<PAGE>

                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549
                                  FORM 10-QSB

(Mark One)

  X       Quarterly Report Under Section 13 or 15(d) of The Securities Exchange
 ---      Act of 1934

For the quarterly period ended December 31, 1998
                               -----------------
 ---      Transaction Report Under Section 13 or 15(d) of the Securities
          Exchange Act

For the transition period from _______________ to _______________

Commission File Number   0-4169
                       --------
                                      SYS
--------------------------------------------------------------------------------
       (Exact Name of Small Business Issuer as Specified in Its Charter)

           California                                        95-2467354
--------------------------------------                ------------------------
   (State or Other Jurisdiction of                       (I.R.S. Employer
   Incorporation or Organization)                        Identification No.)

        9620 Chesapeake Drive, Suite 201, San Diego, California  92123
--------------------------------------------------------------------------------
                   (Address of Principal Executive Offices)

                                (619) 715-5500
--------------------------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

--------------------------------------------------------------------------------
          (Former Name, Former Address and Former Fiscal Year, if Changed
                                 Since Last Report)

     Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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
     ---         ---

     State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 3,173,518 SHARES OF COMMON
STOCK, WITHOUT PAR VALUE, AS OF DECEMBER 31, 1998.


     Traditional Small Business Disclosure Format (check one):

Yes   X      No
     ---         ---


                                      -1-
<PAGE>

                               TABLE OF CONTENTS

                                                                           Page
                                                                          Number
PART I - FINANCIAL INFORMATION

    Item 1. Financial Statements
            Condensed Balance Sheet (unaudited)
                December 31, 1998. . . . . . . . . . . . . . . . . . . . . . 3
            Condensed Statements of Operations (unaudited)
                Three Months and Six Months Ended December 31, 1998
                and Three Months and Six Months Ended December 31, 1997. . . 4
            Condensed Statements of Cash Flows (unaudited)
                Six Months Ended December 31, 1998
                and Six Months Ended December 31, 1997 . . . . . . . . . . . 5
            Notes to Condensed Financial Statements (unaudited). . . . . . . 6

    Item 1a.    Factors Which May Affect Future Results. . . . . . . . . . . 7

    Item 2. Management's Discussion and Analysis of Financial Condition
            and Results of Operations

                Description of Business . . . . . . . . . . . . . . . . . . 10
                Results of Operations . . . . . . . . . . . . . . . . . . . 11
                Liquidity and Capital Resources . . . . . . . . . . . . . . 12
                Impact of the Year 2000 . . . . . . . . . . . . . . . . . . 13

PART II - OTHER INFORMATION

    Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 14

    Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . 14

    Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . 14

    Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 15

    Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . 15

    Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 15


                                      -2-
<PAGE>

                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

                                      SYS
                             CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
                                                                     12/31/98
                                                                   ------------
                                                                    (Unaudited)
<S>                                                                <C>
 ASSETS
--------------------------------------------------------
 Current assets:
    Cash                                                            $   69,000
    Contract receivables, net                                        1,244,000
    Receivable from a related party                                    103,000
    Other current assets                                                 1,000
                                                                   ------------
      Total current assets                                           1,417,000

 Equipment, furniture and fixtures,
    at cost, less accumulated
    depreciation and amortization                                      258,000
 Other assets                                                           16,000
                                                                   ------------
                                                                    $1,691,000
                                                                   ------------
                                                                   ------------
 LIABILITIES & STOCKHOLDERS' EQUITY
--------------------------------------------------------
 Current liabilities:
    Note payable to bank                                            $        0
    Accounts payable                                                   162,000
    Accrued payroll and related taxes                                  262,000
    Other accrued liabilities                                           13,000
    Current portion of long-term debt                                    9,000
    Income taxes payable                                                19,000
                                                                   ------------
      Total current liabilities                                        465,000
                                                                   ------------
 Long-term debt                                                        178,000
                                                                   ------------
 Stockholders' equity:
    Preferred stock                                                     55,000
    Series B preference stock                                           71,000
    Common stock                                                       453,000
    Retained earnings                                                  469,000
                                                                   ------------
      Total stockholders' equity                                     1,048,000
                                                                   ------------
                                                                    $1,691,000
                                                                   ------------
                                                                   ------------
</TABLE>

