<PAGE>   1



                                UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C. 20549


                                  ---------

                                 FORM 10-QSB

Mark One
   [X]     Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
           Exchange Act of 1934

           For Quarterly Period Ended June 30, 1999

                                       or

   [ ]     Transition Report Pursuant to Section 13 or 15(d) of the Securities
           Exchange Act of 1934

For the Transition period from _______________ to ________________

Commission File Number 000-08193



                            SENSYS TECHNOLOGIES INC.
                 (FORMERLY KNOWN AS 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.)

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

        Registrant's telephone number, including area code (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 August 10, 1999, there were 3,987,940 shares of the
Registrant's Common Stock, par value $.01 per share, outstanding.


<PAGE>   2


                    SENSYS TECHNOLOGIES INC. AND SUBSIDIARIES

                                      INDEX



PART I.  FINANCIAL INFORMATION

<TABLE>
<CAPTION>
Item 1.  Financial Statements (Unaudited)
------
                                                                                                         Pages
                                                                                                         -----

<S>                                                                                                        <C>
Condensed Consolidated Balance Sheet at
        June 30, 1999 and September 30, 1998.........................................................         3-4

Condensed Consolidated Statement of Operations for the
        Three Months Ended June 30, 1999 and June 30, 1998,
        And Nine Months Ended June 30, 1999 and June 30, 1998........................................         5-6

Condensed Consolidated Statement of Stockholders' Equity for the
        Nine Months Ended June 30, 1999..............................................................           7

Condensed Consolidated Statement of Cash Flows for the
        Nine Months Ended June 30, 1999 and June 30, 1998............................................           8

Notes to Condensed Consolidated Financial Statements.................................................        9-11


Item 2. Management's Discussion and Analysis of Results of
                  Operations and Financial Condition.................................................       11-15


PART II.  OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K.............................................................          15
-------


Signatures        ...................................................................................          16
</TABLE>


                                       2
<PAGE>   3


                    SENSYS TECHNOLOGIES INC. AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEET


                                  ASSETS

<TABLE>
<CAPTION>
                                                 June 30,        September 30,
                                                   1999             1998
                                              -----------       -----------
                                               (Unaudited)           *

CURRENT ASSETS
<S>                                           <C>               <C>
    Cash and cash equivalents                 $ 3,523,000       $   112,000
    Accounts receivable                         2,083,000         5,082,000
    Unbilled contract costs, net                3,836,000         3,826,000
    Inventories  (Note 3)                         189,000           536,000
    Deferred income taxes                         544,000           288,000
    Other current assets                          223,000            89,000
    Refundable and prepaid income taxes            18,000           311,000
                                              -----------       -----------

             TOTAL CURRENT ASSETS              10,416,000        10,244,000

PROPERTY AND EQUIPMENT                          1,433,000         1,647,000

OTHER ASSETS
    Deferred income taxes - non-current            17,000           236,000
    Goodwill                                      400,000           782,000
    Property held for resale (Note 5)                   -         1,446,000
    Other assets                                   76,000            69,000
                                              -----------       -----------

             TOTAL ASSETS                     $12,342,000       $14,424,000
                                              ===========       ===========
</TABLE>

*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


<PAGE>   4

                    SENSYS TECHNOLOGIES INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED BALANCE SHEET, continued


                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                             June 30,        September 30,
                                                                               1999              1998
                                                                           -----------       -----------
                                                                           (Unaudited)            *

CURRENT LIABILITIES
<S>                                                                        <C>               <C>
    Note payable - line of credit (Note 6)                                 $         -       $ 2,049,000
    Accounts payable                                                         1,142,000         2,554,000
    Accrued salaries, benefits, and related expenses                         1,472,000         1,199,000
    Deferred compensation                                                      344,000           319,000
    Other accrued expenses                                                     640,000           619,000
    Mortgage payable (Note 5)                                                        -           220,000
    Capital leases                                                              41,000            53,000
                                                                           -----------       -----------

             TOTAL CURRENT LIABILITIES                                       3,639,000         7,013,000

LONG-TERM LIABILITIES
    Capital leases                                                              81,000           104,000
                                                                           -----------       -----------


STOCKHOLDERS' EQUITY (Note 2)
    Common Stock, at June 30, 1999, $.01 par value,
       authorized 5,000,000 shares; issued and outstanding 3,987,940
       shares; at September 30, 1998, $.01 par value, authorized
       5,000,000 shares; issued and outstanding 3,961,271 shares                40,000            40,000
    Additional paid-in capital                                               6,932,000         6,858,000
    Retained earnings                                                        1,650,000           409,000
                                                                           -----------       -----------

