##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---

Form 10-QSB

Mark One

|    |  |                                                                                  
|--- |  | ---------------------------------------------------------------------------------
|[X] |  | Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
|   
|    |  | For Quarterly Period Ended December 31, 2001                                     

or

|      |                                                                                    |  |  | 
|----- | ---------------------------------------------------------------------------------- |  |  | 
|[   ] | Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition period from  to

Commission File Number 000-08193

SENSYTECH, INC.

|                                |  |                    
|------------------------------- |  | -------------------
|Delaware                        |  | 38-1873250         
|(State or other jurisdiction of |  | (I.R.S. Employer   
|incorporation or organization)  |  | Identification No.)

8419 Terminal Road, Newington, Virginia 22122-1430
(Address of principal executive offices)

Issuers telephone number (703)550-7000

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, and (2) has been subject to such filing requirements for the past 90
days.

Yes x   No

As of February 5, 2002, there were 4,037,978 shares of the Registrants Common Stock, par value $.01 per share, outstanding.

Transitional Small Business Disclosure Format (check one):

Yes  No x





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##### 



SENSYTECH, INC. AND SUBSIDIARIES

INDEX

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

|                                                           |                                                            |  |    |       |  | 
|---------------------------------------------------------- | ---------------------------------------------------------- |  | -- | ----- |  | 
|                                                           |                                                            |  |    | Pages
|Condensed Consolidated Balance Sheets at                   |                                                            |  |    |      
|                                                           | December 31, 2001 and September 30, 2001                   |  |    | 3-4   | 
|                                                          
|Condensed Consolidated Statements of Income for the        |                                                            |  |    |      
|                                                           | Three Months Ended December 31, 2001 and December 31, 2000 |  |    | 5     | 
|                                                          
|Condensed Consolidated Statements of Cash Flows for the    |                                                            |  |    |      
|                                                           | Three Months Ended December 31, 2001 and December 31, 2000 |  |    | 6     | 
|                                                          
|Notes to Condensed Consolidated Financial Statements       |                                                            |  | 7  |      
|                                                          
|Item 2. Managements Discussion and Analysis of Results of |                                                            |  |    |      
|                                                           | Operations and Financial Condition                         |  |    | 9-12  | 
|                                                          
|PART II. OTHER INFORMATION                                 |                                                            |  |    |      
|                                                          
|Item 6. Exhibits and Reports on Form 8-K                   |                                                            |  | 12 |      
|                                                          
|Signatures                                                 |                                                            |  | 13 |      

2



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##### 



SENSYTECH, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

|                       |                                                    |                      |                      |           |              |            |               |           |           |            | 
|---------------------- | -------------------------------------------------- | -------------------- | -------------------- | --------- | ------------ | ---------- | ------------- | --------- | --------- | ---------- | 
|                       |                                                    |                      |                      |           | December 31, |            | September 30,
|                       |                                                    |                      |                      |           | 2001         |            | 2001         
|                       |                                                    |                      |                      |           |              |            |              
|                       |                                                    |                      |                      |           | (Unaudited)  |            | *            
|CURRENT ASSETS         |                                                    |                      |                      |           |              |            |               |          
|                       | Cash and cash equivalents                          |                      | $                    | 4,450,000 |              |            | $             | 4,362,000 |          
|                       | Accounts receivable, net of allowance for doubtful |                      |                      |           |              |            |               |           |          
|                       |                                                    | accounts of $200,000 |                      |           | 3,830,000    |            |               |           | 3,091,000 |           
|                       | Unbilled contract costs, net                       |                      |                      | 4,213,000 |              |            |               | 3,563,000 |          
|                       | Refundable income taxes                            |                      |                      | 160,000   |              |            |               | 392,000   |          
|                       | Inventories                                        |                      |                      | 1,180,000 |              |            |               | 30,000    |          
|                       | Deferred income taxes                              |                      |                      | 313,000   |              |            |               | 341,000   |          
|                       | Other current assets                               |                      |                      | 84,000    |              |            |               | 139,000   |          
|                       |                                                    |                      |                      |           |              |            |               |          
|                       |                                                    |                      | TOTAL CURRENT ASSETS |           |              | 14,230,000 |               |           |           | 11,918,000 | 
|PROPERTY AND EQUIPMENT |                                                    |                      | 1,753,000            |           |              |            | 1,429,000     |          
|OTHER ASSETS           |                                                    |                      |                      |           |              |            |               |          
|                       | Deferred income taxes                              |                      |                      | 304,000   |              |            |               | 304,000   |          
|                       | Other assets                                       |                      |                      | 133,000   |              |            |               | 115,000   |          
|                       |                                                    |                      |                      |           |              |            |               |          
|                       |                                                    |                      | TOTAL ASSETS         |           | $            | 16,420,000 |               |           | $         | 13,766,000 | 
|                       |                                                    |                      |                      |           |              |            |               |          

