<PAGE>

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

(Mark One)

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

For the quarterly period ended        December 31, 1999
                               ----------------------------------

-----    Transaction Report Under Section 13 or 15(d) of the Securities Exchange
         Act

For the transition period from                        to
                                ---------------------     ---------------------
Commission File Number    0-4169
                       ------------

                                      SYS
-------------------------------------------------------------------------------
        (Exact Name of Small Business Issuer as Specified in Its Charter)

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

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

                                 (858) 715-5500
-------------------------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)


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

         Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.

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

         State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: 3,236,732 SHARES
OF COMMON STOCK, WITHOUT PAR VALUE, AS OF JANUARY 31, 2000.

         Transitional Small Business Disclosure Format (check one):

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

                                      -1-
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                       Page
PART I - FINANCIAL INFORMATION                                                                        Number
<S>                                                                                                  <C>
         Item 1.  Financial Statements
                  Condensed Balance Sheet (unaudited)
                           December 31, 1999..............................................................3
                  Condensed Statements of Operations (unaudited)
                           Three Months and Six Months Ended December 31, 1999
                           and Three Months and Six Months Ended December 31, 1998........................4
                  Condensed Statements of Cash Flows (unaudited)
                           Six Months Ended December 31, 1999
                           and Six Months Ended December 31, 1998.........................................5
                  Notes to Condensed Financial Statements (unaudited).....................................6

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

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

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

PART II - OTHER INFORMATION

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

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

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

         Item 4.  Submission of Matters to a Vote of Security Holders....................................14

         Item 5.  Other Information......................................................................14

         Item 6.  Exhibits and Reports on Form 8-K.......................................................15
</TABLE>

                                      -2-
<PAGE>

                                     PART I
                             FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                                      SYS
                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                  12/31/99
                                                                            ------------------
                                                                                (Unaudited)
<S>                                                                         <C>
ASSETS
--------------------------------------------------
Current assets:
     Cash                                                                    $         8,000
     Contract receivables, net                                                     1,306,000
     Receivable from a related party                                                 179,000
     Deferred tax assets                                                              50,000
     Other current assets                                                             63,000
                                                                            ------------------
         Total current assets                                                      1,606,000

Equipment, furniture and fixtures,
     at cost, less accumulated
     depreciation and amortization                                                   248,000
Other assets                                                                          34,000
                                                                            ------------------
                                                                             $     1,888,000
                                                                            ------------------
                                                                            ------------------

LIABILITIES & STOCKHOLDERS' EQUITY
-------------------------------------------------
Current liabilities:
     Note payable to bank                                                    $        26,000
     Accounts payable                                                                 95,000
     Accrued payroll and related taxes                                               298,000
     Income taxes payable                                                              3,000
     Other accrued liabilities                                                         9,000
     Current portion of other notes payable                                           69,000
     Current portion of capital lease obligations                                     12,000
                                                                            ------------------
         Total current liabilities                                                   512,000

Other notes payable, net of current portion                                            9,000
Capital lease obligations, net of current portion                                     38,000
                                                                            ------------------
         Total liabilities                                                           559,000
                                                                            ------------------

Stockholders' equity:

     Preferred stock                                                                  55,000
     Series B preference stock                                                        70,000
     Common stock                                                                    494,000
     Retained earnings                                                               710,000
                                                                            ------------------
         Total stockholders' equity                                                1,329,000
                                                                            ------------------
                                                                             $     1,888,000
                                                                            ------------------
                                                                            ------------------
</TABLE>

                                      -3-
<PAGE>

                                       SYS
                        CONDENSED STATEMENT OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                          Three months ended                        Six months ended
                                                             December 31                               December 31
                                                -------------------------------------     -------------------------------------
                                                      1999                 1998                 1999                 1998
                                                -----------------   -----------------     ----------------     ----------------
<S>                                             <C>                 <C>                   <C>                  <C>
Contract revenues                                $     1,725,000     $     1,867,000       $    3,428,000       $    3,732,000

