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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                              -------------------

                                   FORM 10-KSB

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

For the Fiscal Year Ended December 31, 1997      Commission File No. 33-20015-NY

                              -------------------

                             SENTECH EAS CORPORATION
             (Exact name of Registrant as specified in its charter)

      FLORIDA                                       65-0734041
     (State of Incorporation)           (I.R.S. Employer Identification Number)

     484 SOUTHWEST 12TH AVENUE
      DEERFIELD BEACH, FLORIDA                            33442-3108
 (Address of principal executive offices)                (Zip Code)

         REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: 954-426-2965

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                                NAME OF EACH EXCHANGE
        TITLE OF EACH CLASS                      ON WHICH REGISTERED
          Not applicable                                 None

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                   COMMON STOCK, $0.00024 PAR VALUE PER SHARE
                   ------------------------------------------
                                 Title of Class

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. Yes X   No 
                     ---    ---
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities 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     No X
                                      ---    ---

The  Registrant's  revenues for the year ended December 31, 1997 was $2,395,844.
The  aggregate  market  value of  Common  Stock  held by  non-affiliates  of the
Registrant as of March 31, 1998 was $0.

As of  March  31,  1998,  there  were  1,640,427  shares  of  the  common  stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

--------------------------------------------------------------------------------
Definitive proxy statement for the Company's 1997 Annual Meeting of Shareholders
incorporated in Part III
--------------------------------------------------------------------------------


                                     PART I

ITEM 1.  BUSINESS

THE COMPANY

SenTech  EAS   Corporation  and  its  wholly  owned   subsidiary,   SenTech  EAS
International,  Inc.,  hereinafter  referred to collectively as the "Company" or
"SenTech",   manufactures,   distributes,   and  services   electronic   article
surveillance ("EAS") systems and accessories  worldwide.  The Company's products
are used primarily by retailers to prevent  financial losses attributed to theft
of  merchandise.  EAS  equipment is composed of (i) a detachable  or  disposable
security  circuit,  label or other  material  (often  referred  to as a "tag" or
"target") which is attached to or placed on the article to be protected,  and is
either  removed  upon  sale of the  article  or,  if not  removed,  activates  a
detection  system if the article is transported  beyond the protected  area, and
(ii) a  detection  system  which is  usually  located  in the  exit  path of the
protected  area and is  activated  when an article,  to which a tag or target is
attached,  is transported beyond the protected area. EAS equipment has developed
over the last 30 years  in  response  to  problems  associated  with  theft  and
inventory control in the retail industry.

The  Company's  original  focus  was  installing,  refurbishing,  marketing  and
servicing EAS equipment  developed by other companies in the EAS industry.  Over
the past  four  years,  the  Company's  business  has  evolved  more and more to
assembling,  marketing and servicing EAS equipment developed by the Company. The
Company's  current  strategy  is  to  further  expand  its  operations  focusing
primarily  on its own EAS  equipment  while  continuing  to  refurbish,  market,
re-sell,  and service EAS equipment  developed and sold by other companies.  The
EAS  equipment  developed  by the  Company  is  compatible  with  EAS  equipment
developed by other companies  allowing the Company to market its own products to
retailers  who  have  existing  compatible  equipment.  Therefore,  the  Company
believes  that it is able to  attract  customers  who  desire to  upgrade  their
existing  systems as well as those customers who desire to purchase a new system
from an alternative supplier at lower prices.

The  Company  was  incorporated  in the State of  Florida  in  February  1990 as
"Ultimate EAS Corporation" and changed its name on several  occasions.  Prior to
September 1995, the Company's name was "SenTech EAS  Corporation."  On September
22, 1995, all of the  outstanding  capital stock of SenTech EAS  Corporation was
acquired by Lorry Bay & Co., Inc.  through the merger of its  subsidiary,  Lorry
Bay Capital,  into SenTech EAS  Corporation.  The  resulting  entity was renamed
SenTech EAS  International,  Inc.  Lorry Bay & Co.,  Inc. was then merged into a
newly formed Florida  corporation,  SenTech EAS Corporation whereby the ultimate
surviving  entity was SenTech EAS Corporation and its  wholly-owned  subsidiary,
SenTech  EAS  International,  Inc.  The  Company's  offices  are  located at 484
Southwest 12th Avenue, Deerfield Beach, Florida 33442-3108, (954) 426-2965.

ELECTRONIC ARTICLE SURVEILLANCE (EAS) INDUSTRY

Three distinct  technologies  are utilized in the EAS industry;  radio frequency
("RF") detection,  electromagnetic ("EM") detection, and acousto-magnetic ("AM")
detection.  The  Company  manufactures,   distributes,  and  services  only  EAS
equipment with RF detection.

EM DETECTION SYSTEMS

EM detection  systems also utilize  detection  monitors at exit points  combined
with  detectable  tags. The tags for EM detection  systems also take the form of
reusable hard plastic tags or adhesive tags,  however,  instead of containing RF
circuitry, the detectable tags are electromagnetically sensitized strips. One of
the  disadvantages of utilizing EM detection  systems is the systems,  unlike RF
detection  systems,  must be installed close together in order to detect EM tags
passing out of the protected area. EM systems are primarily used in food stores,
video stores, and libraries, where store operators are not as concerned with the
visual appeal of the entrances.  One of the advantages of utilizing EM detection
systems is EM  detection  tags,  unlike RF  detection  tags,  are not detuned or
rendered ineffective when applied to metallic surfaces.


                                       1
<PAGE>



AM DETECTION SYSTEMS

Recently,  a  new  acousto-magnetic  technology  has  been  developed.  Products
utilizing acousto-magnetic technology are capable of covering broader areas, and
have a higher  ability to detect  labels  and tags than  standard  EM  detection
systems.  However,  systems  utilizing  acousto-magnetic   technology,  and  the
required tags, are more expensive than standard EM detection systems.

RF DETECTION SYSTEMS

RF detection  systems are the most  prevalent in the  marketplace.  RF detection
systems  utilize  low ("LF"),  high ("HF") or ultra high ("UHF" or  "microwave")
frequency systems. In RF detection systems, electronic detectors,  consisting of
antennas  which  emit  radio  waves of a  specified  frequency,  are  housed  in
pedestals,  overhead  units,  floor mats or other panels located at the exits of
protected areas (such as checkout counters,  doorways,  elevator,  and escalator
locations).  Tags for RF detection systems,  which contain electronic  circuitry
that interferes with the signal  established  between the detector  panels,  are
attached to or placed on the article to be protected.

The tags for RF detection  systems take the form of either reusable hard plastic
tags  or  adhesive  tags.  Reusable  hard  plastic  tags  are  attached  to  the
merchandise being protected usually by means of a specially  designed  fastener.
The reusable  plastic tags can only be removed,  without  causing  damage to the
article,  by using a special  decoupling  device.  Adhesive tags are disposable,
intended to be used only once,  and are  deactivated at the point of purchase by
passing the adhesive tag through a deactivation  field.  When an adhesive tag is
transported through the area between the detector panels, the radio interference
caused by the tag's  circuitry  triggers  an alarm such as a flashing  light,  a
buzzer, or a central control point signal.

RF  detection  systems  protect a large  entrance or exit area  because of their
broad scope of detection stemming from the broad range of radio waves.  Although
systems using microwave frequencies (900 MHz) protect the widest entrances,  the
Company's  EAS  equipment  does not utilize  microwave  frequencies  because the
Company  believes  that  8.2 MHz  systems,  such as  those  manufactured  by the
Company, will be utilized in most of the future growth in the EAS industry. Tags
must be attached to merchandise  upon arrival at a store or distribution  center
and removed at the time of purchase.  RF detection  systems are most widely used
in the protection of "soft goods" (i.e., clothing,  footwear),  although RF tags
in the form of metallic stickers,  referred to as "labels",  are becoming widely
used in the  protection  of "hard  goods"  (i.e.,  health and  beauty  supplies,
electronics,  books).  Increasingly,  there is a trend  towards  source  tagging
whereby the  manufacturer  attaches the EAS tags on products before shipping the
products to retailers.

THE COMPANY'S PRODUCT LINE

The Company currently assembles, refurbishes, markets and services the following
EAS Equipment for use in the retail industry, all of which were developed by the
Company.

"X"AISLE(TM) SYSTEM

The "X"Aisle System is SenTech's  newest and most powerful  extended aisle Swept
RF system  which  will be  introduced  during the  second  quarter of 1998.  The
"X"Aisle  System  consists  of  a  set  of  pedestals   constructed  of  durable
lightweight  injection  molded  plastic which contain the RF detection  circuits
with each pedestal  measuring  60.5" tall,  18.25" wide and 4" deep. The primary
color  available  is gray,  although  custom-designed  colors  may be offered if
requested by customers. Two pedestals are capable of protecting  entrances/exits
up to 8 feet wide  using  SenTech's  new 8.2 MHz "X" Tag and up to 5.5 feet wide
with a 1.5" adhesive label.  Since the "X"Aisle System detects any tags with 8.2
or 9.5 MHz RF, which are commonly used frequencies, it is compatible with 8.2 or
9.5 MHz RF tags designed by the Company and its competitors. The "X"Aisle System
also uses advanced  software  programmable  circuit  design  including a Digital
Signal Processor, surface mounted electronic components, self testing circuitry,
and fiber optics.  Its adaptive  filtering  circuitry is largely immune to false
alarms and  electrical  interference.  The  electronics  are  designed  for easy
installation by field technicians,  dealers,  or end users. The Company believes
the "X"Aisle System is among the most effective wide aisle EAS detection systems
currently  available.  The  "X"Aisle  System was  designed by the Company and is
manufactured and assembled by a related party company (see "Product Development"
below).

