**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-Q**

| **ý**                                                          |   | **QUARTERLY                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT                OF 1934**      |
|---------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------|
|                                                                |   |                                                                                                                                |
| **FOR                THE QUARTERLY PERIOD ENDED December 29, 2006** |
|                                                                |   |                                                                                                                                |
| **o**                                                               |   | **TRANSITION                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE                ACT OF 1934** |

**Commission      file number 000-04169**

**SYS**

| **California**                                                                              |   | **95-2467354**                                                    |
|---------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|
| (State                or other jurisdiction ofincorporation                or organization) |   | (I.R.S.                EmployerIdentification                No.) |

| **5050                Murphy Canyon Road, Suite 200, San Diego, California                92123** |
|---------------------------------------------------------------------------------------------------|

**(858)      715-5500**

----

**SYS**

**FORM      10-Q**

**FOR      THE QUARTERLY PERIOD ENDED DECEMBER 29, 2006**

**INDEX**

| **PART                I. FINANCIAL**** ****INFORMATION** |
|---------------------------------------------------------------|
|                                                          |   |   |   |
| Item                1.                                        |   | Financial                Statements |   |
|                                                          |   |   |   |
|                                                          |   | Condensed                Consolidated Balance                Sheets as of December 29, 2006 and June 30, 2006 |  |
|                                                          |   |   |   |
|                                                          |   | Condensed                Consolidated Statements                of Operations                for the Three and Six Months Ended December 29, 2006 and December                30,                2005 |   |
|                                                          |   |   |   |
|                                                          |   | Condensed                Consolidated Statements of Cash Flows                for the Six Months Ended December 29, 2006 and December 30,                2005 |   |
|                                                          |   |   |   |
|                                                          |   | Notes                to Condensed Consolidated Financial Statements |   |
|                                                          |   |   |   |
| Item                2.                                        |   | Management’s                Discussion and Analysis of Financial Condition and Results of                Operations |   |
|                                                          |   |   |   |
| Item                3.                                        |   | Quantitative                and Qualitative Disclosures About Market Risk |   |
|                                                          |   |   |   |
| Item                4.                                        |   | Controls                and Procedures |   |
|                                                          |   |   |   |
| **PART                II. OTHER INFORMATION**                 |   |
|                                                          |   |   |   |
| Item                1.                                        |   | Legal                Proceedings |   |
| Item                1A                                        |   | Risk                Factors |  |
| Item                2.                                        |   | Unregistered                Sales of Equity Securities and Use of Proceeds |  |
| Item                3.                                        |   | Defaults                Upon Senior Securities |  |
| Item                4.                                        |   | Submission                of Matters to a Vote of Security Holders |  |
| Item                5.                                        |   | Other                Information |  |
| Item                6.                                        |   | Exhibits |   |
|                                                          |   | Signatures |   |
|                                                          |   | Exhibit                31.1 |   |
|                                                          |   | Exhibit                31.2 |   |
|                                                          |   | Exhibit                32.1 |   |
|                                                          |   | Exhibit                32.2 |   |

----

**PART      I. FINANCIAL INFORMATION**

**Item      1. Financial Statements**

| **SYS                AND SUBSIDIARIES****CONDENSED                CONSOLIDATED BALANCE SHEETS (UNAUDITED)****(amounts                in thousands)** |
|------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                 |   |   | **December                29, 2006 **  |   |   | **June                30,****2006** |   |
| ASSETS                                                                                                                                               |
| Current                Assets                                                                                                                        |   |   |   |   |   |   |   |
| Cash                                                                                                                                                 |   | $ | 3,224 |   | $ | 2,106 |   |
| Accounts                receivable, net                                                                                                              |   |   | 16,559 |   |   | 13,966 |   |
| Inventories                                                                                                                                          |   |   | 378 |   |   | 558 |   |
| Prepaid                expenses                                                                                                                      |   |   | 507 |   |   | 526 |   |
| Income                tax refund receivable                                                                                                          |   |   | 326 |   |   | 836 |   |
| Total                current assets                                                                                                                  |   |   | 20,994 |   |   | 17,992 |   |
|                                                                                                                                                 |   |   |   |   |   |   |   |
| Furniture,                equipment and leasehold improvements, net                                                                                  |   |   | 2,042 |   |   | 1,717 |   |
| Intangible                assets, net                                                                                                                |   |   | 6,624 |   |   | 3,446 |   |
| Goodwill                                                                                                                                             |   |   | 22,090 |   |   | 18,575 |   |
| Deferred                taxes                                                                                                                        |   |   | 210 |   |   | 210 |   |
| Other                assets                                                                                                                          |   |   | 226 |   |   | 266 |   |
| Total                assets                                                                                                                          |   | $ | 52,186 |   | $ | 42,206 |   |
|                                                                                                                                                 |   |   |   |   |   |   |   |
| LIABILITIES                AND STOCKHOLDERS' EQUITY                                                                                                  |
| Current                Liabilities:                                                                                                                  |   |   |   |   |   |   |   |
| Line                of credit                                                                                                                        |   | $ | 1,575 |   | $ | 899 |   |
| Accounts                payable                                                                                                                      |   |   | 2,464 |   |   | 2,106 |   |
| Accrued                payroll and related expenses                                                                                                  |   |   | 3,332 |   |   | 3,074 |   |
| Other                accrued liabilities                                                                                                             |   |   | 1,710 |   |   | 1,280 |   |
| Deferred                taxes                                                                                                                        |   |   | 366 |   |   | 671 |   |
| Current                portion of convertible notes payable, related party                                                                           |   |   | 1,005 |   |   | 992 |   |
| Current                portion of convertible notes payable                                                                                          |   |   | 1,095 |   |   | 1,080 |   |
| Current                portion of note payable                                                                                                       |   |   | 250 |   |   | 250 |   |
| Deferred                revenue                                                                                                                      |   |   | 1,953 |   |   | 373 |   |
| Total                current liabilities                                                                                                             |   |   | 13,750 |   |   | 10,725 |   |
|                                                                                                                                                 |   |   |   |   |   |   |   |
| Convertible                notes payable, net of current portion, related party                                                                      |   |   | 975 |   |   | 975 |   |
| Convertible                notes payable, net of current portion                                                                                     |   |   | 2,150 |   |   | 2,150 |   |
| Note                payable, net of current portion                                                                                                  |   |   | 625 |   |   | 750 |   |
| Other                long-term liabilities                                                                                                           |   |   | 78 |   |   | 4 |   |
| Deferred                revenue, net of current portion                                                                                              |   |   | 568 |   |   | 95 |   |
| Total                liabilities                                                                                                                     |   |   | 18,146 |   |   | 14,699 |   |
|                                                                                                                                                 |   |   |   |   |   |   |   |
| Commitments                and Contingencies                                                                                                         |   |   |   |   |   |   |   |
|                                                                                                                                                 |   |   |   |   |   |   |   |
| Stockholders'                Equity:                                                                                                                 |   |   |   |   |   |   |   |
| 4%                convertible preferred stock, $.50 par value; 250 shares                                                                            |   |   |   |   |   |   |   |
| authorized;                none issued or outstanding                                                                                                |   |   | --                  |   |   | --                  |   |
| 9%                preference stock, $1.00 par value; 2,000 shares                                                                                    |   |   |   |   |   |   |   |
| authorized;                none issued or outstanding                                                                                                |   |   | --                  |   |   | --                  |   |
| Common                stock, no par value; 48,000 shares authorized;                                                                                 |   |   |   |   |   |   |   |
| 18,219                and 15,353 shares issued and outstanding                                                                                       |   |   |   |   |   |   |   |
| as                of December 29, 2006 and June 30, 2006, respectively                                                                               |   |   | 33,628 |   |   | 26,638 |   |
| Retained                earnings                                                                                                                     |   |   | 412 |   |   | 869 |   |
| Total                stockholders’ equity                                                                                                      |   |   | 34,040 |   |   | 27,507 |   |
|                                                                                                                                                 |   |   |   |   |   |   |   |
| Total                liabilities and stockholders’ equity                                                                                      |   | $ | 52,186 |   | $ | 42,206 |   |