*The year-end balance sheet data was summarized from audited financial statements, but does not include
all disclosures required by generally accepted accounting principles.

The accompanying notes are an integral part of these condensed consolidated financial statements.

3



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##### 



SENSYTECH, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS, continued

LIABILITIES AND STOCKHOLDERS EQUITY

|                     |                                                  |                                            |            |              |            |               |            |           |            | 
|-------------------- | ------------------------------------------------ | ------------------------------------------ | ---------- | ------------ | ---------- | ------------- | ---------- | --------- | ---------- | 
|                     |                                                  |                                            |            | December 31, |            | September 30,
|                     |                                                  |                                            |            | 2001         |            | 2001         
|                     |                                                  |                                            |            |              |            |              
|                     |                                                  |                                            |            | (Unaudited)  |            | *            
|CURRENT LIABILITIES  |                                                  |                                            |            |              |            |               |            |          
|                     | Accounts payable                                 |                                            | $          | 579,000      |            |               | $          | 450,000   |           
|                     | Accrued salaries, benefits, and related expenses |                                            |            | 721,000      |            |               |            | 822,000   |           
|                     | Accrued severance pay                            |                                            |            | 238,000      |            |               |            | 290,000   |           
|                     | Other accrued expenses                           |                                            |            | 177,000      |            |               |            | 73,000    |           
|                     | Billings in excess of costs                      |                                            |            | 2,245,000    |            |               |            | 145,000   |           
|                     |                                                  |                                            |            |              |            |               |            |          
|                     |                                                  | TOTAL CURRENT LIABILITIES                  |            |              | 3,960,000  |               |            |           | 1,780,000  | 
|STOCKHOLDERS EQUITY |                                                  |                                            |            |              |            |               |            |          
|                     | Common stock                                     |                                            |            | 41,000       |            |               |            | 41,000    |           
|                     | Additional paid-in capital                       |                                            |            | 7,543,000    |            |               |            | 7,482,000 |           
|                     | Treasury stock, at cost                          |                                            |            | (525,000     | )          |               |            | (525,000  | )         
|                     | Retained earnings                                |                                            |            | 5,401,000    |            |               |            | 4,988,000 |           
|                     |                                                  |                                            |            |              |            |               |            |          
|                     |                                                  |                                            | 12,460,000 |              |            |               | 11,986,000 |          
|                     |                                                  |                                            |            |              |            |               |            |          
|                     |                                                  | TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |            | $            | 16,420,000 |               |            | $         | 13,766,000 | 
|                     |                                                  |                                            |            |              |            |               |            |          

*The year-end balance sheet data was summarized from audited financial statements, but does not include
all disclosures required by generally accepted accounting principles.

The accompanying notes are an integral part of these condensed consolidated financial statements.