Costs and expenses:
     Contract costs                                    1,428,000           1,490,000            2,843,000            2,968,000
     General and administrative                          225,000             279,000              430,000              540,000
                                                -----------------   -----------------     ----------------     ----------------
                                                       1,653,000           1,769,000            3,273,000            3,508,000
                                                -----------------   -----------------     ----------------     ----------------
Income from operations                                    72,000              98,000              155,000              224,000

Other (income) expenses:
     Interest income                                      (1,000)                  0               (3,000)                   0
     Interest expense                                      1,000               6,000                6,000               15,000
                                                -----------------   -----------------     ----------------     ----------------
                                                               0               6,000                3,000               15,000
                                                -----------------   -----------------     ----------------     ----------------
Income before income taxes                                72,000              92,000              152,000              209,000
Provision for income taxes                                24,000              24,000               39,000               51,000
                                                -----------------   -----------------     ----------------     ----------------
Net income                                                48,000              68,000              113,000              158,000

Dividends on preferred shares                              1,000               1,000                4,000                4,000
                                                -----------------   -----------------     ----------------     ----------------
Net income applicable to common stock                     47,000              67,000              109,000              154,000

Retained earnings at beginning of period                 663,000             402,000              601,000              315,000
                                                -----------------   -----------------     ----------------     ----------------

Retained earnings at end of period               $       710,000     $       469,000       $      710,000       $      469,000
                                                -----------------   -----------------     ----------------     ----------------
                                                -----------------   -----------------     ----------------     ----------------
Basic earnings per common share                  $          0.01     $          0.02       $         0.03       $         0.05
                                                -----------------   -----------------     ----------------     ----------------
                                                -----------------   -----------------     ----------------     ----------------
Diluted earnings per common share                $          0.01     $          0.02       $         0.03       $         0.05
                                                -----------------   -----------------     ----------------     ----------------
                                                -----------------   -----------------     ----------------     ----------------
Weighted average number of
     common shares                                     3,236,732           3,173,518            3,236,732            3,161,290
                                                -----------------   -----------------     ----------------     ----------------
                                                -----------------   -----------------     ----------------     ----------------
</TABLE>

                                      -4-
<PAGE>

                                      SYS
                       CONDENSED STATEMENT OF CASH FLOWS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                         Six months ended
                                                                                            December 31
                                                                          -----------------------------------------------
                                                                                  1999                       1998
                                                                          --------------------       --------------------
<S>                                                                       <C>                        <C>
Operating activities:
     Net income                                                            $          113,000         $         158,000
     Adjustments to reconcile net income to net cash
     used for operating activities:
         Depreciation and amortization                                                 41,000                    29,000
         Changes in operating assets and liabilities:
              Contract receivables                                                    143,000                   (59,000)
              Receivables from related party                                          (54,000)                        0
              Other current assets                                                    (24,000)                  137,000
              Other assets                                                            (18,000)                   (6,000)
              Accounts payable                                                       (298,000)                   98,000
              Accrued payroll and related taxes                                       (32,000)                 (156,000)
              Income taxes payable                                                   (126,000)                    9,000
              Other accrued liabilities                                               (26,000)                   19,000
                                                                          --------------------       --------------------
Net cash used in operating activities                                                (281,000)                  229,000
                                                                          --------------------       --------------------
Investing activities:
     Acquisition of furniture and equipment                                           (48,000)                  (39,000)
     (Increase) decrease of other assets                                                    0                         0
                                                                          --------------------       --------------------
Net cash used in investing activities                                                 (48,000)                  (39,000)
                                                                          --------------------       --------------------
Financing activities:
     Proceeds from line of credit borrowings                                          729,000                 1,960,000
     Payments on line of credit borrowings                                           (703,000)               (2,079,000)
     Proceeds from (payments on) other notes payable or
       capital leases                                                                 (28,000)                  (28,000)
     Payments of preferred stock dividends                                             (1,000)                   (1,000)
     Payments of preference stock dividends                                            (3,000)                   (3,000)
     Proceeds from issuance of common stock                                                 0                     2,000
                                                                          --------------------       --------------------
Net cash provided by financing activities                                              (6,000)                 (149,000)
                                                                          --------------------       --------------------
Decrease in cash                                                                     (335,000)                   41,000
Cash at beginning of period                                                           343,000                    28,000
                                                                          --------------------       --------------------
Cash at end of period                                                      $            8,000         $          69,000
                                                                          --------------------       --------------------
                                                                          --------------------       --------------------
</TABLE>

