<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        March 31, 1997

------   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.)

            6363 Greenwich Drive, Suite 200, San Diego, California  92122
--------------------------------------------------------------------------------
                       (Address of Principal Executive Offices)

                                     (619) 587-0484
--------------------------------------------------------------------------------
                   (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: 3,021,822 shares of common
stock, without par value, as of March 31, 1997.

    Transitional Small Business Disclosure Format (check one):

Yes            No    X
    -------       -------


                                         -1-

<PAGE>

                                  TABLE OF CONTENTS


                                                                          Page
PART I - FINANCIAL INFORMATION                                            Number


    Item 1.   Financial Statements
              Condensed Balance Sheets (unaudited)
                   March 31, 1997 and December 31, 1996.......................3
              Condensed Statements of Operations (unaudited)
                   Three Months and Nine Months Ended March 31, 1997
                   and Three Months and Nine Months Ended March 31, 1996......4
              Condensed Statements of Cash Flows (unaudited)
                   Nine Months Ended March 31, 1997
                   and Nine Months Ended March 31, 1996.......................5
              Notes to Condensed Financial Statements (unaudited).............6

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

                   Description of Business....................................6
                   Results of Operations......................................7
                   Liquidity and Capital Resources............................8


PART II - OTHER INFORMATION


    Item 1.   Legal Proceedings...............................................9

    Item 2.   Changes in Securities...........................................9

    Item 3.   Defaults Upon Senior Securities.................................9

    Item 4.   Submission of Matters to a Vote of Security Holders.............9

    Item 5.   Other Information..............................................10

    Item 6.   Exhibits and Reports on Form 8-K...............................10


                                         -2-

<PAGE>

                                        PART I
                                FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
   
                                         SYS
                               CONDENSED BALANCE SHEETS

                                                   3/31/97       12/31/96
                                                 -----------    -----------
                                                 (Unaudited)    (Unaudited)

ASSETS
----------------------------------------

Current assets:
   Cash                                          $   13,000     $   10,000
   Contract receivables, net                      1,032,000      1,563,000
   Other current assets                             129,000        126,000
                                                 ----------     ----------

      Total current assets                       $1,174,000     $1,699,000

Equipment, furniture and fixtures,
   at cost, less accumulated
   depreciation and amortization                    164,000        130,000
Other assets                                         69,000         70,000
                                                 ----------     ----------
                                                 $1,407,000     $1,899,000
                                                 ----------     ----------
                                                 ----------     ----------

LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------------

Current liabilities:
   Note payable to bank                          $   69,000     $  356,000
   Accounts payable                                 263,000        489,000
   Accrued payroll and related taxes                139,000        175,000
   Other accrued liabilities                        183,000        172,000
   Current portion of other long-term debt           87,000         79,000
   Income taxes payable                             (13,000)             0
                                                 ----------     ----------

      Total current liabilities                  $  728,000     $1,271,000

Other long-term debt                                 61,000        103,000

Stockholders' equity:
   Preferred stock                                   55,000         55,000
   Series B preference stock                         96,000        140,000
   Common stock                                     421,000        378,000
   Retained earnings                                 46,000        (48,000)
                                                 ----------     ----------

      Total stockholders' equity                 $  618,000     $  525,000
                                                 ----------     ----------
                                                 $1,407,000     $1,899,000
                                                 ----------     ----------
                                                 ----------     ----------


                                         -3-

<PAGE>

                                         SYS
                          CONDENSED STATEMENT OF OPERATIONS
                                     (Unaudited)
<TABLE>
<CAPTION>

 
                                          Three months ended            Nine months ended
                                               March 31                      March 31
                                       --------------------------    -------------------------

                                          1997           1996           1997           1996
                                       ----------     ----------     ----------     ----------
<S>                                    <C>            <C>            <C>            <C>
Contract revenues                      $2,065,000     $1,484,000     $5,381,000     $4,300,000
                                       ----------     ----------     ----------     ----------

Costs and expenses:
   Contract costs                      $1,813,000     $1,233,000     $4,585,000     $3,611,000
   General and administrative             150,000        164,000        527,000        438,000
                                       ----------     ----------     ----------     ----------
                                       $1,963,000     $1,397,000     $5,112,000     $4,049,000
                                       ----------     ----------     ----------     ----------

Income from operations                 $  102,000     $   87,000     $  269,000     $  251,000

