<PAGE>   1

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-Q

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


For the quarter ended October 31, 1997             Commission File Number 0-8193


                                       OR


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


For the transition period from                          to
                               ------------------------    ---------------------


                           DAEDALUS ENTERPRISES, INC.
                           --------------------------
             (Exact name of registrant as specified in its charter)

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



             P.O. BOX 1869
             -------------
       ANN ARBOR, MICHIGAN 48106                         (313) 769-5649
       -------------------------                         --------------
(Address of principal executive offices)         (Registrant's telephone number)




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 (X)      No ( )

Number of shares outstanding of common stock, $.01 par value, as of December 3, 
1997

                                 534,574 shares
<PAGE>   2

                                                                      FORM 10-Q

                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

                 DAEDALUS ENTERPRISES, INC. AND SUBSIDIARIES
         CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED

<TABLE>
<CAPTION>
                                                                                Three Months Ended
                                                                                    October 31,
------------------------------------------------------------------------------------------------------------
                                                                                1997              1996
------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                <C>
OPERATING REVENUE
     Standard products                                                   $       356,588    $       586,746
     Product development                                                         113,589            256,331
------------------------------------------------------------------------------------------------------------
                                                                                 470,177            843,077
     Other Income                                                                 13,492              2,740
------------------------------------------------------------------------------------------------------------
                                                                                 483,669            845,817
COST AND EXPENSES
   Cost of revenue - standard products                                           218,619            307,455
   Cost of revenue - product development                                         136,958            213,808
   Research and development                                                        9,855             29,128
   Selling and administrative                                                    204,333            256,949
   Interest                                                                       10,507             15,618
------------------------------------------------------------------------------------------------------------
                                                                                 580,272            822,958
------------------------------------------------------------------------------------------------------------

                           NET EARNINGS (LOSS) BEFORE INCOME TAXES              (96,603)             22,859
CREDIT FOR INCOME TAXES - NOTE C                                                      0                   0
------------------------------------------------------------------------------------------------------------


                                             NET EARNINGS (LOSS)         $      (96,603)    $        22,859
-------------------------------------------------------------------------===================================

                                     NET EARNINGS (LOSS) PER SHARE       $        (0.18)    $          0.04
-------------------------------------------------------------------------===================================
</TABLE>




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



<PAGE>   3
                                                                       FORM 10-Q

                  DAEDALUS ENTERPRISES, INC. AND SUBSIDIARIES
                     CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                             October 31,         July 31,
                                                                                1997               1997
                                                                             (unaudited)
-------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                <C>
ASSETS - Note D


CURRENT ASSETS
   Cash and cash equivalents                                               $        7,293     $       39,068
   Accounts receivable, less allowance of $2,500                                  137,279            239,703
   Unbilled accounts receivable                                                   225,117             28,500
   Inventories - Note B                                                           575,842            601,462
   Other current assets                                                            19,151             18,075
-------------------------------------------------------------------------------------------------------------
                                                TOTAL CURRENT ASSETS              964,682            926,808
PROPERTY AND EQUIPMENT
   Land                                                                           177,131            177,131
   Building                                                                     1,433,898          1,433,898

   Machinery and equipment                                                        841,766            831,767
   Special equipment                                                              464,921            445,310
-------------------------------------------------------------------------------------------------------------
                                                                                2,917,716          2,888,106
   Less accumulated depreciation                                               (1,774,447)        (1,745,474)
-------------------------------------------------------------------------------------------------------------
                                                                                1,143,269          1,142,632
OTHER ASSETS                                                                          250                250
-------------------------------------------------------------------------------------------------------------

