<PAGE>   1
                                   FORM 10-QSB

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE 
    SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 1998

                                       OR

(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE 
    SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to

Commission File Number  0-13328


                         SENTEX SENSING TECHNOLOGY, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                         <C>
         New Jersey                                     22-2333899
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>

<TABLE>
<S>                                                                   <C>
1801 East Ninth Street, Cleveland, Ohio                                 44114
----------------------------------------                              ----------
(Address of principal executive offices)                              (Zip Code)
</TABLE>

Registrant's telephone number, including area code  (216)687-9133


(Former name, former address and former fiscal year, if changed since last
report.)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities and Exchange Act of 1934
during the preceding 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 
                                  ---        ---

<PAGE>   2

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Securities and Exchange Act of 1934
after the distribution of securities under a plan confirmed by a court.

                               Yes          No 
                                   ---         ---

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 100,514,911.

                                       2

<PAGE>   3

                SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                      NOVEMBER 30, 1997 AND AUGUST 31, 1998


<TABLE>
<CAPTION>
                                                NOVEMBER 30,          AUGUST 31,
                                                   1997                 1998
                                                 (AUDITED)           (UNAUDITED)
                                                 ----------           ----------
<S>                                              <C>                  <C>
      ASSETS

CURRENT ASSETS:
   Cash and cash equivalents                     $1,331,981           $1,295,468
   Accounts receivable                            1,248,187              726,305
   Inventories                                    1,399,944            1,048,011
   Other current assets                             164,920              198,904
   Income tax refunds                                16,000               16,000
                                                 ----------           ----------

   TOTAL CURRENT ASSETS                           4,161,032            3,284,688

EQUIPMENT AND IMPROVEMENTS - [NET
   OF ACCUMULATED DEPRECIATION AND
   AMORTIZATION]                                    242,647              189,006

OTHER ASSETS
  Goodwill and other tangibles                      238,833              759,998
  Deposits and other assets                          33,360               21,127
                                                 ----------           ----------

   TOTAL ASSETS                                  $4,675,872           $4,254,819
                                                 ==========           ==========
</TABLE>

See Notes to Consolidated Financial Statements.

                                       3
<PAGE>   4




                SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                      NOVEMBER 30, 1997 AND AUGUST 31, 1998

<TABLE>
<CAPTION>
                                                             NOVEMBER 30,           AUGUST 31,
                                                                1997                   1998
                                                              (AUDITED)            (UNAUDITED)
                                                             -----------           -----------
<S>                                                          <C>                   <C>
   LIABILITIES AND STOCKHOLDERS' EQUITY

 CURRENT LIABILITIES:                                      
   Bank loans                                                $ 2,100,000           $ 2,695,400
   Accounts payable                                              857,937               547,810
   Accrued expenses and other current liabilities                861,935               965,727
   Due to related party                                           33,333               551,000
                                                             -----------           -----------

   TOTAL CURRENT LIABILITIES                                   3,853,205             4,759,937
                                                             -----------           -----------

LONG-TERM DEBT
   Convertible subordinated notes payable                        515,000                10,810
   Other Accrued Expenses                                           --                 335,049
                                                             -----------           -----------

   TOTAL LONG-TERM DEBT                                          515,000               345,859
                                                             -----------           -----------

STOCKHOLDERS' EQUITY:
    Common stock, no par value, authorized
     200,000,000 shares, issued 87,865,762
     and 109,460,911 shares, outstanding 
     78,919,762 and 100,514,911 shares,
     respectively                                              2,153,489             2,880,079
    Accumulated deficit                                       (1,554,555)           (3,430,939)
    Treasury shares at cost, 8,946,000 shares                   (313,218)             (313,218)
    Cumulative translation adjustment                             21,951                13,101
                                                             -----------           -----------

   TOTAL STOCKHOLDERS' EQUITY                                    307,667              (850,977)
                                                             -----------           -----------

   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                $ 4,675,872           $ 4,254,819
                                                             ===========           ===========
</TABLE>

See Notes to Consolidated Financial Statements.