Interest expense                            5,000         11,000         32,000         39,000

                                       ----------     ----------     ----------     ----------
Income (loss) before income taxes      $   97,000     $   76,000     $  237,000     $  212,000

Provision for income taxes                      0          1,000              0          1,000
                                       ----------     ----------     ----------     ----------

Net income (loss)                      $   97,000     $   75,000     $  237,000     $  211,000

Dividends on preferred shares               3,000              0          4,000          2,000
                                       ----------     ----------     ----------     ----------

Net income (loss) applicable to
   common and common
   equivalent shares                   $   94,000     $   75,000     $  233,000     $  209,000

Retained earnings at beginning
   of period                              (48,000)      (179,000)      (187,000)      (313,000)
                                       ----------     ----------     ----------     ----------

Retained earnings at end of period     $   46,000     $ (104,000)    $   46,000     $ (104,000)
                                       ----------     ----------     ----------     ----------
                                       ----------     ----------     ----------     ----------

Earning (losses) per common
   and common equivalent shares        $     0.03     $     0.03     $     0.08     $     0.07
                                       ----------     ----------     ----------     ----------
                                       ----------     ----------     ----------     ----------

Weighted average number of
   common and common
   equivalent shares                    2,956,000      2,822,000      2,901,000      2,822,000
                                       ----------     ----------     ----------     ----------
                                       ----------     ----------     ----------     ----------
 
</TABLE>


                                                                     -4-

<PAGE>

<TABLE>
<CAPTION>
 
                                         SYS
                        CONDENSED STATEMENT OF CASH FLOWS
                                  (Unaudited)

                                                                Nine months ended
                                                                    March 31
                                                          --------------------------

                                                               1997          1996
                                                          -----------    -----------

<S>                                                       <C>            <C>
Operating activities:
Net income (loss)                                         $   237,000    $   211,000
Adjustments to reconcile net income to net cash
   provided by (used for) operating activities:
   Depreciation and amortization                               34,000         22,000
   Provision for doubtful accounts                                  0              0
   Changes in operating assets and liabilities:
     Contract receivables                                     (45,000)        83,000
     Other current assets and other assets                    (42,000)       (30,000)
     Accounts payable                                         (52,000)      (152,000)
     Accrued payroll and related taxes                        (86,000)        21,000
     Other accrued liabilities                                (13,000)        (2,000)
                                                          -----------    -----------
Net cash provided by (used for) operating activities      $    33,000    $   153,000
Investing activities:
Acquisition of furniture and equipment                         47,000        (20,000)
(Increase) decrease in other assets                                 0              0
                                                          -----------    -----------
Net cash provided by (used in) investing activities       $    47,000    $   (20,000)
Financing activities:
   Proceeds from note payable to bank                       5,291,000      4,231,000
   Payments on note payable to bank                        (5,446,000)    (4,302,000)
   Other notes payable                                         77,000              0
   Payments of capital lease obligations                      (10,000)        (9,000)
   Payments of preferred stock dividends                       (4,000)        (2,000)
   Proceeds from issuance of common stock                           0              0
                                                          -----------    -----------
Net cash provided by (used in) financing activities       $   (92,000)   $   (82,000)
Increase (decrease) in cash                                   (12,000)        51,000
Cash at beginning of period                                    25,000          3,000
                                                          -----------    -----------
Cash at end of period                                     $    13,000    $    54,000
                                                          -----------    -----------
                                                          -----------    -----------

 
</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, 1996.

(2)    Income per common share is computed by dividing the net income for the 
year, as adjusted for preferred dividend requirements, by the weighted 
average number of common shares and any dilutive common equivalent shares 
outstanding. The effects of the assumed conversion of the 4% convertible 
preferred stock, which is a common stock equivalent, and the 9% convertible 
preference stock have not been included in the computation of income per 
share in any year or quarter presented because such effects were either 
immaterial or antidilutive.

(3)   The results of operations for the quarter and nine-month period ended 
March 31, 1997, are not necessarily indicative of the results to be expected 
for the full year.

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, management consulting 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 the Underway Replenishment (UNREP); Management, 
Planning and Analysis (MPA); and Naval Architecture and Marine Engineering 
(NAME).