                                      -3-
<PAGE>

                                      SYS
                       CONDENSED STATEMENTS OF OPERATIONS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                           Three months ended            Six months ended
                                              December 31                   December 31
                                       -------------------------      -------------------------
                                           1998          1997            1998           1997
                                       ----------     ----------      ----------     ----------
<S>                                    <C>            <C>             <C>            <C>
Contract revenues                      $1,867,000     $1,990,000      $3,732,000     $4,024,000
Costs and expenses:
     Contract costs                     1,490,000      1,697,000       2,968,000      3,420,000
     General and administrative           279,000        202,000         540,000        386,000
                                       ----------     ----------      ----------     ----------
                                        1,769,000      1,899,000       3,508,000      3,806,000
                                       ----------     ----------      ----------     ----------
Income from operations                     98,000         91,000         224,000        218,000

Other expenses:
     Interest                               6,000          6,000          15,000         14,000
                                       ----------     ----------      ----------     ----------
                                            6,000          6,000          15,000         14,000
                                       ----------     ----------      ----------     ----------
Income before income taxes                 92,000         85,000         209,000        204,000

Provision for income taxes                 24,000         13,000          51,000         13,000
                                       ----------     ----------      ----------     ----------
Net income                                 68,000         72,000         158,000        191,000

Dividends on preferred shares               1,000          1,000           4,000          1,000
                                       ----------     ----------      ----------     ----------
Net income applicable to common
    stock                                  67,000         71,000         154,000        190,000

Retained earnings at beginning of
    period                                402,000        155,000         315,000         36,000
                                       ----------     ----------      ----------     ----------
Retained earnings at end of period     $  469,000     $  226,000      $  469,000     $  226,000
                                       ----------     ----------      ----------     ----------
                                       ----------     ----------      ----------     ----------
Basic earnings per common share        $     0.02     $     0.02      $     0.05     $     0.06
                                       ----------     ----------      ----------     ----------
                                       ----------     ----------      ----------     ----------
Diluted earnings per common share      $     0.02     $     0.02      $     0.05     $     0.06
                                       ----------     ----------      ----------     ----------
                                       ----------     ----------      ----------     ----------
Weighted average number of
    common shares                       3,173,518      3,141,894       3,161,290      3,140,311
                                       ----------     ----------      ----------     ----------
                                       ----------     ----------      ----------     ----------
</TABLE>


                                      -4-
<PAGE>

                                         SYS
                          CONDENSED STATEMENTS OF CASH FLOWS
                                     (Unaudited)
<TABLE>
<CAPTION>
                                                                     Six months ended
                                                                        December 31
                                                          ------------------------------------
                                                               1998                    1997
                                                          ------------            ------------
<S>                                                       <C>                     <C>
 Operating activities: 
    Net income                                            $    158,000            $    191,000
    Adjustments to reconcile net income to net cash
    used for operating activities:
        Depreciation and amortization                           29,000                  25,000
        Provision for doubtful accounts                              0                       0
        Changes in operating assets and liabilities:
           Contract receivables                                (59,000)               (290,000)
           Other current assets and other assets               137,000                   5,000
           Accounts payable                                     98,000                (287,000)
           Accrued payroll and related taxes                  (156,000)                 (4,000)
           Income taxes payable                                  9,000                  23,000
           Other accrued liabilities                            19,000                 (53,000)
                                                                (6,000)
                                                          ------------            ------------
 Net cash provided by (used for) operating activities          229,000                (390,000)
                                                          ------------            ------------
 Investing activities:
    Acquisition of furniture and equipment                     (39,000)                (29,000)
    (Increase) decrease in other assets                              0                       0
                                                          ------------            ------------
 Net cash used in investing activities                         (39,000)                (29,000)
                                                          ------------            ------------
 Financing activities:
    Proceeds from note payable to bank                       1,960,000               4,355,000
    Payments on note payable to bank                        (2,079,000)             (4,098,000)
    Payments of long-term debt                                 (28,000)                (16,000)
    Payments of preferred stock dividends                       (4,000)                      0
    Proceeds from issuance of common stock                       2,000                       0
                                                          ------------            ------------
 Net cash provided by (used in) financing activities          (149,000)                241,000
                                                          ------------            ------------
 Increase (decrease) in cash                                    41,000                (178,000)
 Cash at beginning of period                                    28,000                 194,000
                                                          ------------            ------------
 Cash at end of period                                    $     69,000            $     16,000
                                                          ------------            ------------
                                                          ------------            ------------
</TABLE>