                                       4

<PAGE>   5

                SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF OPERATIONS [UNAUDITED]

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED            NINE MONTHS ENDED
                                                     --------------------------     -------------------------
                                                     AUGUST 31,      AUGUST 31,     AUGUST 31,     AUGUST 31,
                                                       1998             1997          1998            1997
                                                     ----------      ----------     ----------     ----------
<S>                                                 <C>              <C>            <C>            <C>        
Net sales                                         $  1,418,800       $1,579,749    $ 4,393,624    $ 5,446,889
                                                                                                 
Cost of sales                                          744,268          775,418      2,264,340      2,626,722
                                                  ------------       ----------    -----------    -----------
                                                                                                 
       Gross profit                                    674,532          804,331      2,129,284      2,820,167
                                                                                                 
Selling, General and Admin.                          1,122,002        1,148,440      3,268,924      3,696,633
Research and Development                                38,939          102,160        190,487        289,190
                                                  ------------       ----------    -----------    -----------
                                                                                                 
       Operating loss                                 (486,409)        (446,269)    (1,330,127)    (1,165,656)
                                                  ------------       ----------    -----------    -----------
                                                                                                 
Other income (expense)                                                                           
       Interest income                                   9,028           14,954         44,486         45,483
       Other income                                     11,258            1,776         19,656         24,618
       Interest expense                                (60,883)         (28,740)      (182,001)       (64,251)
       Loss on Disposal of Assets                     (447,327)               0       (447,327)             0
       Foreign currency transaction loss                23,452          (37,263)        18,929       (119,376)
                                                  ------------       ----------    -----------    -----------
          Loss before income tax expense              (950,881)        (495,542)    (1,876,384)    (1,279,182)
                                                                                                 
Provision for income taxes                                   0            8,632              0         14,620
                                                  ------------       ----------    -----------    -----------
                                                                                                 
       Net loss                                   $   (950,881)      $ (504,174)   $(1,876,384)   $(1,293,802)
                                                  ------------       ----------    -----------    -----------
                                                                                                 
Net loss per share                                $      (0.01)      $    (0.01)   $     (0.02)   $     (0.02)
                                                  ============       ==========    ===========    ===========
                                                                                                 
Weighted Average Number of                                                                       
   Shares Outstanding                              100,514,911       78,919,762     87,317,876     78,919,762
                                                    ==========       ==========     ==========     ==========
</TABLE>

See Notes to Consolidated Financial Statements.

                                       5
<PAGE>   6

                SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS [UNAUDITED]

<TABLE>
<CAPTION>
                                                                         SIX MONTHS ENDED
                                                                     AUGUST 31,       AUGUST 31,
                                                                       1998             1997
                                                                   ------------     ------------
<S>                                                                <C>              <C>
RATING ACTIVITIES:
   Net loss                                                        $(1,876,384)     $(1,293,802)
   Adjustments to reconcile net [loss] income to net cash
   Provided by [used in] operating activities:
      Depreciation and amortization                                     74,849           60,078
   Change in assets and liabilities:
     [Increase] decrease in:
       Accounts receivable                                             521,882          (93,872)
       Inventories                                                     351,933
                                                                                        120,486
       Other current assets                                            (27,725)          (7,319)
     Increase [decrease] in:
       Accounts payable                                               (310,127)          17,317
       Accrued expenses and other current liabilities                  141,637         (209,725)
       Currency translation adjustment                                  (8,850)          27,732
                                                                   -----------      -----------

     TOTAL ADJUSTMENTS                                                 743,599          (85,303)
                                                                   -----------      -----------

   NET CASH USED BY OPERATING ACTIVITIES                            (1,132,785)      (1,379,105)
                                                                   -----------      -----------

INVESTING ACTIVITIES:
   Acquisition of equipment and improvements                           (16,795)           1,342
   Payment to prior shareholder                                        (33,333)         (33,333)
                                                                   -----------      -----------

NET CASH USED BY INVESTING ACTIVITIES                                  (50,128)         (34,675)
                                                                   -----------      -----------
FINANCING ACTIVITIES:
   Net proceeds on note payable - bank                                 595,400          865,000
   Net proceeds on note payable - related party                        551,000          250,000
   Net decrease in factoring of accounts receivable                          0          (76,948)
                                                                   -----------      -----------

NET CASH PROVIDED BY FINANCING ACTIVITIES                            1,146,400        1,038,052
                                                                   -----------      -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                   (36,513)        (375,728)

 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIODS                    1,331,981        1,697,767
                                                                   -----------      -----------

   CASH AND CASH EQUIVALENTS - END OF PERIODS                      $ 1,298,468      $ 1,322,039
                                                                   ===========      ===========
</TABLE>

See Notes to Consolidated Financial Statements.