                                                                           $    2,108,201     $    2,069,690
---------------------------------------------------------------------------==================================
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
   Note payable to bank - Note D                                           $      310,000     $            0
   Accounts payable                                                                71,233            197,563
   Accrued compensation and related costs                                          76,817            103,369
   Customer deposits                                                               33,300             57,142
   Reserve for product warranties                                                  30,000             30,000
   Other accrued liabilities                                                       33,935             28,274
   Mortgage debt - Note D                                                         237,332            242,238
-------------------------------------------------------------------------------------------------------------
                                           TOTAL CURRENT LIABILITIES              792,617            658,586

STOCKHOLDERS' EQUITY
   Common stock, $.01 par value
       Authorized--2,000,000 shares                                                 5,346              5,340
       Issued and outstanding--534,574 shares
                (July 31, 1997--534,024 shares)
   Additional paid-in capital                                                   1,165,778          1,164,700
   Retained earnings                                                              144,460            241,064
-------------------------------------------------------------------------------------------------------------
                                                                                1,315,584          1,411,104
-------------------------------------------------------------------------------------------------------------

                                                                           $    2,108,201     $    2,069,690
---------------------------------------------------------------------------==================================
</TABLE>

The accompanying notes are an integral part of these condensed financial 
statements.
<PAGE>   4
                                                                       FORM 10-Q


                  DAEDALUS ENTERPRISES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                     Three Months Ended
                                                                                        October 31,
                                                                                  1997               1996
--------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>               <C>
OPERATING ACTIVITIES
   Net earnings (loss)                                                       $    (96,603)     $       22,859
   Adjustments to reconcile net income to net cash provided by
     operating activities
       Depreciation                                                                28,973              34,363
       Amortization of software                                                         0              14,594
       Net book value of special equipment sold                                         0             138,726
       Decrease (increase) in accounts receivable                                 (94,193)            181,153
       Decrease in inventory                                                       25,620              69,928
       Increase in other assets                                                    (1,076)             (1,347)
       Increase  (decrease) in accounts payable and accrued expenses             (147,222)              3,118
       Decrease in customer deposits                                              (23,842)                  0
--------------------------------------------------------------------------------------------------------------
                           CASH PROVIDED (USED) BY OPERATING ACTIVITIES          (308,343)            463,394

INVESTING ACTIVITIES
   Purchase of property and equipment                                             (29,610)           (109,859)
--------------------------------------------------------------------------------------------------------------
                                      CASH USED IN INVESTING ACTIVITIES           (29,610)           (109,859)

FINANCING ACTIVITIES
   Proceeds from revolving line of credit                                         555,000             332,000
   Payments on revolving line of credit                                          (245,000)           (679,000)
   Payments on long-term debt                                                      (4,906)             (4,583)
   Proceeds of stock issued pursuant to stock option and
     stock purchase plan                                                            1,084                 708
--------------------------------------------------------------------------------------------------------------
                           CASH PROVIDED (USED) IN FINANCING ACTIVITIES           306,178            (350,875)

INCREASE (DECREASE)  IN CASH                                                      (31,775)              2,660
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                     39,068              56,768
--------------------------------------------------------------------------------------------------------------

                            CASH AND CASH EQUIVALENTS AT END OF QUARTER      $      7,293      $       59,428
-----------------------------------------------------------------------------=================================
</TABLE>



The accompanying notes are an integral part of these condensed financial 
statements.
<PAGE>   5
                                                                       FORM 10-Q


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 31, 1997

NOTE A -  BASIS OF PRESENTATION

The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal
recurring adjustments) that are, in the opinion of management, necessary for a
fair presentation of the results of operations, financial position and cash
flows for the periods presented.  The accompanying unaudited financial
statements have been prepared in accordance with the instructions to Form 10-Q
and, therefore, do not include all information necessary to be in conformity
with generally accepted accounting principles.  

Reference is made to the Notes to Consolidated Financial Statements in the
Annual Report to Stockholders for the year ended July 31, 1997.  

The results of operations for the three months ended October 31, 1997 are not
necessarily indicative of the results to be expected for the full year.