                                     -5-

<PAGE>

                       NOTES TO CONDENSED FINANCIAL STATEMENTS


(1)   In the opinion of the Registrant, the unaudited financial information in
this report reflects all adjustments, consisting only of normal recurring
accruals, which are considered necessary to a fair presentation of the results
of the periods shown.  Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to SEC
regulations.  It is suggested that these financial statements be read in
conjunction with the audited financial statements included in the Registrant's
Report on Form 10-KSB for the fiscal year ended June 30, 1998.

(2)   Earnings per common share: Effective June 30, 1998, the Company adopted
the provisions of Statement of Financial Accounting Standards No. 128, EARNINGS
PER SHARE ("SFAS 128"), which replaced the presentation of "primary" and
"fully-diluted" earnings per common share required under previously promulgated
accounting standards with the presentation of "basic" and "diluted" earnings per
common share.

      Basic earnings per common share is calculated by dividing net income
applicable to common stock by the weighted average number of common shares
outstanding during the period.  The calculation of diluted earnings per common
share is similar to that of basic earnings per common share, except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if all potentially dilutive common shares,
principally those issuable upon the conversion of preferred stock and the
exercise of stock options, were issued during the period.

      The following table summarizes the calculation of basic and diluted
earnings per common share for each period:

<TABLE>
<CAPTION>
                                         Three months ended             Six months ended
                                             December 31                   December 31
                                      -------------------------     -------------------------
                                         1998           1997           1998           1997
                                      ----------     ----------     ----------     ----------
<S>                                   <C>            <C>            <C>            <C>
 Numerators:
    Net income (A)                    $   68,000     $   72,000     $  158,000     $  191,000
    Deduct - preferred dividend
       requirements                        1,000          1,000          4,000          1,000
    Net income applicable to
       common stock (B)               $   67,000     $   71,000     $  154,000     $  190,000
</TABLE>


                                     -6-

<PAGE>

<TABLE>
<CAPTION>
                                         Three months ended             Six months ended
                                             December 31                   December 31
                                      -------------------------     -------------------------
                                         1998           1997           1998           1997
                                      ----------     ----------     ----------     ----------
<S>                                   <C>            <C>            <C>            <C>
 Denominators:
    Weighted average shares for                                                                    
       basic net earnings per
       common share (C)                3,173,518      3,141,894      3,161,290      3,140,311
    Add effects of dilutive
       securities from assumed:
       Conversion of preferred
                stock                    111,729        115,436        111,729        115,436
       Exercise of stock options         117,278         48,032        117,278         48,032
                                      ----------     ----------     ----------     ----------
    Weighted average shares for
       diluted net earnings per
       common share (D)                3,402,525      3,305,362      3,390,297      3,303,779
                                      ----------     ----------     ----------     ----------
                                      ----------     ----------     ----------     ----------
 Basic net earnings per common
    share (B/C)                       $     0.02     $     0.02     $     0.05     $     0.06
                                      ----------     ----------     ----------     ----------
                                      ----------     ----------     ----------     ----------
 Diluted net earnings per common
    share (A/D)                       $     0.02     $     0.02     $     0.05     $     0.06
                                      ----------     ----------     ----------     ----------
                                      ----------     ----------     ----------     ----------
</TABLE>

(3)       The results of operations for the quarter and six month period ended
December 31, 1998, are not necessarily indicative of the results to be expected
for the full year.

ITEM 1a.  FACTORS WHICH MAY AFFECT FUTURE RESULTS

          Information contained in this Form 10-QSB should be studied carefully
by any potential investor while considering the following risk factors to the
Company.

     1.   LACK OF BUSINESS DIVERSIFICATION  Essentially all the Company's
business at the present time is with the U.S. Navy.  Even though the level of
business with its customers is growing and the Company has negotiated
multiple-year contracts, there is no certainty that budget changes in Congress
or the Defense Department will not seriously affect the Company.