                                       6
<PAGE>   7



                SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED]


[1]  In the opinion of management, the unaudited financial statements contain
     all adjustments [consisting of only normal recurring accruals and
     repayments] necessary to present fairly the financial position at August
     31, 1998 and the results of operations and cash flows for the six months
     ended August 31, 1998 and August 31, 1997.

These interim statements should be read in conjunction with the audited
financial statements and notes thereto included in the Company's Annual Report
on Form 10-KSB for the fiscal year ended November 30, 1997 (Commission File No.
2-13328).

[2]  The results of operations for the six months ended August 31, 1998 and
     August 31, 1997 are not necessarily indicative of the results to be
     expected for the full year.

[3]  INVENTORY

Inventories consist of:
<TABLE>
<CAPTION>
                                            AUGUST 31,
                                              1998
                                           -----------
<S>                                        <C>
 Raw Materials                             $  386,438
 Work-in-Process                              159,081
 Finished Goods                               502,492
                                           ----------

    Total                                  $1,048,011
                                           ==========
</TABLE>

[4]  EARNINGS PER SHARE

Earnings [loss] per share are based on the weighted average number of common
shares outstanding for the periods presented, after adjustment for the shares
issued in the stock acquisition.

[5]  PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Sentex Sensing
Technology, Inc. and its wholly-owned subsidiaries [the "Company"]. All material
inter-company accounts and transactions have been eliminated in consolidation.

[6]  ACQUISITIONS

In March 1998, the Company purchased Cypress Instruments, Inc. ("Cypress") for
the purpose of acquiring a new product line that is currently under development
and, upon completion, is intended to be folded into the Monitek product line.
The acquisition is

                                       7
<PAGE>   8

not material to the overall business of the Company. The acquisition of Cypress
by the Company may result in the Company being obligated to make payments to the
shareholders of Cypress (for payment of shares and performing future consulting
services) of approximately $535,000 over the next four fiscal years, with over
$200,000 of such amounts potentially being payable in fiscal 1998.

[7]  STOCKHOLDERS' EQUITY

On May 15, 1998, Clarion Capital Corporation ("Clarion") converted two
convertible notes in the aggregate principal amount of $609,558 into an
aggregate number of 16,569,404 Common Shares of the Company. Immediately
thereafter, CPS Capital Ltd. ("CPS") purchased all 16,569,404 Common Shares from
Clarion for $230,000.

In addition, on May 15, 1998, CPS and the Company entered into the Second
Amended and Restated Management Services Agreement, pursuant to which CPS agreed
to accept 5,025,745 Common Shares in lieu of accrued management fees equaling
$196,900. All the shares acquired by CPS were acquired for investment purposes.

[8]  LOSS ON DISPOSAL OF ASSETS

Sales of Sentex Systems, Inc. ("Systems") products have not been successfully
integrated into Monitek's distribution channels, which has resulted in a further
drop-off of Systems sales and even larger losses in this segment of the
business. As a result, the Company's management determined that the Company's
best course of action was to divest itself of the Systems operation, which
generated less than 15% of the Company's revenues for the last 21 months, while
suffering 55% of the Company's losses, as reported. On August 21, 1998, the
Company and the ALR Group Incorporated (the "Buyer") entered into a definitive
stock purchase agreement, pursuant to which the Company agreed to sell all of
the outstanding capital stock of Systems to the Buyer, which is principally
owned by Amos Linenberg. The sale was completed on September 4, 1998. Prior to
the sale, Mr. Linenberg was the President of Systems and an Executive Vice
President of the Company. In the past, Mr. Linenberg has been a principal
shareholder of the Company and served as a director of the Company.