                                      -5-
<PAGE>

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

(1)  In the opinion of the Registrant, the unaudited financial information in
this report reflects all adjustments, consisting only of normal recurring
accruals, which are considered necessary to a fair presentation of the
results of the periods shown. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to SEC regulations. It is suggested that these financial statements
be read in conjunction with the audited financial statements included in the
Registrant's Report on Form 10-KSB for the fiscal year ended June 30, 1999.

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

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

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

<TABLE>
<CAPTION>
                                                    Three months ended                   Six months ended
                                                        December 31                        December 31
                                             ----------------------------------  ---------------------------------
                                                   1999              1998              1999             1998
                                             ----------------  ----------------  ---------------  ----------------
<S>                                          <C>               <C>               <C>              <C>
Numerators:
     Net income (A)                          $        48,000   $        68,000   $      113,000   $       158,000
     Deduct - preferred and
         preference dividend requirements              1,000             1,000            4,000             4,000
                                             ----------------  ----------------  ---------------  ----------------
     Net income applicable to
         common stock (B)                    $        47,000   $        67,000   $      109,000   $       154,000
                                             ----------------  ----------------  ---------------  ----------------
                                             ----------------  ----------------  ---------------  ----------------

                                      -6-
<PAGE>

Denominators:
     Weighted average shares for
         basic net earnings per common
         share (C)                                 3,236,732         3,173,518        3,236,732         3,161,290
     Add effects of dilutive
         securities from assumed:
         Conversion of preference
              stock                                        0             1,729                0             1,729
         Exercise of stock options                     3,444             9,203            3,444             9,203
                                             ----------------  ----------------  ---------------  ----------------
     Weighted average shares for
         diluted net earnings per common
         share (D)                                 3,240,176         3,184,450        3,240,176         3,172,222
                                             ----------------  ----------------  ---------------  ----------------
                                             ----------------  ----------------  ---------------  ----------------
Basic net earnings per common
     share (B/C)                             $          0.01   $          0.02   $         0.03   $          0.05
                                             ----------------  ----------------  ---------------  ----------------
                                             ----------------  ----------------  ---------------  ----------------
Diluted net earnings per common
     share (A/D)                             $          0.01   $          0.02   $         0.03   $          0.05
                                             ----------------  ----------------  ---------------  ----------------
                                             ----------------  ----------------  ---------------  ----------------
</TABLE>

(3)  The results of operations for the quarter ended December 31, 1999, are
not necessarily indicative of the results to be expected for the full year.

(4)  The Company's fiscal year runs from July 1 through June 30. The Company
uses the 5-4-4 weeks per period method for each quarter; periods one (July)
and twelve (June) may vary slightly in the actual number of days due to the
beginning and end of each fiscal year. Because the Company's accounting
quarter end dates differ a bit from year to year (except the fourth quarter,
which is always June 30), the Company's quarterly SEC reports are
consistently reported on September 30, December 31 and March 31 of each year.

ITEM 1a.  FACTORS WHICH MAY AFFECT FUTURE RESULTS

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

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

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

     3.  COMPETITION  The Company has many competitors who vie for the same
customers as the

                                      -7-
<PAGE>

Company. They are competent, experienced and continuously working to take
work projects away from the Company.