4



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##### 



SENSYTECH, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

|                           |                                     |                          |          |           |                    |   |             |           |  |  | 
|-------------------------- | ----------------------------------- | ------------------------ | -------- | --------- | ------------------ | - | ----------- | --------- |  |  | 
|                           |                                     |                          |          |           | Three Months Ended
|                           |                                     |                          |          |           | December 31,      
|                           |                                     |                          |          |           |                   
|                           |                                     |                          |          |           | 2001               |   | 2000       
|                           |                                     |                          |          |           |                    |   |            
|                           |                                     |                          |          |           | (Unaudited)        |   | (Unaudited)
|REVENUE                    |                                     |                          |          |           |                    |   |             |          
|                           | Contract revenue                    |                          | $        | 4,409,000 |                    |   | $           | 4,265,000 | 
|                           |                                     |                          |          |           |                    |   |             |          
|COSTS AND EXPENSES         |                                     |                          |          |           |                    |   |             |          
|                           | Cost of revenues                    |                          |          | 2,993,000 |                    |   |             | 3,270,000 | 
|                           | General and administrative expenses |                          |          | 772,000   |                    |   |             | 526,000   | 
|                           |                                     |                          |          |           |                    |   |             |          
|                           |                                     | Total costs and expenses |          | 3,765,000 |                    |   |             | 3,796,000 | 
|                           |                                     |                          |          |           |                    |   |             |          
|INCOME FROM OPERATIONS     |                                     |                          | 644,000  |           |                    |   | 469,000     |          
|OTHER INCOME               |                                     |                          |          |           |                    |   |             |          
|                           | Interest income, net                |                          |          | 18,000    |                    |   |             | 15,000    | 
|                           | Other income, net                   |                          |          | 26,000    |                    |   |             | 28,000    | 
|                           |                                     |                          |          |           |                    |   |             |          
|INCOME BEFORE INCOME TAXES |                                     |                          | 688,000  |           |                    |   | 512,000     |          
|INCOME TAX PROVISION       |                                     |                          | (275,000 | )         |                    |   | (205,000    | )        
|                           |                                     |                          |          |           |                    |   |             |          
|NET INCOME                 |                                     | $                        | 413,000  |           |                    | $ | 307,000     |          
|                           |                                     |                          |          |           |                    |   |             |          
|PER SHARE AMOUNTS (Note 2) |                                     |                          |          |           |                    |   |             |          
|                           | Basic earnings per share            |                          | $        | 0.10      |                    |   | $           | 0.08      | 
|                           |                                     |                          |          |           |                    |   |             |          
|                           | Diluted earnings per share          |                          | $        | 0.10      |                    |   | $           | 0.08      | 
|                           |                                     |                          |          |           |                    |   |             |          

The accompanying notes are an integral part of these condensed consolidated financial statements.

5



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SENSYTECH, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                  |                                                 |   |           |          |   |                    |           |             |   |  |  | 
|------------------------------------------------- | ----------------------------------------------- | - | --------- | -------- | - | ------------------ | --------- | ----------- | - |  |  | 
|                                                  |                                                 |   |           |          |   | Three Months Ended |          
|                                                  |                                                 |   |           |          |   | December 31,       |          
|                                                  |                                                 |   |           |          |   | 2001               |           | 2000       
|                                                  |                                                 |   |           |          |   |                    |           |            
|                                                  |                                                 |   |           |          |   | (Unaudited)        |           | (Unaudited)
|                                                 
|Net cash provided by operating activities         |                                                 | $ | 489,000   |          |   | $                  | 807,000   |            
|                                                  |                                                 |   |           |          |   |                    |           |            
|Cash flows from investing activities:             |                                                 |   |           |          |   |                    |           |            
|                                                  | Equipment acquired from FEL Corporation         |   | $         | (400,000 | ) |                    | $         |            |  
|                                                  | Net acquisitions of property and equipment      |   |           | (47,000  | ) |                    |           | (81,000     | )
|                                                  |                                                 |   |           |          |   |                    |           |            
|                                                  | Net cash (used in) investing activities         |   | $         | (447,000 | ) |                    | $         | (81,000     | )
|                                                  |                                                 |   |           |          |   |                    |           |            
|Cash flows from financing activities:             |                                                 |   |           |          |   |                    |           |            
|                                                  | Payments on purchase of treasury stock          |   | $         |         |   |                    | $         | (5,000      | )
|                                                  | Principal payments on capital lease obligations |   |           |         |   |                    |           | (12,000     | )
|                                                  | Proceeds of stock option exercises              |   |           | 46,000   |   |                    |           | 36,000      |  
|                                                  |                                                 |   |           |          |   |                    |           |            
|                                                  | Net cash provided by financing activities       |   |           | 46,000   |   |                    |           | 19,000      |  
|                                                  |                                                 |   |           |          |   |                    |           |            
|Net increase in cash and cash equivalents         |                                                 |   | 88,000    |          |   |                    | 745,000   |            
|Cash and cash equivalents, beginning of period    |                                                 |   | 4,362,000 |          |   |                    | 1,512,000 |            
|                                                  |                                                 |   |           |          |   |                    |           |            
|Cash and cash equivalents, end of period          |                                                 | $ | 4,450,000 |          |   | $                  | 2,257,000 |            
|                                                  |                                                 |   |           |          |   |                    |           |            
|Supplemental disclosure of cash flow information: |                                                 |   |           |          |   |                    |           |            
|                                                  | Cash paid for interest                          |   | $         | 3,000    |   |                    | $         |            |  
|                                                  |                                                 |   |           |          |   |                    |           |            
|                                                  | Cash paid for income taxes                      |   | $         |         |   |                    | $         |            |  
|                                                  |                                                 |   |           |          |   |                    |           |            