                                                                             8,622,000         7,307,000
                                                                           -----------       -----------

             TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                    $12,342,000       $14,424,000
                                                                           ===========       ===========
</TABLE>

*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
<PAGE>   5

                    SENSYS TECHNOLOGIES INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS


<TABLE>
<CAPTION>
                                                          Three Months Ended
                                                               June 30,
                                                        1999               1998
                                                    -----------        -----------
                                                    (Unaudited)         (Unaudited)
REVENUE
<S>                                                 <C>                <C>
   Contract revenue                                 $ 6,669,000        $ 3,756,000
                                                    -----------        -----------

COSTS AND EXPENSES
   Cost of revenues                                   4,704,000          3,349,000
   General and administrative expenses                1,075,000            933,000
   Restructuring costs                                        -            879,000
                                                    -----------        -----------

            Total costs and expenses                  5,779,000          5,161,000
                                                    -----------        -----------

INCOME (LOSS) FROM OPERATIONS                           890,000         (1,405,000)

OTHER INCOME (EXPENSES)
   Interest income (expense), net                         9,000             (9,000)
                                                    -----------        -----------

INCOME (LOSS) BEFORE INCOME TAXES                       899,000         (1,414,000)

INCOME TAX (PROVISION) BENEFIT                         (348,000)           499,000
                                                    -----------        -----------

NET INCOME (LOSS)                                   $   551,000        $  (915,000)
                                                    ===========        ===========

PER SHARE AMOUNT (Note 7)
  Basic earnings (loss) per share                   $      0.14        $     (0.26)
  Diluted earnings (loss) per share                 $      0.13        $     (0.26)
                                                    ===========        ===========
</TABLE>


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


                                       5


<PAGE>   6

                    SENSYS TECHNOLOGIES INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS


<TABLE>
<CAPTION>
                                                   Nine Months Ended
                                                        June 30,
                                                1999                1998
                                            ------------        ------------
                                             (Unaudited)        (Unaudited)
REVENUE
<S>                                         <C>                 <C>
  Contract revenue                          $ 20,207,000        $ 16,095,000
                                            ------------        ------------

COSTS AND EXPENSES
  Cost of revenues                            14,926,000          13,992,000
  General and administrative expenses          3,191,000           2,431,000
  Restructuring costs                                  -             879,000
                                            ------------        ------------

     Total costs and expenses                 18,117,000          17,302,000
                                            ------------        ------------

INCOME (LOSS) FROM OPERATIONS                  2,090,000          (1,207,000)

OTHER EXPENSES
   Interest expense, net                         (61,000)           (156,000)
                                            ------------        ------------

INCOME (LOSS) BEFORE INCOME TAXES              2,029,000          (1,363,000)

INCOME TAX (PROVISION) BENEFIT                  (788,000)            480,000
                                            ------------        ------------

NET INCOME (LOSS)                           $  1,241,000        $   (883,000)
                                            ============        ============

PER SHARE AMOUNT (Note 7)
  Basic earnings (loss) per share           $       0.31        $      (0.32)
  Diluted earnings (loss) per share         $       0.30        $      (0.32)
                                            ============        ============
</TABLE>

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


                                       6

<PAGE>   7


                    SENSYS TECHNOLOGIES INC. AND SUBSIDIARIES

            CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                              Additional                         Total
                                                               Common          Paid-in           Retained      Stockholders'
                                                               Stock           Capital           Earnings         Equity
                                                             ----------       ----------       ----------       ----------

<S>                                                          <C>              <C>              <C>              <C>
BALANCE AT SEPTEMBER 30, 1998                                $   40,000       $6,858,000       $  409,000       $7,307,000

Net income                                                            -                -        1,241,000        1,241,000
Exercise of stock options and issuance of common stock                -           74,000                -           74,000
                                                             ----------       ----------       ----------       ----------

BALANCE AT JUNE 30, 1999                                     $   40,000       $6,932,000       $1,650,000       $8,622,000
                                                             ==========       ==========       ==========       ==========
</TABLE>


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


                                       7

<PAGE>   8

                    SENSYS TECHNOLOGIES INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                  Nine Months Ended
                                                                                       June 30,
                                                                                1999               1998
                                                                            -----------        -----------
                                                                            (Unaudited)        (Unaudited)

