<PAGE>

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

(Mark One)

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

For the quarterly period ended      March 31, 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)

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


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

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

Yes X      No        
   ---       ---

     State the number of shares outstanding of each of the issuer's classes 
of common equity, as of the latest practicable date: 3,236,732 SHARES OF 
COMMON STOCK, WITHOUT PAR VALUE, AS OF APRIL 30, 1999.

     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)
                    March 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . .3
               Condensed Statements of Operations (unaudited)
                    Three Months and Nine Months Ended March 31, 1999
                    and Three Months and Nine Months Ended March 31, 1998. . . . . .4
               Condensed Statements of Cash Flows (unaudited)
                    Nine Months Ended March 31, 1999
                    and Nine Months Ended March 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. . . . . . . . . . . . . . . . . . . . . 11
                    Liquidity and Capital Resources. . . . . . . . . . . . . . . . 12
                    Impact of the Year 2000. . . . . . . . . . . . . . . . . . . . 13

PART II - OTHER INFORMATION


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

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

     Item 3.   Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . 15

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

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

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

</TABLE>

<PAGE>

                                        PART I
                                FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
                                         SYS
                               CONDENSED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                      3/31/99  
                                                                    -----------
                                                                    (Unaudited)
 <S>                                                               <C>
 ASSETS
 ----------------------------------------
 Current assets:
      Cash                                                         $    140,000
      Contract receivables, net                                       1,150,000
      Receivable from a related party                                   132,000
      Other current assets                                               65,000
                                                                   ------------
           Total current assets                                       1,487,000

 Equipment, furniture and fixtures,
      at cost, less accumulated
      depreciation and amortization                                     247,000
 Other assets                                                            17,000
                                                                   ------------
                                                                   $  1,751,000
                                                                   ------------
                                                                   ------------

 LIABILITIES & STOCKHOLDERS' EQUITY
 ----------------------------------------
 Current liabilities:
      Note payable to bank                                         $          0
      Accounts payable                                                  114,000
      Accrued payroll and related taxes                                 244,000
      Other accrued liabilities                                          17,000
      Current portion of long-term debt                                   9,000
      Income taxes payable                                               47,000
                                                                   ------------
           Total current liabilities                                    431,000
                                                                   ------------
 Long-term debt                                                         166,000
                                                                   ------------
 Stockholders' equity:
      Preferred stock                                                    55,000
      Series B preference stock                                          71,000
      Common stock                                                      489,000
      Retained earnings                                                 539,000
                                                                   ------------
           Total stockholders' equity                                 1,154,000
                                                                   ------------
                                                                   $  1,751,000
                                                                   ------------
                                                                   ------------
</TABLE>

                                      -3-
<PAGE>


                                         SYS
                          CONDENSED STATEMENTS OF OPERATIONS
                                     (Unaudited)

<TABLE>
<CAPTION>
                                                       Three months ended               Nine months ended
                                                            March 31                         March 31
                                                 ----------------------------     ----------------------------
                                                     1999             1998              1999           1998
                                                 -----------      -----------     -------------     ----------
 <S>                                             <C>              <C>             <C>               <C>
 Contract revenues                               $ 1,873,000      $ 1,875,000     $   5,605,000     $5,899,000
 Costs and expenses:
      Contract costs                               1,534,000        1,599,000         4,502,000      5,019,000
      General and administrative                     235,000          193,000           775,000        579,000
                                                 -----------      -----------     -------------     ----------
                                                   1,769,000        1,792,000         5,277,000      5,598,000
                                                 -----------      -----------     -------------     ----------
 Income from operations                              104,000           83,000           328,000        301,000

 Other expenses:
      Interest                                         5,000           11,000            20,000         25,000
                                                 -----------      -----------     -------------     ----------
                                                       5,000           11,000            20,000         25,000
                                                 -----------      -----------     -------------     ----------
 Income before income taxes                           99,000           72,000           308,000        276,000

 Provision for income taxes                           26,000            4,000            77,000         17,000
                                                 -----------      -----------     -------------     ----------
 Net income                                           73,000           68,000           231,000        259,000
 Dividends on preferred shares                         3,000            2,000             7,000          3,000
                                                 -----------      -----------     -------------     ----------
 Net income applicable to common stock                70,000           66,000           224,000        256,000

