SYS Technologies Reports Second Quarter and Six Month Fiscal 2006 Results; Quarterly Revenues $12.4 Million, Up 19%; Six Month Revenues $25.5 Million, Up 18%.

SAN DIEGO -- SYS Technologies (AMEX:SYS), a leading provider of information connectivity solutions that enable real-time, complex decision-making, today announced its operating results for the second quarter and six months of its fiscal year ending June 30, 2006.

Revenues for the second quarter increased 19% to $12.4 million, from the $10.5 million reported in the second quarter of fiscal 2005. Income from operations decreased approximately 25% to $425,000 from $566,000 in the second quarter of fiscal 2005. Net income decreased to $194,000 from $256,000 in the second quarter of fiscal 2005, and fully diluted EPS was $.02 compared with $.03 in the second quarter of fiscal 2005.

Cliff Cooke, Chief Executive Officer of SYS, said, "Our plan to transition SYS Technologies from primarily an engineering and management services firm to a company that provides products as well as contract services to industry, the Department of Homeland Security, and the Department of Defense (DoD) is being pursued aggressively. A vital component of this plan is our ability to maintain profitability on a quarterly basis despite significant increases in product development, sales and marketing, and acquisition-related activities. I am very pleased with our progress toward our goals and proud of our team's ability to keep all of the competing demands for resources in place while maintaining profitability."

The increase in revenues was primarily attributable to the acquisitions of Antin Engineering, Web Technologies, Logic Innovations and cVideo, which collectively accounted for $3.2 million of revenues during the quarter. Additional increases were derived from support of C4ISR initiatives such as the Composeable FORCEnet, Integrated Autonomous Network Management, Decision Support Systems and sensor network programs, which grew by approximately $500,000 over the prior year. These total increases of approximately $3.7 million were offset by a net $1.7 million reduction in revenues on the legacy business programs, most of which were due to planned decreases in activities by those customers.

Income from operations as a percentage of revenues decreased from 5.4% in the second quarter of the prior year to 3.4% in the current year. This decrease is directly attributable to planned increases in spending for product development, research and development, and sales and marketing efforts.

Revenues for the six month period increased 18% to $25.5 million, compared with $21.6 million in the prior year's period. Income from operations for the six months increased 11% to $1.3 million from $1.2 million in the prior period but decreased as a percentage of revenues from 5.5% to 5.1%, while fully diluted EPS remained the same at $0.06.

Cooke commented, "During these same current year periods we've seen growth in our gross margins due, in part, to the inclusion of products-based revenues from recent acquisitions and the overall mix of our contract costs, including a higher blend of direct labor as opposed to subcontractor or other direct costs."

Cooke continued, "The second quarter has been a challenging quarter for many companies doing business with the Federal Government due to the delays in the completion of the Federal budget for FY06. During this interim period, we operated under a congressional `continuing resolution,' and, as a result, the funding of programs was delayed, reduced or even cancelled pending the approval of a final budget. This process has significantly impacted our second quarter revenues since much of our funding is under Indefinite Delivery/Indefinite Quantity (ID/IQ) contracts which are generally incrementally funded.

"Now that the budget has been signed, we are getting tasking on contracts that would have normally occurred in October. The delay in program funding directly impacted our bottom line since personnel that would normally have been directly billable to a contract were instead charging to indirect expense."

Cooke added, "We've had several key accomplishments both during and just subsequent to the second quarter, including:

--Completing the acquisitions of Logic Innovations, Inc. and cVideo Inc., two products-based companies that fit into our overall information connectivity strategy both in terms of their standalone business contributions but also because of their contribution to our integrated decision-making product offering;

--Completing the purchase of assets from Web Technologies, LLC to bolster our overall training solutions capabilities;

--Awarded in excess of $20.0 million in new tasking or contracts;

--Awarded a Phase III Small Business Innovation Research (SBIR) ID/IQ contract by the Naval Air Systems Command Training Systems Division with a potential value of $75M over five years; and

--Several product development-related activities for customers utilizing our SensorWorX-based wireless sensor architecture to be deployed in products ranging from asset tracking to monitoring critical industrial assets."

Cooke concluded, "I'm very pleased with the progress we continue to make toward our objectives. While we've had some short-term decreases in our operating margins, I remain confident that we are focusing on the right key growth areas for the long term, and that it is critical that we continue making investments into developing these products, integrating the technologies, and creating the right sales and marketing collateral and distributor channels as we begin to bring some of these products to market."