----

| **SYS                AND SUBSIDIARIES****CONDENSED                CONSOLIDATED STATEMENTS OF OPERATIONS****(UNAUDITED)****(amounts                in thousands, except per share data)** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                     |   | **Three                Months Ended**  |   | **Six                Months Ended** |
|                                                                                                                                                                                          |   |   | **December                29,**  |   |   | **December                30,** |   |   |   | **December                29,** |   |   | **December                30,** |   |
|                                                                                                                                                                                     |   |   | **2006** |   |   | **2005** |   |   |   | **2006** |   |   | **2005** |   |
|                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues                                                                                                                                                                                 |   | $ | 19,216 |   | $ | 12,448 |   |   | $ | 35,459 |   | $ | 25,542 |   |
|                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                costs and expenses:                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Costs                of revenue                                                                                                                                                          |   |   | 14,715 |   |   | 9,646 |   |   |   | 27,326 |   |   | 20,134 |   |
| Selling,                general and administrative                                                                                                                                       |   |   | 3,606 |   |   | 1,672 |   |   |   | 6,579 |   |   | 3,040 |   |
| Research,                engineering and development                                                                                                                                     |   |   | 1,110 |   |   | 705 |   |   |   | 1,991 |   |   | 1,062 |   |
| Total                operating costs and expenses                                                                                                                                        |   |   | 19,431 |   |   | 12,023 |   |   |   | 35,896 |   |   | 24,236 |   |
|                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                (loss) from operations                                                                                                                                             |   |   | (215 | ) |   | 425 |   |   |   | (437 | ) |   | 1,306 |   |
|                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                (income) expense:                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                income                                                                                                                                                              |   |   | (24 | ) |   | (22 | ) |   |   | (61 | ) |   | (58 | ) |
| Interest                expense                                                                                                                                                          |   |   | 186 |   |   | 91 |   |   |   | 383 |   |   | 190 |   |
| Total                other expense                                                                                                                                                       |   |   | 162 |   |   | 69 |   |   |   | 322 |   |   | 132 |   |
|                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                (loss) before income taxes                                                                                                                                         |   |   | (377 | ) |   | 356 |   |   |   | (759 | ) |   | 1,174 |   |
|                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                tax provision (benefit)                                                                                                                                            |   |   | (35 | ) |   | 162 |   |   |   | (302 | ) |   | 505 |   |
|                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                income (loss)                                                                                                                                                         |   | $ | (342 | ) | $ | 194 |   |   | $ | (457 | ) | $ | 669 |   |
|                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                income (loss) per share:                                                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                                                                                    |   | $ | (0.02 | ) | $ | 0.02 |   |   | $ | (0.03 | ) | $ | 0.06 |   |
| Diluted                                                                                                                                                                                  |   | $ | (0.02 | ) | $ | 0.01 |   |   | $ | (0.03 | ) | $ | 0.05 |   |
|                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted                average shares:                                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                                                                                    |   |   | 17,521 |   |   | 11,871 |   |   |   | 16,463 |   |   | 11,373 |   |
| Diluted                                                                                                                                                                                  |   |   | 17,521 |   |   | 13,090 |   |   |   | 16,463 |   |   | 12,490 |   |

----

| **SYS                AND SUBSIDIARIES****CONDENSED                CONSOLIDATED STATEMENTS OF CASH FLOWS****SIX                MONTHS ENDED DECEMBER 29, 2006 AND DECEMBER 30, 2005****(UNAUDITED)****(amounts                in thousands)** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                         |   |   | **2006** |   |   | **2005** |   |
| Cash                Flows from Operating Activities:                                                                                                                                                                                         |   |   |   |   |   |   |   |
| Net                income (loss)                                                                                                                                                                                                             |   | $ | (457 | ) | $ | 669 |   |
| Adjustments                to reconcile net income (loss) to cash provided by operating                activities:                                                                                                                           |   |   |   |   |   |   |   |
| Depreciation                and amortization                                                                                                                                                                                                 |   |   | 968 |   |   | 459 |   |
| Share-based                compensation expense                                                                                                                                                                                              |   |   | 227 |   |   | 266 |   |
| Accretion                of debt discount                                                                                                                                                                                                    |   |   | 28 |   |   | 21 |   |
| Deferred                taxes                                                                                                                                                                                                                |   |   | (305 | ) |   | -- |   |
| Bad                debt expense                                                                                                                                                                                                              |   |   | 152 |   |   | 19 |   |
| Stock                contributed to employee benefit plan                                                                                                                                                                                    |   |   | 475 |   |   | 394 |   |
| Gain                on disposition of equipment                                                                                                                                                                                              |   |   | (4 | ) |   | --   |   |
| Changes                in operating assets and liabilities:                                                                                                                                                                                  |   |   |   |   |   |   |   |
| Accounts                receivable                                                                                                                                                                                                           |   |   | (1,115 | ) |   | (247 | ) |
| Income                tax receivable                                                                                                                                                                                                         |   |   | 510 |   |   | --   |   |
| Inventories                                                                                                                                                                                                                                  |   |   | 168 |   |   | (90 | ) |
| Prepaid                expenses and other current assets                                                                                                                                                                                     |   |   | 95 |   |   | (66 | ) |
| Accounts                payable                                                                                                                                                                                                              |   |   | 333 |   |   | (410 | ) |
| Accrued                payroll and related expenses                                                                                                                                                                                          |   |   | (120 | ) |   | (469 | ) |
| Income                taxes payable                                                                                                                                                                                                          |   |   | --   |   |   | (138 | ) |
| Other                accrued liabilities                                                                                                                                                                                                     |   |   | (401 | ) |   | (249 | ) |
| Deferred                revenue                                                                                                                                                                                                              |   |   | (116 | ) |   | 121 |   |
| Net                cash provided by operating activities                                                                                                                                                                                     |   |   | 438 |   |   | 280 |   |
|                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |
| Cash                Flows from Investing Activities:                                                                                                                                                                                         |   |   |   |   |   |   |   |
| Purchases                of furniture, equipment and leasehold improvements                                                                                                                                                                  |   |   | (432 | ) |   | (392 | ) |
| Net                cash (paid) received for acquisitions, net of cash                acquired                                                                                                                                                |   |   | 202 |   |   | (4,560 | ) |
| Proceeds                from investment                                                                                                                                                                                                      |   |   | --   |   |   | 90 |   |
| Other                                                                                                                                                                                                                                        |   |   | 33 |   |   | (12 | ) |
| Net                cash used for investing activities                                                                                                                                                                                        |   |   | (197 | ) |   | (4,874 | ) |
|                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |
| Cash                Flows from Financing Activities:                                                                                                                                                                                         |   |   |   |   |   |   |   |
| Net                line of credit borrowings                                                                                                                                                                                                 |   |   | 676 |   |   | 572 |   |
| Payments                of notes payable and other borrowings                                                                                                                                                                                |   |   | (125 | ) |   | --   |   |
| Issuance                of stock to employee stock purchase plan                                                                                                                                                                             |   |   | 266 |   |   | 419 |   |
| Proceeds                from exercise of stock options and warrants                                                                                                                                                                          |   |   | 60 |   |   | 575 |   |
| Registration                costs                                                                                                                                                                                                            |   |   | --   |   |   | (43 | ) |
| Net                cash provided by financing activities                                                                                                                                                                                     |   |   | 877 |   |   | 1,523 |   |
|                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |
| Net                increase (decrease) in cash                                                                                                                                                                                               |   |   | 1,118 |   |   | (3,071 | ) |
|                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |
| Cash                at beginning of period                                                                                                                                                                                                   |   |   | 2,106 |   |   | 3,485 |   |
|                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |
| Cash                at end of period                                                                                                                                                                                                         |   | $ | 3,224 |   | $ | 414 |   |

