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

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.              )

 

 

NATIONAL TECHNICAL SYSTEMS, INC.
24007 Ventura Boulevard
Calabasas, California 91302

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held July 12, 2007

To the Shareholders of National Technical Systems, Inc.:

Notice is hereby given that the 2007 Annual Meeting of Shareholders (the “Annual Meeting”) of National Technical Systems, Inc., a California corporation (“NTS” or the “Company”), will be held at the Company’s NTS Boxborough facility located at 1146 Massachusetts Avenue, Boxborough, MA  01719 on Thursday, July 12, 2007 at 11:00 a.m., Eastern Time, for the purpose of considering and acting upon the following matters:

1.                Election of Directors.   To elect four persons to serve as Class II directors for terms expiring in 2010 and until their respective successors are duly elected and qualified.

2.                Ratify the Appointment of Independent Registered Public Accounting Firm.   To ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending January 31, 2008.

3.                Transaction of Other Business.   To transact such other business and to consider and take action upon any and all matters that may properly come before the Annual Meeting or any adjournment or adjournments thereof.

Pursuant to the provisions of the Company’s Bylaws, the Board of Directors has fixed the close of business on May 16, 2007 as the record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting or any adjournment thereof. For ten days prior to the Annual Meeting, a complete list of the shareholders entitled to vote at the Annual Meeting will be available for examination by any shareholder for any purpose relating to the Annual Meeting, during ordinary business hours at the Company’s principal offices located at 24007 Ventura Boulevard, Calabasas, California 91302.

By Order of the Board of Directors,

Cynthia Maher
Corporate Secretary

Calabasas, California
May 30, 2007

YOU ARE URGED TO VOTE IN FAVOR OF THE PROPOSALS BY SIGNING AND RETURNING THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON. THE ENCLOSED PROXY IS BEING SOLICITED BY THE COMPANY’S BOARD OF DIRECTORS. ANY SHAREHOLDER GIVING A PROXY MAY REVOKE IT PRIOR TO THE TIME IT IS VOTED BY FILING WITH THE SECRETARY OF THE COMPANY A SIGNED INSTRUMENT REVOKING IT OR A DULY EXECUTED PROXY BEARING A LATER DATE, OR BY ATTENDING THE ANNUAL MEETING AND VOTING IN PERSON. PLEASE INDICATE ON THE PROXY WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING SO THAT THE COMPANY CAN ARRANGE ADEQUATE ACCOMMODATIONS.

NATIONAL TECHNICAL SYSTEMS, INC.
24007 Ventura Boulevard,
Calabasas, California 91302

PROXY STATEMENT
For
ANNUAL MEETING OF SHAREHOLDERS
To be held July 12, 2007

INFORMATION CONCERNING SOLICITATION AND VOTING STOCK

General

This proxy statement (“Proxy Statement”) is furnished in connection with the solicitation of proxies for use at the 2007 Annual Meeting of Shareholders (the “Annual Meeting”) of National Technical Systems, Inc., a California corporation (“NTS” or the “Company”), to be held on July 12, 2007 at 11:00 a.m. Eastern Time, at the Company’s Boxborough facility at 1146 Massachusetts Avenue, Boxborough, MA, and at any and all adjournments thereof.

It is anticipated that this Proxy Statement and the accompanying notice and form of proxy will be mailed to shareholders eligible to receive notice of, and to vote at, the Annual Meeting on or about May 30, 2007.

The Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2007 is included with this Proxy Statement. An electronic copy of the Annual Report is also available free of charge on the Securities and Exchange Commission (“SEC”) website located on the Internet at www.sec.gov.

Revocability of Proxies

A form of proxy for voting your shares at the Annual Meeting is enclosed. Any shareholder who executes and delivers such proxy has the right to and may revoke it at any time before it is exercised by filing with the Company’s Secretary a signed instrument revoking it or a duly executed proxy bearing a later date. In addition, the powers of the proxyholders will be suspended if the person executing the proxy is present at the Annual Meeting and elects to vote in person by advising the Chairman of the Annual Meeting of his or her election to vote in person, and voting in person at the Annual Meeting. Subject to such revocation or suspension, all shares represented by a properly executed proxy received in time for the Annual Meeting will be voted by the proxyholders in accordance with the instructions specified on the proxy.