In consideration for all of the capital stock of Systems, the Buyer caused Mr.
Linenberg to terminate his existing Employment Agreement as of June 30, 1998,
which from July1, 1998 through February 28, 2000 would have required payments to
Mr. Linenberg of approximately $325,000. Except for approximately $20,000 in
expenses, the Company paid all operating costs and expenses of Systems through
June 30, 1998 and the Buyer assumed all the costs and operating expenses of
Systems from July 1, 1998 through the closing. The Company incurred a $447,327
loss, representing the disposal of the net assets of Systems.

In connection with the sale of Systems to the Buyer, the Company has retained
Mr. Linenberg to consult for the Company on an as needed basis. The consulting
period began effective July 1, 1998 and will continue through December 31, 1998.
Mr. Linenberg receives approximately $12,000 per month under this consulting
arrangement.

                                       8
<PAGE>   9

                SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


The Company formed two wholly owned subsidiaries, Sentex Systems, Inc., and
Sentex Acquisitions Corp. on May 31, 1991, to separate the present operations of
the Company into a subsidiary to continue the business of designing, developing
and marketing gas chromatographic devices, and a subsidiary to develop and
acquire new investment opportunities. As noted above, all of the outstanding
capital stock of Systems has subsequently been sold and the Company is no longer
in the gas chromatography business.

Effective November 30, 1996, Monitek Technologies, Inc., a Delaware corporation
("Monitek") became a wholly owned subsidiary of the Company, pursuant to a
merger (the "Merger") of Sentex Merger Corp., a Delaware corporation and wholly
owned subsidiary of the Company, with and into Monitek. Monitek is now being
operated as a wholly owned subsidiary of the Company. Monitek also operates a
portion of its business through a wholly owned German subsidiary of Monitek
named Monitek GmbH, which over the last three years has accounted for over 60%
of Monitek's total revenues.

Hereinafter the "Company" shall refer to Sentex Sensing Technology, Inc. and its
two wholly owned subsidiaries, Monitek and Sentex Acquisition Corp.

Monitek designs, develops, assembles and markets instruments for the measurement
of clarity (turbidity), suspended solids content, color, purity, flow, level and
volume of liquids in industrial and waste water environments. Monitek's current
line of products, which are based on optical, acoustic, magnetic and ultrasonic
technologies, have been specially adapted for various applications in the
chemical and petrochemical, food and beverage, water treatment, pulp and paper,
and bio-technology and pharmaceutical industries, where their abilities to
withstand high temperature, extremes in pressure and corrosive environments are
important factors.
Monitek's products are currently sold world-wide.

In March 1998, the Company purchased Cypress Instruments, Inc. ("Cypress") for
the purpose of acquiring a new product line that is currently under development
and, upon completion, is intended to be folded into the Monitek product line.
The acquisition is not material to the overall business of the Company.

The Company also intends to acquire other businesses that may be unrelated to
its present activities and is presently investigating such opportunities. As of
September 30, 1998, the Company had not entered into a firm commitment for any
such transaction.

FINANCIAL CONDITION

Working capital decreased to a negative $1,475,000 at August 31, 1998 as
compared to $308,000 as of November 30, 1997. The decrease in working capital is
primarily due to the losses sustained by the Company during the first nine
months of Fiscal 1998 and the accrued expense incurred in connection with an
acquisition discussed below. Cash and cash equivalents

                                       9
<PAGE>   10

                SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS (CONT'D)


equaled approximately $1,295,000 as of August 31, 1998, $1,200,000 of which has
been pledged to secure current borrowings on a line of credit. As set forth in
the independent auditors' report and notes to consolidated financial statements
that accompanied the Company's Form 10-KSB for the fiscal year ended November
30, 1997, the Company's recurring losses from operations and the resulting
effect on cash flow have reduced the Company's liquidity to its current level,
which raises substantial doubt about the Company's ability to continue as a
going concern.