                                       2

<PAGE>


MULTITAG(TM) II SYSTEM

The MultiTag II System consists of a set of pedestals which contain RF detection
circuits.  Each  pedestal  measures  60" tall,  12" wide and  4.25"  deep and is
constructed  of a solid all metal frame and  composite  components.  The primary
color  available  is black  although  custom-designed  colors  may be offered if
requested  by  customers.  The  MultiTag  II System  is  capable  of  protecting
entrances/exits  up to six feet wide.  Since the MultiTag II System  detects any
tags  with  8.2 or 9.5  MHz RF,  which  are  commonly  used  frequencies,  it is
compatible  with  8.2 or 9.5  MHz RF  tags  designed  by  the  Company  and  its
competitors.  The  Company  believes  the  MultiTag  II System is among the most
effective EAS detection systems currently  available.  The Company also believes
the MultiTag II System is less susceptible to false alarm sources than other EAS
detection  systems currently  available.  The MultiTag II System was designed by
the Company, and its sub-assemblies are manufactured by outside  sub-contractors
and are assembled by employees of the Company at the Company's facilities.

DEFENDER SYSTEM

The Defender  System  consists of a set of pedestals  which contain RF detection
circuits.  Each  pedestal  measures  60"  tall,  12"  wide  and 3"  deep  and is
constructed  of  textured  satin  black  galvanized   tubular  steel  open-frame
construction  with  charcoal  gray molded  plastic  covers.  The  primary  color
available is black tubing with  charcoal  gray covers  although  custom-designed
colors may be offered if requested by customers.  The Defender System is capable
of protecting  entrances/exits  up to five feet wide.  Since the Defender System
detects any tags with 8.2 or 9.5 MHz RF, which are commonly used frequencies, it
is  compatible  with  8.2 or 9.5 MHz RF tags  designed  by the  Company  and its
competitors.  The Defender  System is a low-cost  system intended for dealer and
domestic price  competitive  sales.  The Company believes the Defender System is
among the highest in target detection rates of EAS detection  systems  currently
available.  The Company also believes the Defender System is less susceptible to
false alarm sources than other EAS detection  systems currently  available.  The
Defender  System  was  designed  by the  Company,  and  its  sub-assemblies  are
manufactured  by outside  sub-contractors  and are assembled by employees of the
Company at the Company's facilities.

SOLO SYSTEM

The Solo System,  introduced  during the fourth  quarter of 1997,  consists of a
single  pedestal which  contains RF detection  circuits.  The pedestal  measures
60.5" tall,  12" wide and 3" deep and is  constructed  of  textured  satin black
galvanized  tubular  steel  open-frame  construction  with  charcoal gray molded
plastic  covers.  The primary color available is black tubing with charcoal gray
covers although custom-designed colors may be offered if requested by customers.
The Solo  System is capable  of  protecting  entrances/exits  up to 9 feet wide.
Since the Solo System is available in either 2.0 or 3.25 MHz frequency  allowing
for the  detection of any tags with 2.0 or 3.25 MHz RF which are  commonly  used
frequencies,  it is  compatible  with 2.0 and 3.25 MHz RF tags  designed  by the
Company and its  competitors.  The Company believes the Solo System is among the
most effective single pedestal EAS detection  systems currently  available.  The
Company also believes the Solo System is less susceptible to false alarm sources
than other single pedestal EAS detection systems currently  available.  The Solo
System was designed by the Company,  and its  sub-assemblies are manufactured by
outside  sub-contractors  and are  assembled  by employees of the Company at the
Company's facilities.

DEACTIVATION PAD

The deactivation  Pad is an instrument that permanently  deactivates any 8.2 MHz
RF disposable  label.  Disposable  tags are adhesive labels that are attached to
the   merchandise  and  often  disguised  as  a  simulated  bar  code  or  as  a
point-of-purchase  advertising  message.  The  Deactivation  Pad  electronically
deactivates  the  RF  circuitry   contained   within  the  disposable  tag.  The
Deactivation  Pad  was  designed  by the  Company,  and its  sub-assemblies  are
manufactured  by outside  sub-contractors  and are assembled by employees of the
Company at the Company's facilities. The Deactivation Pad contains all necessary
electronics and does not need to be "slaved" together with other components like
most EAS deactivation equipment. The Deactivation Pad is a 10.5" by 10.5" square
pad  consisting  of a black  plastic  chassis  with a solid  black  metal  base.
Multiple  Deactivation  Pads may be used together  without causing  interference
with the RF  circuitry  unlike  most  other  deactivators  available  in the EAS
industry.


                                       3

<PAGE>



MAGNETIC DETACHERS

Magnetic  Detachers  are  instruments  used to  remove  reusable  hard tags that
contain RF circuitry from the merchandise to which they are attached. A magnetic
lock  releases the pins  contained  within the reusable  hard tags.  The Company
offers two types of magnetic detachers; (i) the Table Top Detacher, and (ii) the
Surface Mount  Detacher.  Both magnetic  detachers were designed by the Company,
and  their  sub-assemblies  are  manufactured  by  outside  sub-contractors  and
assembled by employees of the Company at the Company's facilities. The Table Top
Detacher measures 5" in diameter, is constructed of a durable  scratch-resistant
finish, and is designed to be secured to a counter-top using a security lanyard.
The Surface Mount Detacher measures 2.5" or 3" in diameter and is designed to be
permanently attached to a surface such as a counter-top.  The magnetic detachers
are compatible with tags that are designed by the Company and its competitors.

THIRD PARTY PRODUCT LINES

The Company  currently sells the following EAS equipment which were developed by
other   companies  in  the  EAS   Industry   but  are  made  to  the   Company's
specifications.

"X" TAG

The "X"  Tag is a  durable  lightweight  8.2 MHz  Swept  RF tag to be used  with
SenTech's newest and most powerful extended aisle Swept RF system,  the "X"Aisle
System,  which will be introduced during the second quarter of 1998. The "X" Tag
is beige and is compatible with all 8.2 MHz RF systems and most ink tags.

MINI SOLO TAG

The Mini Solo Tag,  introduced  during the fourth  quarter of 1997, is a durable
lightweight 2.0 or 3.25 MHz RF tag which is used with SenTech's Solo System. The
Mini Solo Tag is light gray or beige and is compatible  with all 2.0 or 3.25 MHz
RF systems and most ink tags.

INK TAGS

To be introduced  during 1998,  the SenTech Ink Tag contains two vials of ink on
the head of the tag which breaks and  disperses  permanent  ink onto the item to
which it is attached if improperly removed. This feature provides an extra level
of  deterrence  against  shoplifting  by adding the threat of permanent  garment
damage if the tag is improperly or forcibly removed.  The SenTech Ink Tag may be
used together with an EAS hard tag or with a locking clutch.

OMNI TAG/MINI TAG

The Omni  Tags and Mini  Tags are  reusable  hard  tags  constructed  of  strong
lightweight  plastic.  The Omni Tag is a 2.75" by 2.25"  rectangular tag and the
Mini Tag is a 1.875" by 1.625" rectangular tag, both of which contain 8.2 MHz RF
circuitry.  Both tags are available in black, beige, or custom-designed  colors.
If either tag passes between an RF detection  system an alarm is triggered.  The
tags  are  attached  to  merchandise   using  special  fasteners  prior  to  the
merchandise  being  placed on the sales  floor and are  detached at the point of
purchase  using a magnetic  detacher.  Removal of the tags  without the magnetic
detacher  will damage the protected  merchandise.  The Omni Tag and the Mini Tag
are compatible with 8.2 MHz RF detection systems.

SENTAG

The  SenTag is a  reusable  hard tag  constructed  of strong  lightweight  beige
polypropylene  plastic.  The SenTag is a 2.735" by 1.165" by 0.695"  rectangular
tag  containing  microwave  frequency  circuitry.  The  SenTag  is  attached  to
merchandise using special fasteners prior to the merchandise being placed on the
sales floor and is detached at the point of purchase  using a special  detacher.
Removal of the tags  without the  special  detacher  will  damage the  protected
merchandise. The SenTag is compatible with most microwave detection systems.



                                       4

<PAGE>

LANYARDS

Lanyards are used in conjunction with any type of tag. It allows for the tagging
of hard good items which have closed loop openings such as handbags, luggage and
tennis rackets.

PINS

Several styles of pins are available for use with various types of reusable hard
tags.

PRODUCT DEVELOPMENT

The Company  maintains  an on-going  effort to develop  new EAS  equipment.  The
Company  recently  developed and marketed an ultra-light  reusable hard tag, the
SenTag,  described  above,  and intends to introduce  the SenTech Ink Tag during
1998.  The  Company  believes  the  SenTag  and  the Ink  Tag,  which  are  both
manufactured  by  non-affiliated  companies,  are well received by retailers who
demand contemporary styled reusable hard tags.

During the fourth  quarter of 1997,  the Company also developed and marketed the
Solo System,  described  above,  which has been  initially  well received in the
marketplace.  The Company  believes the Solo System is among the most  effective
single pedestal EAS detection systems currently available.

In June 1997, the Company  entered into a three year purchase and  manufacturing
agreement (the  "Agreement")  with a company whose President and Chief Executive
Officer is a director of the Company. The Agreement provides for the development
and  manufacture  of the Company's  third  generation  EAS system,  the "X"Aisle
System, and the electronic printed circuit boards for the MultiTag II System and
the Defender System.  Currently,  the electronic  printed circuit boards for the
MultiTag II System and the Defender  System are designed and  manufactured  by a
competitor  of the  Company.  The  Agreement  requires  the  Company  to pay for
non-recurring  engineering  costs in exchange for an assignment of fifty percent
of the joint  technology as defined by the Agreement and requires the Company to
purchase minimum quantities of the system each year.

Management  believes that any new EAS  equipment it develops,  combined with the
Company's existing equipment,  customer and market base, may provide the Company
with the potential for significant growth. Historically,  the Company's research
and  development  expenses  have  been  immaterial  relative  to  the  Company's
operations.

ASSEMBLY AND MANUFACTURING OPERATIONS

The Company's  manufacturing  operations consist primarily of the procurement of
component  parts and the assembly of finished  products at the Company's  leased
facility in Deerfield Beach, Florida. Most of the EAS equipment developed by the
Company  consists of component parts  manufactured  for the Company or purchased
from third  parties.  The Company does not maintain an extensive  finished goods
inventory  since the Company  believes it is able to obtain  required  component
parts,  assemble,  and ship its product within competitive lead times acceptable
to its  customers.  The  Company  subcontracts  with local  vendors to  assemble
printed circuit boards,  and machine,  mold, and finish various component parts.
The Company  anticipates  it will continue to rely primarily on such third party
manufactures and vendors in order to minimize  overhead.  The Company  minimizes
dependence on any one supplier by maintaining  sufficient  alternative suppliers
for each of its raw materials and finished goods.