----

| **SYS                AND SUBSIDIARIES****CONDENSED                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)****SIX                MONTHS ENDED DECEMBER 29, 2006 AND DECEMBER 30, 2005                (UNAUDITED)****(amounts                in thousands)** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                 |   |   | **2006** |   |   | **2005** |   |
|                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |
| Supplemental                disclosure of cash flow information:                                                                                                                                                                                                     |   |   |   |   |   |   |   |
| Interest                paid                                                                                                                                                                                                                                         |   | $ | 346 |   | $ | 157 |   |
| Income                taxes paid                                                                                                                                                                                                                                     |   | $ | 3 |   | $ | 716 |   |
|                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |
| Supplemental                disclosure of non-cash investing and financing activities:                                                                                                                                                                               |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |
| Acquisitions:                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |
| Fair                value of assets acquired                                                                                                                                                                                                                         |   | $ | 9,955 |   | $ | 8,177 |   |
| Less                cash acquired                                                                                                                                                                                                                                    |   |   | (801 | ) |   | (157 | ) |
| Less                other liabilities assumed                                                                                                                                                                                                                        |   |   | (3,394 | ) |   | (882 | ) |
| Less                note payable issued                                                                                                                                                                                                                              |   |   | --   |   |   | (100 | ) |
| Less                value of warrants issued                                                                                                                                                                                                                         |   |   | --   |   |   | (64 | ) |
| Less                common stock issued                                                                                                                                                                                                                              |   |   | (5,962 | ) |   | (2,414 | ) |
| Cash                paid (received)                                                                                                                                                                                                                                  |   | $ | (202 | ) | $ | 4,560 |   |
|                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |
| Acquisition                of capital leases                                                                                                                                                                                                                         |   | $ | 80 |   | $ | --   |   |
| Common                stock exchanged upon exercise of stock options                                                                                                                                                                                                 |   | $ | --   |   | $ | 5 |   |
| Common                stock issued on conversion of notes payable                                                                                                                                                                                                    |   | $ | --   |     | $ | 898 |   |

----

**SYS      AND SUBSIDIARIES**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**1.      Basis of Financial Statement Preparation and Significant Accounting Policies:      **

**Use      of Estimates:**

**Indirect      Expense Rate Variance:**

**Reclassifications:**

**2.      New Accounting Pronouncements:**

----

**3.      Share-Based Compensation:**

|                                                         |   |   |   |   |   |              |   |   | **Weighted**                  |   |   |          |   |
|---------------------------------------------------------|--------|--------|--------|--------|--------|--------------|--------|--------|-------------------------------|--------|--------|---------------|--------|
|                                                    |   |   |   |   |   | **Weighted** |   |   | **Average**                   |   |   |          |   |
|                                                    |   |   |   |   |   | **Average**  |   |   | **Remaining**                 |   |   | **Aggregate** |   |
|                                                    |   |   |   |   |   | **Exercise** |   |   | **Contractual**               |   |   | **Intrinsic** |   |
| **Shares**                                              |   |   |   |   |   | **Price**    |   |   | **Term                (Yrs)** |   |   | **Value**     |   |
| Balance                outstanding at June 30, 2006     |   |   | 1,924  |   | $      | 2.48         |   |   |                          |   |   |          |   |
| Granted                                                 |   |   | 455    |   |   | 2.42         |   |   |                          |   |   |          |   |
| Exercised                                               |   |   | (30    | )      |   | 2.01         |   |   |                          |   |   |          |   |
| Forfeited                                               |   |   | (16    | )      |   | 3.45         |   |   |                          |   |   |          |   |
| Expired                                                 |   |   | (48    | )      |   | 2.35         |   |   |                          |   |   |          |   |
| Balance                outstanding at December 29, 2006 |   |   | 2,285  |   | $      | 2.47         |   |   | 2.74                          |   | $      | 410           |   |
|                                                    |   |   |   |   |   |         |   |   |                          |   |   |          |   |
| Options                exercisable at December 29, 2006 |   |   | 1,465  |   | $      | 2.27         |   |   | 2.30                          |   | $      | 397           |   |
|                                                    |   |   |   |   |   |         |   |   |                          |   |   |          |   |

|                                                                                                                             |   | **Three                Months Ended** |                            | **Six                Months Ended** |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|---------------------------------|-------------------------------------|--------|
|                                                                                                                             |   |                                  | **December                29,** |                                |   | **December                30,** |   |   | **December                29,** |   |   | **December                30,** |   |
|                                                                                                                             |   |                                  | **2006**                        |                                |   | **2005** |   |   | **2006** |   |   | **2005** |   |
|                                                                                                                             |   |                                  |                            |                                |   |   |   |   |   |   |   |   |   |
| Stock                options                                                                                                     |   | $                                     | 50                              |                                | $      | 35 |   | $ | 112 |   | $ | 65 |   |
| Employee                stock purchase plan                                                                                      |   |                                  | 63                              |                                |   | 38 |   |   | 115 |   |   | 76 |   |
| Employee                stock purchase agreement                                                                                 |   |                                  | --                    |                                |   | 37 |   |   | --   |   |   | 74 |   |
| Shares                issued and issuable to employees in connection with the acquisition                of                Antin |   |                                  | --                    |                                |   | --   |   |   | --   |   |   | 51 |   |
|                                                                                                                             |   |                                  |                            |                                |   |   |   |   |   |   |   |   |   |
| Total                                                                                                                            |   | $                                     | 113                             |                                | $      | 110 |   | $ | 227 |   | $ | 266 |   |

|                                   |   | Stock                Options | ESPP       |
|----------------------------------------|--------|------------------------------|------------|
|                                   |   |                         | 12/29/2006 |   |   | 12/29/2005 |   |   | 12/29/2006 |   |   | 12/29/2005 |   |
| Dividend                yield          |   |                         | 0.0        | % |   | 0.0 | % |   | 0.0 | % |   | 0.0 | % |
| Expected                volatility     |   |                         | 38.6       | % |   | 33.5 | % |   | 38.4 | % |   | 48.4 | % |
| Risk-free                interest rate |   |                         | 4.8        | % |   | 4.1 | % |   | 5.3 | % |   | 3.4 | % |
| Expected                lives          |   |                         | 3.85       |   |   | 4.00 |   |   | 0.50 |   |   | 0.50 |   |

**4.      Accounts Receivable:**

|                                                     |   |   | **December                29,**  |   |   | **June                30,** |   |
|-----------------------------------------------------|--------|--------|---------------------------------------|--------|--------|-----------------------------|--------|
|                                                |   |   | **2006**                              |   |   | **2006**                    |   |
| Amounts                billed                       |   | $      | 10,090                                |   | $      | 7,671                       |   |
| Amounts                unbilled                     |   |   | 6,827                                 |   |   | 6,458                       |   |
| Less                allowance for doubtful accounts |   |   | (358                                  | )      |   | (163                        | )      |
| Totals                                              |   | $      | 16,559                                |   | $      | 13,966                      |   |

----

**5.      Inventory:**

|                               |   |   | **December                29,**  |   |   | **June                30,** |   |
|-------------------------------|--------|--------|---------------------------------------|--------|--------|-----------------------------|--------|
|                          |   |   | **2006**                              |   |   | **2006**                    |   |
| Raw                materials  |   | $      | 328                                   |   | $      | 372                         |   |
| Finished                goods |   |   | 50                                    |   |   | 186                         |   |
|                          |   | $      | 378                                   |   | $      | 558                         |   |

**6.      Furniture, Equipment and Leasehold Improvements:**

|                                                          |   | **December                29,** |     | **June                30,** |   |
|---------------------------------------------------------------|--------|---------------------------------|----------|-----------------------------|--------|
|                                                          |   |                            | **2006** |                        |   | **2006** |   |
| Furniture                and equipment                        |   | $                               | 3,930    |                        | $      | 3,273 |   |
| Leasehold                improvements                         |   |                            | 371      |                        |   | 327 |   |
|                                                          |   |                            | 4,301    |                        |   | 3,600 |   |
|                                                          |   |                            |     |                        |   |   |   |
| Less                accumulated depreciation and amortization |   |                            | (2,259   | )                           |   | (1,883 | ) |
| Net                                                           |   | $                               | 2,042    |                        | $      | 1,717 |   |