NOTE B - INVENTORY

Inventory includes work-in-process of approximately $90,000 and $115,000 as
of October 31, 1997 and July 31, 1997, respectively.  The remaining inventory
consists of parts and subassemblies, both purchased and manufactured, that can
be used in the manufacturing process or sold as spare parts.

NOTE C - INCOME TAXES

The Company estimates its provision for income taxes using its estimated annual
effective rate.  The Company has limited the recognition of income tax
benefit for its net operating loss carryforwards due to cumulative losses
realized in recent years.  The valuation allowance for deferred taxes is
$437,000 at October 31, 1997 and $409,000 at July 31, 1997.

NOTE D - REVOLVING CREDIT

On October 31, 1997, the Company had a $1,550,000 line of credit with a
bank, with availability subject to a formula, bearing interest at one and
one-half percent above the bank's prime rate (effective rate of 10%).  The
formula is $950,000 based on the value of the real estate, with the remaining
available borrowings based on 50% of the value of certain receivables specified
in the line of credit agreement.  As of October 31, 1997, total remaining
availability was $581,000 based on the formula.  The outstanding balance under
this line of credit agreement was approximately $310,000 at October 31, 1997,
with $59,000 of the line of credit agreement reserved for a standby letter of
credit. This compares to an outstanding balance of zero (effective rate of 10%)
at July 31, 1997 with an additional $59,000 reserved for a standby letter of
credit.


<PAGE>   6
                                                                       FORM 10-Q

The Company has classified its total mortgage liability as current because
the mortgage agreement is cross-collateralized and cross-defaulted with the line
of credit, which is a secured master demand note.

NOTE F - 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 three month periods
ended October 31, 1997 and 1996.  The weighted average number of shares used in
the computation was 534,391 and 533,124 for the three months ended October 31,
1997 and 1996, respectively, all of which were issued and outstanding.  No
adjustments were made to either net earnings (loss) or the number of shares
outstanding in calculating earnings (loss) per share as such adjustments would
have been antidilutive.

NOTE G - SUBSEQUENT EVENT

The Company announced an agreement in principle to enter into a merger
agreement (the "Merger") with S. T. Research Corporation ("STR"), a Virginia
corporation, on November 11, 1997.  Under the agreement, each of the outstanding
shares of STR would be exchanged for newly issued shares of the Company's
common stock and STR would become a wholly owned subsidiary of the Company.  STR
is a supplier of technology-driven solutions for communications and radar
intercept equipment to the U. S. government (its principal customer) and a major
supplier of threat warning systems to the surface and subsurface community.  STR
had revenues of approximately $24 million during its last fiscal year, and total
assets of approximately $10.7 million and working capital of approximately $1.5
million at September 30, 1997. The Merger is expected to close in the first
quarter of calendar 1998 and will be subject to the negotiation and execution of
a definitive merger agreement and the satisfaction of various conditions,
including the approval of the Merger by the shareholders of STR and approval by
the Company's stockholders of an amendment to its Certificate of Incorporation
to permit the issuance of shares pursuant to the Merger.

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

GENERAL

The Company manufactures products for, and performs development projects in, the
field broadly described as "remote sensing".  The principal products
manufactured by the Company are airborne imaging systems which are installed in
aircraft for acquisition of data on environmental parameters. A principal
application of the Company's remote sensing products has been the measurement of
environmental parameters in support of pollution control programs and
environmental impact studies. The Company is also engaged in customer-funded
projects for the development of advanced equipment in the remote sensing field. 
Some of these projects may lead to the incorporation of newly developed
technology into existing or future product lines.