The accompanying notes are an integral part of these condensed consolidated financial statements.

6



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SENSYTECH, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

|   |  |                      
|-- |  | ---------------------
|1. |  | BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting
principles for interim financial information for commercial and industrial companies and with the instructions to Form 10-QSB and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for fair presentation have been included. Operating results for the three-month period
ended December 31, 2001, are not necessarily indicative of the results that may be expected for the fiscal year ending September 30,
2002. Inter-company accounts and transactions have been eliminated in consolidation. For further information, refer to Sensytech,
Inc.s Annual Report on Form 10-KSB for the year ended September 30, 2001.

|   |  |            
|-- |  | -----------
|2. |  | INVENTORIES

Inventories consist of the following:

|                                 |  |      |              |      |  |   |        | 
|-------------------------------- |  | ---- | ------------ | ---- |  | - | ------ | 
|                                 |  |      | December 31, |     
|                                 |  | 2001 |              | 2000
|Raw materials                    |  | $    | 295,000      |      |  | $ |       | 
|Component parts, work in process |  |      | 775,000      |      |  |   |       | 
|Finished component parts         |  |      | 110,000      |      |  |   | 30,000 | 
|                                 |  |      |              |      |  |   |        | 
|                                 |  | $    | 1,180,000    |      |  | $ | 30,000 | 
|                                 |  |      |              |      |  |   |        | 

|   |  |                   
|-- |  | ------------------
|3. |  | EARNINGS PER SHARE

The computation of net earnings per share is based on the weighted average number of shares of common stock outstanding during the
periods presented. The weighted average number of shares used in the basic earnings per share calculation were 3,966,980 and
3,955,122 for the three-month periods ended December 31, 2001 and 2000, respectively. The weighted average number of shares used in
the diluted earnings per share calculation were 4,056,808 and 4,035,402 for the three-month periods ended December 31, 2001 and 2000,
respectively.

7



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|                                               |  |              |           |      |  |   |           | 
|---------------------------------------------- |  | ------------ | --------- | ---- |  | - | --------- | 
|                                               |  | December 31,
|                                               |  |             
|                                               |  | 2001         |           | 2000
|                                              
|Net income                                     |  | $            | 413,000   |      |  | $ | 307,000   | 
|                                               |  |              |           |      |  |   |           | 
|Weighted average shares outstanding  basic    |  |              | 3,966,980 |      |  |   | 3,955,122 | 
|Effect of dilutive securities:                 |  |              |           |      |  |   |           | 
|Shares issuable upon exercise of stock options |  |              | 89,828    |      |  |   | 80,280    | 
|                                               |  |              |           |      |  |   |           | 
|Weighted average shares outstanding  diluted  |  |              | 4,056,808 |      |  |   | 4,035,402 | 
|Basic earnings per share                       |  | $            | .10       |      |  | $ | .08       | 
|Diluted earnings per share                     |  | $            | .10       |      |  | $ | .08       | 