REFURBISHING OPERATIONS

The Company acquires and refurbishes  existing equipment  developed by its major
competitors primarily from customers who are upgrading or changing their current
detection  systems  and  from  liquidation  and  foreclosure  sales.  All of the
Company's refurbishing  activities,  including the inspection and testing of the
refurbished  product, are performed by employees of the Company at the Company's
leased facility in Deerfield Beach, Florida.



                                       5

MARKETS AND MARKETING STRATEGY

The Company  markets  and sells EAS  equipment  in the United  States and abroad
through an internal  sales force of four  individuals  and through the Company's
management. The Company's current regional sales representatives primarily cover
the Northeast and Southeast portions of the United States. The Company is in the
process of  recruiting  a national  sales  force to expand its  coverage  of the
United  States  market.  Domestic  Dealer  and  Foreign  Distributor  sales  are
conducted  primarily by internal sales people.  Management markets EAS equipment
through  a  direct-calling   program  in  addition  to  attending  trade  shows,
advertising  in trade  publications,  a  direct-mailing  program,  and  internet
advertising.

There were no material concentrations of sales or accounts receivable outside of
the United States during December 31, 1997 and 1996.

The Company's  sales and  marketing  efforts are focused on retailers who do not
yet  utilize  EAS  equipment  as well as  retailers  who  presently  utilize EAS
equipment  developed  by the  Company's  major  competitors  and are  seeking an
alternative   supplier  of  EAS  equipment   offering  lower  prices  with  more
personalized service.  Since the Company refurbishes,  markets, and services EAS
equipment  developed  and  sold by other  companies,  and its own  products  are
compatible with such other products,  the Company believes it is able to compete
for many of the needs of retailers presently utilizing EAS equipment.

The  Company's  sales and  marketing  efforts  include a "Try Buy" program under
which the Company  installs its EAS equipment in a retailer's  store for a trial
period at a minimal cost that covers only the Company's cost of labor to install
and monitor such equipment. The trial period lasts for approximately 60-90 days,
after which the retailer  decides  whether or not to purchase the equipment.  If
the retailer chooses not to purchase the Company's EAS equipment,  the equipment
is  removed  from  the  location  without  any  further  obligation.  Since  the
introduction of this program, most of the trials have resulted in the retailers'
purchase of the Company's equipment.

With  respect  to EAS  equipment  developed  by  other  companies,  the  Company
purchases such equipment from third party  manufactures  and distributors in the
United States and abroad and resells such EAS equipment at discounted rates. The
Company is able to purchase such equipment from third parties at favorable rates
based upon its relationship with such third parties.

INSTALLATION AND CUSTOMER SERVICE

The Company usually provides  one-year  warranties on all its products  covering
both  parts and labor  and  offers  optional  extended  warranties  which may be
purchased  by  customers.  In July  1995,  the  Company  entered  into a service
agreement  effective  August 1995 with a national  service  organization,  whose
President  and Chief  Executive  Officer is a  director  of the  Company,  which
provides  for the  installation  and  servicing  of any 8.2 MHz EAS system.  The
national  service  organization  has 31 service  centers  throughout  the United
States and is capable of providing  service on a national level. Any EAS systems
not covered by the agreement are handled by the Company's  service  personnel or
other third party service providers. The agreement is for a one-year term and is
automatically  renewable for one-year  periods  unless  terminated in writing by
either party. The Company has not received any termination  notices and believes
its relationship  with the service provider is favorable.  Although there can be
no assurance  the  agreement  will not be  terminated  or will be renewed in the
future,  the Company  anticipates  the agreement will  automatically  be renewed
through August 1999.

BACKLOG

At December 31, 1997, the Company ended the year with approximately  $326,000 in
backlog of sales  orders  compared to only  $54,000 in backlog at  December  31,
1996. The Company  expects the entire backlog of sales orders at the end of 1997
to be  shipped  prior to the end of the first  quarter  of 1998.  The  amount of
backlog at any time during the year is not necessarily  indicative of the volume
of business for the upcoming  year.  The  Company's  revenues are  substantially
dependent on its customers' seasonal retail sales. Historically, the Company has
experienced higher sales volume in the third and fourth quarters of each year.


                                       6

<PAGE>


EMPLOYEES

The Company  currently  has 13 full time  employees,  none of which have entered
into  employment  agreements  with the  Company nor are  represented  by a labor
union.  From time to time, the Company hires temporary  personnel to accommodate
special requirements for larger projects. The Company does not have key-man life
insurance on any of its employees.

COMPETITION

The Company competes in the EAS industry with several  companies.  Many of these
companies are larger and better known and have significantly  greater financial,
technological,  manufacturing  and  marketing  resources  than the Company.  The
Company's  principal   competitors  are  Sensormatic   Electronics   Corporation
("Sensormatic"),  Checkpoint  Systems,  Inc.  ("Checkpoint"),  Sentry Technology
Corporation ("Sentry"), and a number of smaller companies.  Although the Company
believes  it has  strived  to  compete  effectively  in  the  past  by  offering
innovative  products and competitive  prices, no assurance can be given that the
Company will be capable of effectively competing  successfully in the future, or
that the Company will be successful in maintaining or expanding its share of the
market for its products.  No assurance can be given the products or technologies
that  may be  developed  and  introduced  by  competitors  will not  render  the
Company's products less competitive or obsolete. The Company remains competitive
in the EAS industry because the equipment developed by the Company is compatible
with EAS  equipment  developed  by other  companies.  In  addition,  the Company
purchases  EAS  equipment   developed  by  other   companies  from  third  party
manufacturers  and distributors at favorable rates and resells such equipment at
discounted prices.

GOVERNMENT REGULATION

The EAS Industry is subject to extensive regulation by various federal and state
regulatory agencies including the Federal Communications Commission (the "FCC").
Any equipment  manufactured by other companies that is refurbished and resold by
the  Company has  received  the  required  approvals  from the FCC.  The Company
intends to submit applications for approval by the FCC of equipment invented and
developed by the Company. There can be no assurance that the Company will obtain
the requisite  approvals and the failure to obtain such  approvals  could have a
materially adverse effect upon the Company's business.

From time to time, legislation and regulations that could potentially affect the
Company,  either  beneficially  or adversely,  have been proposed by federal and
state  legislators  and  regulators.  Management  is not aware of any  currently
pending or proposed  legislation  or  regulations  which would have a materially
adverse impact on the Company's operations if adopted. There can be no assurance
that the FCC or various  state  regulators  will not adopt  regulations  or take
other  actions  that  would  materially  adversely  affect the  business  of the
Company.

ABSENCE OF PATENT PROTECTION

The Company does not currently  have patent  protection on most of its products.
Its ability to compete effectively with other companies will depend, in part, on
its ability to maintain the proprietary nature of its products.  The Company may
apply for patent protection on future products it develops,  however,  there can
be no assurance  that it will be  successful  in  obtaining  such patents or, if
obtained,  that such patents will afford the Company sufficient protection.  The
Company intends to rely substantially on unpatented proprietary  information and
technological  know-how,  and there can be no  assurance  that  others  will not
develop such  information and know-how  independently or otherwise obtain access
to its  technology.  Also,  it is not  certain  that the  Company's  proprietary
technology  will not infringe  patents or other  rights owned by others.  In the
event that patent  infringement  claims are brought  against  the  Company,  the
Company may be forced to obtain a license for such technology,  and there can be
no assurance that it will be successful in obtaining such licenses. In the event
that the Company  contests an  infringement  claim,  it may divert the Company's
resources from other purposes.


                                       7

<PAGE>


TECHNOLOGICAL  OBSOLESCENCE OR FAILURE AND UNCERTAIN MARKET ACCEPTANCE OF FUTURE
PRODUCTS

The  markets  served by the  Company are to a certain  extent  characterized  by
technological  advances,  changes in customer  requirements,  and occasional new
product  introductions and enhancements.  The Company's business may require, at
times, ongoing research and development efforts and expenditures, and its future
success may depend on its ability to enhance  its current  products  and develop
and introduce new products which keep pace with  technological  developments  in
response  to  evolving  customer  requirements.  There can be no  assurance  the
Company's   failure  to  anticipate  or  respond   adequately  to  technological
developments  and  changing   customer   requirements,   or  the  occurrence  of
significant  delays  in  new  product   development  or  introduction,   or  the
technological  failures  of its  products  or the  systems  in  which  they  are
incorporated, would not result in a material loss of anticipated future revenues
and seriously impair the Company's competitiveness. In addition, the Company may
misgauge  market needs and introduce  products  which fail to gain the necessary
market  acceptance for whatever reason.  Hence, it is also uncertain whether new
products or enhancements of existing  products can be successfully  marketed and
sold by the Company.

ITEM 2.  PROPERTIES

The Company's offices,  warehouse,  and distribution center are located in 6,300
square  feet  of  leased  facilities  in  Deerfield  Beach,   Florida  of  which
approximately  3,600  square feet are used for  offices.  Through the end of the
lease term on January 31, 2000, the lease provides for payments of approximately
$5,000 per month including sales tax and common area maintenance  expenses.  The
Company believes these facilities are adequate to accommodate operations through
the year 1999.

ITEM 3.  LEGAL PROCEEDINGS

The  Company is  involved  in various  claims and legal  actions  arising in the
ordinary  course of  business.  Although  the  Company is unable to predict  the
ultimate  disposition  of  these  matters,  the  Company  does not  believe  the
resolution  of  such  matters  will  have  a  material  adverse  effect  on  its
consolidated financial position, results of operations, or liquidity.