     4.  RECEIVABLE FROM AFFILIATE  Big Canyon Investments, Inc. (BCI), a
wholly owned subsidiary of UniPrise Systems, Inc. (UniPrise), a company
partially owned by Robert D. Mowry, a former Director, Chairman and Chief
Executive Officer of the Company, has entered into an agreement with the
Company in which the Company was providing collection services to
BCI/UniPrise for certain receivables (the "Receivables"). Under this
arrangement, BCI/UniPrise owed the Company $179,000. The Company could
potentially benefit from these Receivables over and above the amount owed. On
September 24, 1999, the Board of Directors agreed to replace the BCI/UniPrise
debt with a Secured Negotiable Promissory Note (the "Note") for $179,000 from
Mowry and BCI. The Note is secured by the Receivables, Mowry's personal
guarantee and common stock of the Company held or controlled by Mowry. While
the Company believes that the Note is sufficiently secured, the Company may
incur losses.

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

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

     7.  POSSIBLE RULE 144 STOCK SALES.  A total of 1,661,388 shares of the
Company's outstanding Common Stock are "restricted securities" and may be
sold only in compliance with Rule 144 adopted under the Securities Act of
1933 or other applicable exemptions from registration. Rule 144 provides that
a person holding restricted securities for a period of one year may
thereafter sell, in brokerage transactions, an amount not exceeding in any
three-month period the greater of either (i) 1% of the Company's outstanding
Common Stock, or (ii) the average weekly trading volume during a period of
four calendar weeks immediately preceding any sale. Persons who are not
affiliated with the Company and who have held their restricted securities for
at least two years are not subject to the volume limitation. Possible or
actual sales of the Company's Common Stock by present shareholders under Rule
144 may have a depressive effect on the price of the Company's Common Stock
in any market which may develop.

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

                                      -8-
<PAGE>

for non-NASDAQ and non-exchange listed securities.

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

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

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

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

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

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

     9.  CONTROL BY OFFICERS AND DIRECTORS.  As of December 31, 1999,
Officers and Directors of the Company own 52.8% or 1,709,593 shares of the
Company's common stock (before including any shares acquired upon exercise of
any stock options) and thereby control the Company's affairs.

                                      -9-
<PAGE>

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

DESCRIPTION OF BUSINESS

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

     The Company was formed and incorporated in the State of California in
1966 as Systems Associates, Inc. It became a public corporation in 1968, and
engaged in systems analysis, systems engineering, computer services and
software for Government and industry. In addition to providing these
services, the Company conducted other business activities in computer network
operations and software applications, water resources development and
management, and in engineering services for sanitary waste development and
construction management, which it subsequently (1975) sold to other
companies. The Company changed its name to Systems Associates, Inc. of
California on December 4, 1979, and, as of March 18, 1985, it was changed to
SYS. The Company corporate offices were moved to San Diego, California in
February 19, 1984, from Long Beach, California.

     The Company currently has three principal contracts with the U. S. Navy.
These prime contracts are Underway Replenishment; Management, Planning and
Administrative; and Naval Architecture and Marine Engineering.

     The Underway Replenishment (UNREP) Program had its second of three
option years exercised on December 1, 1999. This program accounted for about
20% of the Company's revenue so far in fiscal year 2000. This program
provides in-service engineering support to the U.S. Navy Fleet. The Company
is continuing its support for the research and development project to design
and build a full size ship mock-up of a missile rearming system. An Aegis
Cruiser Vertical Launch Test System was fitted with a full scale mock-up
capable of demonstrating the rearming and strikedown system feasibility for
replenishing the Navy Standard Missile and the shipboard Tomahawk missile
system while underway at sea. This project continues to refine the detail
design. Shipboard technical assistance continues to gain strength and is the
basis for continued business confidence in the coming year. Due to the
declining number of Underway Replenishment Ships in the active U.S. Navy
fleet and the transfer of many of these assets to the Military Sealift
Command (MSC), a significant upgrade or backfit program has developed to
extend the serviceable life of these ships. The Company is playing a major
role in this program including design, asset procurement, shipboard
installation and the subsequent changes to the technical documentation. The
Company also has a key role in developing the UNREP depot repair capability
for selected equipments.