To address the Company's immediate working capital needs, the Company has
established two bank lines of credit and has borrowed an aggregate of $2,695,400
as of August 31, 1998 as compared to $1,435,000 in borrowings as of August 31,
1997. The primary use of the additional proceeds was to fund operating losses
incurred during the past year. As of May 31, 1998, borrowings under one bank
line of credit were $1,200,000, and were secured by cash balances of the
Company. The other bank line of credit, as of August 31, 1998, was for a maximum
of $1,000,000, but in June 1998, the bank agreed to increase the line to
$2,000,000. The Company's management believes that the increase in this line of
credit, which is secured by the personal guarantee of Robert S. Kendall, the
Chairman of the Company, will satisfy the Company's working capital needs at
least through the remainder of fiscal 1998. Borrowings under this line of credit
totaled $1,495,400 as of August 31, 1998. From time to time, CPS has provided
the Company with temporary working capital loans and, as of August 31, 1998,
there was an outstanding borrowing of $551,000 on such loans. The acquisition of
Cypress by the Company will result in the Company being obligated to make
payments to the shareholders of Cypress (for payment of shares and performing
future consulting services) of approximately $535,000 over the next four fiscal
years, with over $200,000 of such amounts potentially being payable in Fiscal
1998. CPS has assured the Company that it will arrange or provide the financing
required to fund the acquisition of Cypress. There are currently no material
commitments anticipated for capital expenditures during fiscal 1998. The Company
will continue to seek growth through internal means as well as further
acquisitions. In the event an acquisition candidate were identified, the Company
may need to seek additional financing.

To address the Company's working capital needs on a more long-term basis, the
Company will attempt to generate cash from internal operations of the Company.
As anticipated in the Registration Statement containing the Joint
Proxy/Prospectus that was filed in connection with the Merger, however, the
Company was unable to generate a profit during its first 21 months of operating
Systems and Monitek as a combined company.

On September 4, 1998, the Company completed the sale of all of the outstanding
capital stock of Systems to ALR Group Incorporated, which is principally owned
by Amos Linenberg. Prior to the sale, Mr. Linenberg was the President of Systems
and an Executive Vice President of the Company. In the past, Mr. Linenberg has
been a principal shareholder of the Company and served as a director of the
Company.

                                       10
<PAGE>   11


                SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS (CONT'D)


In consideration for all of the capital stock of Systems, the Buyer caused Mr.
Linenberg to terminate his existing Employment Agreement as of June 30, 1998,
which from July1, 1998 through February 28, 2000 would have required payments to
Mr. Linenberg of approximately $325,000. Except for approximately $20,000 in
expenses, the Company paid all operating costs and expenses of Systems through
June 30, 1998 and the Buyer assumed all the costs and operating expenses of
Systems from July 1, 1998 through the closing. The Company incurred a $447,327
loss, representing the disposal of the net assets of Systems.

In connection with the sale of Systems to the Buyer, the Company has retained
Mr. Linenberg to consult for the Company on an as needed basis. The consulting
period began effective July 1, 1998 and will continue through December 31, 1998.
Mr. Linenberg receives approximately $12,000 per month under this consulting
arrangement.

Even after divesting itself of Systems, however, there can be no assurance that
the Company will generate a positive cash flow for the remainder of Fiscal 1998.
The ultimate profitability of the Company depends, in large part, on increasing
the sales of Monitek products and reducing expenses.

Net Operating Losses; IC-DISC

The Company has approximately $8,942,000 in net operating losses as of fiscal
1997, which will expire at various dates through the year 2012 that are mainly
attributable to losses incurred by Monitek. Federal tax law imposes restrictions
on the use of net operating loss carry-forwards in the event of a change in
ownership, such as a merger. Due to the Merger, approximately $6,265,000 of the
$8,942,000 net operating losses may be subject to these limitations and
potentially may not be able to provide any economic benefit to the Company.

As of April 1, 1991, Monitek's IC-DISC, Monitek International, Inc., was
effectively terminated. As a result, Monitek had begun repatriation of the
undistributed earnings of the IC-DISC as of April 1, 1991. The undistributed
earnings of approximately $780,000 has been and will continue to be recognized
as income, for tax return purposes, over the 10-year period ending March 31,
2001.