 Retained earnings at beginning of period            469,000          226,000           315,000         36,000
                                                 -----------      -----------     -------------     ----------
 Retained earnings at end of period              $   539,000      $   292,000     $     539,000     $  292,000
                                                 -----------      -----------     -------------     ----------
                                                 -----------      -----------     -------------     ----------

 Basic earnings per common share                 $      0.02      $      0.02     $        0.07     $     0.08
                                                 -----------      -----------     -------------     ----------
                                                 -----------      -----------     -------------     ----------
 Diluted earnings per common share               $      0.02      $      0.02     $        0.07     $     0.08
                                                 -----------      -----------     -------------     ----------
                                                 -----------      -----------     -------------     ----------
</TABLE>


                                      -4-
<PAGE>
                                       
                                      SYS
                       CONDENSED STATEMENTS OF CASH FLOWS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                      Nine months ended
                                                           March 31
                                                -------------------------------
                                                      1999               1998
                                                ------------       -------------
<S>                                             <C>                <C>
Operating activities:
     Net income                                 $    231,000       $    259,000 
     Adjustments to reconcile net income to
     net cash used for operating activities:
          Depreciation and amortization               43,000             38,000 
          Changes in operating assets and       
          liabilities:                                                          
               Contract receivables                   35,000           (398,000)
               Receivables from related party        108,000                  0 
               Other current assets and other       
               assets                                 70,000           (157,000) 
               Accounts payable                     (204,000)          (207,000) 
               Accrued payroll and related          
               taxes                                  (9,000)           (61,000)
               Income taxes payable                   47,000             26,000 
               Other accrued liabilities              (2,000)           (51,000)
Net cash provided by (used for) operating
activities                                           319,000           (551,000)
                                                ------------       ------------

Investing activities:
     Acquisition of furniture and equipment          (43,000)           (54,000)
                                                ------------       ------------

Net cash used in investing activities                (43,000)           (54,000)
                                                ------------       ------------

Financing activities:
     Proceeds from note payable to bank            5,535,000          6,140,000
     Payments on note payable to bank             (5,654,000)        (5,662,000)
     Payments of long-term debt                      (39,000)           (49,000)
     Payments of preferred stock dividends            (8,000)            (3,000)
     Proceeds from exercise of stock option            2,000                  0
                                                ------------       ------------
Net cash provided by (used in) financing           
activities                                          (164,000)           426,000
                                                ------------       ------------

Increase (decrease) in cash                          112,000           (179,000)
Cash at beginning of period                           28,000            194,000
                                                ------------       ------------

Cash at end of period                           $    140,000       $     15,000
                                                ------------       ------------
                                                ------------       ------------
</TABLE>

                                      -5-

<PAGE>
                                       
                    NOTES TO CONDENSED FINANCIAL STATEMENTS


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

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

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

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

<TABLE>
<CAPTION>

                                                    Three months ended     Nine months ended
                                                          March 31             March 31
                                                    ------------------    -------------------
                                                      1999      1998       1999       1998
                                                    -------    -------    --------   --------
<S>                                                 <C>        <C>        <C>        <C>
Numerators:
      Net income (A)                                $73,000    $68,000    $231,000   $259,000
      Deduct - preferred dividend
           requirements                               3,000      2,000       7,000      3,000
                                                    -------    -------    --------   --------
      Net income applicable to
           common stock (B)                         $70,000    $66,000    $224,000   $256,000
                                                    -------    -------    --------   --------
                                                    -------    -------    --------   --------
</TABLE>


                                     -6-

<PAGE>

<TABLE>
<S>                                                 <C>            <C>           <C>           <C>
 Denominators:
      Weighted average shares for                                                                                           
           basic net earnings per 
           common share (C)
      Add effects of dilutive                        3,174,629      3,147,707     3,165,671    3,142,740
           securities from assumed:
           Conversion of preferred
                stock
           Exercise of stock options                   111,728        111,728       111,728      111,728
                                                       148,085         76,993       148,085       76,993
                                                    ----------     ----------    ----------   ----------