Unless otherwise directed in the accompanying proxy, the shares represented by your executed proxy will be voted “FOR” election of each of the director-nominees named herein, “FOR” ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending January 31, 2008, and if any other business is properly presented at the Annual Meeting, such proxy will be voted in accordance with the recommendations of management of the Company.

Proxy Solicitation Costs

The Company will bear the entire cost of this solicitation of proxies, including the preparation, assembly, printing, and mailing of this Proxy Statement and any additional material which may be furnished to shareholders by the Company. Copies of solicitation material may be furnished to brokerage houses, fiduciaries, and custodians to forward to their principals, and the Company may reimburse them

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for their expenses in so doing. The Company does not expect to pay any commission or remuneration to any person for solicitation of proxies.

Solicitation may be made by mail, personal interview, telephone, e-mail and other electronic communication by officers and regular employees of the Company. The Company will not pay any additional compensation to officers or regular employees for such services, but may reimburse them for reasonable out-of-pocket expenses incurred by them in connection with such solicitation.

Quorum; Voting Rights

The close of business on May 16, 2007, has been fixed as the record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting. The outstanding voting securities of the Company at May 16, 2007, consisted of 8,797,172 shares of no par value common stock (“Common Stock”). Shareholders representing a majority of outstanding Common Stock must be present in person or by proxy to constitute a quorum at the Annual Meeting. The presence, in person or by proxy, of the holders of a majority of the shares entitled to vote will constitute a quorum for the transaction of business at the Annual Meeting, including, without limitation, a motion to adjourn the Annual Meeting to another time or place in order to solicit additional proxies approving matters recommended by the Board of Directors.

A plurality of the votes cast in person or by proxy and entitled to vote at the Annual Meeting is required for the election of directors. The affirmative vote of a majority of votes cast at the Annual Meeting is required for ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending January 31, 2008 and the approval of such other matters as may properly come before the Annual Meeting.

Each shareholder is entitled to one vote, in person or by proxy, for each share of Common Stock standing in his, her or its name on the books of the Company as of the record date on any matter submitted to the shareholders. In voting for the election of directors, shareholders do not have the right to cumulate their votes. Abstentions and broker non-votes have no effect on the election of directors or approval of the other proposals. A broker non-vote occurs when a nominee holding shares for a beneficial owner votes on one proposal, but does not vote on another proposal because the nominee does not have discretionary voting power and has not received instructions from the beneficial owner. Under the rules that govern brokers who are voting with respect to shares held in street name, brokers have the discretion to vote such shares on routine matters, but not on non-routine matters. Routine matters include the election of directors and ratification of the appointment of the independent registered public accounting firm.

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PROPOSAL NO. 1
ELECTION OF DIRECTORS

The Company has a classified Board of Directors, which currently consists of a total of 9 directors, two of whom are designated as Class I directors, four of whom are designated as Class II directors, and three of whom are designated as Class III directors. Class II, Class III and Class I directors serve until the annual meeting of shareholders to be held in 2007, 2008, and 2009, respectively. All directors serve until their respective successors are duly elected and qualified. At each annual meeting of the shareholders, directors in a class are elected for a term of three years to succeed the directors in that class whose terms expire at such annual meeting.

The term of the Company’s Class II directors will expire on the date of the upcoming Annual Meeting. Accordingly, four persons are to be elected to serve as Class II directors. The Nominating Committee of the Board of Directors selected, and the Board of Directors approved, Ralph Clements, Aaron Cohen, Donald Tringali and Dan Yates, all current Class II directors, as nominees for election at the Annual Meeting. If elected, Messrs. Clements, Cohen, Tringali and Yates will serve as directors until the Company’s annual meeting of shareholders in 2010, and until their successors are duly elected and qualified. If any one of Messrs. Clements, Cohen, Tringali and Yates declines to serve or becomes unavailable for any reason, or if a vacancy occurs before the election, the proxies may be voted for such substitute nominee as the Board of Directors may designate, although the Company is unaware of a reason why any of these nominees would be unable or unwilling to serve as a director.

