<PAGE>
SYS 1996 ANNUAL REPORT
Chairman's Letter
To: SYS Shareholders
Fiscal Year 1996 marked your Company's thirtieth anniversary. This year has
also been a year of growth and opportunity. The Company's reports to the
Securities and Exchange Commission are current and OTC/Bulletin Board trading of
SYS stock is available (symbol: "SYYS").
Revenues in Fiscal Year 1996 were $5,942,000 as compared to $4,751,000 in
Fiscal Year 1995; an increase of 25%. The FY 1996 net income was $128,000 versus
a net loss of $221,000 for FY 1995. This results in FY 1996 earnings of $0.04
per share versus a loss of $0.08 per share in FY 1995.
During the year we were successful in growing our current business areas
over 25% and in winning the new Naval Architecture and Marine Engineering (NAME)
multi-year program. This program, out of the Company's Oxnard office, has a
total potential value of $12,500,000 over the base year and four option years.
Management is continuing to search for new opportunities to expand our current
business into new fields with new customers. The Company continues to keep tight
controls on costs which has made SYS more competitive.
A letter to you about a year ago discussed goals to expand our current
business areas to include new commercial and industrial services and products.
It also introduced to you a vision for SYS to become an "umbrella" for an
integrated group of profitable business operations able to share and manage its
resources so as to increase earnings per share. Our objective is to find and
develop satisfied customers in government, industry and commerce where we can be
competitive, grow and provide earnings for the shareholders.
A primary objective of the Company is to enable its stock to be traded on
NASDAQ. We plan 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.
In October 1996, Mr. Paul I. Anderson became a Director of SYS. Mr.
Anderson brings to the Company, and hence to its shareholders, many years of
practical experience in commercial product companies, both here in the U.S. and
abroad. His help and guidance will contribute much to the Company's growth.
Management believes that all of the key elements to success are available,
and you are invited to share in their enthusiasm as your Company begins a new
era of accomplishment and expansion. We will inform you of our progress through
future quarterly reports.
/s/ Lawrence L. Kavanau
Lawrence L. Kavanau
Chairman and Chief Executive Officer
<PAGE>
(Page 2 is titled: U.S. Navy Special Commendation. It contains three
photographs of Replenishing System Prototype in use, which are captioned as
follows:
Replenishing Aegis Cruisers at sea with replacement missiles has been impossible
until now. SYS personnel worked with Navy engineers to design and construct a
prototype loading system. Missiles are received at sea from replenishment
ships horizontally. The prototype loading arm lifts and turns the missile
canister vertical, positions it precisely over the missile hatch, and lowers it
into position for storage and firing.
SYS UNREP PROJECT
At Sea Guided Missile Replenishing System Prototype
*****
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.
BUSINESS DEVELOPMENT DURING THE FISCAL YEAR ENDED JUNE 30, 1996
Although the DoD has continued its downsizing program, sales at SYS grew
steadily during 1996. SYS has maintained stringent controls on expenses which
has allowed the billing rates to decline. The lower billing rates
<PAGE>
have made SYS more competitive and were certainly a factor in its winning bid
for the Naval Architecture and Marine Engineering contract.
DISCUSSION
Company revenues for Fiscal Year 1996 increased approximately 25% 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 the second of
three option years on September 1, 1995. UNREP provides in-service engineering
support to U.S. Navy fleet replenishment ships. Revenues exceeded expectations
due to an unanticipated 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 strike down system feasibility for replenishing the Navy
Standard Missile and the shipboard Tomahawk missile system while underway at
sea. This project, along with increased shipboard technical assistance,
accounted for a better than expected 1996 and provides the basis for continued
business confidence in the 1997.
THE MANAGEMENT, PLANNING AND ANALYSIS (MPA) PROGRAM had its first of four
option years exercised on February 1, 1996. This program supports the U.S.
Navy's Port Hueneme Division, Naval Surface Warfare Center. This $16,000,000
contract accounted for over fifty percent of the Company's revenues in this past
year and the contract ceiling was increased $1,000,000 in the base year to
accommodate the workload demand. 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 Company became the successful competitor for the NAVAL ARCHITECTURE AND
MARINE ENGINEERING (NAME) PROGRAM when it was awarded the new multiple-year
prime contract on April 22, 1996. This contract was issued by the U.S. Navy's
Port Hueneme Division, Naval Surface Warfare Center and will run into the year
2001. This cost-plus-fixed-fee contract consists of a base year and four (4)
option years with a total potential value over the five years of $12,500,000.
SYS will provide a wide range of Combat Systems Engineering and weapons
capabilities developed in support of SHIP SELF DEFENSE SYSTEMS (SSDS). This
award was a result of a strategic teaming effort with John J. McMullen
Associates, Inc. Naval Architects and Marine Engineers. The next year's outlook
for this new contract is good.