In October 1996,  the Company was named as a defendant in a lawsuit filed in New
Jersey  Superior Court whereby the plaintiff is seeking  damages with respect to
certain alleged invoices totaling  approximately  $20,000. A motion to amend the
pleadings was filed and granted to assert  counterclaims  and third party claims
against  the  plaintiff  and  its  officers  for,  among  other  things,   false
designation of origin under the federal Lanham Act,  violations of statutory and
common law unfair  competition,  trademark  and trade  dress  infringement,  and
breach of contract all of which may result in damages exceeding $1,000,000.  The
Company's  counterclaim and third party claims arose from an alleged intentional
breach of a requirements  type contract in which the plaintiff was authorized to
manufacture  for the  Company  certain  equipment  for  sale to  third  parties.
Although  the  Company  has  recorded  in accrued  liabilities  a  provision  of
approximately  $20,000 for any liability  which may result from the  plaintiff's
claims,  the  Company  plans  to  continue  to  vigorously  defend  against  the
plaintiff's  alleged  claims and to pursue  its  counterclaims  and third  party
claims against the  plaintiff.  While there is no assurance as to the outcome of
this legal  action,  management  and legal  counsel for the Company  believe the
ultimate  resolution of this matter will not have a material  adverse  effect on
its consolidated financial position or results of operations.

Other than the claims noted  above,  the Company has no notice of any pending or
threatened litigation.

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

The  election  of  directors  and the  ratification  of the  appointment  of the
Company's  independent  certified  public  accountants  were  the  only  matters
submitted to a vote of security holders during 1997.


                                       8


<PAGE>




                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS

The  Company's  common  stock  has not  commenced  trading  but is listed on the
National  Association  of  Securities  Dealers,  Inc.  ("NASD")  OTC  Electronic
Bulletin Board  ("Bulletin  Board") under the symbol "SETE".  There have been no
quotes on the Company's common stock since its listing on the Bulletin Board.

No assurance can be given that a public trading market for the Company's  common
stock will develop or if developed will be sustained.

In April 1997, in connection  with a private  placement of the Company's  common
stock under Regulation D Rule 506 of the Securities Act of 1933, as amended, the
Company consummated the sale of 343,894 units, each unit consisting of one share
of common  stock and one common stock  purchase  warrant.  Each warrant  expires
after five years of issuance and entitles the registered  holder to purchase one
share of common  stock at a purchase  price  equal to the lesser of $5.50 or ten
percent above the offering price of a share of common stock in a proposed public
offering.  The net  proceeds  received by the Company  from this  offering  were
approximately  $707,000 of which approximately  $198,000 from the sale of 88,173
units was received during the year ended December 31, 1997.

In October 1997, the Company issued 97,500 shares of the Company's  common stock
pursuant to directors' and officers' compensation agreements.

The  Company  has never  paid a cash  dividend  on its  common  stock  since its
inception nor does it anticipate  paying any cash  dividends in the near future.
The Company  intends to retain any future  earnings to finance the operations of
the Company.

At March 31,  1998,  the Company had  approximately  105  registered  holders of
record.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS

Except for historical  information  contained herein,  certain matters discussed
herein  are  forward  looking  statements  made  pursuant  to  the  safe  harbor
provisions  of the  Securities  Litigation  Reform  Act of 1995.  These  forward
looking  statements are generally  based on the Company's  expectations  and are
subject  to  certain  risks and  uncertainties,  including  but no  limited  to;
economic, competitive,  regulatory, growth strategies,  available financing, and
other factors discussed  elsewhere in this Form 10-KSB and other documents filed
by the Company with the SEC. The associated risks and uncertainties  could cause
actual results to differ  materially  from  historical  results or the Company's
expectations.  In  light of  these  risks  and  uncertainties,  there  can be no
assurance the forward looking statements  contained in this Form will occur. The
Company  undertakes  no  obligation  to  publicly  update or revise any  forward
looking statements  resulting from future events,  new information,  or from any
other circumstances.

YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1996

REVENUES

Revenues were approximately  $2,396,000 for the year ended December 31, 1997, an
increase  of  $602,000 or 34% from  revenues  of  $1,794,000  for the year ended
December 31, 1996. The increase in revenues for the year ended December 31, 1997
was primarily attributed to sales from a new customer which generated 35% of the
Company's total revenues for the year ended December 31, 1997.  Approximately 2%
and 16% of the  revenues  for the  years  ended  December  31,  1997  and  1996,
respectively,  represented revenues generated from another customer. The Company
estimates  revenues  from the new  customer  will  continue  and  remain  fairly
constant  during 1998,  however,  there is no assurance of future sales from the
new customer.  Although the  Company's  customer  base  increased  only modestly
during 1997,  the Company  



                                       9

<PAGE>


expects  significant  expansion of its customer  base  resulting  from its sales
efforts in new  markets,  the  introduction  of new  products  in 1998,  and its
reputation of providing affordable high quality products.

GROSS PROFIT

Gross profit was approximately $784,000 for the year ended December 31, 1997, an
increase  of $216,000  or 38% from gross  profit of $568,000  for the year ended
December  31, 1996  primarily  as a result of the  increase in  revenues.  Gross
profit margin was 32.7% for the year ended December 31, 1997, a slight  increase
from 31.7% for the year ended  December  31,  1996.  Gross  profit  margins  are
expected  to  remain  fairly  constant  in the  near  term  due  to the  ongoing
maintenance of the Company's new cost control management program and new pricing
structure. The Company realizes substantially higher gross profit margins on its
manufactured  products  than it realizes on its  purchased  products  due to the
proprietary  nature of purchased  products,  however,  the current  sales mix is
expected to remain constant as the Company's customer base expands.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE

Selling,  general, and administrative  expenses were approximately  $846,000 for
the year ended  December 31, 1997,  an increase of $233,000 or 38% from selling,
general, and administrative expenses of $613,000 for the year ended December 31,
1996. Overall, operating expenses remained stable during 1997 with the exception
of compensation,  legal, and tax expenses. Compensation expense increased nearly
$90,000  primarily as a result of an increase of $47,500 in  officers'  salaries
and  $34,125 of common  stock  granted to the  Company's  officers  and board of
directors.  Legal expenses increased  approximately $88,000 primarily due to the
costs of litigating  existing  trade claims against a competitor of the Company,
the  costs  of  acquiring  various  patents  and  trademarks,  and the  costs of
increased  compliance  reporting.  The Company also incurred  $40,000 related to
certain  delinquent  tax  liabilities  during  1997.   Selling,   general,   and
administrative  expenses are expected to moderately  increase over the next year
relative to the expected increase in revenues primarily as a result of increased
costs of  marketing as the Company  continues  to expand its  customer  base and
introduce new products.

INTEREST EXPENSE AND INTEREST INCOME

Interest expense was approximately  $9,000 for the year ended December 31, 1997,
a decrease of $11,000 or 55% from interest expense of $20,000 for the year ended
December 31, 1996  primarily  due to the  conversion  of $63,000 of 8% mandatory
convertible notes and $40,000 of 8% shareholders' notes payable to shares of the
Company's common stock in June 1996.  Interest income of  approximately  $16,000
for the year ended December 31, 1997 represents interest earned on cash balances
in excess of operating  requirements;  there was no interest income for the year
ended December 31, 1996.

NET LOSS AND NET LOSS PER SHARE

Net loss was  approximately  $(55,000)  for the year ended  December 31, 1997, a
decrease  of  $10,000 or 15% from the net loss of  $(65,000)  for the year ended
December 31, 1996 primarily as a result of an increase of approximately $216,000
in gross profit offset by an increase in operating  costs of nearly $206,000 net
of interest expense and interest income.  Net income for the year ended December
31, 1997 before non-cash  charges of  approximately  $25,000 of depreciation and
$34,000 of non-cash compensation was approximately $4,000. Net loss for the year
ended  December 31, 1996 before  non-cash  charges of  approximately  $31,000 of
depreciation was approximately $(34,000).

Net loss per share was $(0.04) at  December  31,  1997,  a decrease of $0.02 per
share or 33%  from the net loss per  share  of  $(0.06)  at  December  31,  1996
resulting  from the  $10,000  decrease  in net loss and an  increase  of 490,143
weighted average number of common shares from 1,066,421 during 1996 to 1,556,564
during 1997.

LIQUIDITY AND CAPITAL RESOURCES

The  Company's   accumulated   deficit  was   approximately   $(1,702,000)   and
$(1,647,000)  at December 31, 1997 and 1996,  respectively.  Working capital was
approximately $798,000 and $705,000 at December 31, 1997 and 1996, respectively,
an  increase  of  $93,000.  The  increase  in working  capital was the result of



                                       10


<PAGE>


proceeds received pursuant to a private offering whereby the Company consummated
the sale of 343,894  shares of the  Company's  common  stock for net proceeds of
approximately  $707,000,  of which  approximately  $198,000 was received  during
1997. The proceeds from the private offering are intended to be used for working
capital purposes and payment of the balance due under a stock purchase agreement
pursuant  to which the  Company  repurchased  shares of common  stock  held by a
former  employee.  Working  capital  will  be  used  to  hire  additional  sales
personnel,   expand  production  capacity,   and  finance  inventory,   accounts
receivable, and research and development.

During 1996, the Company converted  approximately  $308,000 of debt to shares of
the  Company's  common stock and received net proceeds of over $218,000 from the
exercise of warrants.

Net cash used in operating  activities was approximately  $(202,000) in 1997, an
increase of $(63,000) from  $(139,000) in 1996 primarily as a result of $117,000
of payments made pursuant to a three year purchase and  manufacturing  agreement
offset by  approximately  $54,000 of cash received  from  customers in excess of
cash  paid  to  suppliers  and  employees,   including   interest  receipts  and
disbursements.

The Company  believes the proceeds  from the private  offering plus the expected
results  of  operations  in 1998 will be  sufficient  to fund  current  business
operations and anticipated growth.  However, the Company believes it may need to
raise  additional   capital  through  debt  or  equity  financing  to  fund  its
anticipated  growth  beyond  1998.  There is no assurance  that such  additional
financing will be available  when needed or available  with terms  acceptable to
the Company.

SEASONALITY

The Company's  revenues are substantially  dependent on its customers'  seasonal
retail sales.  Historically,  the Company has experienced higher sales volume in
the third and fourth quarters of each year.