SYS management will host a conference call on Thursday, February 9, 2006, at 11:00 a.m. EST (8:00 a.m. PST) to discuss its financial results for the recent quarter and to answer questions. Participating in the call will be Cliff Cooke, Chief Executive Officer, and Ed Lake, Chief Financial Officer.

To participate in the live call, please dial 866-831-6267 from the U.S. or, for international callers, please dial 617-213-8857, pass code #46237627, approximately 15 minutes before the start time. A telephone replay will be available for two weeks by dialing 888-286-8010 from the U.S., or 617-801-6888 for international callers, and entering pass code #85758499. To listen to the conference call live via the Internet, visit SYS' web site at www.systechnologies.com. Please go to the web site 15 minutes prior to its start to register, download and install the necessary audio software. A replay will be available on SYS' web site.

About SYS Technologies

SYS Technologies (AMEX:SYS) is a leading provider of information connectivity solutions that capture, analyze and present real-time information to decision makers. Using interoperable communications software, sensors, wireless networks, decision-support tools and Net-centric technologies, our technical experts enhance complex decision-making. We also provide solution lifecycle support with program, financial, test and logistical services and training.

SYS Technologies is headquartered in San Diego at 5050 Murphy Canyon Road, San Diego, CA 92123, and has principal offices in California, Virginia and Washington, DC. For additional information, visit the SYS Technologies web site at http://www.systechnologies.com.

Notice Regarding Forward-Looking Statements 

This press release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact included in this press release regarding the Company's strategies, plans, objectives, expectations and future operating results are forward-looking statements. Although SYS believes that the expectations reflected in such forward-looking statements are reasonable at this time, it can give no assurance that such expectations will prove to have been correct. Actual results could differ materially based upon a number of factors, including, but not limited to, the state of the economy, competition, unanticipated business opportunities, availability of financing, market acceptance, government regulation, dependence on key personnel, limited public markets and liquidity, shares eligible for future sale, continuation and renewal of contracts, and other risks that may apply to the Company, including risks that are disclosed in the Company's Securities and Exchange Commission filings, including its report on Form SB-2 filed on June 23, 2005, Form 10KSB filed on September 28, 2005, and Form 10Q filed on November 14, 2005.

SYS TECHNOLOGIES
                 CONSOLIDATED STATEMENTS OF OPERATIONS

                      Three Months Ended         Six Months Ended
                   ------------------------- -------------------------
                   December 30, December 24, December 30, December 24,
                      2005         2004         2005         2004
                   ------------ ------------ ------------ ------------

Revenues           $12,448,000  $10,462,000  $25,542,000  $21,569,000
                   ------------ ------------ ------------ ------------

Operating costs
 and expenses:
 Costs of revenue    9,330,000    8,577,000   19,492,000   18,080,000
 Selling, general
  and
  administrative     2,072,000    1,268,000    3,793,000    2,249,000
 Research and
  development          621,000       51,000      951,000       60,000
                   ------------ ------------ ------------ ------------
  Total operating
   costs and
   expenses         12,023,000    9,896,000   24,236,000   20,389,000
                   ------------ ------------ ------------ ------------

Income from
 operations            425,000      566,000    1,306,000    1,180,000
                   ------------ ------------ ------------ ------------

Other (income)
 expense:
  Other income         (22,000)          --      (58,000)          --
  Interest expense      91,000      122,000      190,000      236,000
                   ------------ ------------ ------------ ------------
    Total other
     (income)
     expense            69,000      122,000      132,000      236,000
                   ------------ ------------ ------------ ------------

Income before
 income taxes          356,000      444,000    1,174,000      944,000

Income tax
 provision             162,000      188,000      505,000      384,000

                   ------------ ------------ ------------ ------------
Net income            $194,000     $256,000     $669,000     $560,000
                   ============ ============ ============ ============

Net income per
 share:
   Basic                 $0.02        $0.03        $0.06        $0.07
                   ============ ============ ============ ============
   Diluted               $0.02        $0.03        $0.06        $0.06
                   ============ ============ ============ ============

Weighted average
 shares:
   Basic            11,870,848    8,159,177   11,373,238    8,156,426
   Diluted          11,870,848   10,884,093   11,373,238   10,923,211


                 SELECTED CONSOLIDATED FINANCIAL DATA

                                         December 30,      June 30,
                                            2005            2005
                                       ---------------- --------------

Cash                                          $414,000     $3,485,000

Accounts receivable, net                    11,451,000     10,992,000

Notes payable, current and long-term         2,339,000      3,116,000

Stockholders' equity                        21,060,000     15,404,000