<PAGE>   7
                                                                       FORM 10-Q

These two portions of the business are conducted by the same pool of
personnel using the same equipment and operating space and constitute a single
industry segment. The margins associated with these two portions of the business
are different, with standard products generally having higher margins than
customer-funded development projects.  The Company receives the majority of its
revenue from a small number of relatively large contracts.  Standard product
contracts are generally of higher dollar value than customer-funded product
development contracts, with each contract representing a substantial portion of
total revenue each year.  Therefore, the timing of the receipt of a standard
product sales contract as well as the related manufacturing endeavor can have a
material impact on a quarter-to-quarter or year-to-year comparison of the
Company's results of operations.  Most standard product sales contracts and some
customer-funded product development contracts are also accompanied by a
significant deposit.  Therefore, the timing of the contract receipt can have a
material impact on the Company's cash flow.

The Company incurred a loss in the first quarter of fiscal 1997 after incurring
significant losses in total for the last three fiscal years. These losses
have caused the Company to experience severe liquidity problems and its bank
line of credit is being utilized to maintain operations. The Company's
short-term viability and operating results are dependent on its ability to
acquire additional equity capital or increase the level of new business and cash
flow.   See "Merger", "New Orders and Backlog" and "Liquidity and Sources of
Capital". The Company's long-term viability is dependent upon its ability to
successfully implement its Growth Plan (described in the Company's Form 10-K)
and attain consistent profitability.

MERGER

The Company announced an agreement in principle to enter into a merger
agreement  (the "Merger") with S. T.  Research Corporation ("STR"), a Virginia
corporation, on November 11, 1997.  Under the agreement, each of the outstanding
shares of STR would be exchanged for newly issued shares of the Company's common
stock and STR would become a wholly owned subsidiary of the Company.  STR is a
supplier of technology-driven solutions for communications and radar intercept
equipment to the U. S. government (its principal customer) and a major supplier
of threat warning systems to the surface and subsurface community.  STR had
revenues of approximately $24 million during its last fiscal year, and total
assets of approximately $10.7 million and working capital of approximately $1.5
million at September 30, 1997. The Merger is expected to close in the first
quarter of calendar 1998 and will be subject to the negotiation and execution of
a definitive merger agreement and the satisfaction of various conditions,
including the approval of the Merger by the shareholders of STR and approval by
the Company's stockholders of an amendment to its Certificate of Incorporation
to permit the issuance of shares pursuant to the Merger.  The Company expects
its domestic and total consolidated revenues to increase materially if the
Merger is consummated and believes that the Merger will provide the Company with
additional equity capital on a consolidated basis.


<PAGE>   8
                                                                       FORM 10-Q

OPERATING REVENUE

Standard product revenue and product development revenue for the three month
period ended October 31, 1997 decreased from the comparable period of fiscal
1997 due to the low level of backlog at the beginning of fiscal 1998 and the low
level of bookings received during the period.  

The level of the Company's revenues and profits has historically fluctuated from
quarter-to-quarter and from year-to-year as the majority of its revenue is
derived from a small number of high dollar value contracts.  Although
fluctuations are normal given the Company's reliance on a small number of high
value contracts for the majority of its revenue, the low level of standard
product orders received in the last three fiscal years is causing severe
liquidity problems.  See "Merger", "New Orders and Backlog" and "Liquidity and
Sources of Capital".

DOMESTIC VS. INTERNATIONAL REVENUE

International revenue represented 9% and 65% of operating revenue during
the first three months of fiscal 1998 and 1997, respectively.  International 
revenue decreased primarily due to the Company's low level of international
backlog at the beginning of fiscal 1998 and the low level of bookings received
during the period.  The increase in domestic operating revenue during the first
quarter of fiscal 1998 from the same period in fiscal 1997 is due to the
Company's recognition of revenue on several domestic contracts that were in
backlog at the beginning of fiscal 1998.

To mitigate foreign currency transaction losses, international contracts are
denominated in U.S. dollars and large standard  product contracts are generally
secured by irrevocable letters of credit.  The Company also receives substantial
deposits on many large contracts with international customers.  See "Merger".