|   |  |                  
|-- |  | -----------------
|4. |  | SUBSEQUENT EVENTS

On February 1, 2002, the Company acquired additional assets of FEL Corporation (FEL) for $1,850,000. The Company assumed no leases, but
negotiated a lease for certain of its existing facilities.

The Company will continue performance of contracts for the production of the AN/SLQ-25A Surface Ship
Torpedo Defense System, AN/SRQ-4 Shipboard Radio Terminal for the LAMPS System, MK-65 Quickstrike Mine, and selected other
contracts previously performed by FEL.

The Company will account for this transaction using
the Statements of Financial Accounting Standards No. 141 "Business Combinations" and No. 142
"Goodwill and Other Intangible Assets."

|   |  |                  
|-- |  | -----------------
|5. |  | SEGMENT REPORTING

The Company operates in the passive surveillance and countermeasures market for domestic and international clients. The Companys
systems are globally applicable to the defense markets and their allied information agencies for land, air, and sea-based
applications. The Company is customer-focused by providing tailored solution-based systems as follows:



| |  | Electronic Warfare (EW) Group designs, develops, and supports products which intercept, analyze, classify, identify,
localize and track microwave signals from radars and weapons. The Companys Electronic Support Measure (ESM) systems are
used on military platforms, such as ships, submarines, patrol aircraft, and ground installations, to intercept, analyze and
identify radar/weapon signals. Where the client desires to obtain electronic countermeasures for these potential threats,
the Electronic Warfare Group provides integrated Electronic Countermeasures (ECM) systems for both tactical and training
scenarios.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Communication (Comms) Group designs, develops, and supports products which intercept signals, analyze the on-line
communication, and identify and localize the involved parties. These systems are generally employed in aircraft, ships and
ground installations to intercept transmissions occurring over established communications networks.                                                                                                                                                                                                                                                                                       
| 
| |  | Imaging Group designs, develops, and supports products for multispectral, infrared, and light imaging systems which are
employed on land and on aircraft for the remote sensing of damage assessment, environmental pollution, facility inspection,
utility monitoring, and situation awareness.                                                                                                                                                                                                                                                                                                                                       

8



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##### 



The Company does not have a significant amount of inter-segment revenue and evaluates segment performance based upon revenue and
income from operations by group. The combined segments income from operations equals the income from operations as reported in the
Consolidated Statements of Income of the Company. The Company does not allocate interest, other income and expenses or income taxes
to the three segments and does not produce separate balance sheet information for each segment. The revenue and income from
operations by segment for the three months ended December 31, 2001 and 2000 are as follows:

|                               |         |  |              |           |      |  |   |           |  
|------------------------------ | ------- |  | ------------ | --------- | ---- |  | - | --------- | -
|                               |         |  | December 31,
|                               |         |  | 2001         |           | 2000
|Revenue:                       |         |  |              |           |      |  |   |          
|                               | EW      |  | $            | 1,617,000 |      |  | $ | 2,899,000 |  
|                               | Comms   |  |              | 1,779,000 |      |  |   | 1,166,000 |  
|                               | Imaging |  |              | 1,013,000 |      |  |   | 200,000   |  
|                               |         |  |              |           |      |  |   |           |  
|                               | Total   |  | $            | 4,409,000 |      |  | $ | 4,265,000 |  
|                               |         |  |              |           |      |  |   |           |  
|Income (Loss) From Operations: |         |  |              |           |      |  |   |          
|                               | EW      |  | $            | 46,000    |      |  | $ | 234,000   |  
|                               | Comms   |  |              | 421,000   |      |  |   | 286,000   |  
|                               | Imaging |  |              | 177,000   |      |  |   | (51,000   | )
|                               |         |  |              |           |      |  |   |           |  
|                               | Total   |  | $            | 644,000   |      |  | $ | 469,000   |  
|                               |         |  |              |           |      |  |   |           |  

Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition

The following discussion provides information which management believes is relevant to an assessment and understanding of the
Companys operations and financial condition. This discussion should be read in conjunction with the condensed consolidated
financial statements and accompanying notes.