**7.      Intangible Assets and Goodwill:**

|                                  |   | **Weighted** |                            |      |   |         |   |   |             |
|---------------------------------------|--------|--------------|---------------------------------|-----------|--------|--------------|--------|--------|------------------|
|                                  |   | **Average**  |                            | **Gross** |   |         |   |   |             |
|                                  |   |         | **Amortization**                |      |   | **Carrying** |   |   | **Accumulated**  |   |   |   |   |
|                                  |   |         | **Period                (Yrs)** |      |   | **Value**    |   |   | **Amortization** |   |   | **Net** |   |
| **December                29, 2006**  |   |         |                            |      |   |         |   |   |             |   |   |   |   |
| Technology                            |   |         | 9                               |      | $      | 2,550        |   | $      | (312             | ) | $ | 2,238 |   |
| Trade                name             |   |         | 7                               |      |   | 1,727        |   |   | (261             | ) |   | 1,466 |   |
| Customer                relationships |   |         | 9                               |      |   | 3,254        |   |   | (370             | ) |   | 2,884 |   |
| Patents                               |   |         | -                               |      |   | 29           |   |   | (29              | ) |   | -- |   |
| Other                intangibles      |   |         | 1                               |      |   | 697          |   |   | (661             | ) |   | 36 |   |
| Total                                 |   |         |                            |      | $      | 8,257        |   | $      | (1,633           | ) | $ | 6,624 |   |
|                                  |   |         |                            |      |   |         |   |   |             |   |   |   |   |
| **June                30, 2006**      |   |         |                            |      |   |         |   |   |             |   |   |   |   |
| Technology                            |   |         | 5                               |      | $      | 700          |   | $      | (215             | ) | $ | 485 |   |
| Trade                name             |   |         | 3                               |      |   | 627          |   |   | (147             | ) |   | 480 |   |
| Customer                relationships |   |         | 8                               |      |   | 2,454        |   |   | (194             | ) |   | 2,260 |   |
| Patents                               |   |         | -                               |      |   | 29           |   |   | (29              | ) |   | -- |   |
| Other                intangibles      |   |         | 2                               |      |   | 697          |   |   | (476             | ) |   | 221 |   |
| Total                                 |   |         |                            |      | $      | 4,507        |   | $      | (1,061           | ) | $ | 3,446 |   |
|                                  |   |         |                            |      |   |         |   |   |             |   |   |   |   |

| **Fiscal                year**               |   |   |   |   |
|----------------------------------------------|--------|--------|--------|--------|
| 6                months ending June 30, 2007 |   | $      | 517    |   |
| 2008                                         |   |   | 1,011  |   |
| 2009                                         |   |   | 920    |   |
| 2010                                         |   |   | 752    |   |
| 2011                                         |   |   | 662    |   |
| Thereafter                                   |   |   | 2,762  |   |
| Total                                        |   | $      | 6,624  |   |

----

**Goodwill**

|                                                                      |   |   | **DSG**   |   |   | **PSSIG** |   |   | **Total** |   |
|----------------------------------------------------------------------|--------|--------|----------------|--------|--------|-----------|--------|--------|-----------|--------|
| Balance                  June 30, 2006 (1)                           |   | $      | 11,277         |   | $      | 7,298     |   | $      | 18,575    |   |
| Acquisition                  of Ai Metrix (2)                        |   |   | --   |   |   | 3,447     |   |   | 3,447     |   |
| Miscellaneous                  purchase price allocation adjustments |   |   | 76             |   |   | (8        | )      |   | 68        |   |
| Balance                  September 29, 2006                          |   | $      | 11,353         |   | $      | 10,737    |   | $      | 22,090    |   |

**8.      Convertible Notes Payable and Other Debt (in thousands):**

|                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |                                 |   |   |                                      |   | **Related                Party** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------------------------------|--------|--------|--------------------------------------|--------|----------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                          |   |   | **December                29,** |   |   | **June                30,**          |   |                             | **December                29,** |   |   | **June                30,** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   |   | **2006**                        |   |   | **2006**                             |   |                             | **2006** |   |   | **2006** |   |
| Convertible                notes payable, unsecured, bear interest at 10% per annum payable                quarterly, principal due December 31, 2006, convertible at any time                by                holder into common stock at a rate of $2.20 per share.                                                                                                                                        |   | $      | 800                             |   | $      | 800                                  |   | $                                | 713 |   | $ | 713 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |                            |   |   |                                 |   |                             |   |   |   |   |   |
| Unamortized                discount related to convertible notes payable due December 31,                2006                                                                                                                                                                                                                                                                                                 |   |   | --                    |   |   | (15                                  | )      |                             | --   |   |   | (13 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |                            |   |   |                                 |   |                             |   |   |   |   |   |
| Convertible                notes payable, issued in conjunction with Polexis acquisition, unsecured                and subordinate to the Company's bank debt, bear interest at 10%                per annum                payable quarterly, principal due March 31, 2007, convertible at any                time                by holder into common stock at the rate of $2.32 per                share. |   |   | 295                             |   |   | 295                                  |   |                             | 96 |   |   | 96 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |                            |   |   |                                 |   |                             |   |   |   |   |   |
| Convertible                note payable, issued in conjunction with Antin acquisition, unsecured,                bears interest at 10% per annum payable quarterly, principal due                May 11,                2007, convertible at any time by holder into common stock at the                rate of                $2.50 per share.                                                               |   |   | --               |   |   | --                    |   |                             | 196 |   |   | 196 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |                            |   |   |                                 |   |                             |   |   |   |   |   |
| Convertible                note payable, unsecured and subordinate to the Company’s bank debt, bear                interest at 10% per annum payable quarterly, principal due February                14,                2009 and are convertible at any time into shares of common stock                at a                conversion rate of $3.60 per share.                                        |   |   | 2,150                           |   |   | 2,150                                |   |                             | 975 |   |   | 975 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |                            |   |   |                                 |   |                             |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   |   | 3,245                           |   |   | 3,230                                |   |                             | 1,980 |   |   | 1,967 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |                            |   |   |                                 |   |                             |   |   |   |   |   |
| Less                current portion                                                                                                                                                                                                                                                                                                                                                                           |   |   | (1,095                          | )      |   | (1,080                               | )      |                             | (1,005 | ) |   | (992 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |                            |   |   |                                 |   |                             |   |   |   |   |   |
| Total                convertible notes payable, net of current portion                                                                                                                                                                                                                                                                                                                                        |   | $      | 2,150                           |   | $      | 2,150                                |   | $                                | 975 |   | $ | 975 |   |

----

**9.      Net Income (Loss) Per Share:**

|                                                                                                                                               |   | **Three                Months Ended** |           | **Six                Months Ended** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|----------------|-------------------------------------|--------|
|                                                                                                                                               |   | **December                29,**       |           | **December                30,**     |   | **December                29,** |   | **December                30,** |   |
|                                                                                                                                               |   |                                  | **2006**       |                                |   | **2005** |   |   | **2006** |   |   | **2005** |   |
| Numerators:                                                                                                                                        |   |                                  |           |                                |   |   |   |   |   |   |   |   |   |
| Net                income (loss)                                                                                                                   |   | $                                     | (342           | )                                   | $      | 194 |   | $ | (457 | ) | $ | 669 |   |
|                                                                                                                                               |   |                                  |           |                                |   |   |   |   |   |   |   |   |   |
| Denominators:                                                                                                                                      |   |                                  |           |                                |   |   |   |   |   |   |   |   |   |
| Weighted                average shares for basic net income per common share                                                                       |   |                                  | 17,521         |                                |   | 11,871 |   |   | 16,463 |   |   | 11,373 |   |
| Add                dilutive effect of assumed exercise of stock options and warrants                using                the treasury stock method |   |                                  | --   |                                |   | 1,144 |   |   | --   |   |   | 1,061 |   |
| Add                dilutive effect of other share-based compensation awards                                                                        |   |                                  | --   |                           |   | 75 |   |   | --   |   |   | 56 |   |
| Weighted                average shares for diluted net income per common share                                                                     |   |                                  | 17,521         |                                |   | 13,090 |   |   | 16,463 |   |   | 12,490 |   |
|                                                                                                                                               |   |                                  |           |                                |   |   |   |   |   |   |   |   |   |
| Basic                net income (loss) per common share                                                                                            |   | $                                     | (0.02          | )                                   | $      | 0.02 |   | $ | (0.03 | ) | $ | 0.06 |   |
| Diluted                net income (loss) per common share                                                                                          |   | $                                     | (0.02          | )                                   | $      | 0.01 |   | $ | (0.03 | ) | $ | 0.05 |   |