      Weighted average shares for
           diluted net earnings per 
           common share (D)                          3,434,442      3,336,428     3,425,484    3,331,461
                                                    ----------     ----------    ----------   ----------
                                                    ----------     ----------    ----------   ----------
 Basic net earnings per common
      share (B/C)                                   $     0.02     $     0.02    $     0.07   $     0.08
                                                    ----------     ----------    ----------   ----------
                                                    ----------     ----------    ----------   ----------

 Diluted net earnings per common
      share (A/D)                                   $     0.02     $     0.02    $     0.07   $     0.08
                                                    ----------     ----------    ----------   ----------
                                                    ----------     ----------    ----------   ----------
</TABLE>


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

ITEM 1A.  FACTORS WHICH MAY AFFECT FUTURE RESULTS

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

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

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

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

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


                                     -7-

<PAGE>

Officer, has entered into an agreement with the Company in which the Company 
is providing collection services to BCI/UniPrise for certain receivables.  
The Company could potentially benefit from these receivables over and above 
the amount owed. Under this arrangement and as of April 17, 1999, 
BCI/UniPrise owes the Company an aggregate of $132,000.  Some of the $132,000 
owed to the Company is subject to other agreements between the Company and 
BCI/UniPrise and will be paid pursuant to those agreements and as payments 
are received on the receivables. The total of these receivables is greater 
than the debt owed to the Company, however, the Company has no means to 
determine the validity of these receivables.  Although the Company's Board of 
Directors is working to collect these funds from BCI/UniPrise and assist in 
the collection of the receivables, the amount of this indebtedness is not 
secured by any collateral.  In the event that the Company is not able to 
secure the return of these advances, the Company may incur losses.

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

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

     7.   POSSIBLE RULE 144 STOCK SALES.  A total of 1,646,926 shares of the 
Company's outstanding Common Stock are "restricted securities" and may be 
sold only in compliance with Rule 144 adopted under the Securities Act of 
1933 or other applicable exemptions from registration.  Rule 144 provides 
that a person holding restricted securities for a period of one year may 
thereafter sell, in brokerage transactions, an amount not exceeding in any 
three month period the greater of either (i) 1% of the Company's outstanding 
Common Stock, or (ii) the average weekly trading volume during a period of 
four calendar weeks immediately preceding any sale.  Persons who are not 
affiliated with the Company and who have held their restricted securities for 
at least two years are not subject to the volume limitation.  Possible or 
actual sales of the Company's Common Stock by present shareholders under Rule 
144 may have a depressive effect on the price of the Company's Common Stock 
in any market which may develop.

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


                                      -8-

<PAGE>

for non-NASDAQ and non-exchange listed securities.

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

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

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

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

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

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

     9.   CONTROL BY OFFICERS AND DIRECTORS.  As of April 30, 1999, Officers 
and Directors of the Company own 62.9% or 2,035,502 shares of the Company's 
common stock (before including any shares acquired upon exercise of any stock 
options) and thereby control the Company's affairs.


                                     -9-
<PAGE>

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

DESCRIPTION OF BUSINESS

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

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

          The Management, Planning and Administrative (MPA) Program had its 
last of four option years exercised on February 1, 1999.  This program 
supports the U.S. Navy's Port Hueneme Division, Naval Surface Warfare Center. 
The Statement of Work provides a broad and flexible scope of work which 
allows a wide range of tasking.  SYS has developed work competencies in such 
areas as Management Consulting, Information Services, Human Resource 
Services, Public Affairs, Combat Systems Engineering and Facilities 
Engineering.  Tasking in the areas of Business Process Reengineering and 
Reorganization for greater efficiencies as well as Battle Force and Battle 
Group Interoperability are experiencing growth. The Company is preparing for 
the recompetition of this contract, which is expected to begin this summer.  
The MPA program has received customer recognition for its high standards of 
excellence and professionalism.  Continued growth of this Program area is 
anticipated.

