<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, 1998       
                               ----------------------------
          Transaction Report Under Section 13 or 15(d) of the Securities
  ---     Exchange Act

For the transition period from                   to
                               -----------------     -----------------
Commission File Number    0-4169   
                       ------------
                                        SYS
-----------------------------------------------------------------------------
         (Exact Name of Small Business Issuer as Specified in Its Charter)

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

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

                                 (619) 587-0484
-----------------------------------------------------------------------------
                  (Issuer's Telephone Number, Including Area Code)

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

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

Yes  X     No
    ---       ---

     State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 3,148,518 shares of common
stock, without par value, as of March 31, 1998.

     Traditional Small Business Disclosure Format (check one):

Yes  X     No
    ---       ---

                                      -1-
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                        Page
PART I - FINANCIAL INFORMATION                                         Number
<S>                                                                    <C>

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

  Item 1a.  Factors Which May Affect Future Results . . . . . . . . . . . 6

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

                 Description of Business. . . . . . . . . . . . . . . . . 9
                 Results of Operations. . . . . . . . . . . . . . . . . .10
                 Liquidity and Capital Resources. . . . . . . . . . . . .11


PART II - OTHER INFORMATION


  Item 1.   Legal Proceedings . . . . . . . . . . . . . . . . . . . . . .12

  Item 2.   Changes in Securities . . . . . . . . . . . . . . . . . . . .12

  Item 3.   Defaults Upon Senior Securities . . . . . . . . . . . . . . .12

  Item 4.   Submission of Matters to a Vote of Security Holders . . . . .13

  Item 5.   Other Information . . . . . . . . . . . . . . . . . . . . . .13

  Item 6.   Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . .14

</TABLE>

                                       -2-

<PAGE>
                                    PART I
                             FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS
                                      SYS
                            CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                    3/31/98            12/31/97
                                                                   ----------         -----------
                                                                   (Unaudited)        (Unaudited)
           <S>                                                    <C>               <C>
           ASSETS
           Current assets:
                Cash                                              $   15,000        $   16,000
                Contract receivables, net                          1,441,000         1,333,000
                Other current assets                                 250,000           101,000
                                                                  ----------        ----------
                     Total current assets                         $1,706,000        $1,450,000

           Equipment, furniture and fixtures,
                at cost, less accumulated
                depreciation and amortization                        164,000           152,000
           Other assets                                              137,000           124,000
                                                                  ----------        ----------
                                                                  $2,007,000        $1,726,000
                                                                  ----------        ----------
                                                                  ----------        ----------

           LIABILITIES & STOCKHOLDERS' EQUITY
           Current liabilities:
                Note payable to bank                              $  478,000        $  257,000
                Accounts payable                                     255,000           175,000
                Accrued payroll and related taxes                    177,000           234,000
                Other accrued liabilities                             14,000            12,000
                Current portion of other long-term debt               26,000            46,000
                Income taxes payable                                  31,000            23,000
                                                                  ----------        ----------
                     Total current liabilities                    $  981,000        $  747,000

           Other long-term debt                                      158,000           176,000

           Stockholders' equity:                                                     
                Preferred stock                                       55,000            55,000
                Series B preference stock                             71,000            73,000
                Common stock                                         451,000           449,000
                Retained earnings                                    291,000           226,000
                                                                  ----------        ----------
                     Total stockholders' equity                   $  868,000        $  803,000
                                                                  ----------        ----------
                                                                  $2,007,000        $1,726,000
                                                                  ----------        ----------
                                                                  ----------        ----------
</TABLE>

                                       -3-
<PAGE>

                                      SYS
                       CONDENSED STATEMENT OF OPERATIONS
                                  (Unaudited)



<TABLE>
<CAPTION>
                                                        Three months ended                    Nine months ended
                                                             March 31                             March 31
                                                   ------------------------------        ---------------------------
                                                      1998                1997              1998             1997
                                                   ----------          ----------        ----------       ----------
 <S>                                               <C>                 <C>               <C>              <C>
 Contract revenues                                 $1,875,000          $2,065,000        $5,899,000       $5,381,000

 Costs and expenses:
      Contract costs                               $1,599,000          $1,813,000        $5,019,000       $4,585,000
      General and administrative                      193,000             150,000           579,000          527,000
                                                   ----------          ----------        ----------       ----------
                                                   $1,792,000          $1,963,000        $5,598,000       $5,112,000
                                                   ----------          ----------        ----------       ----------
 Income from operations                            $   83,000          $  102,000        $  301,000       $  269,000