The Company also continued its support to the NAVAL AIR SYSTEMS COMMAND
providing engineering and technical services focusing on the identification and
reduction of hazardous material when providing maintenance to weapons and
associated handling and shipping equipment.
Washington Operations continued its work as subcontractor providing
administrative support to FOREIGN MILITARY SALES PROGRAMS. The Company's sales
of Sun computers and equipment continued at a reduced level.
(A small picture appears on this page, captioned: U.S. Navy's Self Defense Test
Ship.)
<PAGE>
CONTRACT BACKLOG, CUSTOMERS,
AND COMPETITION
As of June 30, 1996, the Company's contract backlog, including negotiated
contract options, was approximately $24,841,000, compared with approximately
$23,849,000 on June 30, 1995. 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, 1996 was approximately $2,801,000, as compared with
approximately $1,968,000 on June 30, 1995.
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.
Nearly all of the Company's business is awarded through competitive
procurements. The engineering and management services industry consists of
hundreds of companies with which the Company competes and who can provide the
same type of services. A great many of the Company's competitors are larger and
have greater financial resources than the Company. The Company obtains much of
its business on the basis of proposals to new and existing customers.
Competition usually centers on successful past performance, technical
capability, management, personnel experience and price. Cost-type contracts with
United States Government agencies, such as the Department of the Navy, are all
subject to audit by Government representatives. Most of the Company's contracts
are of the cost-type.
LIQUIDITY AND WORKING CAPITAL
The Company had working capital of $287,000 at June 30, 1996 compared to
$52,000 at June 30, 1995. Contract receivables decreased by approximately
$43,000 during 1996 despite the increase in sales. The Company was able to
reduce its line of credit borrowings by $210,000 while its total accounts
payable and accrued expenses increased by $64,000 in 1996. The Company's
shareholders' equity increased by $266,000 in 1996 to $381,000. These
improvements were primarily attributable to the net income of $128,000 generated
in 1996 and the issuance of the 9% series B preference shares with a fair value
of $140,000 as compensation to employees. Purchases of furniture and equipment
increased to $45,000 in 1996 from $22,000 in 1995.
The Company's primary source of liquidity had been a $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 1997.
* * * * *
FINANCIAL STATEMENTS
(Inserted on Pages 6, 7, 8 and 9 are Balance Sheets, Fiscal Years ended June 30,
1996 and June 30, 1995; Statements of Operations for Fiscal Years ended June 30,
1996, June 30, 1995, and June 30, 1994; Statements of Shareholders' Equity for
Years ended June 30, 1996, June 30, 1995, and June 30, 1994; Statements of Cash
Flows for Years ended June 30, 1996, June 30, 1995, and June 30, 1994, as
contained in the Company's Form 10-KSB for Fiscal Year ended June 30, 1996,
previously filed with the SEC.)
<PAGE>
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 $261,000 and
$289,000 and accumulated amortization of $186,000 and $234,000 at June 30, 1996
and 1995, respectively.
ASSET IMPAIRMENT
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," ("SFAS No.
121"), effective for fiscal years beginning after December 15, 1995. SFAS No.
121 requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. Management believes, based on
current circumstances, that the adoption of SFAS No. 121 will not have a
material impact on the Company's financial statements.
INCOME (LOSS) PER COMMON SHARE
Income (loss) per common share is computed by dividing the net income or
loss for the year, as adjusted for preferred dividend requirements, by the
weighted average number of common shares and any dilutive common equivalent
shares outstanding. The effects of the assumed conversion of the 4% convertible
preferred stock,
<PAGE>
which is a common stock equivalent, and the 9% convertible preference stock have
not been included in the computation of income (loss) per share in any year
presented because such effects were either immaterial or antidilutive.
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, 1996 and 1995:
1996 1995
---- ----
Amounts billed, less
allowance for doubtful
accounts of $54,000 $446,000 $490,000
Recoverable costs and
accrued profit on progress
completed - not billed 348,000 269,000
Retentions, due upon
completion of contracts 138,000 94,000
Unrecovered costs subject
to future negotiation -
not billed, less allowance
for doubtful accounts
of $147,000 55,000 91,000
------ ------
Totals $987,000 $944,000
-------- --------
-------- --------
At June 30, 1996, recoverable costs and accrued profit on progress
completed--not billed consist of amounts billed in July 1996. 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, 1996 are expected to be collected in fiscal 1997 and 1998.