     The Management, Planning and Administrative (MPA) Program had its fourth
of four option years exercised on February 1, 1999 and the Company submitted
a proposal for this contract's recompetition. The Company was successful in
this recompetition and the new contract, named the Management, Planning,
Analytical and Administrative (MPAA) contract, became effective on February
1, 2000. This new contract has a base year and four option years. This
program accounted for about 55% of the Company's revenue so far in fiscal
year 2000. This program supports the U.S. Navy's Port Hueneme Division, Naval
Surface Warfare Center. The Statement of Work provides a

                                      -10-
<PAGE>

broad and flexible scope of work which allows a wide range of tasking. The
Company has developed work competencies in such areas as Management
Consulting, Information Services, Human Resource Services, Combat Systems
Engineering and Facilities Engineering. The MPA program has received customer
recognition for its high standards of excellence and professionalism.

     The Naval Architecture and Marine Engineering (NAME) Program had its
fourth of four option years exercised on November 30, 1999. This program
accounted for about 11% of the Company's revenue. This cost plus fixed fee
contract was issued by the U.S. Navy's Port Hueneme Division, Naval Surface
Warfare Center (PHD NSWC). The Company's largest customer on this contract is
the Ship Self Defense Department of PHD NSWC. Along with our Associate
Subcontractor, John J. McMullen Associates, Inc. (JJMA), the Company provides
extensive support for Ship Self Defense Systems in the areas of weapon
systems installation design, planning and coordination. The Company is now
supporting a new Army Navy Literage Procurement Program providing logistics
engineering services to the Naval Facilities Engineering Command.

     The Company was awarded a three-year subcontract on August 2, 1999 from
Santa Barbara Applied Research, Inc. to continue its hazardous materials
assessment support to the Naval Air Systems Command. This program accounted
for about 3% of the Company's revenue. This support provides environmental
engineering and technical services focusing on the identification and
reduction of hazardous material when providing maintenance to weapons and
associated handling and shipping equipment. Hazardous material reduction
support is being expanded to include support for Foreign Military Sales.

     Washington, D.C. Operations successfully recompeted a five-year
subcontract with their prime contractor, Tracor (now BAE Systems), on April
24, 1997. This program accounted for about 3% of the Company's revenue. This
will allow continued program management support to the Program Executive
Office, Surface Combatants/AEGIS Program (PEO, SC/AP), PMS400. The Company
provides contract and other financial reconciliation and closure support for
the Japanese AEGIS Foreign Military Sales cases. The Company also provides
other financial management support including case closure processing support
to PMS400.

     The General Services Administration (GSA) has awarded the Company two
contracts. The first contract awarded is for Information Technologies (IT).
The other contract is for Financial Management Services. The Company has a
Blanket Purchase Agreement (BPA) in place at SPAWAR headquarters in San Diego
for the IT contract. The Company has been successful in developing new
customers and is currently supporting the NAWFAC Information Technology
Center and the Navy SEABEE Logistics Center using the GSA contracts.

     The Company launched an Electronic Records Management (ERM) Division in
the last quarter of fiscal year 1999. This division is expected to grow
considerably over the next year and is one of the reasons for the increased
use of the Company's GSA contracts. This program accounted for about 4% of
the Company's revenue. This new technical capability has served as an entry
into the Navy SEABEE Logistics Center providing capability to better address
combat readiness of Naval Construction Forces. The Company has won a five
year contract to support the Department of the Interior and a one year
contract to provide ERM services to the Minerals Management Service. This
division booked its first revenue in the first quarter of fiscal year 2000.

                                      -11-
<PAGE>

RESULTS OF OPERATIONS

     The Company revenue for this quarter is about 8% less than those in the
same quarter in FY 1999. For the first six months of FY 2000, revenue
decreased by approximately 9% over the prior year's same period. The primary
reason for the decline in revenue is a reduction in work for our
subcontractors. The decline in revenue has occurred despite the Company's 15%
increase in direct labor. Revenue in the second quarter of FY 2000 was
slightly higher than in the first quarter of the year.