Members of the Board of Directors

The following sets forth, as of May 16, 2007, the names of, and certain information concerning the Company’s directors and the director-nominees: 

(1)          Director-nominee slated for re-election at the Annual Meeting.

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William McGinnis is President and Chief Executive Officer of the Company. He has been associated with the Company continuously since 1980.

John Gibbons has been an independent consultant since April 2004. From June 2000 to April 2004, Mr. Gibbons was Vice Chairman of TMC Communications, Inc., a long distance, data and Internet services provider, and was its Chief Executive Officer from June 2001 to April 2003. From June 2000 to June 2001, he was President of TMC Communications, Inc. He has served as a director of Deckers Outdoor Corporation. (NASDAQ: DECK), a leading designer, producer and brand manager of innovative, high-quality footwear, since July 2000.

Ralph Clements has been President of Clements and Associates, a Sherman Oaks, California financial and economics consulting firm, for more than five years.

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.

Donald Tringali is a Vice Chairman of the Board. He has been President of the Augusta Advisory Group, a management consulting company since 2001. Prior to forming Augusta Advisory Group, Mr. Tringali was for more than five years an Executive Vice President of Telemundo Network Group, LLC.

Dan Yates is President and Chief Executive Officer of Regents Bank, based in San Diego, which he helped establish in 2001. Mr. Yates was previously Regional Vice President of Mellon 1st Bank for more than five years.

Jack Lin is a founder and Chairman of the Board of the Company and has been associated with the Company continuously since 1961.

Robert Lin has for more than five years been President and Chief Executive Officer of MTI-Marketing Techniques, Inc., a manufacturer and distributor of products for the advertising specialty and premium markets.

Norman Wolfe is President of Quantum Leaders, Inc., a management consulting firm. Prior to joining Quantum Leaders, Inc. in January 2002, Mr. Wolfe was Vice President of Operations of Select University Technologies, Inc. for more than five years.

None of the director-nominees were selected pursuant to any arrangement or understanding other than with the Company’s directors and executive officers acting within their capacities as such.

The Board of Directors unanimously recommends a vote “FOR” the election of
Ralph Clements, Aaron Cohen, Donald Tringali and Dan Yates as Class II directors.

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 eight 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, 2007.

Audit Committee

The Company’s Board of Directors has an Audit Committee consisting of Messrs. Clements, Yates, Tringali and Gibbons. 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

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Committee held four meetings during the year. The Board has determined that all Audit Committee members are “independent,” as defined under the applicable Nasdaq listing standards. 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.ntscorp.com. The charter may be found as follows: From our main web page, first click on “Investors” at the top of the page and then click on “Corporate Governance”. For further information, see “Report of the Audit Committee” below.

Compensation Committee

The Company’s Board of Directors has a Compensation Committee consisting of Messrs. Clements, Yates and Tringali. Mr. Yates 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. The Compensation Committee also administers the Company’s stock option plans, including reviewing and granting stock options to officers and other employees under such plans. The Compensation Committee held five 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. 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.ntscorp.com. The charter may be found as follows: From our main web page, first click on “Investors” at the top of the page and then click on “Corporate Governance”. For further information, see “Report of the Compensation Committee” below.

Compensation Committee Interlocks

During the fiscal year ended January 31, 2007, none of the Company’s executive officers and no member of the Board of Directors served as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of the Company’s Board of Directors.

Governance Committee

The Company’s Board of Directors has a Governance Committee consisting of Messrs. Wolfe, Gibbons 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, coordinates evaluation of Board performance and reviews Board compensation. The Governance Committee held four meetings during the year. 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.ntscorp.com. The charter may be found as follows: From our main web page, first click on “Investors” at the top of the page and then click on “Corporate Governance”.