 Other expenses:
      Interest                                         11,000               5,000            25,000           32,000
                                                   ----------          ----------        ----------       ----------
                                                       11,000               5,000            25,000           32,000
                                                   ----------          ----------        ----------       ----------
 Income before income taxes                        $   72,000          $   97,000        $  276,000       $  237,000

 Provision for income taxes                             4,000                   0            17,000                0
                                                   ----------          ----------        ----------       ----------
 Net income                                            68,000              97,000           259,000          237,000

 Dividends on preferred shares                              0               3,000             1,000            4,000
 Dividends on preference shares                         2,000                   0             2,000                0
                                                   ----------          ----------        ----------       ----------

 Net income applicable to
      common and common
      equivalent shares                            $   66,000          $   94,000        $  256,000       $  233,000
 Retained earnings at beginning
      of period                                       226,000             (48,000)           36,000         (187,000)
                                                   ----------          ----------        ----------       ----------
 Retained earnings at end of period                $  292,000          $   46,000        $  292,000       $   46,000
                                                   ----------          ----------        ----------       ----------
                                                   ----------          ----------        ----------       ----------
 Earning per common and
      common equivalent shares                     $     0.02          $     0.03        $     0.08       $     0.08
                                                   ----------          ----------        ----------       ----------
                                                   ----------          ----------        ----------       ----------
 Weighted average number of
      common and common
      equivalent shares                             3,271,000           2,956,000         3,266,000        2,901,000
                                                   ----------          ----------        ----------       ----------
                                                   ----------          ----------        ----------       ----------
</TABLE>


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



<TABLE>
<CAPTION>
                                                                        Nine months ended
                                                                            March 31
                                                                  -----------------------------
                                                                     1998                1997
                                                                  ---------           ---------
 <S>                                                              <C>                 <C>
 Operating activities:
 Net income                                                      $  259,000          $  237,000
 Adjustments to reconcile net income to net cash
      provided by (used for) operating activities:
           Depreciation and amortization                             38,000              34,000
           Provision for doubtful accounts                                0                   0
           Changes in operating assets and liabilities:
                Contract receivables                               (398,000)            (45,000)
                Other current assets and other assets              (157,000)            (42,000)
                Accounts payable                                   (207,000)            (52,000)
                Accrued payroll and related taxes                   (61,000)            (86,000)
                Income taxes payable                                 26,000                   0
                Other accrued liabilities                           (51,000)            (13,000)
                                                                 ----------          ----------
 Net cash provided by (used for) operating activities            $ (551,000)         $   33,000

 Investing activities:
 Acquisition of furniture and equipment                          $  (54,000)         $   47,000
 (Increase) decrease in other assets                                      0                   0
                                                                 ----------          ----------
 Net cash provided by (used in) investing activities             $  (54,000)         $   47,000
                                                                 ----------          ----------
 Financing activities:
      Proceeds from note payable to bank                          6,140,000           5,291,000
      Payments on note payable to bank                           (5,662,000)         (5,446,000)
      Other notes payable and capital lease obligations             (49,000)             77,000
      Payments of preferred stock dividends                          (3,000)             (4,000)
      Proceeds from issuance of common stock                              0                   0
                                                                 ----------          ----------
 Net cash provided by (used in) financing activities             $  426,000          $  (82,000)
                                                                 ----------          ----------
 Increase (decrease) in cash                                     $ (179,000)         $   (2,000)
 Cash at beginning of period                                        194,000              25,000
                                                                 ----------          ----------
 Cash at end of period                                           $   15,000          $   23,000
                                                                 ----------          ----------
                                                                 ----------          ----------
</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, 1997.

(2)       Income per common share is computed by dividing the net income 
applicable to common stock for the year by the weighted average number of 
common shares outstanding as adjusted for the  dilutive effects of  the 
assumed conversion of the 4% preferred stock (a common stock equivalent) and 
the exercise of stock options.  The effects of the assumed conversion of the 
9% preference stock were either immaterial or antidilutive.