RESULTS OF OPERATIONS

Nine Months Ended August 31, 1998 Compared to Nine Months Ended August 31, 1997

The Company's net sales decreased by 19%, from $5,447,000 for the nine months
ended August 31, 1997 ("Fiscal 1997 Nine Months") to $4,394,000 for the nine
months ended August

                                       11
<PAGE>   12


                SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS (CONT'D)


31, 1998 ("Fiscal 1998 Nine Months"). Sales of Systems products decreased by
$317,000, or 48%, primarily as a result of the Company's inability to
effectively integrate the sale of Systems products into Monitek's distribution
channels, as noted above. Monitek's domestic sales decreased by $80,000, or 5%,
while export sales from the United States decreased by $262,000, or 55%, as a
result of a very sharp drop-off of orders from Asian countries, primarily Japan.
Sales to Continental Europe by Monitek GmbH decreased by $394,000 from the
Fiscal 1997 Nine Months to the Fiscal 1998 Nine Months, primarily as a result of
weakness in the European economy and an increase in the value of the U.S. Dollar
relative to the German Deutsche Mark (the "DM"). The actual decrease in sales in
Monitek GmbH's native currency, the DM, was 10% but the decrease in U.S.
Dollars, after converting the sales figures by the average exchange rate for
each period, amounted to 14%.

Cost of goods sold, as a percentage of sales, increased to 51% for the Fiscal
1998 Six Months from 48% for the Fiscal 1997 Six Months, primarily as a result
of the decrease in sales without a corresponding reduction in direct labor and
factory overhead. Direct labor and overhead increased to 14% of net sales for
the Fiscal 1998 Three Months from 11% for the comparable Fiscal 1997 period,
while material costs remained constant at 37% of net sales.

Selling, general and administrative expenses decreased to $3,268,000 for the
Fiscal 1998 Nine Months from $3,697,000 for the Fiscal 1997 Nine Months. Sales
commissions decreased to $783,000 from $890,000 as a direct result of the
decrease in net sales. Cost reduction measures in the U.S., which were
implemented by management during the second half of Fiscal 1997, resulted in a
decrease of approximately $270,000 for the Fiscal 1998 Nine Months as compared
to the Fiscal 1997 Nine Months.

Research and development expenses decreased to $190,000 for the Fiscal 1998 Nine
Months from $289,000 for the Fiscal 1997 Nine Months, primarily as a result of a
decrease in activities by outside consultants and the elimination of one
engineering position.

Operating losses increased to $486,000 for the Fiscal 1998 Nine Months from
$446,000 for the Fiscal 1997 Nine Months, primarily as a result of the decrease
in sales and the increase in cost of goods sold, as a percentage of sales,
partially offset by the decreases in selling, general and administrative
expenses and research and development expenses.

Interest expense increased to $182,000 for the Fiscal 1998 Nine Months from
$64,000 for the Fiscal 1997 Nine Months as a result of increased bank and other
borrowings.

During the Fiscal 1998 Nine Months, the Company suffered a $447,000 loss on
disposal of assets as a result of the sale of Systems.

Foreign currency transactions between Monitek and its German subsidiary resulted
in a gain of $19,000 for the Fiscal 1998 Nine Months compared to a loss of
$119,000 for the Fiscal 1997 Nine Months, as a result of fluctuations in the
value of the U.S. Dollar relative to the DM.

                                       12
<PAGE>   13

                SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS (CONT'D)


Net losses increased to $1,876,000 for the Fiscal 1998 Nine Months from
$1,279,000 for the Fiscal 1997 Nine Months, primarily as a result of the
increased operating loss, the disposal of net assets as the result of the sale
of Systems, and the increase in interest expense, partially offset by the
favorable change in foreign currency exchange rates.

CHANGES IN ACCOUNTING STANDARDS

In February 1997, SFAS 128, Earnings per Share and SFAS 129, Disclosure of
Information About Capital Structure, were issued. SFAS 128 establishes new
standards for computing and reporting earnings per share. SFAS 129 requires an
entity to explain the pertinent rights and privileges of outstanding securities.
The Company has adopted these new standards in the current fiscal year and the
affect of the adoption was not material.