Nominating Committee

The Nominating Committee assists the Board of Directors in the selection of nominees for election to the Board. The Nominating Committee is composed of Messrs. Clements, Yates and Tringali, each of whom is “independent,” as defined under the applicable Nasdaq listing standards. The Committee operates under a written charter adopted by the Board of Directors. The Committee has established selection criteria and qualifications of director nominees as well as a process for identification and review

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of candidates. This process also includes consideration of candidates submitted by shareholders. The selection criteria is reviewed and updated to best meet the needs of the Board and the Company at the time nominees are considered. A copy of the Nominating Committee charter is available on our corporate website at www.ntscorp.com. The charter may be found as follows:  From our main web page, first click on “Investors” at the top of the page and then click on “Corporate Governance”.

Executive Officers

The following table sets forth, as of May 16, 2007, the names of, and certain information concerning the Company’s executive officers who do not also serve as directors:

*                    Effective May 16, 2007, Mr. Blonder resigned as Chief Financial Officer and Mr. Lorentzian was elected to that position.

Family Relationships

Dr.   Jack Lin is the father of Robert Lin. There are no other family relationships among the Company’s directors and executive officers.

Certain Relationships and Related Party Transactions

None.

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Stockholdings of Certain Beneficial Owners, Directors and Executive Officers

The following table sets forth, as of May 16, 2006, the number and percentage of shares of Common Stock beneficially owned, directly or indirectly, by each of the Company’s directors, Named Executive Officers (as defined below), beneficial owners known by the Company to hold more than five percent of the outstanding shares of the Company’s Common Stock and by the Company’s directors and named executive officers as a group. Beneficial ownership is determined in accordance with the Rule 13d-3(a) of the SEC, as amended, and does not necessarily indicate ownership for any other purpose, and generally includes voting or investment power with respect to the shares and shares which such person has the right to acquire within 60 days of May 16, 2007.

*                    Indicates less than 1.0%

**             Based on 8,797,172 shares of Common Stock outstanding as of May 16, 2006, including options exercisable within 60 days.

(1)          Based on a Schedule 13G filed by this holder with the SEC.

(2)          Includes shares covered by options exercisable within 60 days of May 16, 2007, as follows: Blonder, 103,375; Briskie, 56,125; Clements, 1,875; Cohen, 91,067; Gibbons, 12,500; J. Lin, 166,806; R. Lin, 28,125; McGinnis, 180,000; Moore, 43,225; Tringali, 50,625; Wolfe, 20,625; Yates, 12,500.

(3)          Includes restricted shares, as follows:  Clements, 3,934; Cohen, 7,867; Gibbons, 3,934; J. Lin, 7,867; R. Lin, 3,934; Tringali, 7,867; Wolfe, 3,934 and Yates, 3,934.

The Company is not aware of any arrangements that could result in a change-in-control.

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COMPENSATION DISCUSSION AND ANALYSIS

Overview and Compensation Philosophy

We believe that compensation payable to our executive officers should be designed to align their interests with those of our shareholders. We design our compensation programs to reward achievement of specific annual, long-term and strategic goals and, among various considerations, to remain competitive relative to the compensation paid to similarly situated executives of the designated peer group referred to below. The compensation of our executive officers includes a combination of the following components:

·       a base salary that is designed to be competitive with compensation offered by other enterprises similar to our Company;

·       annual and long-term incentive compensation to reward achievement of Company objectives, individual responsibility and productivity, high quality work product and contribution to Company performance and profitability;

·       an opportunity for an individual’s total compensation to exceed the peer group averages, based on outstanding performance; and

·       case-specific compensation arrangements to accommodate individual circumstances or non-recurring situations, as appropriate.

The Compensation Committee is responsible for reviewing and approving the compensation of our executive officers. The Compensation Committee oversees the compensation programs for these officers to ensure consistency with our goals and objectives.