          The Naval Architecture and Marine Engineering (NAME) Program had 
its third of four option years exercised on November 24, 1998.  This cost 
plus fixed fee contract was issued by the U.S. Navy's Port Hueneme Division, 
Naval Surface Warfare Center (PHD NSWC).  The Company's 


                                    -10-

<PAGE>

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

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

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

          The Company has plans to apply the skills acquired in the Defense 
arena into the commercial sector.  The Company has also received notification 
from the State of California that it has been approved as a supplier of 
training services to the State.

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

          The Company is pursuing mechanical engineering design and 
fabrication work from Universal Studios.  During the past quarter, the 
Company has completed a sizable engineering feasibility study for Universal 
Studios in support of their new Osaka, Japan theme park which is now under 
construction.  The Company is currently bidding on a design and fabrication 
project and will continue to pursue other engineering support tasks from 
Universal Studios.

          The Company has recently set up an Electronic Records Management 
(ERM) department.  The Company has hired an experienced ERM manager and has 
the required hardware and software  to support this department.  This 
department will develop work with the government and commercial sectors.

RESULTS OF OPERATIONS

          The Company revenue for this quarter is similar to those in the 
same quarter in FY 1998.  For the first nine months of FY 1999, revenue 
decreased by about 5% over the prior year's same period.  


                                    -11-

<PAGE>

The primary reason for the decline in revenue is a reduction in direct and 
subcontracted work on the NAME program during the first nine months of FY 
1999.  This resulted in a 54% decrease in revenue on the NAME program.  The 
MPA program had a 11% increase in revenue and the UNREP program had a 19% 
increase in revenue during the first nine months of FY 1999.  Revenue in the 
third quarter was slightly higher than in the first and second quarters of FY 
1999.

          Total contract and general and administrative expenses are 94% of 
contract revenue for the nine months ended March 31, 1999 compared to 95% for 
the same period in the prior year.  The general and administrative expenses 
were higher in FY 1999 due to an increase in business development and bid and 
proposal expenses.  Interest expense was lower in the first nine months of FY 
1999 due to limited use of the Company's revolving credit facility.  The 
Company used all available tax loss carry forwards in fiscal year 1998 and  
therefore income taxes are higher in the current fiscal year.

          Income from operations is 6% of contract revenue for the nine 
months ended March 31, 1999 compared to 5% for the same period in the prior 
year.  Net income for the first nine months of FY 1999 is $231,000 as 
compared to $259,000 for the same period in the prior year.  The reason for 
the lower net income for the period is because of the provision for federal 
income taxes of $77,000 in FY 1999 as compared to $17,000 for the same period 
in the prior year.  The negotiated contract backlog was approximately 
$4,327,000 at March 31, 1999.

          The outstanding balance on the Company's revolving line of credit 
with Scripps Bank was zero at March 31, 1999.  At the end of the same period 
in FY 1998, the line of credit balance was $478,000.

LIQUIDITY AND CAPITAL RESOURCES

          The Company had contract receivables (net) of $1,150,000 at the end 
of the third quarter of FY 1999.  For the same quarter in FY 1998, the 
contract receivables (net) were $1,441,000. 

          The Company had accounts payable of $114,000 at the end of the 
third quarter of FY 1999.  For the same quarter in FY 1998 the accounts 
payable were $255,000.  The payment status of these accounts payable is 
current.

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

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

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


                                      -12-

<PAGE>

<TABLE>
<CAPTION>

                                      March 31, 1999          June 30, 1998
                                      --------------          -------------
<S>                                   <C>                     <C>
 Current ratio                             3.45                    2.02
 Maximum debt to net worth                 0.52                    1.04
 Net worth                              $1,154,000               $892,000
 Net working capital                    $1,056,000               $785,000
 Debt to total assets                      34%                     51%
 Book value per common share              $0.32                   $0.24
</TABLE>