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

ITEM 1a.  FACTORS WHICH MAY AFFECT FUTURE RESULTS

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

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

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

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

     4.   RECEIVABLE FROM AFFILIATE & ABSENCE OF COLLATERAL  Big Canyon
Investments, Inc. (BCI), a wholly owned subsidiary of UniPrise Systems, Inc.
(UniPrise), a company partially owned by Robert D. Mowry, the Company's Chairman
and Chief Executive Officer, has entered into an agreement with the Company in
which BCI  is providing collection services for certain receivables.  The
Company could potentially benefit from these receivables over and above the
amount owed.  Under this arrangement and as of May 2, 1998, UniPrise owes the
Company an aggregate of $229,000.  Some 


                                       -6-
<PAGE>

of the $229,000 owed to the Company is subject to other agreements between 
the Company and BCI and/or 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 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.  (See "Item 5, Other Information.")

     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 imposes certain limitations on the Company.  If the 
Company is to grow and expand its operations, the Company will need to raise 
significant amounts of additional capital.  There can be no assurance that 
the Company will be successful in raising a sufficient amount of additional 
capital, or if it is successful, that the Company will be able to raise 
capital on reasonable terms in light of the Company's current circumstances.  
In the event that the Company raises additional capital, the Company's 
existing stockholders may incur substantial and immediate dilution.

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

     7.   POSSIBLE RULE 144 STOCK SALES.  A total of 2,156,104 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 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 


                                       -7-
<PAGE>

$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 stock are exempt from all 
but the sole market-maker provision for (i) issuers $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.


                                       -8-
<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 Company was successful in winning the recompete of the Underway 
Replenishment (UNREP) Program which provides in-service engineering support 
to the U. S. Navy Fleet.  The new contract became effective on December 4, 
1997 and consists of a base year and three one year options.  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 will continue to refine the 
detail design.  Shipboard technical assistance continues to expand and 
provides the basis for continued business confidence in the current fiscal 
year.

     The Management, Planning and Administrative (MPA) Program had its third 
of four option years exercised on February 1, 1998.  This Program supports 
the U.S. Navy's Port Hueneme Division, Naval Surface Warfare Center.  The 
Statement of Work provides a broad and flexible scope of work which allows a 
wide range of tasking.  SYS has developed work competencies in such areas as 
Management Consulting, Information Services, Human Resource Services, Combat 
Systems Engineering and Facilities Engineering.  The MPA Program has received 
customer recognition for its high standards of excellence and 
professionalism.  Continued growth of this Program area is anticipated.

     The Naval Architecture and Marine Engineering (NAME) Program had its 
second of four option years exercised on November 25, 1997.  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), we provide 
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 


                                       -9-
<PAGE>

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.

     On September 5, 1997, the Company began to provide UNREP-type services 
to the Republic of Korea Navy through a subcontract with Lake Shore, Inc.  
This program will run through most of this fiscal year.

     The Company's sales of Sun computers and equipment continued at a 
reduced level.  The Company is also attempting to apply the skills acquired 
in the Defense arena into the commercial sector.  The Company recently 
received notification from the State of California that it has been approved 
as a supplier of services to the State.

RESULTS OF OPERATIONS

     The Company revenue for this quarter is approximately 9% less than those 
in the same quarter in FY 1997.  The primary reason for the decline in 
revenue is a reduction in funding from the government which has adversely 
effected the UNREP, NAME and Tracor programs during this third period.  For 
the first nine months of FY 1998, revenues increased by about 10% over the 
prior year's same period.  The increased revenue for the nine months to date 
is primarily due to additional revenue on the MPA and NAME contracts and the 
new Lake Shore program.  Revenue in the third quarter of FY 1998 was about 9% 
lower than in each of the first two quarters of the year.  This was mainly 
due to the reduction in government funding described above.  

     Total contract and general and administrative expenses have consistently 
been about 95% of the contract revenue for the three and nine month periods 
ended March 31, 1998 and 1997.  Interest expense has been lower in fiscal 
year 1998 due to less borrowing on the Company's line of credit with Scripps 
Bank, however, borrowing has increased in the third quarter.  The Company has 
used all available tax loss carry forwards and has therefore provided for 
income taxes for the current fiscal year.

     Income from operations has been consistently about 5% of the contract 
revenue for the three and nine month periods ended March 31, 1998 and 1997.  
Net income for the quarter is $68,000 and for the year to date is $259,000.  
For the same periods in FY 1997, the net income was $97,000 and $237,000, 
respectively. The reason for the lower net income for the quarter and the  
higher net income for the year to date is the same as that outlined in the 
revenue section above. The negotiated contract backlog was approximately 
$3,701,000 at the end of the third quarter.