NEW ORDERS AND BACKLOG

In the three months ended October 31, 1997, the Company received orders in the
amount of approximately $98,000 as compared to approximately $1,259,000 in the
comparable period of fiscal 1997. The Company's backlog at the end of the first
quarter was approximately $278,000, compared to approximately $1,430,000 at the
end of the comparable period in fiscal 1997. Since the end of the first quarter
of fiscal 1998, the Company has received additional orders of $246,000. 
Approximately $190,000 of the first quarter fiscal 1998 backlog is for standard
products, with the balance being related to the two Phase II Small Business
Innovation Research (product development) contracts.

The Company is engaged in negotiations for several standard product orders.
The negotiations for these orders have not been finalized and there can be no
assurance that these orders will be received.  The Company has some high value
components in inventory that will enable the Company to immediately recognize
revenue upon receiving one of these standard product orders.  The results of
operations for future periods are dependent upon the receipt and timing of
future


<PAGE>   9
                                                                       FORM 10-Q

orders, the success of management's growth strategy and the completion of the 
Merger.  See "Merger" and "Liquidity and Sources of Capital".

COST OF REVENUE

In the first quarter of fiscal 1998, cost of revenue increased  as a percentage
of revenue compared to the same period in fiscal 1997 due primarily to higher
than anticipated costs on the two Small Business Innovative Research programs.

RESEARCH AND DEVELOPMENT

Research and development expense declined in the first quarter  of fiscal 1998
as compared to the same period one year earlier primarily due to Airborne
Digital Camera enhancements in the first quarter of fiscal 1997.

SELLING AND ADMINISTRATIVE EXPENSE

Selling and administrative expense decreased in the first quarter of fiscal
1998 compared to the same period in fiscal 1997, primarily due to agent
commissions paid in the first quarter of fiscal 1997.

INTEREST

Interest expense decreased in the first quarter of fiscal 1998 compared to the
same period in fiscal 1997 due principally to the Company's reduced borrowings.

LIQUIDITY AND SOURCES OF CAPITAL

The Company's primary sources of liquidity were funds from operations and
borrowings under a line of credit secured by substantially all of the Company's
assets including real estate.  The Company's line of credit provides for
borrowings of up to $1,550,000, with availability subject to a formula, bearing
interest at one and one-half percent above the lending bank's prime rate.  The
formula permits borrowings of up to $950,000 based on the value of the real
estate, with the remaining available borrowings based on 50% of the value of
certain receivables specified in the line of credit agreement. As of  October 
31, 1997, the Company had an outstanding balance of  $310,000 under the line of
credit, an additional $59,000 reserved for a standby letter of credit and
additional borrowing availability of $581,000.

The Company's mortgage indebtedness requires the Company to make monthly
payments of $3,585 for  both principal and interest and to make a balloon
payment on November 1, 2000. The mortgage bears interest at one and one-half
percent over prime.  The Company has classified its total mortgage liability
as current because the mortgage agreement is cross-collateralized and
cross-defaulted with the line of credit, which is a secured master demand note.


<PAGE>   10
                                                                       FORM 10-Q

In the event the lending bank believes that the prospect of payment of the
Company's indebtedness under the line of credit is impaired, the lending bank is
permitted under the agreement governing the line of credit to declare such
indebtedness due and payable.  The lending bank has indicated that it may limit
the amount which the Company is permitted to borrow under the line of credit in
the absence of continued improvement in the Company's business prospects or
progress toward the acquisition of a significant amount of equity capital.  If
the Company is unable to borrow amounts necessary to fund its operations or is
required by the bank to repay the line of credit, its financial position would
be materially and adversely affected and the Company may have no choice but to
cease operations if other sources of capital are not available.  Moreover, the
Company must continue to significantly increase its backlog during fiscal 1998
in order to generate sufficient cash flow to sustain its operations. See "New
Orders and Backlog".