     The UNREP program provides in-service engineering support to the U. S. 
Navy Fleet.  The Company has provided UNREP support since 1982.  This four 
year contract has a total value of over $8,000,000 and was issued by the U. 
S. Navy's Port Hueneme Division, Naval Surface Warfare Center and is 
currently in the last option year.  The Company anticipates the request for 
proposal (RFP) on this contract's recompete will be released by the Navy the 
latter part of this fiscal year.  The Company will aggressively seek to win 
this contract again.

                                         -6-

<PAGE>



     The MPA program supports the U. S. Navy's Port Hueneme Division, Naval 
Surface Warfare Center.  This multiple year $16,000,000 contract accounted 
for over fifty percent of the Company's revenues in this past fiscal year and 
the contract ceiling was increased $1,000,000 in the base and first option 
years to accommodate the workload demand.  This Program had its second of 
four option years exercised on February 1, 1997.  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 NAME Program is the Company's newest prime contract.  This cost plus 
fixed fee contract was awarded to SYS on April 22, 1996 issued by the U. S. 
Navy's Port Hueneme Division, Naval Surface Warfare Center.  The NAME 
contract consists of a base year and four (4) option years with a total 
potential value over the five years of $12,500,000.  This Program had its 
first of four option years exercised on November 25, 1996.  SYS, together 
with its Associate Subcontractor, John J. McMullen Associates, Inc. provides 
a wide range of Combat Systems Engineering and weapons capabilities developed 
in support of Ship Self Defense Systems (SSDS).

     The Company also has two other growing business areas.  The Company 
provides the Naval Air Systems Command engineering and technical services 
which focus on the identification and reduction of hazardous material when 
providing maintenance to weapons and associated handling and shipping 
equipment. The Company's Washington, D.C. operation continues to provide 
important administrative financial services as a subcontractor including case 
closures, all of which are in support of Foreign Military Sales Programs.  
This operation was on the winning Vitro Corporation team which recently won 
the recompete on this contract.  This new subcontract has a base year and 
four option years and will allow the Company to maintain a stable base of 
operations in Washington, D.C.

     The Company has an increasing backlog of proposals currently in 
evaluation and is cautiously optimistic that they will contribute to the 
future business growth of the Company.

RESULTS OF OPERATIONS

     The Company revenues for the third quarter are approximately 39% more 
than those in the same quarter in FY 1996.  For the first nine months of FY 
1997, revenues increased by about 25% over the prior year's same period.  The 
increased revenue is due to additional revenues on the UNREP and MPA 
contracts and the added revenue from the new NAME contract.  Net Income for 
the quarter is $97,000 and for the year to date is $237,000.  For the same 
periods in FY 1996, the net income was $75,000 and $211,000, respectively.  
The reason that the year-to-date net income results in FY 1996 are just 
slightly less than FY 1997 is because General and Administrative Expenses 
have been offset by about $63,000 in expenses that were written off, thus 
increasing net income in FY 1996.  The booked contract backlog is 
approximately $5,516,000 at the end of the third quarter.

     The Company's bank note decreased to $69,000 at the end of the third
quarter of FY 1997 as compared to $356,000 at the end of the second quarter.
The decreased note balance is a direct


                                         -7-

<PAGE>

result of Defense Finance and Accounting Service (DFAS) catching up on the slow
payments experienced at the end of the second quarter.  At the end of the third
quarter in FY 1996, the note balance was $237,000.

LIQUIDITY AND CAPITAL RESOURCES

     The Company had contract receivables (net) of $1,032,000 at the end of the
third quarter of FY 1997.  For the same quarter in FY 1996, the contract
receivables (net) were $861,000.  The reason FY 1997 contract receivables are
higher than the prior year is because of the increased revenue.

     For FY 1997, the Company had accounts payable of $263,000 at the end of 
the third quarter and $489,000 at the end of the second quarter.  The 
decreased accounts payable is a direct result of Defense Finance and 
Accounting Service (DFAS) catching up on the slow payments experienced at the 
end of the second quarter.  The Company has agreements with their 
subcontractors to pay them as DFAS pays the Company.  Therefore, as DFAS 
caught up on their payments to the Company, it allowed the Company to pay its 
subcontractors and decrease accounts payable.  For the same quarter in FY 
1996 the accounts payable were $305,000.

     Income taxes payable represents prepaid California income taxes for the
current fiscal year.  Normally, these taxes would have been accrued during the
year, however the accrual was not recorded due to uncertainty over a prior year
tax issue.  This issue will be settled and the accrual recorded prior to year
end.