Forward-Looking Statements

Statements in this filing which are not historical facts are forward-looking statements under the provisions of the Private
Securities Litigation Reform Act of 1995. All forward-looking statements involve risks and uncertainties. These statements are
based upon numerous assumptions about future conditions that could prove not to be accurate. Actual events, transactions or results
may materially differ from the anticipated events, transactions or results described in such statements. The Companys ability to
consummate such transactions and achieve such events or results is subject to certain risks and uncertainties. In addition to those
specifically mentioned above, such risks and uncertainties include, but are not limited to, the existence of demand for, and
acceptance of, the Companys products and services, regulatory approvals and developments, economic conditions, the impact of
competition and pricing, results of financing efforts and other factors affecting the Companys business that are beyond the
Companys control. The Company undertakes no obligation and does not intend to update or revise these forward-looking statements to
reflect future events or circumstances.

9



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##### 



Inventories

Inventories are stated at the lower of cost or market, determined on the first-in, first-out basis. Inventories
consist of component
parts work in process, raw materials, and finished component parts which are held for use in current and future anticipated contracts.
The production of these components is expected to reduce the lead time for certain contract deliverables.

Revenue Recognition

Revenue is primarily recognized on the percentage of completion basis. The Company closely monitors contract performance and cost on
a monthly cycle, and feels that its estimation processes are appropriate. The Company accrues revenues using the percentage of
completion method, based on the ratio of costs incurred to date over total anticipated costs. Management believes that this is an
accurate measure of the percentage completed on its contracts. Program estimates of costs to complete are processed and reviewed on
a monthly basis. The Company currently has no contracts for which it has not recorded any anticipated losses.

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting periods. Some of the
most significant estimates used in preparing the financial
statements relate to contract accounting, collectability of accounts receivable and accrued expenses.

Research and Development

Internally funded research and development costs are included in general and administrative expenses in the consolidated income
statements. The Companys applied research and development in the current quarter focused on advanced scanning capabilities, an upgrade to a digital
receiver and upgraded pulse analyzer; all are expected to assist in anticipated future contracts. The amount of internally funded research and development costs expensed during the three month
periods ended December 31, 2001 and 2000 are $340,000 and $81,000, respectively.

Results of Operations

Revenue for the three months ended December 31, 2001, was $4,409,000 compared to $4,265,000 for the three months ended December 31,
2000, resulting in a $144,000 or 3.4% increase. The increase was primarily due to new contract awards in the Communications Group
and Imaging Group which offset the reduction in revenue experienced in the Electronic Warfare Group. The Electronic Warfare Group
substantially completed the AIEWS subcontract from Lockheed Martin in support of the U.S. Navy. This subcontract generated
approximately 32% of the fiscal year 2001 revenue compared to approximately 4% of the fiscal year 2002 revenue for the three months
ended December 31, 2001.

The total amount of negotiated backlog, including both unfilled firm orders for the Companys products for which funding had been
authorized and appropriated by the customer, and firm orders for which funding had not been appropriated as of December 31, 2001 and
2000, was $8,020,000 and $6,658,747, respectively. This increase is the result of recent contract awards. The majority of the
authorized and appropriated unfilled orders at December 31, 2001 are expected to be completed within a year. Since December 31,
2001, the Company has received contracts totaling $2,700,000.

Cost of revenue, as a percentage of revenue, decreased from 76.7% for the three months ended December 31, 2000 to 67.9% for the three
months ended December 31, 2001. The decrease resulted from new international and domestic contracts awarded over the last three to
six months which generated higher margins than the contracts performed during the same period last year.