                                      -10-
<PAGE>

     The outstanding balance on the Company's revolving line of credit with 
Scripps Bank increased to $478,000 at the end of the third quarter of FY 
1998. The balance at the end of the second quarter was $257,000.  At the end 
of the third quarter in FY 1997, the note balance was $69,000.  The primary 
reasons for the increase in the line of credit is due to slower payments by 
the government and $192,000 owed at period end to the Company by UniPrise for 
SEI collections related expenses.


LIQUIDITY AND CAPITAL RESOURCES

     The Company had contract receivables (net) of $1,441,000 at the end of 
the third quarter of FY 1998.  For the same quarter in FY 1997, the contract 
receivables (net) were $1,032,000.  The reason FY 1998 contract receivables 
are higher than the prior year is because of less efficient payment 
processing by Defense Finance and Accounting Service (DFAS).

     The Company had accounts payable of $255,000 at the end of the third 
quarter of FY 1998.  For the same quarter in FY 1997 the accounts payable 
were $263,000.  With the slow down of payments from DFAS, the Company has 
been able to remain current with their accounts payable, but to the detriment 
of the line of credit.

     The Company maintains a $500,000 revolving credit facility with Scripps 
Bank which matures on October 15, 1998.  The loan is secured by all the 
Company's assets including contract receivables.  Scripps advances funds 
requested by the Company of up to 80% of the Company's billed contract 
receivables which are less than 90 days old.  Scripps charges an interest 
rate of 1.5% over prime.

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

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

<TABLE>
<CAPTION>
                                  March 31, 1998       June 30, 1997
                                  --------------       -------------
 <S>                              <C>                  <C>
 Current ratio                        1.74                1.65
 Maximum debt to net worth            1.32                1.64
 Net worth                          $868,000            $612,000
 Net working capital                $725,000            $574,000
 Debt to total assets                 46%                 62%
 Book value per common share         $0.27               $0.20
</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 total 
stockholders' equity divided by the weighted average number of common and 
common equivalent shares.


                                      -11-
<PAGE>

                             PART II - OTHER INFORMATION


ITEM 1.   LEGAL PROCEEDINGS

     On June 14, 1996, the Company filed a Notice of Appeal from the 
Judgement and Order on the Jury Verdict of April 3, 1996 regarding the 
outcome of the Gray, Cary, Ames & Frye (GCAF) lawsuit.  To obviate the 
necessity for bonding the appeal to preclude collection efforts during the 
appeal, the Company paid the Judgement on May 9, 1997, reserving its rights 
to continue the appeal.

     In November 1995, a creditor of Systems Exploration, Inc. (SEI) filed a 
breach of contract action against the Company in California Superior Court. 
This matter was settled on January 20, 1998.


ITEM 2.   CHANGES IN SECURITIES

     On July 1, 1997, the Company granted the conversion of 2,684 shares of 
Series B 9% Cumulative Convertible Callable Non-Voting Preference Stock into 
5,368 shares of Common Stock.

     On November 14, 1997, the Company granted the conversion of 3,042 shares 
of Series B 9% Cumulative Convertible Callable Non-Voting Preference Stock 
into 6,084 shares of Common Stock. 

     On January 21, 1998, the Company granted the conversion of 1,824 shares 
of Series B 9% Cumulative Convertible Callable Non-Voting Preference Stock 
into 3,648 shares of Common Stock

     During the year ended June 30, 1997, the Board of Directors authorized 
non-qualified stock purchase options of 25,000 Common shares each to outside 
directors Paul I. Anderson, Charles H. Werner and Robert D. Mowry, which may 
be exercised at $0.31, $0.09 and $0.47 per share, respectively.  Anderson's 
Non-Qualified Stock Option Agreement was completed July 31, 1997.  
Non-Qualified Stock Option Agreements for Mowry and Werner are currently 
being finalized.

     On September 3, 1997, a Director of New Business Development was hired 
by the Company.  As part of her compensation package, she was granted 
qualified options on 50,000 shares of the Company's common stock.  The stock 
option agreement has not been finalized.

     On February, 18, 1998, the Board of Directors authorized non-qualified 
stock purchase options of 25,000 Common shares each to outside directors L. 
Randolph Knapp and Richard W. Wood, which may be exercised at $0.75 per 
share.  

