such other date as determined by the Administrator. Notice of the determination shall be given to each Service Provider to whom an Option is so granted within a reasonable period of time after the date of such grant.

14.           Amendment and Termination of the Plan.

(a)            Amendment and Termination. The Board may at any time amend, alter, suspend, or discontinue the Plan, but no amendment, alteration, suspension, or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made without his/her consent. In addition, to the extent necessary and desirable to comply with Section 422 of the Code (or any other applicable law or regulation, including the requirements of any stock exchange or national market system upon which the Common Stock is then listed), the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required.

(b)            Effect of Amendment and Termination. Any such amendment or termination of the Plan shall not affect Options already granted, and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company.

15.           Regulatory Approvals.

(a)            The implementation of the Plan, the granting of any Option and the issuance of any Shares upon the exercise of any granted Option shall be subject to the Company's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the Options granted under it, and the Shares issued pursuant to it.

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(b)            No Shares or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance with all applicable requirements of federal and state securities laws, including the filing and effectiveness of the Form S-8 registration statement (if required) for the Shares issuable under the Plan, and all applicable listing requirements of any stock exchange (or the Nasdaq National Market, if applicable) on which Common Stock is then listed for trading (if any).

16.           No Employment/Service Rights. Nothing in the Plan shall confer upon the Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Affiliate employing or retaining such person) or of the Optionee, which rights are hereby expressly reserved by each, to terminate such person's Service at any time for any reason, with or without cause.

17.           Shareholder Approval. The Plan shall be subject to approval by the shareholders of the Company within 12 months before or after the date the Plan is adopted by the Board. Such shareholder approval shall be obtained in the degree and manner required under applicable state and federal law and the rules of any stock exchange or national market system upon which the Common Stock is then listed or traded.

18.           Governing Law. This Plan shall be governed by California law, applied without regard to conflict of law principles.

IN WITNESS WHEREOF, the Company, by its duly authorized officer, has executed this Plan effective as of April 12, 2002.

NATIONAL TECHNICAL SYSTEMS, INC.
By:	/S/ Lloyd Blonder
Its:	Chief Financial Officer

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EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, William McGinnis, certify that:

1.   I have reviewed this Amendment No. 1 to the annual report on Form 10-K of National Technical Systems, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), for the registrant and have:

a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)   Disclosed in this report any change in the registrant’s internal control over  financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 31, 2011
	/s/ William McGinnis
	William McGinnis
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Raffy Lorentzian, certify that:

6.   I have reviewed this Amendment No. 1 to the annual report on Form 10-K of National Technical Systems, Inc.;

7.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

8.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

9.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), for the registrant and have:

a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)   Disclosed in this report any change in the registrant’s internal control over  financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

10.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 31, 2011
	/s/ Raffy Lorentzian
	Raffy Lorentzian,
	Senior Vice President and
	Chief Executive Officer
	(Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Amendment No. 1 to the Annual Report of NATIONAL TECHNICAL SYSTEMS, INC. (the Company) on Form 10-K for the period ending January 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, William McGinnis, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company, as of, and for, the periods presented in the Report.

Dated: May 31, 2011
	/s/ William McGinnis
	William McGinnis
	Chief Executive Officer
	(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Amendment No. 1 to the Annual Report of NATIONAL TECHNICAL SYSTEMS, INC  (the Company) on Form 10-K for the period ending January 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Raffy Lorentzian, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company, as of, and for, the periods presented in the Report.

Dated: May 31, 2011
	/s/ Raffy Lorentzian
	Raffy Lorentzian,
	Senior Vice President and
	Chief Executive Officer
	(Principal Financial and Accounting Officer)

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.