     Total contract and general and administrative expenses were 95% and 94%
as a percentage of contract revenue for the six months ended December 31,
1999 and 1998, respectively. The reason for the higher expenses in FY 2000 is
primarily due to increased overhead labor. Interest expense continues to
decline with the decreased borrowing from the credit facility.

     Income from operations has declined to 4.52% from 6.00% for the six
months ended December 31, 1999 and 1998, respectively. Net income for the
first six months of FY 2000 is $113,000 as compared to $158,000 for the same
period in the prior year. The reason for the lower net income for the first
six months is mainly attributable to start up costs associated with the new
ERM Division and unallowable costs. The negotiated contract backlog was
approximately $2,765,000 at the end of the first quarter.

     The outstanding balance on the Company's revolving line of credit with
Scripps Bank was $26,000 at December 31, 1999. At the end of the same period
in FY 1999, the line of credit balance was at zero.

LIQUIDITY AND CAPITAL RESOURCES

     The Company had contract receivables (net) of $1,306,000 at the end of
the second quarter of FY 2000. For the same quarter in FY 1999, the contract
receivables (net) were $1,244,000.

     The Company had accounts payable of $95,000 at the end of the second
quarter of FY 2000. For the same quarter in FY 1999 the accounts payable were
$162,000. The payment status of these accounts payable is current.

     The Company maintains a $500,000 revolving credit facility with Scripps
Bank which matures on October 15, 2000. The loan is secured by all the
Company's assets including contract receivables. Scripps advances funds
requested by the Company of up to 80% of the Company's billed contract
receivables which are less than 90 days old. Scripps charges an interest rate
of 1.5% over prime.

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

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

                                      -12-
<PAGE>

<TABLE>
<CAPTION>
                                                          December 31, 1999        June 30, 1999
                                                          -----------------        -------------
<S>                                                       <C>                      <C>
Current ratio                                                   3.14                    2.05
Maximum debt to net worth                                       0.42                    0.87
Net worth                                                    $1,329,000              $1,220,000
Net working capital                                          $1,094,000              $1,039,000
Debt to total assets                                             30%                    47%
Book value per common share                                     $0.37                  $0.34
</TABLE>

     The Company continued to demonstrate improvements in the above financial
factors during the first two quarters of fiscal year 2000. These Company
trends are positive, however, there can be no certainty that they will
continue to be positive. The current ratio is derived by dividing total
current assets by total current liabilities. Maximum debt to net worth is
calculated by dividing total liabilities (total current liabilities plus
other liabilities) by net worth. Net worth is total stockholders' equity. Net
working capital is total current assets less total current liabilities. Debt
to total assets is total liabilities divided by total assets. Book value per
common share is stockholders' equity related to common shares divided by the
weighted average number of common shares outstanding.

IMPACT OF THE YEAR 2000

     The Year 2000 issue exists because many computer systems and
applications use two-digit date fields to designate a year. As the century
date change occurs, date-sensitive systems may recognize the year 2000 as
1900, or not at all. This inability to recognize or properly treat the year
2000 may cause systems to process financial and operational information
incorrectly. The Company has continually upgraded its hardware and software
and has upgraded its financial software to insure compliance with the Year
2000 issue. The Company did not incur any Year 2000 problems with the start
of the year 2000. The Company has not experienced any Year 2000 problems
associated with their customers or suppliers. The Company does not expect the
Year 2000 issue to have a material effect on its financial position, results
of operations or cash flows in any given year.



                                      -13-
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     None

ITEM 2.  CHANGES IN SECURITIES

     None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

     None

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

     On January 19, 2000, the Company held its 1999 Annual Meeting of
Shareholders. There were 3,236,732 shares eligible as of the record date and
2,624,148 shares were represented either in person or by proxy at the
meeting. The following matters were voted on at the meeting:

     (a.)  Proposal to elect the Directors pursuant to management's
nominations. This proposal was approved with 2,618,546 shares voting in
favor, 5,602 shares voting against, and 0 shares abstaining.