     On March 21, 1997, the Company paid $3,000 in Preferred Stock dividends
that were in arrears from prior years. All Preferred Stock dividends are now 
current.

     The Company maintains a $500,000 revolving credit facility with Scripps 
Bank which matures on August 30, 1997.  The loan is secured by all the 
Company's assets including contract receivables.  Scripps advances funds 
requested by the Company of up to 75% of the Company's billed contract 
receivables which are less than 90 days old.  Scripps charges an interest 
rate of 1.5% over prime.

     The Company anticipates no significant commitments for Capital 
Expenditures other than required computer related hardware and software.  The 
Company believes that its cash flow from operations and available bank 
borrowings will be sufficient to satisfy the current and anticipated capital 
requirements for operations.

                                         -8-

<PAGE>

                                       PART II
                                  OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

     In November 1995, a creditor of Systems Exploration, Inc. (SEI) filed a
breach of contract action in California Superior Court against SEI, First
National Bank of San Diego and the Company.  The Company maintains it has no
liability to this plaintiff with respect to this matter and is vigorously
defending this action.

ITEM 2.  CHANGES IN SECURITIES

     After February 28, 1997, holders of the Company's Non-Voting Series B 9% 
Cumulative Convertible Callable Preference Stock (par value $1.00) could 
convert each share into two shares of common stock if all conditions for 
conversion were met.  On March 11, 1997, the Company converted 43,068 shares 
of Series B preference stock into 86,136 shares of common stock for those 
Series B preference stockholders that requested conversion.

     On May 7, 1997, the Company issued stock purchase options which were
authorized on January 17, 1996 by the Board of Directors for an aggregate of
75,000 shares of the Company's Common Stock (no par value) to three outside
directors (25,000 shares each) for services rendered since their date of
election to the Board of Directors.  Shares vest daily over a five year period.
Those shares issued, but not vested, are subject to the Company's right to
repurchase at cost in the event that the director leaves the board.  These
Common Stock purchase options were granted under a plan approved by the
Company's shareholders on March 21, 1997.  These sales were made for cash and
are pursuant to Section 4(2) of the Securities Act of 1933.  No broker-dealer
was used or any brokerage commission paid in connection with these sales.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES          None


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

     On March 21, 1997, the Company held its 1996 Annual Meeting of
Shareholders.  There were 2,935,686 shares eligible as of the record date and
2,757,031 shares were represented either in person or by proxy at the meeting.
The following matters were voted on at the meeting:

     (a.)  Proposal to approve the appointment of J.H. Cohn LLP as the
independent certified public accountants for the corporation for its 1997 fiscal
year.  This proposal was approved with a voice vote.

     (b.)  Proposal to approve the SYS 1997 Incentive Stock Option and 
Restricted Stock Plan.  This proposal was approved with a voice vote.

                                         -9-


<PAGE>

     (c.)  Management nominated seven (7) directors for election at this
shareholder meeting.  At the meeting there was a request for cumulative voting
under California law.  There was an additional director nominated by a
shareholder present at the meeting.  The total cumulative votes cast for all
director were 19,158,615 (2,736,945 voting shares x 7 director positions).  The
results were:

       Management's             Shareholder    Cumulative    Directors
        Nominees                  Nominee        Votes        Elected
        --------                  -------        -----        ------- 
    Paul I. Anderson                           2,826,612      Anderson
    Robert E. Carroll                          2,826,612      Carroll
    Zoltan A. (Walt) Harasty                       0
    Lawrence L. Kavanau                        2,826,612      Kavanau
    Robert D. Mowry                            2,409,120      Mowry
    W. Gerald Newmin                           2,791,613      Newmin
    Charles H. Werner                          2,598,120      Werner
                         Charles E. Vandeveer  2,879,926      Vandeveer
                                              ----------
                                              19,158,615

ITEM 5.  OTHER INFORMATION          None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

   (a.)  EXHIBITS
              *    Exhibit No.    Description
                   -----------    -----------

                        27        Financial data schedule

   (b.)  FORM 8-K       None













                                         -10-

<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:     May 13, 1997                           /s/ Lawrence L. Kavanau
     ---------------------                       -----------------------------
                                                 Lawrence L. Kavanau
                                                 Chief Executive Officer
                                                 Chief Financial Officer




(On behalf of the Registrant and as Principal Financial & Accounting Officer)