     2.   DEPENDENCE ON KEY PERSONNEL  The Company has a few key management,
project and technical personnel that are intimately involved in their functions
and have day to day relationships with critical customers.  The Company is not
able to afford extra standby staff. As a result, at its current size, it would
be affected in an uncertain way if any of these personnel were to be lost to the
Company.

     3.   COMPETITION  The Company has many competitors who vie for the same
customers as SYS.  They are competent, experienced and continuously working to
take work projects away from the Company.

     4.   RECEIVABLE FROM AFFILIATE & ABSENCE OF COLLATERAL  Big Canyon
Investments, Inc. (BCI), a wholly owned subsidiary of UniPrise Systems, Inc.
(UniPrise), a company partially owned by Robert D. Mowry, the Company's former
Chairman and Chief Executive Officer, has entered into an agreement 

                                     -7-

<PAGE>

with the Company in which the Company is providing collection services to 
BCI/UniPrise for certain receivables.  The Company could potentially benefit 
from these receivables over and above the amount owed.  Under this 
arrangement and as of January 23, 1999, BCI/UniPrise owes the Company an 
aggregate of $115,000.  Some of the $115,000 owed to the Company is subject 
to other agreements between the Company and BCI/UniPrise and will be paid 
pursuant to those agreements and as payments are received on the receivables. 
 The total of these receivables is greater than the debt owed to the Company, 
however, the Company has no means to determine the validity of these 
receivables.  Although the Company's Board of Directors is working to collect 
these funds from BCI/UniPrise and assist in the collection of the 
receivables, the amount of this indebtedness is not secured by any 
collateral.  In the event that the Company is not able to secure the return 
of these advances, the Company may incur losses.

     5.   LIMITED ASSETS OF THE COMPANY  The Company has very limited assets
upon which to rely for adjusting to business variations and for growing new
businesses.  While the Company is likely to look for new funding to assist in
the acquisition of other profitable businesses, it is uncertain whether such
funds will be available.  While the Company's management believes that its
financial policies have been prudent, the Company's substantial reliance on a
short term bank loan with Scripps Bank and other short-term accruals imposes
certain limitations on the Company.  If the Company is to grow and expand its
operations, the Company will need to raise significant amounts of additional
capital.  There can be no assurance that the Company will be successful in
raising a sufficient amount of additional capital, or if it is successful, that
the Company will be able to raise capital on reasonable terms in light of the
Company's current circumstances.  In the event that the Company raises
additional capital, the Company's existing stockholders may incur substantial
and immediate dilution.

     6.   LIMITED MARKET FOR COMMON STOCK.  The Company's stock is traded (OTC)
on the Electronic Bulletin Board.  Trading for the stock is sporadic and at
present there is a limited market for the Company's Common Stock.  There can be
no assurance that a market will in fact develop.  Even if a market does develop,
it may not be sustained.

     7.   POSSIBLE RULE 144 STOCK SALES.  A total of 2,216,604 shares of the
Company's outstanding Common Stock are "restricted securities" and may be sold
only in compliance with Rule 144 adopted under the Securities Act of 1933 or
other applicable exemptions from registration.  Rule 144 provides that a person
holding restricted securities for a period of one year may thereafter sell, in
brokerage transactions, an amount not exceeding in any three month period the
greater of either (i) 1% of the Company's outstanding Common Stock, or (ii) the
average weekly trading volume during a period of four calendar weeks immediately
preceding any sale.  Persons who are not affiliated with the Company and who
have held their restricted securities for at least two years are not subject to
the volume limitation.  Possible or actual sales of the Company's Common Stock
by present shareholders under Rule 144 may have a depressive effect on the price
of the Company's Common Stock in any market which may develop.  

     8.   RISKS OF LOW PRICED STOCKS.  Trading in the Company's stock is
limited.  Consequently, a shareholder may find it more difficult to dispose of,
or to obtain, accurate quotations as to the price of, the Company's securities. 
In the absence of a security being quoted on NASDAQ, trading in the Common Stock
is covered by Rule 3a51-1 promulgated under the Securities Exchange Act of 1934

                                     -8-

<PAGE>

for non-NASDAQ and non-exchange listed securities.

