<PAGE>
SYS 1997 ANNUAL REPORT
SYS HISTORY
Incorporated in California in 1966, SYS came about as a result of Dr.
Lawrence Kavanau's vision for a highly capable, integrated systems
management company. From its inception, SYS has bridged the disciplines of
systems analysis, systems engineering and computer sciences to become an
outstanding professional systems integration and management company. SYS
became a public corporation in 1968. Company operations were initially
headquartered in Long Beach, moving to San Diego in 1984. Operations centers
were established in Arlington, VA and Oxnard, CA to serve major clients.
In fiscal year 1997 SYS marked its 31st anniversary--a year in which the
Company carried on dynamic growth. The Company's business base continued
expansion with a vision of greater diversity in the future.
<PAGE>
CHAIRMAN'S LETTER
To: SYS Shareholders
Fiscal Year 1997 marked the Company's 31st anniversary. This year has
been a year of continued growth and opportunity. The Company's reports to
the Securities and Exchange Commission (SEC) are current and OTC/Bulletin
Board trading of SYS stock is available (symbol: "SYYS").
Revenues in Fiscal Year 1997 were $7,649,000 as compared to $5,942,000 in
Fiscal Year 1996; an increase of 29%. The FY 1997 net income was $229,000
versus $128,000 for FY 1996. This results in FY 1997 earnings of $0.07 per
share versus $0.04 per share in FY 1996.
During the year we were successful in growing our current business areas
over 29%. Management is continuing to search for new opportunities to expand
our existing business into new fields with new customers and has hired a
Director of New Business Development. The Company continues to keep tight
controls on its costs which has made SYS more competitive.
At the Company's 1996 Annual Meeting of Shareholders, held on March 21,
1997, Mr. Charles E. Vandeveer, the Company's Vice President, Director of
Operations, and I were elected to the Board of Directors. Subsequently,
effective August 1, 1997, I was honored to be elected Chairman of the Board
and Chief Executive Officer.
An objective of the Company is to enable its stock to be traded on
NASDAQ. Our goal is to accomplish this through the continuous growth of
current operations as well as through the acquisition of new commercial and
industrial business in new markets with new products and services.
Management believes the Company is well positioned to carry on its past
success and begin a new era of even greater achievement. We will keep you
informed as events evolve.
Robert D. Mowry
Chairman and
Chief Executive Officer
<PAGE>
(Page 2 contains a graphic representation of a TOMAHAWK missile)
OPERATIONS REVIEW
SYS 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
management, particularly in marine and shipboard equipment.
PRODUCTS AND SERVICES
The Company's skilled and experienced professional personnel perform
activities in the broad spectrum of aerospace, naval and industrial
operations environments. In providing its services in high technology and
complex systems areas, it forms interdisciplinary teams from many different
technical and management fields. These teams are capable of responding to
customer requirements which cover a wide variety of systems, products, and
services. The Company performs as both a Prime Contractor and a
Subcontractor, not only as a producer and procurer, but also as a provider of
support services to both Government and industrial technical and management
teams.
MARKETING
Business is solicited directly through constant liaison with potential
clients (primarily U.S. Government) and is obtained through competitive
contract awards which are made on the basis of both its technical and
management qualifications and its proposed prices. The Company is active both
as a Prime Contractor, with large and small companies as its Subcontractors,
and as a Subcontractor in the Small Business Plans of large contractors. All
SYS locations engage in marketing activities. Each manager has as part of his
objectives the booking of new orders. Technical capability is provided by
both the Field and Corporate Offices. The Company has recently hired a
Director of New Business Development to accelerate corporate sales growth.
BUSINESS DEVELOPMENT DURING THE FISCAL YEAR ENDED JUNE 30, 1997
Although the DoD has continued its downsizing program, sales at SYS grew
steadily during 1997. SYS has maintained stringent controls on expenses which
has allowed the billing rates to decline. The lower billing rates have made
SYS more competitive.
DISCUSSION
Company revenues for Fiscal Year 1997 increased approximately 29% over
the previous fiscal year. This was due to increased sales on Oxnard and
Washington Operations' contracts.