**10.      Income Tax:**

**11.      Legal Matters:**

**12.      Segment Information: **

----

|                                              |   | **Three                Months Ended** |                                       | **Six                Months Ended** |   |
|---------------------------------------------------|--------|---------------------------------------|--------------------------------------------|-------------------------------------|--------|
|                                              |   | **December                29,**       |                                       | **December                30,**     |   | **December                29,** |   | **December                30,** |   |
|                                              |   |                                  | **2006**                                   |                                |   | **2005** |   |   | **2006** |   |   | **2005** |   |
| **Revenue:**                                      |   |                                  |                                       |                                |   |   |   |   |   |   |   |   |   |
| DSG                                               |   | $                                     | 12,508                                     |                                | $      | 9,825 |   | $ | 24,868 |   | $ | 21,316 |   |
| PSSIG                                             |   |                                  | 6,708                                      |                                |   | 2,623 |   |   | 10,591 |   |   | 4,226 |   |
| **Totals**                                        |   | $                                     | 19,216                                     |                                | $      | 12,448 |   | $ | 35,459 |   | $ | 25,542 |   |
|                                              |   |                                  |                                       |                                |   |   |   |   |   |   |   |   |   |
| **Income                (loss) from operations:** |   |                                  |                                       |                                |   |   |   |   |   |   |   |   |   |
| DSG                                               |   | $                                     | 217                                        |                                | $      | 331 |   | $ | 722 |   | $ | 1,110 |   |
| PSSIG                                             |   |                                  | (432                                       | )                                   |   | 94 |   |   | (1,159 | ) |   | 196 |   |
| **Totals**                                        |   | $                                     | (215                                       | )                                   | $      | 425 |   | $ | (437 | ) | $ | 1,306 |   |
|                                              |   |                                  |                                       |                                |   |   |   |   |   |   |   |   |   |
| **Capital                expenditures:**          |   |                                  |                                       |                                |   |   |   |   |   |   |   |   |   |
| DSG                                               |   | $                                     | 12                                         |                                | $      | 142 |   | $ | 45 |   | $ | 194 |   |
| PSSIG                                             |   |                                  | 156                                        |                                |   | 37 |   |   | 360 |   |   | 109 |   |
| Corporate                and other                |   |                                  | 8                                          |                                |   | 26 |   |   | 27 |   |   | 89 |   |
| **Totals**                                        |   | $                                     | 176                                        |                                | $      | 205 |   | $ | 432 |   | $ | 392 |   |
|                                              |   |                                  |                                       |                                |   |   |   |   |   |   |   |   |   |
| **Depreciation                and amortization:** |   |                                  |                                       |                                |   |   |   |   |   |   |   |   |   |
| DSG                                               |   | $                                     | 219                                        |                                | $      | 162 |   | $ | 490 |   | $ | 260 |   |
| PSSIG                                             |   |                                  | 244                                        |                                |   | 54 |   |   | 345 |   |   | 117 |   |
| Corporate                and other                |   |                                  | 64                                         |                                |   | 41 |   |   | 133 |   |   | 82 |   |
| **Totals**                                        |   | $                                     | 527                                        |                                | $      | 257 |   | $ | 968 |   | $ | 459 |   |
|                                              |   |                                  |                                       |                                |   |   |   |   |   |   |   |   |   |
|                                              |   |                                  | **December                29, 2006**  |                                |   | **June                30,****2006** |   |   |   |   |   |   |   |
| **Total                assets:**                  |   |                                  |                                       |                                |   |   |   |   |   |   |   |   |   |
| DSG                                               |   | $                                     | 26,088                                     |                                | $      | 27,606 |   |   |   |   |   |   |   |
| PSSIG                                             |   |                                  | 21,483                                     |                                |   | 10,567 |   |   |   |   |   |   |   |
| Corporate                and other                |   |                                  | 4,615                                      |                                |   | 4,033 |   |   |   |   |   |   |   |
| **Totals**                                        |   | $                                     | 52,186                                     |                                | $      | 42,206 |   |   |   |   |   |   |   |
|                                              |   |                                  |                                       |                                |   |   |   |   |   |   |   |   |   |
| **Goodwill:**                                     |   |                                  |                                       |                                |   |   |   |   |   |   |   |   |   |
| DSG                                               |   | $                                     | 11,353                                     |                                | $      | 11,277 |   |   |   |   |   |   |   |
| PSSIG                                             |   |                                  | 10,737                                     |                                |   | 7,298 |   |   |   |   |   |   |   |
| **Totals**                                        |   | $                                     | 22,090                                     |                                | $      | 18,575 |   |   |   |   |   |   |   |

----

**13.      Acquisition:**

**Merger      with Ai Metrix**

***Consideration      issued to escrow agent***

***Purchase      price***

***Earn-out/Clawback***

***Purchase      price allocation***

----

|                                                                       |   |   |   | Estimated |   |
|----------------------------------------------------------------------------|--------|--------|--------|-----------|--------|
|                                                                       |   |   | Value  |      |   | Life                in Years |   |
| Cash                                                                       |   | $      | 801    |      |   |   |   |
| Accounts                receivable                                         |   |   | 1,684  |      |   |   |   |
| Prepaid                expenses and other current assets                   |   |   | 76     |      |   |   |   |
| Property,                furniture and equipment                           |   |   | 145    |      |   | 5 |   |
| Customer                relationships                                      |   |   | 800    |      |   | 10 |   |
| Technology                                                                 |   |   | 1,900  |      |   | 10 |   |
| Trade                name                                                  |   |   | 1,100  |      |   | 10 |   |
| Goodwill                                                                   |   |   | 3,446  |      |   |   |   |
| Total                assets acquired                                       |   |   | 9,952  |      |   |   |   |
| Accounts                payable, accrued liabilities and other liabilities |   |   | (1,255 | )         |   |   |   |
| Deferred                revenue                                            |   |   | (2,202 | )         |   |   |   |
| Assets                acquired less liabilities assumed                    |   | $      | 6,495  |      |   |   |   |

**Pro      Forma Results of Operations**

|                                           |   | **Three                Months Ended** |
|------------------------------------------------|--------|---------------------------------------|
|                                           |   | **December                26, 2006**  |   | **December                30, 2005** |
|                                                |   |                                  | **As                Reported**  |   |   | **Pro                Forma** |   |   |   | **As                Reported** |   |   | **Pro                Forma** |   |
| Revenues                                       |   | $                                     | 19,216 |   | $ | 19,370 |   |   | $ | 12,448 |   | $ | 13,481 |   |
| Income                (loss) from operations   |   | $                                     | (215 | ) | $ | (388 | ) |   | $ | 425 |   | $ | (503 | ) |
| Net                income (loss)               |   | $                                     | (342 | ) | $ | (447 | ) |   | $ | 194 |   | $ | (368 | ) |
|                                           |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |
|                                           |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                income (loss) per share   |   | $                                     | (0.02 | ) | $ | (0.02 | ) |   | $ | 0.02 |   | $ | (0.03 | ) |
| Diluted                income (loss) per share |   | $                                     | (0.02 | ) | $ | (0.02 | ) |   | $ | 0.01 |   | $ | (0.03 | ) |

|                                           |   |  **Six                Months Ended** |
|------------------------------------------------|--------|-------------------------------------------|
|                                           |   | **December                29, 2006**      |   | **December                30, 2005** |
|                                                |   |                                      | **As                Reported**  |   |   | **Pro                Forma** |   |   |   | **As                Reported** |   |   | **Pro                Forma** |   |
| Revenues                                       |   | $                                         | 35,459 |   | $ | 37,609 |   |   | $ | 25,542 |   | $ | 28,171 |   |
| Income                (loss) from operations   |   | $                                         | (437 | ) | $ | (391 | ) |   | $ | 1,306 |   | $ | 280 |   |
| Net                income (loss)               |   | $                                         | (457 | ) | $ | (430 | ) |   | $ | 669 |   | $ | 43 |   |
|                                           |   |                                      |   |   |   |   |   |   |   |   |   |   |   |   |
|                                           |   |                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                income (loss) per share   |   | $                                         | (0.03 | ) | $ | (0.02 | ) |   | $ | 0.06 |   | $ | (0.00 | ) |
| Diluted                income (loss) per share |   | $                                         | (0.03 | ) | $ | (0.02 | ) |   | $ | 0.05 |   | $ | (0.00 | ) |