     Under such rules, broker/dealers who recommend such securities to persons
other than established customers and accredited investors (generally
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of $1,000,000 or an annual income exceeding $200,000 or $300,000
jointly with their spouse) must make a special written suitability determination
for the purchaser and receive the purchaser's written agreement to a transaction
prior to sale.  Securities are also exempt from this rule if the market price is
at least $5.00 per share, or, for warrants, if the warrants have an exercise
price of at least $5.00 per share.  The Securities Enforcement and Penny Stock
Reform Act of 1990 requires additional disclosure related to the market for
penny stocks and for trades in any penny stock defined as a penny stock.

     The Commission has recently adopted regulations under such Act which define
a penny stock to be any NASDAQ or non-NASDAQ equity security that has a market
price or exercise price of less than $5.00 per share and allow for the
enforcement against violators of the proposed rules.

     In addition, unless exempt, the rules require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule prepared by the
Commission explaining important concepts involving a penny stock market, the
nature of such market, terms used in such market, the broker/dealer's duties to
the customer, a toll-free telephone number for inquiries about the
broker/dealer's disciplinary history, and the customer's rights and remedies in
case of fraud or abuse in the sale.

     Disclosure also must be made about commissions payable to both the
broker/dealer and the registered representative, current quotations for the
securities and, if the broker/dealer is the sole market maker, the broker/dealer
must disclose this fact and its control over the market.

     Monthly statements must be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny
stocks.  While many NASDAQ stocks are covered by the proposed definition of
penny stock, transactions in NASDAQ stocks are exempt from all but the sole
market-maker provision for (i) issuers with $2,000,000 in tangible assets
($5,000,000 if the issuer has not been in continuous operation for three years),
(ii) transactions in which the customer is an institutional accredited investor
and (iii) transactions that are not recommended by the broker/dealer.  In
addition, transactions in a NASDAQ security directly with the NASDAQ market
maker for such securities, are subject only to the sole market-maker disclosure,
and the disclosure with regard to commissions to be paid to the broker/dealer
and the registered representatives.

     Finally, all NASDAQ securities are exempt if NASDAQ raised its requirements
for continued listing so that any issuer with less than $2,000,000 in net
tangible assets or stockholder's equity would be subject to delisting.  These
criteria are more stringent than the proposed increase in NASDAQ'S maintenance
requirements.  The Company's securities are subject to the above rules on penny
stocks and the market liquidity for the Company's securities could be severely
affected by limiting the ability of broker/dealers to sell the Company's
securities.

     9.   CONTROL BY OFFICERS AND DIRECTORS.  As of December 31, 1998, Officers
and Directors of the Company own 70.0% or 2,216,604 shares of the Company's
common stock (before including any shares acquired upon exercise of any stock
options) and thereby control the Company's affairs.

                                     -9-
<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

DESCRIPTION OF BUSINESS

     The Company provides management and technical services in systems planning,
management and analysis, systems engineering, naval architecture, marine
engineering, ordnance engineering, logistics analysis and engineering,
operations analysis, design development, reliability engineering and analysis,
hazardous materials reduction studies, computer systems analysis, office
automation, information management systems and related support services.  The
Company also provides hardware integration and fabrication.

     The Company currently has three principle contracts with the U. S. Navy. 
These prime contracts are Underway Replenishment (UNREP); Management, Planning
and Administrative (MPA); and Naval Architecture and Marine Engineering (NAME).
     
     The Underway Replenishment (UNREP) Program had its first of three option
years exercised on November 26, 1998.  The Company is continuing its support for
the research and development project to design and build a full size ship
mock-up of a missile rearming system.  An Aegis Cruiser Vertical Launch Test
System was fitted with a full scale mock-up capable of demonstrating the
rearming and strikedown system feasibility for replenishing the Navy Standard
Missile and the shipboard Tomahawk missile system while underway at sea.  This
project continues to refine the detail design.  Shipboard technical assistance
continues to gain strength and is the basis for continued business confidence in
the coming year.  Due to the declining number of Underway Replenishment Ships in
the active U.S. Navy fleet and the transfer of many of these assets to the
Military Sealift Command (MSC), a significant upgrade or backfit program has
developed to extend the serviceable life of these ships.  The Company is playing
a major role in this program including design, asset procurement, shipboard
installation and the subsequent changes to the technical documentation.  The
Company also has a key role in developing the UNREP depot repair capability for
selected equipments.