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 bid rates. However, after an
audit by the Defense Contract Audit Agency has been completed, the Company
intends to request that the cost limitation on certain delivery orders be
<PAGE>
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 - EFFECTS OF TERMINATION
OF ACQUISITION AGREEMENT
During fiscal 1992, the Company entered into an agreement to purchase,
among other items, certain contracts and related assets and liabilities of
System Exploration, Inc. ("SEI"). The purchase of assets was contingent upon
novation by the United States Government of a number of SEI's in process
government contracts, proposals and lines of business. During the pendency of
the novation process, the Company agreed to consolidate its bank line of credit
with the bank debt of SEI. The consolidated loan was secured by the assets of
both the Company and SEI. Due to incorrect representations on the part of SEI to
the bank and the Company, the purchase agreement was rescinded by the Company in
June 1992. During July 1992, the terms of the bank borrowings were amended to
convert the outstanding debt into two loans that were originally due on December
21, 1992. One loan was provided to the Company through a $500,000 revolving line
of credit that was renewed pursuant to subsequent agreements with the bank
through September 3, 1996 (see Note 4). The second loan was for $1,777,000,
which was related to the SEI assets (the "SEI asset loan"). The terms of the SEI
asset loan were further amended to provide for its repayment from the proceeds
collected from SEI's accounts receivable and contract claims, net of collection
costs incurred by the Company. All SEI related assets held by the Company were
pledged as collateral to secure the SEI asset loan.
During the period from July 1992 to January 1995, the Company administered
the collection of the SEI receivables for the benefit of the bank and reduced
the total SEI asset loan to $1,105,000 at January 1995. During January 1995, the
SEI asset loan and the security interest in the SEI accounts receivable and
contract claims were, with agreement by the bank, assumed by an unrelated third
party, without recourse to the Company and the Company agreed to continue to
collect the receivables on a best efforts basis for a fee.
The rescission of this purchase agreement caused the Company to incur
substantial continuing legal related expenses and interest expense on debt not
related to the Company's ongoing business operations. Rescission related
expenses of $156,000 attributable to the results of litigation in 1996 and
rescission related expenses of $389,000 and $181,000 in 1995 and 1994,
respectively, attributable to the cost of litigation and interest on the SEI
loan are included in other expenses in the accompanying statements of
operations. Management does not believe that the Company will incur any material
additional expenses related to the rescission subsequent to June 30, 1996.
NOTE 4 - NOTE PAYABLE TO BANK
UNDER LINE OF CREDIT
At June 30, 1996, the Company had outstanding borrowings of $98,000 under a
$500,000 revolving line of credit provided by a bank which was due to expire on
July 3, 1996 and was extended to September 3, 1996. Interest on outstanding
borrowings was payable at 3.75% above a specified prime rate (an effective rate
of 12% at June 30, 1996). Borrowings under the line of credit were limited to
80% of qualifying contract receivables and collateralized by substantially all
of the assets of the Company.
On August 29, 1996, the Company obtained a new $500,000 revolving line of
credit from another bank which will expire on August 30, 1997. Interest on
outstanding borrowings will be payable at 1.5% above a
<PAGE>
specified prime rate. Borrowings under the new line of credit will also be
collateralized by substantially all of the assets of the Company. Among other
things, the terms of the new line of credit agreement require the Company to
maintain a ratio of total liabilities to tangible net worth of less than 9.5 and
a ratio of current assets to current liabilities in excess of 1.0.
NOTE 5 - LEASES
The Company has noncancelable operating leases for its offices which expire
at various dates through March 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 $184,000, $278,000 and $213,000 in
1996, 1995 and 1994, respectively.
The Company also leases certain computer and office equipment under capital
leases which expire at various dates through June 1999.
Annual future minimum lease payments under noncancelable operating and
capital leases with initial terms of one year or more as of June 30, 1996 are as
follows:
Operating Capital
Leases Leases
------ ------
1997 $198,000 $51,000
1998 67,000 29,000
1999 1,000
-------
Totals $265,000 81,000
--------
--------
Less amounts
representing interest 8,000
-------
Present value of net
minimum lease payments 73,000
Less current portion 45,000
------
Long-term portion of capital
lease obligations $28,000
-------
-------
NOTE 6 - STOCKHOLDERS' EQUITY
At June 30, 1996, the Company had been authorized to issue up to 250,000
shares of nonvoting convertible preferred stock, with a par value of $0.50 per
share, of which 110,000 shares had been issued. 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. At June 30, 1996,
cumulative dividends in arrears on the preferred stock totaled $3,000 ($0.03 per
share). In the event of the Company's liquidation, the holders of the preferred
stock are entitled to $0.50 per share plus all accumulated and unpaid dividends.
The payments of cash dividends on the preferred stock, which totaled $2,000
in both 1996 and 1995 and $1,000 in 1994, were made outside the provisions of
California law. However, the individual members of the Board of Directors have
personally agreed to pay to the Company, on a pro rata basis, any amounts the
Company is legally obligated to recover due to the payment of the dividends.
<PAGE>
At June 30, 1996, the Company issued 139,561 shares of non-voting
convertible callable series B 9% preference stock with a par value of $1.00 per
share, along with 5,100 shares of common stock in 1996 as compensation to
employees; such shares had an estimated fair value of approximately $140,000.