----

**Item      2****.** **Management’s      Discussion and Analysis o****f      Financial Condition and Results of Operations**

*To      the extent that the information presented in this Quarterly Report on Form      10-Q      discusses financial projections, information or expectations about our business      plans, results of operations, products or markets, or otherwise makes statements      about future events, such statements are forward-looking. Such forward-looking      statements can be identified by the use of words such as “intends”,“anticipates”, “believes”, “estimates”, “projects”, “forecasts”, “expects”,“plans” and “proposes”. *

*Although      we believe that the expectations reflected in the forward-looking statements      are      reasonable, we cannot guarantee future results, levels of activity, performance      or achievements. Moreover, neither we, nor any other person, assume      responsibility for the accuracy and completeness of the forward-looking      statements. We are under no obligation to update any of the forward-looking      statements after the filing of this Quarterly Report on Form 10-Q to conform      such statements to actual results or to changes in our      expectations.*

*The      following discussion should be read in conjunction with our unaudited condensed      consolidated financial statements and the related notes and other financial      information appearing elsewhere in this Form 10-Q. Readers are also urged to      review and consider the various disclosures made by us which advise interested      parties of the factors which affect our business, including without limitation      the disclosures made under the caption “Management’s Discussion and Analysis of      Financial Condition and Results of Operations,” under the caption “Risks Related      to Our Business,” and in the audited consolidated financial statements and      related notes included in our Annual Report filed on Form 10-K for the year      ended June 30, 2006 and other reports and filings made with the Securities      and      Exchange Commission.*

**Overview**

**Events,      Trends and Uncertainties**

| ·   | **Contract                Type**.                Federal Government contracting practices tend to run in cycles. The                preferred form of contracting varies and ranges from large contracts                with                multiple subcontractors and wide areas of work scope to small contracts                with more specific areas of scope. Unless the Government has a very                specific requirement, most of this work is done on an Indefinite-Delivery,                Indefinite-Quantity type of contract. In general, the Government                is now                trending towards issuing large Multiple Award Contracts (“MAC”) where                multiple winners continue to compete on a task by task basis. This                trend                was reinforced through the SeaPort-Enhanced MAC contract that has                become a                key contracting component for Naval Sea Air Command (NAVSEA) and                SYS was                awarded one such MAC contract. All tasks awarded under the                SeaPort-Enhanced MAC type contracts are competitively bid among all                eligible MAC holders. In addition, the cost plus nature of these                tasks                reduces performance risks but lowers the opportunity to make larger                fees. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The                task awards are frequently awarded on a cost reimbursable basis,                cover a                broader spectrum of activity and in general favor large businesses.                SYS                has been awarded a SeaPort-Enhanced contract which offers opportunity                for                SYS to bid on areas in which it might not otherwise have an opportunity                to                bid. On the other hand, if the scope of the task is too large, it                may                exceed SYS’ ability to respond. Despite the desire of upper level                Government management to convert these contracts to fixed price contracts                this is not usually achieved due to a lack of well defined specifications                of the work to be performed. Thus, increasingly SYS is competing                with                larger companies for cost reimbursable contract opportunities that                do not                effectively consider innovation in the pricing evaluation and favor                larger                businesses doing business as usual where they may have a competitive                pricing advantage and the advantage of performing on a larger scope                of                work. Reduction of this risk will depend on SYS’ ability to convince the                Government that they can get better products at a better value by                issuing                more focused tasks versus large generic                tasks. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In                addition, SYS will pursue time and materials or fixed price contracts                where SYS can be more agile and creative with process, technology,                expertise, and management functions to provide a solution and to                reduce                the price for the customer. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                   |   | **Three                Months Ended**  | **Six                months Ended** |
|-----------------------------------|--------|---------------------------------------------|-------------------------------------|
|                              |   |                                        | **2006**                            |   |   | **2005** |   |   | **2006** |   |   | **2005** |   |
| Cost                reimbursable  |   |                                        | 79                                  | % |   | 75 | % |   | 77 | % |   | 75 | % |
| Time                and materials |   |                                        | 15                                  | % |   | 16 | % |   | 18 | % |   | 17 | % |
| Fixed                price        |   |                                        | 6                                   | % |   | 9 | % |   | 5 | % |   | 8 | % |
| Total                             |   |                                        | 100                                 | % |   | 100 | % |   | 100 | % |   | 100 | % |

----

**Iraq      and Other Crises**

| ·   | **Revenue                Mix**.                Our business areas that encompass program management, financial                management, base support, and logistics support (together “engineering and                program management services”) have been in a continuous slow decline for                the past five years while during this same period our C4ISR business                has                steadily grown and more recently we’ve achieved growth in our training                solutions business. We anticipate that this trend will continue as                the DoD                continues to implement their focus on enhanced information technology                and                communications systems, data acquisition and real time situational                awareness. This may result in a decrease in the DSG revenues on a                comparable basis. At the same time, we anticipate that revenues in                the                PSSIG business will grow as we add to or expand existing product                offerings. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | **Strategy**.                Our business growth strategy is focused on continuing to develop                our core                strengths in C4ISR, information technology, and systems integration                while                adding products and capabilities that will allow us to grow our markets                in                these areas as well as expand into other markets, including commercial                and                industrial markets. We intend to accomplish this growth strategy                through                acquisitions and through productizing capabilities and solutions                developed                through our engineering services. We believe that this strategy will                enable us to diversify our revenue sources, compete for larger DoD                programs and ultimately grow our operating margins, especially through                the                inclusion of products. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | **Product                Development and Sales and Marketing Expenses**.                During the past twelve months we have significantly increased our                research                and development and sales and marketing activities associated with                acquired products-based businesses and with newly developing product                lines. We plan to continue investing in such activities for the                foreseeable future. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Results      of Operations**

|                                                 |   | **Three                Months Ended** |     | **Six                Months Ended** |
|------------------------------------------------------|--------|---------------------------------------|----------|-------------------------------------|
|                                                 |   |                                  | **2006** |                                |   | **Percent** |   |   | **2005** |   |   | **Percent** |   |   |   | **2006** |   |   | **Percent** |   |   | **2005** |   |   | **Percent** |   |
| Revenues                                             |   | $                                     | 19,216   |                                |   | 100.0 | % | $ | 12,448 |   |   | 100.0 | % |   | $ | 35,459 |   |   | 100.0 | % | $ | 25,542 |   |   | 100.0 | % |
| Costs                of revenues                     |   |                                  | 14,715   |                                |   | 76.6 | % |   | 9,646 |   |   | 77.5 | % |   |   | 27,326 |   |   | 77.1 | % |   | 20,134 |   |   | 78.8 | % |
| Selling,                general & administrative |   |                                  | 3,606    |                                |   | 18.8 | % |   | 1,672 |   |   | 13.4 | % |   |   | 6,579 |   |   | 18.6 | % |   | 3,040 |   |   | 11.9 | % |
| Research,                engineering and development |   |                                  | 1,110    |                                |   | 5.8 | % |   | 705 |   |   | 5.7 | % |   |   | 1,991 |   |   | 5.6 | % |   | 1,062 |   |   | 4.2 | % |
| Income                (loss) from operations         |   |                                  | (215     | )                                   |   | (1.1 | )% |   | 425 |   |   | 3.4 | % |   |   | (437 | ) |   | (1.2 | )% |   | 1,306 |   |   | 5.1 | % |
| Total                other expense                   |   |                                  | 162      |                                |   | 0.8 | % |   | 69 |   |   | 0.6 | % |   |   | 322 |   |   | 0.9 | % |   | 132 |   |   | 0.5 | % |
| Income                tax provision (benefit)        |   | $                                     | (35      | )                                   |   | (0.2 | )% |   | 162 |   |   | 1.3 | % |   |   | (302 | ) |   | (0.9 | )% |   | 505 |   |   | 2.0 | % |