ITEM 7.  FINANCIAL STATEMENTS

Index to Consolidated Financial Statements
<TABLE>
<S>                                                                                                    <C>
Independent Auditors' Report                                                                                 12
Consolidated Balance Sheets at December 31, 1997 and 1996                                                    13
Consolidated Statements of Operations for the years ended December 31, 1997 and 1996                         14
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1997 and 1996               15
Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1996                         16
Notes to Consolidated Financial Statements                                                                17-24
</TABLE>

Consolidated  Financial  Statement  schedules have been omitted because they are
not  applicable  or the  required  information  is  shown  in  the  Consolidated
Financial Statements or the notes thereto.


                                       11
<PAGE>



                          INDEPENDENT AUDITORS' REPORT




To the Board of Directors and Shareholders
SenTech EAS Corporation and Subsidiary
Deerfield Beach, Florida

We have  audited the  accompanying  consolidated  balance  sheets of SenTech EAS
Corporation  and  Subsidiary  as of December 31, 1997 and 1996,  and the related
consolidated statements of operations,  shareholders' equity, and cash flows for
the  years  then  ended.  These  consolidated   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 audit to obtain
reasonable  assurance about whether the  consolidated  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 consolidated  financial statements referred to above present
fairly, in all material respects, the consolidated financial position of SenTech
EAS  Corporation  and  Subsidiary,  as of December  31,  1997 and 1996,  and the
consolidated  results  of its  operations  and its cash flows for the years then
ended in conformity with generally accepted accounting principles.


SPEAR, SAFER, HARMON & CO.


Miami, Florida
February 12, 1998



                                       12
<PAGE>

<TABLE>
<CAPTION>

                             SENTECH EAS CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1996




                                                                              DECEMBER 31,         DECEMBER 31, 
                                                                                1997                 1996
                                                                      -------------------------------------------
ASSETS
----------------------------------------------------------------------

Current assets
<S>                                                                    <C>                    <C>              
     Cash and cash equivalents                                          $          475,263     $         567,212
     Accounts receivable, net of allowances of $5,000                              199,802               186,003
     Inventories                                                                   531,197               397,827
     Other current assets                                                           62,150                42,033
                                                                      ---------------------  --------------------
        Total current assets                                                     1,268,412             1,193,075
Property and equipment, net                                                         50,916                67,081
Other assets                                                                        96,407                 9,341
                                                                      ---------------------  --------------------

                                                                        $      1,415,735       $       1,269,497
                                                                      =====================  ====================

LIABILITIES AND SHAREHOLDERS' EQUITY
----------------------------------------------------------------------

Current liabilities
     Accounts payable                                                   $          390,759     $         372,386
     Accrued liabilities                                                            63,051                36,863
     Current maturities of long-term debt                                           16,657                78,881
                                                                      ---------------------  --------------------
         Total current liabilities                                                 470,467               488,130
                                                                      ---------------------  --------------------
Long-term debt less current maturities                                             203,000               219,590
                                                                      ---------------------  --------------------


Shareholders' equity
     Common stock; $0.00024 par value; 20,833,333 authorized;
        1,640,427 and 1,452,952 issued and outstanding                                 394                   349
     Additional capital                                                          2,444,054             2,208,283
     Accumulated deficit                                                       (1,702,180)           (1,646,855)
                                                                      ---------------------  --------------------
         Total shareholders' equity                                                742,268               561,777
                                                                      ---------------------  --------------------

                                                                             $   1,415,735          $  1,269,497
                                                                      =====================  ====================

</TABLE>

----------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       13


<PAGE>

<TABLE>
<CAPTION>

                             SENTECH EAS CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996




YEARS ENDED DECEMBER 31,                                                    1997                1996
-------------------------------------------------------------------   ------------------ --------------------

<S>                                                                    <C>                 <C>             
Revenues                                                               $     2,395,844     $      1,793,758
Cost of revenues                                                            (1,611,975)          (1,225,550)
                                                                      ------------------ --------------------
Gross profit                                                                   783,869              568,208
Selling, general, and administrative expenses                                 (846,212)            (613,073)
                                                                      ------------------ --------------------
Operating loss                                                                 (62,343)             (44,865)
Interest expense                                                                (8,975)             (20,472)
Interest income                                                                 15,993               _
                                                                      ------------------ --------------------
Net loss                                                               $       (55,325)    $        (65,337)
                                                                      ================== ====================
Net loss per share                                                     $         (0.04)    $          (0.06)
                                                                      ================== ====================

</TABLE>

-------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       14
<PAGE>
<TABLE>
<CAPTION>


                             SENTECH EAS CORPORATION
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 1997 AND 1996





                                                       COMMON    STOCK             
                                                -----------------------------     ADDITIONAL        ACCUMULATED
                                                    SHARES          AMOUNT         CAPITAL            DEFICIT            TOTAL
                                                ------------- -------------- ----------------- ------------------  ---------------

<S>                                               <C>           <C>            <C>             <C>                 <C>        
BALANCE AT DECEMBER 31, 1995                         965,417       $    231       $ 1,220,869     $  (1,581,518)      $ (360,418)
Conversion of debt                                   225,492             54           308,040                            308,094
Exercise of warrants                                 161,843             39           218,448                            218,487
Purchase and retirement of shares                   (172,520)           (41)          (48,262)                           (48,303)
Issued pursuant to private offering, net             272,720             66           509,188                            509,254
Net loss                                                                                                (65,337)         (65,337)
                                                ------------- -------------- ----------------- ------------------  ---------------
BALANCE AT DECEMBER 31, 1996                       1,452,952            349         2,208,283        (1,646,855)         561,777
Conversion of debt interest                            1,802              1             4,324                              4,325
Issued pursuant to compensation agreements            97,500             23            34,102                             34,125
Issued pursuant to private offering, net              88,173             21           197,345                            197,366
Net loss                                                                                                (55,325)         (55,325)
                                                ------------- -------------- ----------------- ------------------  ---------------
BALANCE AT DECEMBER 31, 1997                       1,640,427       $    394       $ 2,444,054     $  (1,702,180)     $   742,268
                                                ============= ============== ================= ==================  ===============

</TABLE>

----------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.




                                       15



<PAGE>


<TABLE>
<CAPTION>

                             SENTECH EAS CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996




YEARS ENDED DECEMBER 31,                                                                1997                 1996
------------------------------------------------------------------------------- -------------------  ------------------

<S>                                                                                <C>                <C>   
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                         $     (55,325)     $      (65,337)
   Adjustments to reconcile net loss to net cash used in operating activities:
       Depreciation and amortization                                                       25,163              31,154
       Loss on disposal of equipment                                                         _                  5,518
       Provision for losses on accounts receivable                                           _                 (5,000)
       Debt interest converted to common stock                                              4,325              25,094
       Stock based compensation                                                            34,125               _
       Net changes in operating assets and liabilities:
               Accounts receivable                                                        (13,799)           (141,662)
               Inventories                                                               (133,370)           (172,509)
               Other current assets                                                       (20,117)             21,714
               Other assets                                                               (87,066)                581
               Accounts payable                                                            18,373             207,571
               Accrued liabilities                                                         26,188             (46,168)
                                                                                -------------------  ------------------
       Net cash used in operating activities                                             (201,503)           (139,044)
                                                                                -------------------  ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                                                                    (8,998)             (8,450)
                                                                                -------------------  ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Payments on note payable to bank                                                      (61,314)            (56,847)
    Payments on notes payable to shareholders                                             (17,500)             (2,500)
    Net proceeds from issuance of common stock                                            197,366             509,254
    Proceeds from exercise of warrants                                                     _                  218,487
    Payments to retire common stock                                                        _                  (48,303)
                                                                                -------------------  ------------------
         Net cash provided by financing activities                                        118,552             620,091
                                                                                -------------------  ------------------
Net increase in cash and cash equivalents                                                 (91,949)            472,597
Cash and cash equivalents at beginning of year                                            567,212              94,615
                                                                                -------------------  ------------------
Cash and cash equivalents at end of year                                            $     475,263      $      567,212
                                                                                ===================  ==================

</TABLE>

--------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.



                                       16
<PAGE>

                            SENTECH EAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     NATURE OF OPERATIONS

     SenTech EAS Corporation manufactures,  distributes, and services electronic
     article surveillance (EAS) systems and accessories worldwide used primarily
     by  retailers  to  prevent   financial   losses   attributed  to  theft  of
     merchandise.

     PRINCIPLES OF CONSOLIDATION

     The consolidated  financial  statements include the financial statements of
     SenTech  EAS  Corporation  and its wholly  owned  subsidiary,  SenTech  EAS
     International,   Inc.,  (collectively,   the  "Company").  All  significant
     intercompany   balances   and   transactions   have  been   eliminated   in
     consolidation.

     CASH AND CASH EQUIVALENTS

     For purposes of the  consolidated  statements,  the Company  considers  all
     highly liquid debt instruments with original  maturities of three months or
     less to be cash  equivalents.  Cash in excess of operating  requirements is
     invested in short term  income  producing  instruments  with  stable,  high
     quality financial  institutions which may exceed insurable limits. The book
     value of the Company's  investments  approximates fair value because of the
     short maturity of these instruments.

     INVENTORIES

     Inventories  are stated at the lower of cost or market.  Cost is determined
     using the first-in, first-out method.

     PROPERTY AND EQUIPMENT

     Property and equipment are recorded at cost and are  depreciated  using the
     straight-line  method over the estimated useful lives of the assets ranging
     from three to eight years.

     COMMON STOCK

     Prior to the Company's  underwritten private offering in November 1996, the
     Company had 50,000,000 shares of $0.0001 par value common stock authorized.
     In connection with the private  offering,  the Company's Board of Directors
     approved  a 1 to  2.4  reverse  split  of the  Company's  common  stock  by
     authorizing  a decrease in the number of common  shares from  50,000,000 to
     20,833,333  and a  corresponding  increase in the par value from $0.0001 to
     $0.00024.   All  share  and  per  share   amounts  have  been  restated  to
     retroactively reflect the stock split.