     The Management, Planning and Analysis (MPA) Program had its last of four
option years exercised on February 1, 1999.  This program supports the U.S.
Navy's Port Hueneme Division, Naval Surface Warfare Center.  The Statement of
Work provides a broad and flexible scope of work which allows a wide range of
tasking.  SYS has developed work competencies in such areas as Management
Consulting, Information Services, Human Resource Services, Combat Systems
Engineering and Facilities Engineering.  The MPA program has received customer
recognition for its high standards of excellence and professionalism.  Continued
growth of this Program area is anticipated.

     The Naval Architecture and Marine Engineering (NAME) Program had its 
third of four option years exercised on November 24, 1998.  This cost plus 
fixed fee contract was issued by the U.S. Navy's Port Hueneme Division, Naval 
Surface Warfare Center (PHD NSWC).  The Company's largest customer on this 
contract is the Ship Self Defense Department of PHD NSWC.  Along with our 
Associate Subcontractor, John J. McMullen Associates, Inc. (JJMA), the 
Company provides extensive support for Ship Self Defense Systems in the areas 
of weapon systems installation design, 

                                      -10-
<PAGE>

planning and coordination.  The outlook for this contract is good, but 
challenging.  We are attempting to expand our customer base in an environment 
of decreasing customer budgets.

     The Company was awarded a two-year subcontract on August 18, 1997 from
Systems Application and Technologies to continue its support to the Naval Air
Systems Command.  This support provides environmental engineering and technical
services focusing on the identification and reduction of hazardous material when
providing maintenance to weapons and associated handling and shipping equipment.
Hazardous material reduction support is being expanded to include support for
Foreign Military Sales.

     Washington, D.C. Operations successfully recompeted a five-year subcontract
with their prime contractor, Tracor, on April 24, 1997.  This will allow
continued program management support to the Program Executive Office, Surface
Combatants/AEGIS Program (PEO,SC/AP), PMS400.  The Company provides contract and
other financial reconciliation and closure support for the Japanese AEGIS
Foreign Military Sales cases.  The Company also provides other financial
management support including case closure processing support to PMS400.

     The Company has plans to apply the skills acquired in the Defense arena
into the commercial sector.  A concerted effort is now being launched to move
these plans into reality.  The Company has also received notification from the
State of California that it has been approved as a supplier of training services
to the State.

     The General Services Administration (GSA) has awarded the Company two
contracts.  The first contract awarded is for Information Technologies (IT). 
The other contract is for Financial Management Services.  The Company has a
Blanket Purchase Agreement (BPA) in place at SPAWAR headquarters in San Diego
for the IT contract.  The Company anticipates expanding the business base in the
San Diego area using these contract vehicles.

RESULTS OF OPERATIONS

     The Company revenue for this quarter is approximately 6% less than those in
the same quarter in FY 1998.  For the first six months of FY 1999, revenue
decreased by about 7% over the prior year's same period.  The primary reason for
the decline in revenue is a reduction in direct and subcontracted work on the
NAME program during the first six months of FY 1999.  This resulted in a 54%
decrease in revenue on the NAME program.  The MPA program had a 15% increase in
revenue and the UNREP program had a 5% increase in revenue during the first six
months of FY 1999.  Revenue in the second quarter of FY 1999 was slightly higher
than in the first quarter of the year.  

     Total contract and general and administrative expenses have consistently
been about 95% of the contract revenue for the six months ended December 31,
1998 and 1997.  Interest expense has been about the same  in fiscal years 1999
and 1998.  The Company has used all available tax loss carry forwards in fiscal
year 1998 and  therefore income taxes are higher in the current fiscal year.