Cumulative dividends on such shares are payable semiannually at the rate of
9% per annum; however, the right of a holder to receive dividends on the 9%
preference stock is subordinate to the right of a holder to receive dividends on
the 4% Preferred Stock. Each Preference Share is convertible into two shares of
Common Stock up to a maximum of 139,561 Common Shares and redeemable at the
option of the Company at its par value plus accrued dividends. At June 30, 1996,
there were no cumulative dividends in arrears on the Preference Stock. In the
event of the Company's liquidation, the holders of the Preferred Stock are
entitled to $1.00 per share plus all accumulated and unpaid dividends.
(A photograph appears on Page 13 of the Report, captioned: the U.S. Navy's
Underway Replenishment Test Site, where equipment is developed, tested and
modified.)
NOTE 7 - INCOME TAXES
At June 30, 1996, the Company had Federal and state income tax net
operating loss carryforwards of approximately $305,000 and $250,000,
respectively. The difference between the Federal and state net operating loss
carryforwards is primarily attributable to the 50% annual limit imposed by
California on the amount of loss incurred that may be carried forward. The
Federal and state tax loss carryforwards will begin to expire in 2008 and 1999,
respectively, 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, 1996 and 1995 are shown below:
1996 1995
---- ----
Deferred tax assets:
Net operating loss
carryforwards $121,000 $237,000
Other 164,000 91,000
--------- ---------
Total deferred tax
assets 285,000 328,000
Valuation allowance
for deferred tax assets (285,000) (328,000)
--------- ---------
Net deferred
tax assets $ - $ -
--------- ---------
--------- ---------
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.
The expected Federal income tax provision (benefit), computed based on the
Company's pre-tax income (loss) in 1996, 1995 and 1994 and the statutory Federal
income tax rate, is reconciled to the actual tax provision reflected in the
accompanying financial statements as follows:
<PAGE>
1996 1995 1994
---- ---- ----
Expected tax
provision
(benefit) at
statutory rates
$43,000 $(73,000) $43,000
Increase (decrease)
resulting primarily
from change in
valuation allowance
for benefits from net
operating loss
carryforwards (42,000) 74,000 (34,000)
-------- -------- --------
Totals $ 1,000 $ 1,000 $ 9,000
-------- -------- --------
-------- -------- --------
NOTE 8 - 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 approximately $36,000, $22,000 and $9,000 in
1996, 1995 and 1994, respectively.
NOTE 9 - RECOVERY OF NOTE RECEIVABLE
During 1992, the Company wrote-off a note receivable totaling $95,000 which
it considered uncollectible. During 1994, the amount written off, plus interest
of $53,000, was collected and recorded as income.
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>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders
SYS
We have audited the accompanying balance sheet of SYS as of June 30, 1996, and
the related statements of operations, shareholders' equity and cash flows for
the year 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 audit. The financial statements of SYS as of
June 30, 1995, and for each of the two years then ended, were audited by other
auditors whose report dated March 11, 1996, except as noted therein, expressed
an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1996 financial statements referred to above present fairly,
in all material respects, the financial position of SYS as of June 30, 1996, and
its results of operations and cash flows for the year then ended, in conformity
with generally accepted accounting principles.
/s/ J.H. COHN LLP
San Diego, California
September 5, 1996
<PAGE>
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 Los Angeles, moving to San
Diego in 1984. Operations centers were established in Arlington, VA and Oxnard,
CA to serve major clients.
IN FISCAL YEAR 1996 SYS MARKED ITS 30TH ANNIVERSARY--a year in which the company
overcame past difficulties and emerged vibrant and growing. The company's
business base continued expansion with award of a third prime contract at the
Oxnard Operations Center.
*****
Back cover of the Annual Report contains the following:
DIRECTORS
Paul Anderson
Robert Carroll
Zoltan "Walt" Harasty
Lawrence L. Kavanau, Chairman
W. Gerald Newmin
Charles H. Werner
OFFICERS
Lawrence L. Kavanau, Chief Executive Officer
Chief Financial Officer
Charles E. Vandeveer, Vice President, Director of Operations, Oxnard
Michael W. Fink, Vice President, Administration
W. Gerald Newmin, Secretary
TRANSFER AGENT
ChaseMellon Shareholder Services
Security Relations Department
400 South HopeStreet, Fourth Floor
Los Angeles, CA 90071
(213) 553-9700
CORPORATE OFFICE
6363 Greenwich Drive, Suite 200
San Diego, CA 92122
(619) 587-0484
OXNARD OPERATIONS
1721 Pacific Avenue, Suite 210
Oxnard, CA 93003
(805) 486-4444
WASHINGTON OPERATIONS
2011 Crystal Drive, Suite 210
Arlington, VA 22202
(703) 769-5225