The Compensation Committee has no formal policy to adjust or recover any awards or payments made to its executive officers if the relevant performance measures upon which they are based are restated or are otherwise adjusted in a manner that would reduce the size of the initial award or payment. The Compensation Committee, however, retains the discretion to seek such adjustments or recoveries in appropriate cases.

Executive Compensation Consultants

Our Company has been working with a compensation consulting firm, VisionLink Advisors, to evaluate our compensation practices and to assist us in developing and implementing an executive compensation program and philosophy. Most recently, the Compensation Committee requested VisionLink Advisors to review our equity compensation arrangements and to propose alternatives to stock option grants.

Compensation Peer Group

Although we do not believe it is appropriate to establish compensation levels primarily based on benchmarking, we do believe pay practices at other companies are a useful indicator for us to remain competitive in the marketplace. Therefore, our consultant VisionLink considers competitive market practices by reviewing executive compensation disclosures of the peer group with annual revenues similar to those of the Company, and then makes a recommendation to the Compensation Committee. VisionLink selected the following peer group of companies:

·		Albany Molecular Research, Inc.		·		LECG Corp.
·		Essex Corp.		·		Life Sciences Research, Inc.
·		Exelixis		·		Opinion Research Corp.

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·		Forrester Research, Inc.		·		Symyx Technologies, Inc.
·		Landauer, Inc.		·		VSE Corp.

 

Elements of Executive Compensation

The compensation of our executive officers has five primary components—annual base salary, annual cash bonuses, long-term incentive compensation based on achievement of financial goals, supplemental executive retirement benefits, and perquisites. In addition, we provide our executive officers with a variety of benefits that are generally available to all salaried employees.

We view the various components of compensation as related but distinct. Although our Compensation Committee reviews each executive officers’ total compensation, we do not believe that significant compensation derived from one component of compensation should negate or reduce compensation from other components. We have adopted guidelines that generally provide for allocating 50% of total compensation to annual base salary and 50% to performance based compensation. The performance based compensation is divided approximately equally between long-term incentive compensation and short-term incentive compensation.

The Compensation Committee approves the final determination of compensation for our executive officers, after discussing compensation matters with William McGinnis, our President and CEO. The Compensation Committee determines the compensation of Mr. McGinnis. Mr. McGinnis does not participate in deliberations concerning his own compensation.

Annual Base Salary

Annual base salary is used to recognize the experience, skills, knowledge and responsibilities required of our executive officers. In setting annual base salary, the Compensation Committee considers a number of factors, including the seniority of the individual, the individual’s position and responsibilities, the cost of living in the locality where the individual works, and the availability of individuals with similar skills. The base salaries of our executive officers are reviewed on an annual basis and adjusted from time to time to realign salaries with market levels, after taking into account individual responsibilities, performance and experience. During fiscal year 2007, our executive officers received a 3% cost-of-living adjustment in their base salaries.

Annual Cash Bonuses

We pay annual cash bonuses to our executive officers if annual financial performance goals are achieved. The financial goals are set each fiscal year. Each year the Compensation Committee sets forth the amount each of our executive officers can expect to receive based on satisfying our performance goals. Bonuses are based on stated performance goals primarily related to pre-tax income of our Company, provided, however, the Compensation Committee retains the right to make discretionary bonus awards. Bonuses are approved in April following a determination of the previous fiscal year’s performance.

Long-Term Incentive Compensation

We believe the use of equity or equity-equivalent awards creates an ownership culture that encourages the retention and positive long-term performance of our executive officers. Prior to 2006, we used stock option grants as the sole form of long-term incentive compensation for our executive officers. The Compensation Committee would evaluate the performance of our executive officers and our Company and award stock options based on a variety of factors, including our financial performance for the prior year, individual and Company performance in the context of our long-term financial plan, market and industry standards, and other factors.

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Although we still maintain equity incentives that may be used for our executive officers and other employees (as well as a regular means of compensating directors, as discussed below), in 2006 we adopted a new plan for long-term incentive compensation. The new plan, referred to as the “Long-Term Incentive Plan” (LTIP), is designed to provide compensation to our senior executives in the form of “phantom shares” and “phantom share options” based upon the value of phantom shares as determined by a formula defined in the LTIP documents. Phantom shares are designed to increase in value as our earnings per share improve.