     Income from operations is 6% of the contract revenue for the six months
ended December 

                                      -11-
<PAGE>

31, 1998 compared to 5% for the same period in the prior year. Net income for 
the first six months of FY 1999 is $158,000 as compared to $191,000 for the 
same period in the prior year.  The reason for the lower net income for the 
period is because of the provision for federal income taxes of $51,000 in FY 
1999 as compared to $13,000 for the same period in the prior year. The 
negotiated contract backlog was approximately $3,258,000 at December 31, 1998.

     The outstanding balance on the Company's revolving line of credit with
Scripps Bank was reduced to zero at December 31, 1998.  At the end of the same
period in FY 1998, the line of credit balance was $257,000.

LIQUIDITY AND CAPITAL RESOURCES

     The Company had contract receivables (net) of $1,244,000 at the end of the
second quarter of FY 1999.  For the same quarter in FY 1998, the contract
receivables (net) were $1,317,000. 

     The Company had accounts payable of $162,000 at the end of the second
quarter of FY 1999.  For the same quarter in FY 1998 the accounts payable were
$175,000.  The payment status of these accounts payable is current.

     The Company maintains a $500,000 revolving credit facility with Scripps
Bank which matures on October 15, 1999.  The loan is secured by all the
Company's assets including contract receivables.  Scripps advances funds
requested by the Company of up to 80% of the Company's billed contract
receivables which are less than 90 days old.  Scripps charges an interest rate
of 1.5% over prime.

     Management believes that the Company will have sufficient cash flow from
operations and funds available under the revolving credit agreement with Scripps
Bank to finance its operating and capital requirements through at least the
current fiscal year.

     Several key factors indicating the Company's financial condition include:

<TABLE>
<CAPTION>

                           December 31, 1998      September 30, 1998        June 30, 1998
                           -----------------      ------------------        -------------
 <S>                          <C>                   <C>                       <C>
 Current ratio                   3.05                    2.34                    2.02
 Maximum debt to net 
    worth                        0.61                    0.80                    1.04
 Net worth                    $1,048,000               $981,000                $892,000
 Net working capital           $952,000                $852,000                $785,000
 Debt to total assets            38%                     44%                     51%
 Book value per 
    common share                $0.29                   $0.27                   $0.24
</TABLE>

     The current ratio is derived by dividing total current assets by total 
current liabilities.  Maximum debt to net worth is calculated by dividing 
total liabilities (total current liabilities plus other liabilities) by net 
worth. Net worth is total stockholders' equity.  Net working capital is total 
current assets less total current liabilities.  Debt to total assets is total 
liabilities divided by total assets.  Book value per common share is 
stockholders' equity related to common shares 

                                      -12-
<PAGE>

divided by the weighted average number of common shares outstanding.

IMPACT OF THE YEAR 2000

   The Year 2000 issue exists because many computer systems and applications
use two-digit date fields to designate a year.  As the century date change
occurs, date-sensitive systems may recognize the year 2000 as 1900, or not at
all.  This inability to recognize or properly treat the year 2000 may cause
systems to process financial and operational information incorrectly.  The
Company is continually upgrading its software and is in the process of upgrading
its financial software to insure compliance with the Year 2000 issue.  The
Company believes that with these software upgrades, the Year 2000 issue will not
pose significant operational problems for its internal computer systems.  The
Company anticipates that all systems will be Year 2000 compliant  by June 30,
1999 through the use of internal and external resources and does not anticipate
incurring significant costs on this issue.  There can be no assurance that the
systems of the Company's customers or suppliers will be converted on a timely
basis or that such failure to convert by another company will not have an
adverse effect on the Company.  However, since the Company is primarily a
provider of services, the Company does not believe that suppliers will have a
significant impact on the Company's possible Year 2000 problems.  The Company
does not expect the Year 2000 issue to have a material effect on its financial
position, results of operations or cash flows in any given year.












                                      -13-
<PAGE>

                             PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

     On February 7, 1997, Systems Exploration, Inc. (SEI) filed a lawsuit
against TRW for non-payment of services.  These services were performed by SEI
in accordance with their obligation under a subcontract from TRW.  On April 8,
1998, the Federal court ruled that the Company as collection agent for SEI was a
party of interest on behalf of the plaintiff, SEI.  On October 26, 1998, the
court ruled in favor of the plaintiff (SEI) and awarded them approximately
$58,000.  A decision on an appeal is pending.