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES          None


                                      -12-
<PAGE>

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

     On October 28, 1997, an Action of the Holders of a Majority of the 
Shares Outstanding by Written Consent in Lieu of a Meeting of SYS approved an 
amendment of Section (a), Fourth Article, of the Articles of Incorporation.  
This amendment stated "The number of directors of this corporation shall not 
be less than five, nor more than nine, the exact number of which shall be 
fixed by a bylaw duly adopted by the shareholders or by the corporation's 
board of directors."  A Certificate of Amendment of Articles of Incorporation 
of SYS was approved by the Board of Directors and by the required vote of 
Shareholders and was filed with the Secretary of State of California on 
November 7, 1997.

     On January 8, 1998, the Company held its 1997 Annual Meeting of 
Shareholders.  There were 3,138,786 shares eligible as of the record date and 
2,733,597 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 a voice vote.

     (b.) Proposal to approve the appointment of J.H. Cohn LLP as the 
independent certified public accountants for the corporation for its 1998 
fiscal year.  This proposal was approved with a voice vote.

     (c.) Proposal to increase number of authorized common shares to 12.0 
million.  This proposal was approved with a voice vote.  Filing of an 
amendment to Article Fourth of the Company's Articles of Incorporation is now 
pending with the Secretary of State of California.

     (d.) Proposal to amend the SYS 1997 Incentive Stock Option and 
Restricted Stock Plan increasing the number of common shares allocated for 
non-employee directors and consultants to 350,000 shares.

     (e.) Proposal to further amend the SYS 1997 Incentive Stock Option and 
Restricted Stock Plan increasing the number of common shares allocated for 
employees to 500,000 shares.


ITEM 5.   OTHER INFORMATION

     Effective August 1, 1997, Mr Robert D. Mowry was elected as Chairman of 
the Board and Chief Executive Officer of the Company.

     Mr. Mowry is also Chief Executive Officer of UniPrise Systems, Inc. 
(UniPrise).  Big Canyon Investments, Inc. (BCI), formerly owned by Mr. Mowry, 
and now a subsidiary of UniPrise, is the first secured debtor of the accounts 
receivable and claims of an unrelated third party company.  The Company has 
pledged its security interest in certain related assets to BCI and has an 
agreement with BCI to support the collection efforts on a cost reimbursement 
basis and two Company employees have been assisting BCI in the collection of 
these receivables and 


                                      -13-
<PAGE>

claims and in the closing out of the contracts.  Mr. Charles H. Werner, a 
director of the Company, is also a consultant to BCI and manages the 
collection process.  Mr. L. Randolph Knapp, a director of the Company, is the 
Chairman of UniPrise.  As of May 2, 1998, UniPrise owes the Company 
approximately $229,000 for the use of these employees and other related 
costs.  At the Board of Directors meeting held on April 15, 1998, the Board 
formed a subcommittee that was tasked with the development of a plan to 
insure repayment of this debt as soon as possible.

     At the Board of Directors meeting on August 20, 1997, Mr. L. Randolph 
Knapp was elected to fill the vacant seat on the Board effective as of 
September 16, 1997.

     At the Board of Directors meeting on September 16, 1997, Mr. Richard W. 
Wood was elected as a director of the Company effective on the date the 
Company's Articles of Incorporation provide for nine (9) directors.  The 
Articles were amended on November 7, 1997.

     On March 30, 1998, the Company entered into a sixty (60) month lease for 
office space located at 9620 Chesapeake Drive, Suite 201, San Diego, 
California, 92123, for relocation of the corporate headquarters.  The 6,820 
square feet of office space is leased at the rate of $6,479 monthly.  The 
Company anticipates relocation into the new premises on May 15, 1998.


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

     Form 8-K was filed on August 1, 1997, reporting that Mr. Robert D. Mowry 
had been elected as Chairman of the Board and Chief Executive Officer of the 
Company.

     On May 5, 1998, Charles H. Werner, a Director of the Company, purchased 
Five Hundred Fifty-Six Thousand Seven (556,007) shares of the Company's 
Common stock held by Robert D. Mowry, the Company's Chairman and Chief 
Executive Officer.  All of the 556,007 shares acquired by Mr. Werner were 
purchased by him with his personal funds, including funds held in a 
retirement account.  As a result and after including other shares held by Mr. 
Werner, Mr. Werner now holds approximately 25% or an aggregate of 785,796 
shares of the Company's Common stock.  The transaction between Mr. Mowry and 
Mr. Werner was effected through a private resale.


                                      -14-
<PAGE>

                                   SIGNATURES


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




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



Date:   May 13, 1998                       /s/ Robert D. Mowry 
     ------------------                 -------------------------------
                                        Robert D. Mowry
                                        Chairman and
                                        Chief Executive Officer



                                      -15-