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

IMPACT OF THE YEAR 2000

          The Year 2000 issue exists because many computer systems and 
applications use two-digit date fields to designate a year.  As the century 
date change occurs, date-sensitive systems may recognize the year 2000 as 
1900, or not at all.  This inability to recognize or properly treat the year 
2000 may cause systems to process financial and operational information 
incorrectly.  The Company is continually upgrading its software and has 
upgraded its financial software to insure compliance with the Year 2000 
issue.  The Company has also run diagnostics on all computer systems in its 
San Diego office to confirm Year 2000 compliance.  Similar diagnostics will 
be run at the Company's other locations.  The Company believes that with 
these software reviews and upgrades, the Year 2000 issue will not pose 
significant operational problems for its internal computer systems.  The 
Company anticipates that all systems will be Year 2000 compliant  by June 30, 
1999 through the use of internal and external resources and does not 
anticipate incurring significant costs on this issue. There can be no 
assurance that the systems of the Company's customers or suppliers will be 
converted on a timely basis or that such failure to convert by another 
company will not have an adverse effect on the Company.  However, the Company 
has received assurances from its bank, payroll processor and 401-k 
administrator that they are Year 2000 compliant.  Also, since the Company is 
primarily a provider of services, the Company does not believe that other 
suppliers will have a significant impact on the Company's possible Year 2000 
problems.  The Company does not expect the Year 2000 issue to have a material 
effect on its financial position, results of operations or cash flows in any 
given year.


                                     -13-

<PAGE>

                         PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

          On February 7, 1997, Systems Exploration, Inc. (SEI) filed a 
lawsuit against TRW for non-payment of services.  These services were 
performed by SEI in accordance with their obligation under a subcontract from 
TRW.  On April 8, 1998, the Federal court ruled that the Company as 
collection agent for SEI was a party of interest on behalf of the plaintiff, 
SEI.  This matter has been settled with no expenses borne by the Company.

          On January 26, 1998, the Company was served notice that it was 
being added as a defendant in a lawsuit brought by an individual against a 
Company employee.  The Company's insurance firm has settled this matter.

ITEM 2.   CHANGES IN SECURITIES

          At the November 19, 1997 Board of Directors meeting, the board 
approved stock options for all outside directors in lieu of cash compensation 
for board meeting attendance.  Effective September 1, 1997, outside directors 
were to receive stock options for 12,000 shares of the Company's common stock 
as annual compensation at $0.75 per share.  At the conclusion of the first 
year of this policy (August 31, 1998), stock options were issued for 81,300 
common shares to the following outside directors: Paul I. Anderson, 12,000 
shares; Robert E. Carroll, 12,000 shares; L. Randolph Knapp, 11,500 shares; 
Robert D. Mowry, 12,000 shares; W. Gerald Newmin, 12,000 shares; Charles H. 
Werner, 12,000 shares; Richard W. Wood, 9,800 shares.  Mr. Knapp's option for 
11,500 shares has expired.  Under the same policy, for the period from 
September 1, 1998 through March 31, 1999, stock options totaling 30,645 
common shares at $0.68 per share are owed to the following outside directors: 
Paul I. Anderson, 5,000 shares; Robert E. Carroll, 5,000 shares; Robert D. 
Mowry, 7,000 shares; W. Gerald Newmin, 1,645 shares; Charles H. Werner, 7,000 
shares; Richard W. Wood, 5,000 shares.

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

          On February 4, 1999, the Company entered into an agreement with Mr. 
Bruce W. Barren of The EMCO/Hanover Group, Inc. (Barren) to compensate Barren 
with 50,000 shares of the Corporation's common stock, valued at $0.72 per 
share, in exchange for financial advisory services.   These shares were 
registered with the Securities and Exchange Commission on Form S-8.

          On April 1, 1999, the Company granted the conversion of 864 shares 
of Series B 9% Cumulative Convertible Callable Non-Voting Preference Stock 
into 1,728 shares of Common Stock.  This transaction exhausted the remaining 
shares of common stock reserved for conversion of this Preference Stock.

          On April 15, 1999, Mr. Paul I. Anderson, a former Director of the 
Company, exercised a stock option for 11,486 shares of common stock at $0.31 
per share.  Mr. Anderson then sold these shares to Michael W. Fink, an 
Officer of the Company.


                                      -14-

<PAGE>

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

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

          None

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

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

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

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

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

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

ITEM 5.   OTHER INFORMATION

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

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          None


                                      -15-


<PAGE>

                                   SIGNATURES

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

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



Date: May 7, 1999                                 /s/ W. Gerald Newmin
      -------------                               ----------------------------
                                                  W. Gerald Newmin
                                                  Chief Executive Officer


                                    -16-