<S>                                                                         <C>                <C>
Net cash provided by operating activities                                   $ 4,507,000        $ 2,729,000
                                                                            -----------        -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Acquisition expenses, net of cash acquired                                           -           (124,000)
 Net acquisitions of property and equipment                                    (313,000)          (299,000)
 Proceeds from disposal of property held for sale                             1,446,000                  -
                                                                            -----------        -----------

    Net cash provided by (used in) investing activities                     $ 1,133,000        $  (423,000)
                                                                            -----------        -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net (payments) under line of credit                                      $(2,049,000)       $(3,690,000)
   Principal payments on mortgage debt                                         (220,000)           (22,000)
   Principal payments on capital lease obligations                              (34,000)           (26,000)
   Net proceeds of private placement of common stock                                  -          3,777,000
   Proceeds of stock option exercises                                            31,000             59,000
   Issuance of common stock                                                      43,000                  -
                                                                            -----------        -----------

    Net cash (used in) provided by financing activities                      (2,229,000)            98,000
                                                                            -----------        -----------

Net increase in cash and cash equivalents                                     3,411,000          2,404,000
Cash and cash equivalents, beginning of period                                  112,000            140,000
                                                                            -----------        -----------

Cash and cash equivalents, end of period                                    $ 3,523,000        $ 2,544,000
                                                                            ===========        ===========

Supplemental schedule of non-cash investing and financing activities:
    Equipment acquired with capital lease obligations                       $       -          $   120,000
                                                                            ===========        ===========

Supplemental disclosure of cash flow information:

    Cash paid for interest                                                  $    68,000        $   143,000
                                                                            ===========        ===========
    Cash paid for income taxes                                              $   240,000        $    45,000
                                                                            ===========        ===========
</TABLE>



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



                                       8



<PAGE>   9


                    SENSYS TECHNOLOGIES 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 and nine-month periods ended June 30, 1999, are not necessarily
indicative of the results that may be expected for the fiscal year ending
September 30, 1999. Intercompany accounts and transactions have been eliminated
in consolidation. For further information, refer to Sensys Technologies Inc.'s
Annual Report on Form 10-KSB for the year ended September 30, 1998.

2.  ACQUISITION

On June 9, 1998, Daedalus Enterprises, Inc. ("DEI") merged with S. T. Research
Corporation ("STR"). In connection with the merger, DEI changed its name to
Sensys Technologies Inc. (the "Company"). While DEI was the legal acquiror, the
merger was accounted for as a reverse acquisition purchase whereby STR was
deemed to have acquired DEI for financial reporting purposes. Consistent with
the reverse acquisition accounting treatment, the historical financial
statements presented for periods prior to the merger date are the financial
statements of STR except for stockholders' equity which has been retroactively
restated for the equivalent number of shares of the legal acquiror. An
adjustment has also been made to adjust the par value of the outstanding shares
with an offset to additional paid-in capital. Because of the accounting
treatment herein described, the financial statements differ from the
consolidated financial statements of DEI as previously reported. The operations
of DEI have been included in the financial statements commencing on the date of
the merger. In connection with the merger, the Company changed its fiscal
year-end from July 31 to September 30.

3.  INVENTORIES

Inventories are valued at the lower of cost or market using the first-in,
first-out method and consisted of the following:

<TABLE>
<CAPTION>
                      June 30,      September 30,
                        1999           1998
                      ---------      --------
<S>                   <C>            <C>
Materials             $  9,000       $ 94,000
Work in process        180,000        442,000
                      --------       --------
                      $189,000       $536,000
                      ========       ========
</TABLE>



                                       9
<PAGE>   10



        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                                   (CONTINUED)


4.     STOCK OPTIONS

On October 5, 1998, the Compensation Committee of the Board of Directors
approved the award of 414,000 options to employees at a fair market value price
of $3.00 per share. As of June 30, 1999, 40,000 of these options had been
forfeited.

5.     PROPERTY HELD FOR SALE

At September 30, 1998, property held for sale consisted of land and a building
acquired in connection with the merger with DEI. On December 1, 1998, the
Company sold the property for cash of approximately $1,575,000, with net
proceeds of approximately $1,446,000 of which approximately $220,000 was used to
pay off the existing mortgage balance. Under terms of the sales agreement, the
Company is leasing approximately fifty percent of the facility for five years
with a five year renewal option. The annual rental approximates $112,000 for
each of the next five years for an aggregate amount of $560,000.