In June 1997, SFAS 130, Reporting Comprehensive Income, was issued. SFAS 130
establishes new standards for reporting comprehensive income and its components
and is effective for fiscal years beginning after December 15, 1997. The Company
expects that comprehensive income (loss) will not differ materially from net
income (loss).

In June 1997, SFAS No. 131, Disclosures About Segments of an Enterprise and
Related Information, was issued. SFAS No. 131 changes the standards for
reporting financial results by operating segments, related products and
services, geographic areas and major customers. The Company must adopt the new
standard no later that November 30, 1999.

                                       13
<PAGE>   14

                              II. OTHER INFORMATION

ITEM 2

     (a)  Not applicable.

     (b)  Not applicable.

     (c)  Not applicable.

ITEM 5
                    CAUTIONARY STATEMENT FOR PURPOSES OF THE
                    "SAFE HARBOUR" OF THE PRIVATE SECURITIES
                         LITIGATION REFORM ACT OF 1995.

Certain statements in the Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Financial Statements included in
this Quarterly Report on Form 10-QSB, in the Company's press releases and in
oral statements made by or with the approval of an authorized executive officer
of the Company constitute "forward-looking statements" as that term is defined
under the Private Securities Litigation Reform Act of 1995. These may include
statements projecting, forecasting or estimating Company performance and
industry trends. The achievement of the projections, forecasts or estimates is
subject to certain risks and uncertainties. Actual results and events may differ
materially from those projected, forecasted or estimated. The applicable risks
and uncertainties include general economic and industry conditions that affect
all businesses, as well as matters that are specific to the Company and the
markets it serves.

General risks that may impact the achievement of such forecasts include
compliance with new laws and regulations; significant raw materials price
fluctuations; currency exchange rate fluctuations, business cycles; and
political uncertainties. Specific risks to the Company include an inability of
the Company to finance its working capital needs; an inability of the Company to
curtail its recurring losses; an inability of the Company to successfully
integrate the business of Sentex and Monitek; a risk of recession in the
economies in which its products are sold, such as the Chemical or Petroleum
industries; and new or emerging products from current competitors. In light of
these and other uncertainties, the inclusion of a forward-looking statement
herein should not be regarded as a representation by the Company that the
Company's plans and objectives will be achieved.


                                SALE OF SYSTEMS

On September 4, 1998, the Company completed the sale of all of the outstanding
capital stock of Systems to ALR Group Incorporated (the "Buyer"), which is
principally owned by Amos Linenberg. Prior to the sale, Mr. Linenberg was the
President of Systems and an Executive Vice President of the Company. In the
past, Mr. Linenberg has been a principal shareholder of the Company and served
as a director of the Company.

                                       14
<PAGE>   15


In consideration for all of the capital stock of Systems, the Buyer caused Mr.
Linenberg to terminate his existing Employment Agreement as of June 30, 1998,
which from July 1, 1998 through February 28, 2000 would have required payments
to Mr. Linenberg of approximately $325,000. Except for approximately $20,000 in
expenses, the Company paid all operating costs and expenses of Systems through
June 30, 1998 and the Buyer assumed all the costs and operating expenses of
Systems from July 1, 1998 through the closing.

In connection with the sale of Systems to the Buyer, the Company has retained
Mr. Linenberg to consult for the Company on an as needed basis. The consulting
period began effective July 1, 1998 and will continue through December 31, 1998.
Mr. Linenberg receives approximately $12,000 per month under this consulting
agreement.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Not applicable.

     (b)  Not applicable.


                                   SIGNATURE

Pursuant to the requirements of section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized:

Date: October 15, 1998                 SENTEX SENSING TECHNOLOGY, INC.


                                       By: /s/ ROBERT S. KENDALL
                                           -------------------------------------
                                           Robert S. Kendall
                                           Chief Executivre Officer

                                           /s/ JAMES S. O'LEARY
                                           -------------------------------------
                                           James S. O'Leary
                                           Chief Financial Officer

                                       15
<PAGE>   16
                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>
Exhibit
Number                           Description
-------                          -----------
<S>                <C>
 27.1              Financial Data Schedule

</TABLE>