     REVENUE  RECOGNITION

     Revenue from sales of systems and  accessories is recognized  upon shipment
     of the equipment or upon  acceptance by a third party leasing company of an
     operating  lease and the  related  equipment.  Revenue  from  services  are
     recognized as earned, and maintenance  revenues are recognized ratably over
     the term of the maintenance contract.

     INCOME TAXES

     Deferred  tax  assets and  liabilities  are  recognized  for the future tax
     consequences attributable to differences between financial statement assets
     and liabilities and their  respective tax bases including  operating losses
     and tax credit  carryforwards.  Deferred  tax assets  and  liabilities  are
     measured using enacted tax rates expected to apply to taxable income in the
     years in which those  differences  are expected to be recovered or settled.
     The effect on deferred tax assets and  liabilities of a change in tax rates


                                       17


<PAGE>
                            SENTECH EAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     is  recognized  as income in the period which  includes  the tax  enactment
     date. A valuation  allowance is recorded to reduce deferred tax assets when
     realization of a tax benefit is unlikely.

     NET LOSS PER SHARE

     Net loss per share is  calculated  using  the  weighted  average  number of
     common shares and dilutive  potential common stock  outstanding  during the
     year. The number of shares used in the per share  computations after giving
     retroactive  effect to the December 1996 reverse stock split were 1,556,564
     and 1,066,421 at December 31, 1997 and 1996, respectively. Potential common
     stock, when included in the computation of dilutive earnings per share, was
     anti-dilutive at December 31, 1997 and 1996.

     USE OF ESTIMATES

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported amounts of assets and liabilities and
     disclosure  of  contingent  assets  and  liabilities  at  the  date  of the
     financial  statements  and the  reported  amounts of revenues  and expenses
     during  the  reporting  period.  Actual  results  could  differ  from those
     estimates.

     IMPAIRMENT

     In  accordance  with  SFAS  No.  121,  "Accounting  for the  Impairment  of
     Long-Lived Assets and For Long-Lived Assets to Be Disposed Of", the Company
     reviews  long-lived  assets  and  related  goodwill  for  impairment  on an
     exception basis whenever events or changes in  circumstances  indicate that
     the  carrying  amount of the  assets may not be fully  recoverable  through
     future cash flows.  If this  review  indicates  that the assets and related
     goodwill  will  not  be  recoverable,  as  generally  determined  based  on
     estimated  undiscounted cash flows over the remaining  amortization period,
     the  carrying  amount  would be adjusted to fair value and any loss will be
     recognized in the statement of operations and certain disclosures regarding
     the impairment will be disclosed in the notes to financial  statements.  At
     December  31, 1997 and 1996,  the Company  believes no material  impairment
     existed.

     RECENT PRONOUNCEMENTS IN ACCOUNTING STANDARDS

     In February 1997, the Financial Accounting Standards Board issued Statement
     of  Financial  Accounting  Standards  No.  128  "Earnings  Per  Share"  and
     Statement  of  Financial   Accounting  Standards  No.  129  "Disclosure  of
     Information  about Capital  Structure"  which are both effective for fiscal
     years  beginning  after  December 15,  1997.  SFAS No. 128  simplifies  the
     current  required  calculation  of earnings per share ("EPS") under APB No.
     15, "Earnings per Share", by replacing the existing  calculation of primary
     EPS with a basic EPS  calculation.  It  requires  a dual  presentation  for
     complex  capital  structures  of basic and  diluted  EPS on the face of the
     income  statement  and  requires a  reconciliation  of basic EPS factors to
     diluted EPS factors.  SFAS No. 129  requires  disclosure  of the  Company's
     capital structure. The Company plans to adopt SFAS No. 128 and SFAS No. 129
     and  expects  no  material  impact  to the  Company's  EPS  calculation  or
     financial statement disclosures.

     In June 1997, the Financial  Accounting Standards Board issued Statement of
     Financial  Accounting Standards No. 130 "Reporting  Comprehensive  Income,"
     which is effective for fiscal years beginning after December 15, 1997. SFAS
     No.  130   establishes   standards   for  the   reporting  and  display  of
     comprehensive  income and its  components in a full set of general  purpose
     financial  statements  which  requires the Company to (i) classify items of
     other  comprehensive  income by their nature in a financial  statement  and
     (ii)  display  the  accumulated  balance  of  other  comprehensive   income
     separately  from retained  earnings and additional  paid-in-capital  in the
     equity  section of the balance  sheet.  The Company plans to adopt SFAS No.
     130 during 1998 and expects no material  impact to the Company's  financial
     reporting or presentation.



                                       18


<PAGE>

                            SENTECH EAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Also  in  June  1997,  the  Financial  Accounting  Standards  Board  issued
     Statement of Financial  Accounting  Standards  No. 131  "Disclosures  about
     Segments of an Enterprise and Related  Information," which is effective for
     fiscal years  beginning  after  December 15, 1997.  SFAS No. 131 supersedes
     SFAS No. 14, "Financial  Reporting for Segments of a Business  Enterprise",
     and amends SFAS No. 94, "Consolidation of All Majority-Owned Subsidiaries".
     SFAS No. 131 requires annual financial  statements to disclose  information
     about products and services, geographic areas, and major customers based on
     a management approach,  along with interim reports. The management approach
     requires  disclosing   financial  and  descriptive   information  about  an
     enterprise's  reportable operating segments based on reporting  information
     the way management organizes the segments for making business decisions and
     assessing  performance.  It also  eliminates  the  requirement  to disclose
     additional information about subsidiaries that were not consolidated.  This
     new management approach may result in more information being disclosed than
     presently  practiced  and require new interim  information  not  previously
     presented.  The  Company  plans to adopt SFAS No. 131 during 1998 which may
     result in additional financial statement disclosures.

     RECLASSIFICATIONS

     Certain  reclassifications  have been made to the prior year's consolidated
     financial statements and related footnotes to conform to the current year's
     presentation.

2.   INVENTORIES

     Inventories consisted of the following at December 31, :


                                                  1997            1996
                                              --------------  --------------
                                            
     Raw materials                              $ 339,015       $ 280,080
     Finished goods                               192,182         117,747
                                              --------------  --------------
                                                $ 531,197       $ 397,827
                                              ==============  ==============
                                      

3.   PROPERTY AND EQUIPMENT

     Property and equipment consisted of the following at December 31,:


                                                     1997            1996
                                                 -------------  -------------

     Furniture, fixtures and office equipment      $ 94,324        $ 90,867
     Machinery and equipment                         85,963          80,422
     Leasehold improvements                           5,250           5,250
                                                 -------------  -------------
                                                    185,537         176,539
     Accumulated depreciation and amortization     (134,621)       (109,458)
                                                 -------------  -------------
                                                   $ 50,916        $ 67,081
                                                 =============  =============




                                       19


<PAGE>


                            SENTECH EAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4.   LONG-TERM DEBT

     Long-term debt consisted of the following at December 31,:

                                                    1997           1996
                                               -------------  -------------

     7.5% note payable to bank                   $ 16,657        $ 77,971
     8% mandatory convertible notes                53,000          53,000
     8% notes payable to shareholders                  _           17,500
     6% senior notes payable                      150,000         150,000
                                               -------------  -------------
                                                  219,657         298,471
     Current  maturities of long-term debt        (16,657)       (78, 881)
                                               -------------  -------------
                                                $ 203,000       $ 219,590
                                               =============  =============


NOTE PAYABLE TO BANK

The Company has a $225,000  four year loan  agreement  bearing  interest at 7.5%
with its principal lending bank. The note is collateralized by substantially all
the assets of the Company and contains certain restrictive covenants.  Principal
and interest payments of $5,429 are payable monthly through March 1998.

MANDATORY  CONVERTIBLE NOTES

Through  December  1994,  the  Company  issued 8%  Mandatory  Convertible  Notes
totaling in the aggregate  $932,250 due June 1997 of which $226,000 of the notes
were issued to related parties.  Upon an event resulting in the Company's common
stock  being  publicly  held as  defined  by the  note,  the notes  provide  for
mandatory  conversion at the rate of one share of common stock for each $3.49 of
outstanding amount of principal and accrued interest.  Interest at 8% is payable
annually in arrears.

During 1995,  $816,250 of the convertible  notes plus $125,642  accrued interest
were converted into common stock.

In June 1996,  the Company  tendered an offer to the holders of the  convertible
notes a one time  reduced  conversion  rate of $1.35 to induce  note  holders to
convert their notes to shares of the Company's common stock. Accordingly, during
1996,  $63,000 of the notes plus  $19,492  accrued  interest  were  converted to
58,381 shares of the Company's common stock.

The  maturity  date for the  remaining  $53,000  of the  convertible  notes  was
extended to January 2001 in exchange for warrants to purchase 5,000 common stock
shares at $2.40 per share of which  warrants  to  purchase  2,500  common  stock
shares at $2.40 per share were granted in 1998.

NOTES PAYABLE TO SHAREHOLDERS

During  1994,  the Company  issued 8% Notes  Payable  totaling in the  aggregate
$60,000 to three officers of the Company. Principal and interest were originally
due December 1994.

In June 1996,  two holders of $40,000 of the notes  tendered  the full amount of
the notes plus $5,602  accrued  interest in  exchange  for 33,778  shares of the
Company's  common  stock and 33,778  warrants to purchase the  Company's  common
stock.


                                       20

<PAGE>


                            SENTECH EAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pursuant to a Stock  Purchase  Agreement  in July 1996,  the  Company  purchased
102,129 shares of the Company's  common stock and the remaining  $20,000 balance
of the notes payable in exchange for $45,000 plus $5,000 accrued  interest.  The
agreement  provides for a monthly  payment  schedule  with certain  acceleration
clauses to pay the $50,000  aggregate  principal  balance by no later than April
1997. Principal bears interest at 8% payable monthly in arrears through no later
than April 1997.

SENIOR NOTES PAYABLE

In May 1995,  the Company issued to two directors of the Company 6% Senior Notes
totaling in the  aggregate  $330,000 due June 1997 with  detachable  warrants to
purchase  137,500 common stock shares expiring June 30, 1999.  Interest at 6% is
payable annually in arrears subject to certain net income requirements.