The transition from stock options to the LTIP was predicated on a variety of factors, including changes in the accounting rules relating to the expensing of options, the impact of stock option grants on our capital structure, and our Compensation Committee’s belief that we needed a more robust, objective long-term incentive plan to retain and attract talent. LTIP awards are made according to the plan. Awards are based on short-term and long-term targets established by the Compensation Committee.

Supplemental Executive Retirement Benefits

In 2006, we adopted the National Technical Systems, Inc. 2006 Supplemental Executive Retirement Plan (SERP), designed to be a fully-funded, non-qualified deferred compensation plan for the benefit of certain of our executive officers. The purpose of the SERP is to retain the services of a select group of officers and highly compensated employees of our Company and to motivate them to contribute to the growth and profits of our Company. The SERP provides retirement benefits in excess of the limits imposed under the Internal Revenue Code for qualified retirement plans. The targeted SERP benefit is 40% of the participant’s salary immediately prior to retirement, generally payable over 15 years from the date of retirement. According to VisionLink, our consultant, the typical SERP used by other companies is based on 50% to 60% of an executive’s ending salary and bonus following retirement, not just salary, and is paid throughout the remaining life of the executive.

Under the SERP, participants are annually credited an amount that is based on their salary and the number of years prior to their retirement as of the date they began participating in the SERP, plus interest compounded monthly at an annualized rate of 5.5%. Each annual credit is subject to its own vesting schedule and will vest at a rate of 20% on the anniversary of the date on which the amount was originally credited to the participant. Participants will forfeit any unvested benefits accrued under the SERP if they terminate employment with our Company, except that all unvested benefits will become fully vested if the termination is due to the participant’s retirement, death, disability, change of control of our Company, or if the participant terminates employment with 10 or more years of service.

The timing within which benefits are paid depends on the reason the participant is no longer employed with our Company. If the participant retires, the payout under the SERP generally consists of equal annual installments over a 15-year period. If the participant dies or becomes disabled, the payout under the SERP is a lump sum on the 90th day following such death or disability. If the participant terminates for any other reason, the payout under the SERP generally consists of equal annual installments over a 5-year period.

Change in Control and Severance

We do not have employment agreements with our executive officers with the exception of Dr. Jack Lin. However, we do have change in control agreements with most of our executive officers that provide benefits if their employment is terminated (for other than misconduct) due to death, disability and certain employment terminations following a change in control of our Company. The details and amounts of these benefits are set forth in the below table entitled “Potential Payments Upon Termination or Change in Control” and the narrative discussion that follows such heading.

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Perquisites

We maintain modest executive benefits and perquisites for executive officers that are reasonable and consistent with our overall compensation program, and necessary to remain competitive. The Compensation Committee periodically reviews the levels of perquisites provided to our executive officers. Costs associated with perquisites provided by our Company are included in the All Other Compensation Table appearing on page 13 of this proxy statement.

Tax and Accounting Implications

Deductibility of Executive Compensation

The Compensation Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code, which provides that we may not deduct compensation of more than $1,000,000 in a taxable year that is paid to certain individuals other than certain performance-based compensation. The Compensation Committee believes that compensation associated with stock options granted under our stock incentive plans qualifies as performance-based compensation. Historically, compensation paid to individuals covered by Section 162(m) that was not considered performance-based has been less than $1,000,000 in each taxable year and therefore fully deductible. However, in certain situations the Compensation Committee may approve compensation that will not be fully deductible in order to ensure competitive levels of total compensation for our executive officers.

Nonqualified Deferred Compensation

On October 22, 2004, the American Jobs Creation Act of 2004 was signed into law, adding Section 409A to the Internal Revenue Code to address nonqualified deferred compensation arrangements. The IRS adopted final regulations under Section 409A on April 10, 2007, which are effective January 1, 2008, but may presently be relied upon. We believe our Company has been operating in good faith compliance with Section 409A since it became effective on January 1, 2005.