10



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##### 



For the three months ended December 31, 2001, general and administrative expenses increased from $526,000 to $772,000 or a 46.7%
increase. The increase is due primarily to the increase in internal research and development costs of $259,000.

Net interest income was $18,000 for the three months ended December 31, 2001 compared to $15,000 for the three months ended December
31, 2000. The change was due to higher daily invested balances, however, the average rate of return for the three month period
decreased from 6.08% to 2.06%. Net other income was $26,000 for the three-month period ending December 31, 2001, a decrease of $2,000
for the same period last year.

Income tax expense consists of federal and state income tax. The Companys effective tax rate was 40% for the three-month periods
ended December 31, 2001 and 2000. The rate varied from the statutory rate primarily due to state taxes.

Net income for the three months ended December 31, 2001, increased to $413,000, compared to net income of $307,000 for the three
months ended December 31, 2000. The increase of $106,000 was the result of the items discussed above.

Liquidity and Sources of Capital

Cash flows provided by operating activities were $489,000 for the three months ended December 31, 2001, compared to cash flows
provided by operating activities of $807,000 for the three months ended December 31, 2000. The decrease is due primarily to
an increase in inventory of $1,150,000, and an increase in billed and unbilled receivables of $1,389,000 offset by net contract
prepayments of $2,100,000 for the three months ended December 31, 2001.

Cash flows used in investing activities were $447,000 and $81,000 for the three months ended December 31, 2001 and 2000,
respectively. During the current quarter, the Company acquired property and equipment used in the California operations of FEL
Corporation for $400,000. The remaining expenditures of $47,000 were related to
the acquisition of other property and equipment.
The Company acquired additional assets of FEL Corporation for $1,850,000 in February 2002. The Company
paid for these acquisitions using cash generated from operations.
The Company anticipates that it will continue to incur capital expenditures at
approximately $50,000 per quarter through the end of the fourth quarter of fiscal year 2002.

Net cash provided by financing activities was $46,000 and $19,000 for the three months ended December 31, 2001 and 2000,
respectively. The 2001 and 2000 activities were principally the result of the proceeds of stock option exercises offset by the
payment of capital lease obligations. The Companys existing $5,000,000 line of credit and related note payable with its bank expires
on February 28, 2002. At December 31, 2001, the Company was in compliance with the covenants contained in the line of credit
agreement. The Company issued standby letters of credit amounting to $2,936,000 as of December 31, 2001. Letters of credit are
issued to international customers as collateral primarily for advance payments made by the customer pending final delivery of a
product or service. The outstanding letters of credit are treated as funded debt and applied against the line of credit availability.
There were no other amounts outstanding as of December 31, 2001. The Company is currently renegotiating to extend its line of credit
for an additional twelve months, and to increase the line to $10,000,000 to accommodate the standby letters of credit for anticipated
international contracts. However, no assurance can presently be made that it will obtain such financing, or if obtained, the terms of
such financing.

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The Company has commitments under noncancelable operating leases
with unrelated third parties for its office and production equipment and
facilities with the following scheduled payments as of December 31, 2001:
remainder of 2002, $598,000; 2003, $805,000; 2004, $613,000; 2005, $498,000; 2006, $501,000;
and thereafter, $4,595,000.

The Company believes that its existing funds, amounts generated by operations, and amounts available for borrowing under its line of
credit will be sufficient to meet its working capital needs through the next twelve months.



PART II. OTHER INFORMATION



Item 6. Exhibits and Reports on Form 8-K

Reports on Form 8-K. The Company did not file any Reports on Form 8-K during this period.

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SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|                  |  |                                                                                              
|----------------- |  | ---------------------------------------------------------------------------------------------
|                  |  | SENSYTECH, INC.                                                                              
|                 
|February 14, 2002 |  | By:   /s/ S. Kent Rockwell
S. Kent Rockwell
Chairman, Chief Executive Officer
& President    
|                 
|                  |  | By:  /s/ Donald F. Fultz
Donald F. Fultz
Vice President, Treasurer, & Chief
Financial Officer

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