*Revenues*

|                          |   | **Three                Months Ended**  |     | **Six                Months Ended** |
|-------------------------------|--------|---------------------------------------------|----------|-------------------------------------|
|                          |   |                                        | **2006** |                                |   | **2005** |   |   | Change |  |   | % |   |   |   | **2006** |   |   | **2005** |   |   | Change |   |   | %  |   |
| DSG                           |   | $                                           | 12,508   |                                | $ | 9,825 |   | $ | 2,683 |   |   | 27.3 | % |   | $ | 24,868 |   | $ | 21,316 |   | $ | 3,552 |   |   | 16.7 | % |
| PSSIG                         |   |                                        | 6,708    |                                |   | 2,623 |   |   | 4,085 |   |   | 155.7 | % |   |   | 10,591 |   |   | 4,226 |   |   | 6,365 |   |   | 150.6 | % |
| Total                revenues |   | $                                           | 19,216   |                                | $ | 12,448 |   | $ | 6,768 |   |   | 54.4 | % |   | $ | 35,459 |   | $ | 25,542 |   | $ | 9,917 |   |   | 38.8 | % |

----

*Costs      of revenue.*

*Selling,      general and administrative expenses*

*Research,      engineering and development expenses*

*Income      (loss) from operations. *

*Other      (income) expense*

*Income      tax (benefit) provision. *

**Liquidity      and Capital Resources**

*Cash      flows from operating activities*

*Cash      flows from investing activities*

*Cash      flows from financing activities*

----

**Commitments      (amounts in thousands)**

|                                      |   |   | **Total** |   |   | **2007                (3)** |   |   | **2008** |   |   | **2009** |   |   | **2010**       |   |   | **2011**       |   |   | **Thereafter** |   |
|-------------------------------------------|--------|--------|-----------|--------|--------|-----------------------------|--------|--------|----------|--------|--------|----------|--------|--------|----------------|--------|--------|----------------|--------|--------|----------------|--------|
| Convertible                notes (1), (2) |   | $      | 5,933     |   | $      | 2,274                       |   | $      | 313      |   | $      | 3,346    |   | $      | --   |   | $      | --   |   | $      | --   |   |
| Note                payable (1)           |   |   | 1,009     |   |   | 160                         |   |   | 304      |   |   | 283      |   |   | 262            |   |   | --   |   |   | --   |   |
| Capital                leases (1)         |   |   | 93        |   |   | 11                          |   |   | 22       |   |   | 22       |   |   | 22             |   |   | 15             |   |   | 1              |   |
| Operating                leases           |   |   | 3,917     |   |   | 1,114                       |   |   | 1,512    |   |   | 918      |   |   | 229            |   |   | 133            |   |   | 11             |   |
| Total                                     |   | $      | 10,952    |   | $      | 3,559                       |   | $      | 2,151    |   | $      | 4,569    |   | $      | 513            |   | $      | 148            |   | $      | 12             |   |

**Off-Balance      Sheet Arrangements**

      off      balance sheet arrangements, investments in special purpose entities or      undisclosed borrowings or debt. In addition, SYS has not entered into any      derivative contracts.