In June 1996, the Company tendered an offer to the holders of the senior notes a
one time  reduced  conversion  rate of $1.35 to induce  note  holders to convert
their notes to shares of the Company's common stock.  Accordingly,  during 1996,
one holder of $180,000 of the senior  notes  tendered the full amount in payment
of the exercise price of the detachable  warrant and received  133,333 shares of
the Company's common stock.

The maturity date for the remaining $150,000 of the senior notes was extended to
January 2001 in exchange for warrants to purchase  20,000 common stock shares at
$2.40 per share of which warrants to purchase 10,000 common stock shares at 2.40
per share were granted in 1998.

No interest was paid or payable on the senior notes during 1997 and 1996.

$16,657  and  $203,000  of the total  long-term  debt  matures in 1998 and 2001,
respectively.

5.   SHAREHOLDERS' EQUITY

     During 1996, the Company purchased and subsequently  retired 172,520 shares
     of the  Company's  common  stock from four  shareholders  for an  aggregate
     amount of $48,303.

     In April 1997,  pursuant to an underwritten  private offering , the Company
     consummated the sale of 343,894 units, each unit consisting of one share of
     common stock and one common stock purchase  warrant.  Each warrant  expires
     after five years of issuance and entitles the registered holder to purchase
     one share of common stock at a purchase  price equal to the lesser of $5.50
     or ten percent  above the  offering  price of a share of common  stock in a
     proposed  public  offering.  The net proceeds  received by the Company from
     this offering were approximately $706,620 of which $509,254 was received in
     December  1996.  The proceeds  are intended to be used for working  capital
     purposes  and payment of the balance due under a stock  purchase  agreement
     pursuant to which the Company  repurchased shares of common stock held by a
     former employee.

     In October 1997, the Company  issued 97,500 shares of the Company's  common
     stock pursuant to directors'  and officers'  compensation  agreements.  The
     Company  has  accounted  for the  issuance  of the shares of the  Company's
     common stock to the Company's  directors  and officers in  accordance  with
     Statement  of  Financial  Accounting  Standards  No.  123  "Accounting  for
     Stock-Based  Compensation".   Accordingly,  the  Company  included  in  the
     consolidated  statement of  operations  approximately  $34,000 or $0.35 per
     share of  compensation  expense.  For  purposes of  recording  compensation
     expense  related to the  Company's  directors'  and  officers'  stock based
     compensation,  each share of stock was valued using the net  tangible  book
     value per share.


                                       21
<PAGE>

                            SENTECH EAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


6.  STOCK OPTIONS AND WARRANTS

    The following schedule summarizes stock warrant activity and status,  after
    giving  retroactive  effect to the  December  1996 1 to 2.4  reverse  stock
    split:

<TABLE>
<CAPTION>

                                                               1997              1996
                                                          -------------    --------------

<S>                                                     <C>              <C>    
    Outstanding at beginning of year                           749,007          289,974
    Issued pursuant to private offering                         88,173          255,721
    Issued pursuant to compensation agreements                  30,000           -
    Issued to related parties                                   12,500          365,154
    Exercised                                                      -           (161,842)
    Expired                                                        -              -
                                                          -------------    ---------------
    Outstanding at end of year                                 879,680          749,007
                                                          =============    ===============


    Price range of warrants outstanding at end of year    $1.92 to 5.50      $1.92 to 5.50
    Price range of warrants exercised during the year          -                     $1.35
    Weighted average exercise price of currently 
          exercisable warrants                                 $4.60                 $4.60
    Weighted average exercise price of exercisable 
          warrants outstanding                                 $4.60                 $4.60

</TABLE>
7.  INCOME TAXES

    At December 31, 1996, the Company had net operating loss  carryforwards for
    income tax purposes of  approximately  $1,600,000 which may be available to
    offset future taxable income, if any, through 2012.

    Deferred tax  liabilities  (assets)  consisted of the following at December
    31,:

<TABLE>
<CAPTION>

                                                                  1997               1996
                                                             ----------------     ---------------

<S>                                                            <C>                  <C>       
     Net operating loss carryforwards                          $(543,000)           $(408,000)
     Valuation allowance                                         543,000              408,000
                                                             ----------------     ---------------
                                                                       -                -
                                                             ================     ===============
</TABLE>

A reconciliation  of the statutory income tax rate with the Company's  effective
income tax rate follows:
<TABLE>
<CAPTION>

                                                                        1997                1996
                                                                   ----------------     ---------------

<S>                                                                <C>                 <C>  
     Statutory federal income tax rate                                   34.0%               34.0%
     State income  tax, net of federal income tax benefit                 3.6                 3.6
     Federal tax benefit of net operating loss carryforward             (37.6)              (37.6)
                                                                   ----------------     ---------------
     Effective income tax rate                                            -                   -
                                                                   ================     ===============
</TABLE>

8.   SUPPLEMENTAL CASH FLOW INFORMATION

     Excluded from financing  activities in the 1996 Consolidated  Statements of
     Cash Flows is the conversion of $63,000 of mandatory convertible notes plus
     $19,492  accrued  interest to 58,381 shares of the Company's  common stock,
     the conversion of $40,000 of notes payable plus $5,602 accrued  interest to

                                       22

<PAGE>
                            SENTECH EAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     33,778 shares of the Company's common stock, and the conversion of $180,000
     of senior notes to 133,333 shares of the Company's common stock.

     The Company  paid cash for interest of $4,735 and $14,412 in 1997 and 1996,
     respectively.

     The Company paid no cash for income taxes in 1997 and 1996.

 9.  CONCENTRATION OF CREDIT RISK

     The  Company's  revenues  included  sales to one  customer  in 1997 and one
     customer in 1996 representing 35% and 16% of total revenues,  respectively.
     Approximately  $71,000 and $0 was due from each  customer  and  included in
     accounts  receivable  at  December  31,  1997 and 1996,  respectively.  The
     Company  minimizes  credit  risk  through   diversification  and  continued
     evaluation of its customers' financial condition and account status.

     During 1997 and 1996, the Company  purchased  approximately  49% and 35% of
     its  inventory  from  three  vendors  in 1997  and  two  vendors  in  1996,
     respectively,  of which approximately $182,000 and $180,000 were payable to
     the  suppliers  and  included in accounts  payable at December 31, 1997 and
     1996, respectively. The Company minimizes dependence on any one supplier by
     maintaining  sufficient alternative suppliers for each of its raw materials
     and finished goods.

     There  were no  material  concentrations  of sales or  accounts  receivable
     outside of the United States during December 31, 1997 and 1996.

10.  EMPLOYEE BENEFIT PLANS

     Effective January 1, 1998, the Company provides a 401(k) and profit sharing
     plan (the  "Plan") for  eligible  employees  whereby the  Company's  annual
     contributions  to the  Plan  are  made at the  discretion  of the  board of
     directors.

     An employee stock option plan (the "Plan") was adopted by the  shareholders
     of the Company in 1995.  After giving  effect to the December 1996 1 to 2.4
     reverse stock split,  the plan provides for 312,500  shares of common stock
     to be issued at the discretion of the  Compensation  Committee of the Board
     of Directors.  Of this amount,  156,250 shares may be purchased pursuant to
     the  exercise  of  incentive  stock  options,  and  156,250  shares  may be
     purchased pursuant to the exercise of non-qualified stock options. No stock
     options under the Plan have been granted as of December 31, 1997.

11.  COMMITMENTS AND CONTINGENCIES

     PURCHASE AND MANUFACTURING AGREEMENT

     In  June  1997,  the  Company  entered  into  a  three  year  purchase  and
     manufacturing  agreement (the  "Agreement")  with a company whose President
     and Chief  Executive  Officer is a director of the Company.  The  Agreement
     provides  for  the  development  and  manufacture  of the  Company's  third
     generation EAS system.  The Agreement  requires the Company to pay $175,000
     of non-recurring  engineering  costs in exchange for an assignment of fifty
     percent of the joint technology as defined by the Agreement.  Payments made
     for  non-recurring  engineering are recorded at cost and are amortized as a
     component of cost of revenues using the  units-of-production  method. As of
     December  31, 1997,  approximately  $117,000 of  non-recurring  engineering
     costs were  capitalized  of which $29,000 and $88,000 are included in other
     current assets and other assets, respectively.  At December 31, 1997, there
     were no  amortized  non-recurring  engineering  costs  included  in cost of
     revenues.  The  Agreement  also  requires  the Company to purchase  minimum
     quantities  of the system  each year  representing  an  aggregate  purchase
     commitment of $2,250,000  with annual  obligations  of $375,000 by February
     1998; $750,000 by January 1999; and $1,125,000 by January 2000.

                                       23


<PAGE>
                            SENTECH EAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     LEASES

     The Company leases its office and production facility and certain equipment
     under  non-cancelable  operating leases expiring through 2000. Rent expense
     for all operating leases approximated $41,000 and $38,000 in 1997 and 1996,
     respectively.  Future  minimum lease  payments for operating  leases having
     non-cancelable  terms  in  excess  of one  year at  December  31,  1997 are
     approximately  $45,000;  $45,000;  and  $8,000  in 1998,  1999,  and  2000,
     respectively.

     INSTALLATION AND CUSTOMER SERVICE AGREEMENT

     In July 1995, the Company entered into a service agreement effective August
     1995  with a  national  service  organization,  whose  President  and Chief
     Executive  Officer is a director of the  Company,  which  provides  for the
     installation  and servicing of any 8.2 MHz EAS system.  Any EAS systems not
     covered by the agreement are handled by the Company's  service personnel or
     other third party service  providers.  The agreement is for a one-year term
     and is automatically  renewable for one-year  periods unless  terminated in
     writing by either  party.  The Company  has not  received  any  termination
     notices  and  believes  its  relationship  with  the  service  provider  is
     favorable.  Although  there can be no assurance the  agreement  will not be
     terminated or will be renewed in the future,  the Company  anticipates  the
     agreement will automatically be renewed through August 1999. Costs incurred
     in connection  with this agreement were  approximately  $24,000 and $22,000
     for the years ended December 31, 1997 and 1996, respectively.