The Underway Replenishment (UNREP) Program was extended into its final of
three option years on September 1, 1996. On July 25, 1997, the contract was
extended an additional six months which runs through February 28, 1998. The
proposal for the follow on contract was submitted on September 11, 1997.
UNREP provides in-service engineering support to the U.S. Navy fleet. The
Company is continuing its support for the research and development project
to design and build a full size ship mock-up of a missile rearming system.
An AEGIS Cruiser Vertical Launch Test System was fitted with a full scale
mock-up capable of demonstrating the rearming and strikedown system
feasibility for replenishing the Navy Standard Missile and the shipboard
TOMAHAWK missile system while underway at sea. This project will now continue
to refine the detail design. Shipboard technical assistance continues to
expand and provides the basis for continued business confidence in the coming
year.
<PAGE>
(Page 3 contains a photograph and a graphic representation of an AEGIS
cruiser, captioned AEGIS cruiser)
The Management, Planning and Analysis (MPA) Program had its second of
four option years exercised on February 1, 1997. This program supports the
U.S. Navy's Port Hueneme Division, Naval Surface Warfare Center (PHD NSWC).
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
first of four option years exercised on November 25, 1996. This
cost-plus-fixed-fee contract was issued by 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 new contract is good and challenging. We are attempting to
expand our customer base in an environment of decreasing customer budgets.
The Company was awarded a two year subcontract from Systems Application
and Technologies to continue support to the Naval Air Systems Command. This
support provides 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 Operations successfully recompeted for another five year
subcontract with their prime contractor, Tracor, to continue 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.
CONTRACT BACKLOG, CUSTOMERS, AND COMPETITION
As of June 30, 1997, the Company's contract backlog, including negotiated
contract options, was approximately $20,342,000, compared with approximately
$24,841,000 on June 30, 1996.
<PAGE>
(Page 4 contains a photograph captioned Self Defense Test Ship)
The primary reason for the decrease in year-to-year backlog is due to the
fact that the Company had no major contract recompetitions during Fiscal Year
1997. Contract value backlog is converted to revenues by performance on
funded delivery orders or contracted tasks within each contract or
subcontract. Specific work activity is defined, scheduled and priced by
individual delivery orders (D.O.s) or contracted tasks (C.T.s). The actual
D.O. and C.T. backlog on June 30, 1997 was approximately $5,718,000, as
compared with approximately $2,801,000 on June 30, 1996.
The majority of the Company's total revenues were derived from contracts
with the United States Government, principally agencies of the Department of
Defense. Nearly all of these revenues were from contracts with the United
States Navy. Should changes in procurement policies or further reductions in
government expenditures occur, revenue and the income of the Company could be
adversely affected. Government contracts are not seasonal, however,
variations may occur due to funding from time to time.
LIQUIDITY AND WORKING CAPITAL
The Company had working capital of $574,000 at June 30, 1997 compared to
$250,000 at June 30, 1996. Contract receivables increased by $55,000 during
1997. The Company was able to eliminate its line of credit borrowings at June
30, 1997. Accounts payable were $159,000 higher in 1997 than in 1996. This
was mainly attributable to the Associate Subcontractor invoices on the NAME
contract. Accrued liabilities in 1997 were less than 1996 primarily because
$160,000 was converted into a note payable. In addition to the $160,000 note
payable, there are two smaller notes that make up the total of the current
and long-term notes payable. The Company's net worth increased by $233,000 in
1997 to $612,000. These improvements were due primarily to the net income of
$229,000 generated in 1997. Net furniture and equipment increased by $7,000
in 1997. Notes payable at June 30, 1997 consists of three notes. The
principal amounts due annually from these notes consists of $90,195, $40,532
and $84,888 for the years ending June 30, 1998, 1999 and 2000, respectively.
The Company's primary source of liquidity is its $500,000 revolving line
of credit facility. The Company also finances a portion of its operations
through leases. Management believes that the Company will have sufficient
cash flow from operations and funds available under the revolving credit
agreement to finance its operating and capital requirements during Fiscal
Year 1998.