**Critical      Accounting Policies and Estimates**

----

**ITEM      3. Quantitative and Qualitative Disclosures about Market      Risk**

**ITEM      4. Controls and Procedures**

**Evaluation      of Disclosure Controls and Procedures **

**Limitations      on the Effectiveness of Internal Controls**

**Changes      in Internal Control Over Financial Reporting**

----

**PART      II - OTHER INFORMATION**

**Item      1**
**.**
**      Legal Proceedings**

**Item      1A**
**.**
**      Risk Factors**

**Item      2. **
**Unregistered      Sales Of Equity Securities And Use Of Proceeds.**

**Item      3****.****Defaults      Upon Senior Securities**

**Item      4**
**.**
**      Submission of Matters to a Vote of Securities Holders**

**Item      5****.****Other Information**

----

**Item      6**
**.**
**      Exhibits**

| **Exhibit                No.** |   | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1                            |   | Certificate                of Ownership filed with the California Secretary of State on                November 28, 1979, filed as Exhibit 2.1 to the Company’s report on                Form 10-K for the fiscal year ended June 30, 1979, and incorporated                by this reference.                                                                                                                                                           |
| 2.2                            |   | Certificate                of Ownership filed with the California Secretary of State on                March 18, 1985, incident to change of name of the Company, filed as                Exhibit 3.6 to this Company’s report on Form 10-K for the fiscal year                ended June 30, 1985, and incorporated by this                reference.                                                                                                   |
| 2.3                            |   | Testmasters,                Inc. Stock Purchase Agreement, filed as Exhibit 2.1 to this Company’s                Registration Statement on Form SB-2 dated May 24, 2002, and incorporated                by this reference.                                                                                                                                                                                                                                        |
| 2.4                            |   | Polexis                merger agreement, filed as Exhibit 2.2 to this Company’s Registration                Statement on Form SB-2 dated April 19, 2004, and incorporated by this                reference.                                                                                                                                                                                                                                                   |
| 2.5                            |   | Asset                Purchase and Sale Agreement effective as of December 15, 2004, by and                between SYS and Xsilogy, Inc filed as Exhibit 2.5 to this Company’s report                on Form 10-QSB dated February 7, 2005, and incorporated by this                reference.                                                                                                                                                            |
| 2.6                            |   | Agreement                and plan of merger effective as of January 3, 2005 among SYS, Shadow                I, Inc., a wholly-owned subsidiary of SYS, Antin Engineering, Inc.,                and                the stockholders of Antin Engineering, Inc. filed as Exhibit 2.6                to this                Company’s report on Form 10-QSB dated February 7, 2005, and                incorporated by this reference.                     |
| 2.7                            |   | Agreement                and Plan of Merger effective as of November 7, 2005 among SYS, Shadow                II,                Inc., a wholly owned subsidiary of SYS, Logic Innovations, Inc. and                the                stockholders of Logic Innovations, Inc., filed as Exhibit 2.7 to                the                Company’s report on Form 10-Q for the quarter ended December 30, 2005 and                incorporated by this reference. |
| 2.8                            |   | Asset                Purchase and Sale Agreement effective December 2, 2005 among SYS,                cVideo,                Inc. and certain of the stockholders of cVideo, Inc., filed as Exhibit                2.8                to the Company’s report on From 10-Q for the quarterly period ended                December 30, 2005 and incorporated by this reference.                                                                                     |
| 2.9                            |   | Stock                Purchase Agreement effective as of April 2, 2006, between SYS and                Gary E. Murphy (the sole stockholder of Reality Based IT Services,                Ltd.),                incorporated by reference from the Form 8-K dated April 6,                2006.                                                                                                                                                                       |
| 2.10                           |   | Agreement                and Plan of Merger Dated as of October 17, 2006 By and Among SYS,                Shadow                IV, Inc., Ai Metrix, Inc., The Majority Stockholders of Ai Metrix,                Inc., and Victor E. Parker, as the Stockholder Representative, filed                as                Exhibit 2.9 to the Company’s report on Form 8-K dated October 18, 2006 and                incorporated by this reference.             |
| 3.1                            |   | Articles                of Incorporation for SYS, as amended, filed as Exhibit 3.1 to the                Company’s Registration Statement on Form SB-2, filed May 24, 2002, and                incorporated by this reference.                                                                                                                                                                                                                                     |
| 3.2                            |   | Bylaws                of SYS incorporated by reference from our Registration Statement                on Form                SB-2 filed on May 24, 2002.                                                                                                                                                                                                                                                                                                       |
| 4.1                            |   | Certificate                of Determination of Preferences of Preferred Shares of Systems Associates,                Inc., filed by the Company with the California Secretary of State                on                July 28, 1968, filed as Exhibit 3.2 to the Company’s report on Form                10-K for the fiscal year ended June 30, 1981, and incorporated by                this reference.                                              |
| 4.2                            |   | Certificate                of Determination of Preferences of Preference Shares of Systems                Associates, Inc., filed by the Company with the California Secretary                of                State on December 27, 1968, filed as Exhibit 3.3 to the Company’s                report on Form 10-K for the fiscal year ended June 30, 1981, and                incorporated by this reference.                                         |
| 4.3                            |   | Certificate                of Determination of Series B 9% Cumulative Convertible Callable Non-Voting                Preference Stock was filed by the Company with the California Secretary                of                State on August 15, 1996, and included in Exhibit                3.1 to the Company’s Registration Statement on Form SB-2, filed May 24,                2002, and incorporated by this reference.                               |
| 4.4                            |   | Form                of Subscription Agreement from the January 2002 Offering, filed as                Exhibit                4.1 to this Company’s Registration Statement on Form SB-2 dated May 24,                2002 and incorporated by this reference.                                                                                                                                                                                                       |
| 4.5                            |   | Form                of Convertible Note from the January 2002 Offering, filed as Exhibit                4.2                to this Company’s Registration Statement on Form SB-2 dated May 24,                2002.                                                                                                                                                                                                                                                |
| 4.6                            |   | Form                of Subscription Agreement from the February 2004 Offering (Convertible                Note from December 2003 Offering included), filed as Exhibit 4.3 to                this Company’s Registration Statement on Form SB-2 dated April 19,                2004 and incorporated by this reference.                                                                                                                                  |
| 4.7                            |   | Securities                Purchase Agreement, from the May 27, 2005 offering, by and among                SYS and                the investor parties as identified on the signature pages thereto,                filed                as exhibit 10.1 to Form 8-K filed on June 3, 2005 and incorporated                by this                reference.                                                                                                              |
| 4.8                            |   | Registration                Rights Agreement, from the May 27, 2005, by and among SYS and the                investor                parties as identified on the signature pages thereto, filed as exhibit                10.3 to Form 8-K filed on June 3, 2005 and incorporated by this                reference.                                                                                                                                                     |
| 4.9                            |   | Form                of Warrant to be issued by SYS to the investors in connection with                the                Securities Purchase Agreement from May 27, 2005 Offering, filed as                exhibit                10.2 to Form 8-K filed on June 3, 2005 and incorporated by this                reference.                                                                                                                                              |
| 4.10                           |   | Restricted                stock purchase agreement between SYS and Ben Goodwin dated August                16,                2005, filed as Exhibit 99.1 to the Company’s report on Form 8-K filed                August 18, 2005 and incorporated by this reference.                                                                                                                                                                                             |
| 4.11                           |   | Form                of Subscription Agreement from the Company’s February 14, 2006 Offering,                filed as Exhibit 99.1 to the Company’s report on Form 8-K dated February                14, 2006 and incorporated by this reference.                                                                                                                                                                                                             |
| 4.12                           |   | Form                of Unsecured Subordinated Convertible Note from the Company’s                February 14, 2006 Offering, filed as Exhibit 99.2 to the                Company’s report on Form 8-K dated February 14, 2006 and incorporated                by this reference.                                                                                                                                                              |
| 4.13                           |   | Form                of Subordination Agreement from the Company’s February 14, 2006                Offering, filed as Exhibit 99.3 to the Company’s report on Form 8-K                dated February 14, 2006, and incorporated by this                reference.                                                                                                                                                                             |
| 10.1                           |   | SYS                1997 Incentive Stock Option and Restricted Stock Plan filed as Attachment                1 to the Company’s Proxy Statement filed on February 21, 1997, and                incorporated by this reference.                                                                                                                                                                                                                                 |
| 10.2                           |   | SYS                2003 Stock Option Plan filed as Exhibit 10.2 to the Company’s report on                Form S-8 filed on April 8, 2003, and incorporated by this                reference.                                                                                                                                                                                                                                                                 |
| 10.3                           |   | SYS                2003 Employee Stock Purchase Plan filed as Exhibit 10.3 to the Company’s                report on Form S-8 filed on April 8, 2003, and incorporated by this                reference.                                                                                                                                                                                                                                                      |
| 10.4                           |   | Employment                contract for Clifton L. Cooke, Jr., the Company’s Chief Executive Officer.                                                                                                                                                                                                                                                                                                                                                               |
| 10.5                           |   | Employment                contract for Edward M. Lake, the Company’s Chief Financial Officer and                Executive Vice President of the Company.                                                                                                                                                                                                                                                                                                           |
| 10.6                           |   | Employment                contract for Michael W. Fink, the Company’s Secretary and Sr. Vice                president of Finance and Contracts.                                                                                                                                                                                                                                                                                                                    |
| 10.7                           |   | Employment                contract for Kenneth D. Regan, the President of the Company’s Defense                Solutions Group’s and Executive Vice President of the                Company.                                                                                                                                                                                                                                                                 |
| 10.8                           |   | Restricted                stock purchase agreement between SYS and Ben Goodwin dated August                16,                2005, filed as exhibit 99.1 to Form 8-K filed August 18,                2005.                                                                                                                                                                                                                                                              |
| 10.9                           |   | Employment                contract for Ben Goodwin, the Company’s Senior                Vice President of Sales and Marketing and President of the Public                Safety,                Security and Industrial Products Group.                                                                                                                                                                                                                            |
| 21.1                           |   | List                of all subsidiaries of SYS.                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 31.1                           |   | Certification                of Chief Executive Officer pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002*                                                                                                                                                                                                                                                                                                                                   |
| 31.2                           |   | Certification                of Chief Financial Officer pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002*                                                                                                                                                                                                                                                                                                                                   |
| 32.1                           |   | Certification                of Chief Executive Officer pursuant to Section 906 of the                Sarbanes-Oxley Act of 2002*                                                                                                                                                                                                                                                                                                                                   |
| 32.2                           |   | Certification                of Chief Financial Officer pursuant to Section 906 of the                Sarbanes-Oxley Act of 2002*                                                                                                                                                                                                                                                                                                                                   |
|                           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

----

**SIGNATURES**

|   |                                   | SYS          |                                     |
|--------|----------------------------------------|--------------|------------------------------------------|
|   |                                   | (Registrant) |                                     |
|   |                                   |
|   |                                   |
| Date:  | February                12, 2007       |         | /s/                Clifton L. Cooke, Jr. |   |
|   | Clifton                L. Cooke, Jr.   |
|   | Chief                Executive Officer |
|   |                                   |
|   |                                   |
| Date:  | February                12, 2007       |         | /s/                Edward M. Lake        |   |
|   | Edward                M. Lake          |
|   | Chief                Financial Officer |

----

**Exhibit      31.1**

**CERTIFICATION      OF CHIEF EXECUTIVE OFFICER**

| Dated:                February 12, 2007 |   | By:    | /s/                Clifton L. Cooke, Jr. |   |
|-----------------------------------------|--------|--------|------------------------------------------|--------|
|                                    |   |   | Clifton                L. Cooke, Jr.     |
|                                    |   |   | Chief                Executive Officer   |

----

**Exhibit      31.2**

**CERTIFICATION      OF CHIEF FINANCIAL OFFICER**

| Dated:                February 12, 2007 |   | By:    | /s/                Edward M. Lake      |   |
|-----------------------------------------|--------|--------|----------------------------------------|--------|
|                                    |   |   | Edward                M. Lake          |
|                                    |   |   | Chief                Financial Officer |

----

**Exhibit      32.1**

**CERTIFICATION      OF CHIEF EXECUTIVE OFFICER**

| Dated:                February 12, 2007 |   | By:    | /s/                Clifton L. Cooke, Jr. |   |
|-----------------------------------------|--------|--------|------------------------------------------|--------|
|                                    |   |   | Clifton                L. Cooke, Jr.     |
|                                    |   |   | Chief                Executive Officer   |

----

**Exhibit      32.2**

**CERTIFICATION      OF CHIEF FINANCIAL OFFICER**

| Dated:                February 12, 2007 |   | By:    | /s/                Edward M. Lake      |   |
|-----------------------------------------|--------|--------|----------------------------------------|--------|
|                                    |   |   | Edward                M. Lake          |
|                                    |   |   | Chief                Financial Officer |