Accounting for Stock-Based Compensation

Effective February 1, 2006, we began accounting for stock-based payments in accordance with the requirements of FAS Statement 123(R).

Set forth below is the report of the Compensation Committee. The information contained in this 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 made 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.

Compensation Committee Report

We, the Compensation Committee of the board of directors of the Company, have reviewed and discussed the Compensation Discussion and Analysis (set forth above) with the management of the Company, and, based on such review and discussion, have recommended to the board of directors inclusion of the Compensation Discussion and Analysis in this Proxy Statement and, through incorporation by reference from this Proxy Statement, the Company’s Annual Report on Form 10-K for the year ended January 31, 2007.

COMPENSATION COMMITTEE

Dan Yates, Chairman
Donald Tringali
Ralph Clements

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Summary Compensation Table

The table below summarizes the total compensation paid or earned by each of our named executive officers for the fiscal year ended January 31, 2007.

Name and Principal Position				Fiscal Year End				Salary ($)			Bonus ($)(1)			Stock Awards ($)(2)					Option Awards ($)(3)			Non-Equity Incentive Plan Compensation ($)				All Other Compensation ($)(4)(5)					Total ($)
William McGinnis,					2007			$	305,250		$	7,500			—				$	57,706			—				$	97,344			$	467,800
President and Chief Executive Officer
Lloyd Blonder,					2007			$	205,588		$	7,500			—				$	40,118			—				$	60,972			$	314,178
Senior Vice President, CFO
Dwight Moore,					2007			$	182,625		$	7,500			—				$	34,756			—				$	31,811			$	256,692
Vice President, COO
Douglas Briskie,					2007			$	182,625		$	7,500			—				$	34,756			—				$	29,137			$	254,018
Vice President, Corporate Development
Dr. Jack Lin,					2007			$	125,000		$	30,000			$	5,818			$	25,536			—				$	241,661			$	428,015
Chairman of the Board

(1)          Certain executives were awarded discretionary bonuses of $7,500 for the fiscal year ending January 31, 2007. Dr. Jack Lin accrued a $30,000 bonus pursuant to his employment agreement, which provides him with a $30,000 bonus each fiscal year that we achieve at least $1,000,000 in pre-tax income, determined in accordance with generally accepted accounting principles that are consistently applied by us, payable in equal installments within 45 days after the end of each fiscal quarter of such year.

(2)          Other than a grant to Dr. Jack Lin, in the last fiscal year we did not grant any stock awards to our named executive officers. The amount reflected for Dr. Lin reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended January 31, 2007, in accordance with FAS 123(R) for stock awards granted pursuant to the 2006 Equity Incentive Plan (disregarding estimates of forfeitures related to service-based vesting conditions). Assumptions used in the calculation of this amount are discussed in note 5 to our audited financial statements for the fiscal year ended January 31, 2007, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 30, 2007.

(3)          We granted no stock option awards to our executive officers for the fiscal year ending January 31, 2007. These amounts reflect the dollar amount recognized for financial reporting purposes for the fiscal year ended January 31, 2007, in accordance with FAS 123(R) for option awards granted pursuant to the 1994 Stock Option Plan and the 2002 Stock Option Plan (disregarding estimates of forfeitures related to service-based vesting conditions) and thus include amounts from awards granted prior to the February 1, 2006. Assumptions used in the calculation of these amounts are discussed in note 1 and note 5 to our audited financial statements for the fiscal year ended January 31, 2007, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 30, 2007.

(4)          Our executive officers participate in the LTIP, described more fully on page 9. Although amounts under the LTIP were earned but not vested as of January 31, 2007, no amounts relating to the LTIP are disclosed in this column because the amounts had no value at that time. These amounts are expected, however, to have value in the future.

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(5)          The amounts entitled “All Other Compensation” are detailed in the following table.