* * * * *
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders
SYS
We have audited the accompanying balance sheets of SYS as of June 30, 1997
and 1996, and the related statements of operations, stockholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SYS as of June 30, 1997 and
1996, and its results of operations and cash flows for the years then ended,
in conformity with generally accepted accounting principles.
J. H. COHN LLP
San Diego, California
August 15, 1997
<PAGE>
FINANCIAL STATEMENTS
(Inserted on Pages 6, 7, 8 and 9 are Balance Sheets, Fiscal years ended June
30 1997 and 1996; Statements of Operations, Years ended June 30, 1997 and
1996; Statements of Stockholders' Equities, Years Ended June 30, 1997 and
1996; Statements of Cash Flows, Years Ended June 30, 1997 and 1996, as
contained in the Company's Form 10-KSB for Fiscal Year ended June 30, 1997,
previously filed with the SEC).
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and summary of significant accounting policies:
Organization:
SYS (the "Company") was incorporated in 1966 in the State of
California. 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.
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Revenue recognition:
Substantially all revenues are derived from contracts with
the United States Government. Revenues on fixed-price
contracts are recorded on the percentage of completion method
in the ratio that costs incurred bear to total estimated
costs at completion. Revenues on cost-reimbursement contracts
are recorded as costs are incurred and include estimated
earned fees in the proportion that costs or hours incurred to
date bear to total estimated costs or hours, respectively, as
specified by each contract. Provisions for estimated losses
on contracts are recorded as such losses become known.
Furniture and equipment:
Furniture and equipment are carried at cost. Depreciation is
provided using the straight-line method over the estimated
useful lives of the related assets, which range from 3 to 10
years. Leasehold improvements are amortized over the shorter
of the useful lives of the assets or the lease term.
Furniture and equipment include assets under capital leases
with a cost of $139,559 and $261,446 and accumulated
amortization of $97,106 and $186,092 at June 30, 1997 and
1996, respectively.
Impairment of long-lived assets:
Impairment losses on long-lived assets are recognized when
events or changes in circumstances indicate that the
undiscounted cash flows estimated to be generated by such
assets are less than their carrying value and, accordingly,
all or a portion of such carrying value may not be
recoverable. Impairment losses are then measured by
comparing the fair value of assets to their carrying amounts.
<PAGE>
Net income per common share:
Net income per common share has been 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
anti-dilutive or immaterial.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share," ("SFAS 128") which replaces the
presentation of primary earnings per share required under
previously promulgated accounting standards with a
presentation of basic earnings per share. It also requires
dual presentation of basic and diluted earnings per share on
the face of the statement of income for all entities with
complex capital structures and provides guidance on other
computational changes. SFAS 128 is effective for financial
statements for both interim and annual periods ending after
December 15, 1997. Earlier application is not permitted. The
Company does not expect the adoption of SFAS 128 to have a
material impact on its ocmputations of net income per share.
Income taxes:
The Company accounts for income taxes pursuant to the asset
and liability method which requires deferred income tax
assets and liabilities to be computed annually for
differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted laws and
rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to
the amount expected to be realized. The income tax provision
or credit is the tax payable or refundable for the period
plus or minus the change during the period in deferred tax
assets and liabilities.
Note 2 - Contract receivables:
Contract receivables consist of the following at June 30, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Amounts billed, less allowance for doubt-
ful accounts of $7,000 and $54,000 $ 177,083 $445,693
Recoverable costs and accrued profit
on progress completed - not billed 610,970 347,555
Retentions, due upon completion of con-
tracts 74,947 138,523
Unrecovered costs subject to future nego-
tiation - not billed, less allowance for
doubtful accounts of $19,000 and $147,000 179,520 55,257
---------- --------
Totals $1,042,520 $987,028
---------- --------
---------- --------
</TABLE>
At June 30, 1997, recoverable costs and accrued profit on
progress completed - not billed consisted of amounts billed in
July 1997. The balances comprising receivables pursuant to
retainage provisions will be due upon completion of the
contracts and acceptance by the customer; based on the Company's
experience with similar contracts in recent years, the balances
at June 30, 1997 are expected to be
<PAGE>
collected in fiscal 1998 and 1999.