     On January 26, 1998, the Company was served notice that it was being added
as a defendant in a lawsuit brought by an individual against a Company employee.
The Company's insurance firm is handling the legal requirements.  At this time,
the Company does not anticipate that this lawsuit will have an adverse effect on
the Company's operations.

ITEM 2.   CHANGES IN SECURITIES

     At the November 19, 1997 Board of Directors meeting, the board approved
stock options for all outside directors in lieu of cash compensation for board
meeting attendance.  Effective September 1, 1997, outside directors were to
receive stock options for 12,000 shares of the Company's common stock as annual
compensation at $0.75 per share.  At the conclusion of the first year of this
policy (August 31, 1998), stock options were issued for 81,300 common shares to
the following outside directors: Paul I. Anderson, 12,000 shares; Robert E.
Carroll, 12,000 shares; L. Randolph Knapp, 11,500 shares; Robert D. Mowry,
12,000 shares; W. Gerald Newmin, 12,000 shares; Charles H. Werner, 12,000
shares; Richard W. Wood, 9,800 shares.  Under the same policy, for the period
from September 1, 1998 to December 31, 1998, stock options totaling 21,645
common shares at $0.68 per share are owed to the following outside directors:
Paul I. Anderson, 4,000 shares; Robert E. Carroll, 4,000 shares; Robert D.
Mowry, 4,000 shares; W. Gerald Newmin, 1,645 shares; Charles H. Werner, 4,000
shares; Richard W. Wood, 4,000 shares.

     On September 29, 1998, Mr. Charles Werner, a director of the Company,
exercised a stock option for 25,000 shares at $0.09 per share.

     With regards to all transactions disclosed in Item 2, the Company did not
incur any expenses, discounts, commissions or finders' fees.  These transactions
were completed pursuant to Section 4(2) of the Securities Act of 1933 and are
therefore exempt from Section 5 of the same Act.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

     None


                                      -14-
<PAGE>

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

     On January 20, 1999, the Company held its 1998 Annual Meeting of
Shareholders.  There were 3,173,518 shares eligible as of the record date and
2,952,858 shares were represented either in person or by proxy at the meeting. 
The following matters were voted on at the meeting:

   (a.)   Proposal to elect the Directors pursuant to management's nominations. 
This proposal was defeated with 721,504 shares voting in favor, 2,231,354 shares
voting against, and 0 shares abstaining.

   (b.)   Proposal to elect Lawrence L. Kavanau, Robert D. Mowry, W. Gerald
Newmin, Charles E. Vandeveer and Charles H. Werner Directors pursuant to a
motion from the floor.  This proposal was approved with 2,489,541 shares voting
in favor, 463,317 shares voting against, and 0 shares abstaining.

   (c.)   Proposal to approve the appointment of J. H. Cohn LLP as the
independent certified public accountants for the corporation for its 1999 fiscal
year.  This proposal was approved with 2,948,452 shares voting in favor, 2,641 
shares voting against, and 1,765 shares abstaining

   (d.)   Proposal to amend the SYS 1997 Incentive Stock Option and Restricted
Stock Plan ("Plan") to increase the amount of common shares subject to the Plan
for non-employee directors and consultants from 350,000 to a total of 450,000
and for employees from 500,000 to a total of 750,000.  This proposal was
approved with 2,893,136 shares voting in favor, 36,913 shares voting against,
and 22,809 shares abstaining.

ITEM 5.   OTHER INFORMATION

     At the Annual Board of Directors meeting held on January 20, 1999, Lawrence
L. Kavanau was elected Chairman of the Board; W. Gerald Newmin was elected Chief
Executive Officer and Chief Financial Officer; Charles E. Vandeveer was elected
Executive Vice President and Michael W. Fink was elected Vice President,
Administration and Secretary.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

     None

                                      -15-
<PAGE>

                                      SIGNATURES


     In accordance with the requirements Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.




                                                             SYS
                                                 --------------------------
                                                        (Registrant)



Date:       February 9, 1999                      /s/ W. Gerald Newmin
      ----------------------------               --------------------------
                                                  W. Gerald Newmin
                                                  Chief Executive Officer




                                      -16-