In order to provide additional working capital and retire current debt, the
Company is attempting to sell its building and lease back a portion of the
facility from the new owner. There can be no assurance that the building can be
sold at a price acceptable to the Company or that an acceptable lease-back
agreement can be negotiated.  If the Company must relocate, management is
confident that a suitable facility can be found and that the Company's business
will not be materially disrupted.  The sale of the building is expected to
result in the termination of the existing line of credit. Management believes
that a new line of credit supported by receivables and other assets of the
Company can be negotiated with the current bank lender, or a substitute bank,
which will be adequate to support the Company's working capital needs, provided
that the Company's backlog increases significantly over the current level.  The
Company also can negotiate a line of credit secured by the irrevocable letters
of credit received on large orders from international customers. However, any
new line of credit is likely to permit substantially less borrowing than the
current line of credit. There can be no assurance that the Company will be able
to acquire a replacement line of credit at all or that the level of borrowing
permitted under any replacement line of credit will be adequate for the
Company's working capital needs.

The Company announced an agreement in principle to enter into the Merger with
STR which, if consummated, management believes will provide the Company with
additional equity capital and related technological and marketing capabilities
and will have a positive effect on the Company's short and long term    
liquidity.  The closing of the Merger is subject to the negotiation and
execution of a definitive merger agreement and the satisfaction or waiver of
certain conditions likely to be contained therein.  As a result, there can be no
assurance that the Merger will be consummated.  See "Merger" for a description
of the proposed Merger.

Working capital decreased to  $172,000 at  October 31, 1997 from  $268,000 at 
July 31, 1997, due primarily to the decreased revenue and earnings for the first
quarter. Current assets increased by approximately $38,000 due primarily
to an increase in receivables at the end of the first quarter.

Cash used by operating activities was $306,000 during the first quarter of
fiscal 1998 as compared to cash provided of $463,000 in the first quarter of
fiscal 1997, due primarily to the $147,000

<PAGE>   11
                                                                       FORM 10-Q

reduction in accounts payable and accrued expenses and the $94,000 increase in 
accounts receivable.

The Company expects continued investment for capital expenditures, primarily for
equipment and software relating to the Company's growth plan during the
remainder of fiscal 1998, but has not entered into any material commitments. 
Due to its current financial position, the Company intends to reduce
internal research and development expenses and to keep marketing and other
administrative costs to a minimum until its financial condition improves
significantly.

The foregoing discussion and analysis contains a number of "forward-looking
statements", as that term is used in the Securities Exchange Act of 1934, with
respect to the Company's expectations for future periods.  Such statements are 
subject to various risks and uncertainties, which are described in the 
foregoing discussion and analysis.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk - Not 
applicable.

                          PART II - OTHER INFORMATION

All items omitted are not applicable or the answers thereto are negative.

Item 2(a).  Changes in Securities and Use of Proceeds

On October 24, 1997, the Company's Bylaws were amended to provide that the
annual meeting of stockholders shall be held within the first two weeks of
December of each year or at such other date and time as the Board of Directors
may determine.

Item 6(a):  Exhibits


   Exhibit No.                             Description
   -----------                             -----------
                                                      
      3.03              Bylaws of the Company, with all amendments thereto, as 
                        presently in effect
      27                Financial Data Schedule


<PAGE>   12
                                                                       FORM 10-Q


                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of  1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                      DAEDALUS ENTERPRISES, INC.
                                   
Date:    December 3, 1997          by:       /s/ Thomas R. Ory
                                      ------------------------------------
                                      Thomas R. Ory, President & CEO
                                      (Duly Authorized Officer)
                                   
                                   
Date:    December 3, 1997          by:      /s/ Jane E. Barrett
                                      ------------------------------------
                                      Jane E. Barrett, Vice-President-Finance &
                                      Treasurer
                                      (Principal Financial & Accounting Officer)





<PAGE>   13
                              INDEX TO EXHIBITS


EXHIBIT NO.                                     DESCRIPTION
-----------                                     -----------
3.03                    Bylaws of the Company, with all amendments thereto, as
                        presently in effect
27                      Financial Data Schedule