Unrecovered costs subject to future negotiation - not billed
consist primarily of revenues recognized on specific delivery
orders within certain contracts whereby the costs incurred have
exceeded the current funding limitation for the specific
delivery order; however, the Company has not exceeded the cost
limitations for the entire contract as a whole. The costs
incurred in excess of specific funding limitations arose
primarily as a result of actual indirect expense rates exceeding
the Defense Contract Audit Agency ("DCAA") approved billing
rates. However, after an audit by the DCAA has been completed,
the Company intends to request that the cost limitation on
certain delivery orders be increased to cover the actual
indirect expenses incurred and the cost limitations on completed
delivery orders with funds still available within the same
contract be decreased to the amount of costs actually incurred.
Even though the government contracting officer is not legally
obligated to abide by the Company's request, management believes
that the amounts will be collected.
Note 3 - Settlement of litigation:
Expenses of $155,996, included in other expenses in the
accompanying 1996 statement of operations, are attributable to
the settlement of litigation related to the recission of a 1992
agreement to purchase certain assets of System Exploration, Inc.
The Company is appealing the settlement.
Note 4 - Note payable to bank under line of credit:
At June 30, 1997, the Company had no outstanding borrowings
under a $500,000 revolving line of credit provided by a bank
which expires on August 30, 1997. Any borrowings under the line
of credit will be limited to 75% of qualifying contract
receivables, will be collateralized by substantially all of the
assets of the Company and will bear interest at 1.5% above a
specified prime rate. Among other things, the terms of the line
of credit agreement require the Company to maintain certain
financial statement ratios.
Note 5 - Other notes payable:
As of June 30, 1997, other notes payable had an aggregate
principal balance of $215,615. These notes bear interest at
rates ranging up to 10.25%. One note (which had a principal
balance of $157,317) is payable to a bank and has terms that
require the Company to maintain certain financial ratios.
Principal amounts due under these obligations for each of the
years subsequent to June 30, 1997 are as follows:
AMOUNT
--------
1998 $ 90,195
1999 40,532
2000 84,888
Note 6 - Leases:
The Company has noncancelable operating leases for its offices
which expire at various dates through July 1998. Certain leases
provide for increases in the minimum lease payments based on
fluctuations in various price indices. Rent expense under all
operating leases totaled $187,547 and $182,524 in 1997 and 1996,
respectively.
The Company also leases certain computer and office equipment
under capital leases which expire at various dates through June
1998.
<PAGE>
Annual future minimum lease payments under noncancelable
operating and capital leases with initial terms of one year or
more as of June 30, 1997 are as follows:
OPERATING CAPITAL
LEASES LEASES
--------- -------
1998 $116,359 $24,453
1999 3,688
--------- --------
Totals $120,047 24,453
---------
---------
Less amounts representing interest 1,279
--------
Present value of net minimum lease
payments $23,174
--------
--------
Note 7 - Stockholders' equity:
Convertible preferred stock:
The Company has been authorized to issue up to 250,000 shares
of nonvoting convertible preferred stock with a par value of
$.50 per share, of which 110,000 shares had been issued at
June 30, 1997. Cumulative dividends on such shares are
payable at the annual rate of 4%. Each share is convertible
into one share of common stock upon the payment of $6.50 per
share and redeemable at the option of the Company at its par
value plus accrued dividends. In the event of the Company's
liquidation, the holders of the preferred stock are entitled
to $.50 per share plus all accumulated and unpaid dividends.
The payments of cash dividends on the preferred stock
totaled $5,500 in 1997, which includes $2,200 for the payment
of dividends that accrued in 1997 and $3,300 for the payment
of all dividends in arrears at June 30, 1996.