Name				Qualified  Retirement Plan Match ($)					Supplemental Executive Retirement Plan ($)(i)					Premium Towards Long-Term Care Insurance ($)				Club Dues ($)(ii)			Premiums Towards Life Insurance ($)(iii)					Uninsured Medical and Dental Expenses ($)(iv)					Automobile Allowance ($)(v)					Other ($)			Total ($)
William McGinnis					$	1,500				$	51,136				—			$	11,000			$	9,550				$	11,151				$	11,655			$	1,352		$	97,344

Lloyd Blonder

$

2,000

—

$

4,622

$

8,342

$

23,322

$

10,578

$

12,108

—

$

60,972

Dwight Moore			$	1,500				$	22,955				—			—			$	211				—				$	7,145			—		$	31,811
Douglas Briskie			$	1,500				$	20,629				—			—			$	210				—				$	6,798			—		$	29,137

Dr. Jack Lin

$

2,000

—

$

4,755

$

6,200

$

11,663

$

26,163

$

15,880

$

175,000

(vi)

$

241,661

(i)             As explained in more detail on page 10, these amounts are attributable to the annual credit received on September 7, 2006 pursuant to National Technical Systems, Inc. 2006 Supplemental Executive Retirement Plan. The amount shown reflects the principal credited to the account on September 7, 2006, plus accrued interest as of January 31, 2007.

(ii)         These amounts are attributable to dues we pay for the executive officer’s membership in country clubs.

(iii)     These amounts are attributable to premiums paid on whole life and basic life insurance policies for some of our executive officers. Each of these executive officers is responsible for paying income tax on such amount.

(iv)       These amounts are attributable to reimbursements some of our executive officers received for uninsured medical and dental expenses, the value of which is included as compensation on the W-2 of our executive officers who receive such benefits. Each of these executive officers is responsible to paying income tax on such amount.

(v)           These amounts are attributable to an auto allowance paid by our Company for each of these executive officers, the value of which is included as compensation on the W-2 of our executive officers who receive such benefits. Each of these executive officers is responsible for paying income tax on such amount.

(vi)       This amount is attributable to a taxable annual retirement benefit Dr. Lin receives pursuant to his employment contract.

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Grants of Plan-Based Awards

The table below summarizes the grants of plan-based awards to our named executive officers for fiscal year ending January 31, 2007.

(1)          This unit award was granted pursuant to the 2006 Long-Term Incentive Plan in the form of a “Phantom Stock Appreciation-Only Share.”  This award does not vest until September 7, 2009, at which time it becomes fully vested. Vesting may be accelerated in some circumstances. At vesting the award is settled in cash only if the phantom stock value has appreciated.

(2)          The amount shown does not reflect realized compensation by Dr. Jack Lin. The amount shown represents the value of the award based upon the fair value of the grant on January 31, 2007. The award vests at the rate of 25% per each year. See “Potential Payments Upon Termination,” below. Vesting may be accelerated in some circumstances. The actual realizable value of the award will depend on the fair market value of the our common stock at the time of vesting.

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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, 2007. Each equity grant 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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(1)          Reflects restricted stock awards granted on September 7, 2006.

(2)          The amount shown represents the value of the award based upon the fair value of the grant on January 31, 2007.

Option Exercises and Stock Vested

The following table provides information of our named executive officers on stock option exercises during fiscal year ending January 31, 2007, including the number of shares acquired upon exercise and the value realized before payment of any applicable withholding tax and broker commissions.

 

Pension Benefits Table

We do not have any tax-qualified defined benefit plans or defined benefit supplemental executive retirement plans that provide for payments or other benefits to our named executive officers in connection with their retirement.

Non-Qualified Defined Contribution and Other Deferred Compensation Plans

(1)          Reflects contributions of principal we made to the account of each applicable named executive officer, pursuant to the SERP. The amounts and applicable interest were reported as compensation to the applicable executive officer in the All Other Compensation Table on page 13.

(2)          The principle earns interest at a rate of 5.5%, compounded monthly. The Compensation Committee chose the interest rate based on the recommendation of its compensation consultant, VisionLink.

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