     (b.)  Proposal to approve the appointment of J. H. Cohn LLP as the
independent certified public accountants for the corporation for its 2000
fiscal year. This proposal was approved with 2,620,137 shares voting in
favor, 300 shares voting against, and 3,711 shares abstaining.

ITEM 5.  OTHER INFORMATION

     At the November 19, 1997 Board of Directors meeting, the board approved
stock options for all outside directors in lieu of cash compensation for
board meeting attendance. Effective September 1, 1997, outside directors were
to receive stock options for 12,000 shares of the Company's common stock as
annual compensation at $0.75 per share. There are outstanding stock options
for 69,800 common shares for the period of September 1, 1997 to August 31,
1998. Under the same policy, for the period from September 1, 1998 through
August 31, 1999, stock options for 40,645 common shares at $0.68 per share
are owed to outside directors. Under the same policy, for the period from
September 1, 1999 through December 31, 1999, stock options for 8,000 common
shares at $0.625 per share are owed to outside directors.

     Effective September 21, 1999, the Board of Directors elected Mr. Kameron
Maxwell to fill the Board of Directors vacancy created by Mr. Robert D.
Mowry's resignation. Also effective September 21, 1999, the Company entered
into a Consulting Agreement and Amendment to Prior Understanding with Mr.
Mowry.

     Effective September 24, 1999, the Board of Directors agreed to replace
the BCI/UniPrise debt with a Secured Negotiable Promissory Note (the "Note")
for $179,000 from Mr. Mowry and BCI. The Note is secured by the SEI
receivables, Mr. Mowry's personal guarantee and common

                                      -14-
<PAGE>

stock of the Company held or controlled by Mr. Mowry. The Note accrues
interest at 10% per annum and principal and interest are due on December 31,
1999. As of January 1, 2000, the Note was in default. The Company is in the
process of foreclosing on the Company stock held as collateral on the Note.

     The Company added an employee stock ownership plan to its existing
401(k) plan, thus creating the SYS 401(k) Employee Stock Ownership Plan and
Trust Agreement. Effective January 1, 2000, instead of the matching cash
contribution the Company had been giving to the employees through the 401(k),
the Company will now contribute Company stock to the employees through the
Employee Stock Ownership Plan.

     At the Annual Board of Directors Meeting on January 19, 2000, which was
held subsequent to the Annual Shareholders Meeting, Mr. Lawrence L. Kavanau
resigned his seat on the Board of Directors effective at the conclusion of
the meeting. The Board of Directors elected Mr. Zoltan A. Harasty to fill the
Board of Directors vacancy created by Mr. Kavanau's resignation.

     On February 4, 2000, the Company signed a Joint Venture Agreement with
LARRK Digital, Inc. (LARRK). LARRK assists its customers to identify,
develop, internally deploy and/or sell their intellectual property through
the creation of knowledge management strategies and sales programs. LARRK
uses software and internet technologies to accomplish these goals. The
Company will receive a one-third interest in LARRK and an assignment of LARRK
technology rights. The Company will provide to LARRK $60,000 (paid at the
rate of $10,000 per month for six months), 100,000 shares of Company common
stock, office space and administrative support. LARRK must generate $200,000
in net operating profit in the first 36 months to make the Company shares
unrevocable. If LARRK has met the $200,000 net operating profit goal in the
first 36 months, they will earn additional shares of Company common stock for
net operating profit over $200,000. The Company and LARRK have entered into
discussions on a more definitive agreement.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     None


                                      -15-
<PAGE>
                                   SIGNATURES

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

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




Date:       February 10, 2000               /s/ W. Gerald Newmin
      ---------------------------------     ------------------------------------
                                            W. Gerald Newmin
                                            Chief Executive Officer




                                      -16-