Convertible preference stock:
In June 1996, the Company issued to employees 139,561 of the
2,000,000 authorized shares of preference stock, which were
designated as Series B 9% cumulative convertible callable
nonvoting preference stock ($1.00 par value), along with
5,100 shares of common stock and charged $139,816 as
compensation. Payments of dividends on the preference stock
are subordinate to the payment of dividends on the 4%
preferred stock. Each share of preference stock, without any
cumulative dividends, is convertible into two shares of
common stock until the Company has issued a maximum of
139,561 common shares. During 1997, a total of 61,366 shares
of preference stock were converted into 122,732 shares of
common stock. Accordingly, 78,195 shares of preference stock
remained outstanding as of June 30, 1997. At June 30, 1997,
cumulative dividends in arrears on the preference stock
totaled $7,038 ($.09 per share). There were no dividends in
arrears at June 30, 1996. In the event of the Company's
liquidation, the holders of the preference stock are entitled
to $1.00 per share plus all accumulated and unpaid dividends.
Non-qualified stock options:
During the year ended June 30, 1997, the Company entered into
agreements for grants of non-qualified stock options to three
key employees. Under these agreements, the Company granted
options to purchase 105,000 shares of common stock at $.05
per share (the fair market value at the date of grant). These
options were exercised
<PAGE>
immediately. However, the right of the employees to retain
these shares is contingent upon their future employment by the
Company. The right of retention vests ratably over the three
year period that commenced with the date of grant. The Company
has the right to purchase unvested shares upon termination of
employment at the original purchase price.
Note 7 - Stockholders' equity (continued):
Incentive stock option and restricted stock plan:
On August 20, 1996, the Company's Board of Directors adopted
the SYS 1997 Incentive Stock Option and Restricted Stock Plan
(the "Plan"), which was ratified by the Company's
stockholders on March 21, 1997. The Plan initially provided
for grants by the Board of Directors of incentive stock
options to purchase up to 350,000 shares of common stock to
employees and grants of restricted stock options to purchase
up to 100,000 shares of common stock to directors and
consultants. However, the Board of Directors has approved an
amendment to the Plan whereby, subject to ratification by
stockholders, it will be authorized to grant restricted stock
options to purchase up to 350,000 shares of common stock to
directors and consultants. There were no incentive stock
options granted in 1997. Restricted stock options for the
purchase of 150,000 shares were granted in 1997, including
grants that are subject to ratification of the amendment to
the Plan by the stockholders. Options cannot be granted under
the Plan at less than 100% of the fair market value on the
date of grant. Options vest at such time and under such
conditions as determined by the Board of Directors at the
time of grant.
Additional required disclosures related to stock options:
The following table summarizes certain information regarding
options granted during 1997 and options outstanding at June
30, 1997:
WEIGHTED
SHARES OR AVERAGE
PRICE PER EXERCISE
SHARE PRICE
--------- --------
Options granted 255,000 $.11
Options exercised (180,000) .05
---------
Options outstanding at end of year 75,000 .29
---------
---------
Option price range at end of year $.09-$.47
Weighted average fair value of
options granted during the year $.11
Option price range for options
exercised during the year $.05
The following table summarizes information about stock options
outstanding at June 30, 1997, all of which are at fixed-prices:
WEIGHTED
AVERAGE WEIGHTED
RANGE OF REMAINING AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE OPTIONS
PRICES OUTSTANDING LIFE PRICE EXERCISABLE
-------- ----------- ----------- -------- -----------
$.09-$.47 75,000 7 years $.29 None
<PAGE>
Note 7 - Stockholders' equity (concluded):
Additional required disclosures related to stock options
(concluded):
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123").
Since all of the options were granted at the fair market
value on the date of grant, no earned or unearned
compensation cost was recognized in the accompanying
financial statements for stock options granted in 1997. Had
compensation cost been determined based on the fair value at
the grant date for all awards in 1997 consistent with the
provisions of SFAS No. 123, the Company's net income and net
income per share would have been reduced to the pro forma
amounts set forth below:
Net income - as reported $229,008
Net income - pro forma 217,458
Net income per common share - as reported $.07
Net income per common share - pro forma $.07
The fair value of each option granted in 1997 was estimated
on the date of grant using the Black-Sholes option-pricing
model with the following weighted-average assumptions:
dividend yield of 0%; expected volatility of 200%; risk-free
interest rate of 7%; and expected lives of one month to seven
years.