     LITIGATION

     The Company is involved in various claims and legal actions  arising in the
     ordinary course of business.  Although  management is unable to predict the
     ultimate  disposition  of these  matters,  the Company does not believe the
     resolution  of such  matters  will have a  material  adverse  effect on its
     consolidated financial position, results of operations, or liquidity.

     In October 1996, the Company was named as a defendant in a lawsuit filed in
     New Jersey  Superior  Court whereby the  plaintiff is seeking  damages with
     respect to certain  alleged  invoices  totaling  approximately  $20,000.  A
     motion to amend the pleadings was filed and granted to assert counterclaims
     and third party claims  against the plaintiff  and its officers for,  among
     other things,  false  designation  of origin under the federal  Lanham Act,
     violations  of statutory and common law unfair  competition,  trademark and
     trade dress infringement, and breach of contract all of which may result in
     damages exceeding  $1,000,000.  The Company's  counterclaim and third party
     claims  arose from an alleged  intentional  breach of a  requirements  type
     contract in which the  plaintiff  was  authorized  to  manufacture  for the
     Company certain  equipment for sale to third parties.  Although the Company
     has recorded in accrued  liabilities a provision of  approximately  $20,000
     for any liability which may result from the plaintiff's claims, the Company
     plans to continue to  vigorously  defend  against the  plaintiff's  alleged
     claims and to pursue its  counterclaims  and third party claims against the
     plaintiff.  While  there is no  assurance  as to the  outcome of this legal
     action,  management and legal counsel for the Company  believe the ultimate
     resolution  of this matter will not have a material  adverse  effect on its
     consolidated financial position or results of operations.



<PAGE>



ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

There were no changes in nor  disagreements  with the Company's  Accountants  on
accounting or financial disclosures.


                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION  16(A) OF THE EXCHANGE ACT

The  following  table sets forth  certain  current  information  concerning  the
directors and executive officers of the Company, including their ages, position,
and tenure as of the date hereof:
<TABLE>
<CAPTION>

                                    DIRECTOR/   
NAME                      AGE     OFFICER SINCE  POSITIONS WITH THE COMPANY
----                      ---     -------------  --------------------------

<S>                      <C>         <C>       <C>                                                     
Saul Pozensky             49          1992       President, Chief Executive Officer and Director

Ronald L. Meggison, Jr.   33          1996       Executive Vice President, Chief Financial
                                                 Officer, Corporate Secretary and Treasurer

Richard J. Spagna         36          1990       Vice President Operations and Director

Edward A. Mulhare         71          1994       Chairman of the Board of Directors

Milan Resanovich          67          1994       Vice Chairman of the Board of Directors

Thomas A. Nicolette       47          1997       Director
</TABLE>

Saul Pozensky joined the Company in November 1991 as a sales  representative and
became Vice President of Sales in 1992. He was elected to serve as a Director in
early 1995 and has served as the Company's President and Chief Executive Officer
since April 1995.  From 1988 to June 1991,  he was a principal  of CMAC, a sales
and  finance  business.  From  January  1986 to 1988,  Mr.  Pozensky  served  as
Executive Vice President of E.A.S.  Technologies,  a development  stage company.
From 1973 to 1985, Mr.  Pozensky was a National  Account Manager at Sensormatic.
Mr.  Pozensky  received a B.A. in Criminology  from Florida State  University in
1970.

Ronald L. Meggison, Jr. has served as Chief Financial Officer and Vice President
of Finance of the Company  since August 1996 and as Secretary  and  Treasurer of
the Company since April 1997. In February 1998, Mr. Meggison was named Executive
Vice  President.  Prior to  joining  the  Company,  Mr.  Meggison  served as the
Director of Finance from 1995 through 1996 at OMI Corporation, a manufacturer of
electro-optical  and  laser  components  and  systems.  From  1989 to 1995,  Mr.
Meggison was a C.P.A. at the international  accounting firm of KPMG Peat Marwick
LLP resigning as an audit manager.  Mr. Meggison received a degree in accounting
from North Carolina State University in 1989.

Richard J.  Spagna  founded  the  Company in 1990 when it was  originally  named
Ultimate EAS Inc. and served as President  until May 1991.  Since May 1991,  Mr.
Spagna has served as a Director and Vice  President  Operations.  Mr. Spagna was
employed by Sensormatic  Electronics  Corporation  from February 1980 to October
1989 in a  variety  of  positions  including  six  years  as  Technical  Support
Specialist.  While  at  Sensormatic,  Mr.  Spagna  was the  inventor  of two key
patented products which remain the property of Sensormatic.

Edward A. Mulhare has served as the  Chairman of the Board of the Company  since
May 1994. From 1982 to 1992, Mr. Mulhare served as the Chairman of the Board and
Chief  Executive  Officer of Merrill Lynch  Interfunding,  Inc., a  wholly-owned
subsidiary  of  Merrill  Lynch,  engaged  in the  management  of a $1.6  billion
leverage acquisition  portfolio.  From 1980 to 1982, he served as Executive Vice
President of Republic  National Bank of New York. For the prior twelve years, he
was a Vice President of Prudential 



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<PAGE>


Insurance  Company of America  where he managed a $4 billion  portfolio  of long
term commercial  loans and was Prudential's  specialist for rebuilding  troubled
companies.  Mr. Mulhare  currently  serves as a director of Advance  Publishers,
L.C., Akers laboratories,  Inc., and Realtec,  Inc. Over the past ten years, Mr.
Mulhare has served as a director of fifteen  companies  including  Aldila  Inc.,
Truck Components,  Inc.,  PanAmerica  Diamond Co., McGraw  Industries,  Inc. and
American  Silver Co. Mr.  Mulhare  received a B.S.  in  Accounting  from  Boston
University in 1950 and an M.B.A. from Farleigh Dikenson in 1978.

Milan  Resanovich has served as a Director of the Company since October 1994 and
has been a management  consultant  since 1992. From 1986 to 1992, he served as a
Senior Vice President, and then President at Merrill Lynch Interfunding, Inc. At
Merrill   Lynch   Interfunding,   Inc.   he  aided  in  the   management   of  a
leveraged-buyout investment fund. Prior to such time, Mr. Resanovich served as a
Vice President at Prudential  Insurance Company of America where he was employed
in investment  management from 1956 to 1986. Mr. Resanovich serves as a director
of Advance  Publishers,  L.C., SPD Technologies,  Inc. and Lancaster  Composites
Inc.  and has served as a director of more than ten  companies,  including  IMCO
Recycling,  a company  traded on the New York Stock  Exchange  from 1986 through
1995.  Mr.  Resanovich  received a B.A. from  Gettysburg  College in 1952 and an
M.B.A. from the University of Pennsylvania in 1956.

Thomas A. Nicolette has been President,  Chief Executive  Officer and a director
of Sentry  Technology  Corporation since January 1997 and of Knogo North America
Inc. since its inception in August 1994. Prior thereto,  Mr. Nicolette served in
various  capacities at Knogo  Corporation  where he was Chief Executive  Officer
from May 1994 to December 1994;  President and Chief Operating Officer from 1990
to May 1994;  President of the North America  Division  from 1989 to 1990;  Vice
President  from 1986 to 1990;  and a Director  from 1987 to December  1994.  Mr.
Nicolette  is  Vice  Chairman  of the  Board  of  Trustees  of  WLIW,  the  Long
Island-based affiliate of the Public Broadcasting System. Mr. Nicolette received
a B.S.  in  Criminal  Justice  and a B.A.  in  Management  from  Michigan  State
University in 1972.

SECTION 16(A) REPORTING

Under the Securities  laws of the United States,  the Company's  directors,  its
executive and certain  other  officers,  and any persons  holding ten percent or
more of the  Company's  common  stock  must  report  on their  ownership  of the
Company's  common stock and any changes in that  ownership to the Securities and
Exchange  Commission  and to the National  Association  of  Securities  Dealers,
Inc.'s  Automated  Quotation  System.  Specific due dates for these reports have
been established.  During the year ended December 31, 1997, the Company does not
believe any reports required to be filed by Section 16(a) were filed on a timely
basis, if at all.

ITEM 10. EXECUTIVE COMPENSATION

Incorporated by reference from the Registrant's  definitive proxy statement,  to
be filed in accordance  with Rule 14a-101 with the Commission not later than 120
days after the end of the fiscal year covered by this form.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated by reference from the Registrant's  definitive proxy statement,  to
be filed in accordance  with Rule 14a-101 with the Commission not later than 120
days after the end of the fiscal year covered by this form.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference from the Registrant's  definitive proxy statement,  to
be filed in accordance  with Rule 14a-101 with the Commission not later than 120
days after the end of the fiscal year covered by this form.


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<PAGE>

ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K

EXHIBITS

The following documents are filed as a part of this report:

EXHIBIT
NUMBER                EXHIBIT DESCRIPTION
------                -------------------

10.1                  Agreement by and between SenTech EAS Corporation and Knogo
                      North America Inc. dated June 1, 1997







                                       27


<PAGE>


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized, on March 27, 1998.

                                              SENTECH EAS CORPORATION
                                             
                                              By: /s/ RONALD L. MEGGISON, JR.

                                              -------------------------------
                                              Ronald L. Meggison, Jr.
                                              Executive Vice President and
                                              Chief Financial Officer
                           
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the  following  persons on behalf of the Company and in
the capacities indicated on March 27, 1998.


SIGNATURE                          TITLE
---------                          -----

/s/ SAUL POZENSKY                  President and Chief Executive Officer
---------------------------        (Principal Executive Officer) and Director
     Saul Pozensky

/s/ RONALD L. MEGGISON, JR.        Executive Vice President and Chief Financial
---------------------------        Officer (Principal Financial Officer)
     Ronald L. Meggison, Jr.

/s/ RICHARD J. SPAGNA              Vice President Operations and Director
--------------------------- 
     Richard J. Spagna

/s/ EDWARD A. MULHARE              Chairman of the Board of Directors
--------------------------- 
     Edward A. Mulhare

/s/ MILAN RESANOVICH               Director
--------------------------- 
     Milan Resanovich

/s/ THOMAS A. NICOLETTE            Director
--------------------------- 
     Thomas A. Nicolette




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