Note 8 - Income taxes:
At June 30, 1997, the Company had a net operating loss
carryforward for Federal income tax purposes of approximately
$190,000 which will begin to expire in 2008 unless previously
utilized. Pursuant to the provisions of the Internal Revenue
Code, the utilization of Federal net operating loss
carryforwards in future years may be subject to substantial
annual limitations if a change of more than 50% in the ownership
of the Company occurs.
Significant components of the Company's deferred tax assets
(there were no significant deferred tax liabilities) and a
related valuation allowance as of June 30, 1997 and 1996 are
shown below:
1997 1996
------- --------
Deferred tax assets:
Net operating loss carryforwards $ 65,000 $121,000
Other 57,000 164,000
-------- --------
Total deferred tax assets 122,000 285,000
Valuation allowance for deferred
tax assets (122,000) (285,000)
-------- --------
Net deferred tax assets $ - $ -
-------- --------
-------- --------
Note 8 - Income taxes (concluded):
The Company has offset the deferred tax assets by an equivalent
valuation allowance due to the uncertainties related to the
extent and timing of its future taxable income.
<PAGE>
The expected Federal income tax provision, computed based on the
Company's pre-tax income in 1997 and 1996 and the statutory
Federal income tax rate, is reconciled to the actual tax
provision reflected in the accompanying financial statements as
follows:
1997 1996
-------- -------
Expected tax provision at statutory
rates $ 77,863 $43,034
Decrease resulting primarily from
availability of net operating
loss carryforwards (77,863) (43,034)
-------- -------
Totals $ - $ -
-------- -------
-------- -------
Note 9 - Retirement plan:
The Company sponsors a deferred savings and profit sharing plan
under Section 401(k) of the Internal Revenue Code. Substantially
all of its employees may participate in and make voluntary
contributions to this defined contribution plan after they meet
certain eligibility requirements. The Company has agreed to
match 50% of each employee's contributions, provided the
matching amount does not exceed 3% of the employee's annual
compensation. The Board of Directors can authorize additional
discretionary contributions by the Company. Contributions to the
plan by the Company totaled $66,761 and $36,097 in 1997 and
1996, respectively.
Note 10- Contingencies:
The Company is a party to various legal proceedings. In the
opinion of management, these actions are routine in nature and
will not have any material adverse effect on the Company's
financial statements in subsequent years.
* * *
(Page 11 contains a Note which reads: Written requests for a copy of the
Company's Form 10-KSB, free of charge, should be addressed to: SYS,
Shareholder Relations Department, 6363 Greenwich Drive, Suite 200, San Diego,
CA 92122.)
<PAGE>
(The Back Cover of the Report contains the following:
DIRECTORS
Paul I. Anderson
Robert E. Carroll
Lawrence L. Kavanau
L. Randolph Knapp
Robert D. Mowry, Chairman
W. Gerald Newmin
Charles E. Vandeveer
Charles H. Werner
Richard Wood
OFFICERS
Robert D. Mowry, Chief Executive Officer
Lawrence L. Kavanau, Chief Financial Officer
Charles E. Vandeveer, Vice President, Director of Operations
Michael W. Fink, Vice President, Administration
W. Gerald Newmin, Secretary
TRANSFER AGENT
ChaseMellon Shareholder Services
Security Relations Department
400 South Hope Street, Fourth Floor
Los Angeles, CA 90071
(213) 553-9700
CORPORATE OFFICE
6363 Greenwich Drive, Suite 200
San Diego, CA 92122
(619) 587-0484
Fax (619) 587-9746
OXNARD OPERATIONS
1721 Pacific Avenue, Suite 210
Oxnard, CA 93003
(805) 486-4444
Fax (805) 483-1415
WASHINGTON OPERATIONS
2011 Crystal Drive, Suite 210
Arlington, VA 22202
(703) 769-5225
Fax (703) 892-1473