6.     NOTE PAYABLE - LINE OF CREDIT

Effective February 28, 1999, the Company entered into a line of credit and
related note payable with its bank. The agreement expires February 28, 2001, and
provides a maximum available line of credit of $3,000,000. However, the total
borrowing base generally cannot exceed the sum of 90 percent of qualified
Government accounts receivable and 80 percent of qualified non-Government
accounts receivable. The bank agreement establishes the interest rate at the
LIBOR rate (5.2 percent at June 30, 1999) plus 225 to 300 basis points,
determined by the Company's ratio of funded debt to earnings before interest,
taxes, depreciation and amortization. All borrowings under the line of credit
and the performance of the Company's obligations under the line of credit
agreement are collateralized by the Company's accounts receivable, equipment,
contracts, and general intangibles. The agreement also contains various
covenants as to dividend restrictions, working capital, tangible net worth,
earnings and debt-to-equity ratios. As of June 30, 1999, no amounts were
outstanding. Unused commitment fees of one quarter of one percent per annum are
required.

7.     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 was 3,981,131 and 3,539,374 for the three month periods ended June
30, 1999 and 1998, respectively, and 3,972,094 and 2,771,746 for the nine month
periods ended June 30, 1999 and 1998, respectively. The weighted average number
of shares used in the diluted earnings per share calculation was 4,201,956 and
3,539,374 for the three month periods ended June 30, 1999 and 1998,
respectively. The weighted average number of shares used in the diluted earnings
per share calculation was 4,180,504 and 2,771,746 for the nine month periods
ended June 30, 1999 and 1998, respectively.

8.     LEASE COMMITMENT

The Company, effective June 30, 1999, signed a non-cancellable 15 year lease for
the real estate at its principal location. Lease payments for the first five
fiscal years of the lease and thereafter are shown below:

                                       10
<PAGE>   11

<TABLE>
<CAPTION>
           Year                                                 Amount
           ----                                                 ------
          <S>                                              <C>
           1999                                               $107,000
           2000                                               $425,000
           2001                                               $438,000
           2002                                               $451,000
           2003                                               $465,000
           Thereafter                                       $5,462,000
</TABLE>

9.     NEW ACCOUNTING PRONOUNCEMENTS

On June 15, 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes a new
model for accounting for derivatives and hedging. The new standard requires
enhanced disclosure of accounting policies for derivative financial instruments
and derivative commodity instruments in the footnotes to the financial
statements. In addition, the standard expands disclosure requirements to include
quantitative and qualitative information about market risk inherent in market
risk sensitive instruments.

The Company will adopt SFAS No. 133 effective October 1, 2000. The Company
believes that the adoption of this statement will not have a material effect on
the Company's consolidated financial position or results of operations.

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

            Certain statements made by the Company's management may be
considered to be "forward-looking statements" within the meaning of the Private
Securities Litigation Act of 1995. Forward-looking statements are based on
various factors and assumptions that include known and unknown risks and
uncertainties. The words "believe", "expect", "anticipate" and "project" and
similar expressions identify forward-looking statements, which speak only as of
the date the statement was made. Such statements may include, but not be limited
to, projections of revenues, income or loss, expenses, plans, as well as
assumptions relating to the foregoing. Forward-looking statements are inherently
subject to risks and uncertainties, some of which cannot be predicted or
quantified, including, but not limited to the size and timing of orders and
shipments, changes in economic conditions, the cost of labor and raw materials,
changes in technology and general competitive factors. The Company undertakes no
obligation and does not intend to update, revise or otherwise publicly release
the results of any revisions to these forward-looking statements that may be
made to reflect future events or circumstances.

GENERAL OVERVIEW

The Company designs, develops and manufactures systems and equipment used for
electronic reconnaissance and imaging. Through its electronic reconnaissance
efforts, the Company supports telecommunications intelligence, signal
intelligence, electronic support measures, electronic intelligence and airborne
remote



                                       11
<PAGE>   12

sensing initiatives of the defense and intelligence communities. The
Company's activities in airborne imaging principally relate to the manufacture
of airborne imaging systems which are installed in aircraft and are used to
acquire optical radiation data from objects on the earth's surface and in the
atmosphere.

On June 9, 1998, Daedalus Enterprises, Inc. ("DEI") merged with S. T. Research
Corporation ("STR"). In connection with the merger, DEI changed its name to
Sensys Technologies Inc. (the "Company"). The merger was accounted for as a
reverse acquisition purchase whereby STR was deemed to have acquired DEI for
financial reporting purposes. Consistent with the reverse acquisition accounting
treatment, the historical financial statements presented for periods prior to
the merger date are the financial statements of STR except for stockholders'
equity which has been retroactively restated for the equivalent number of shares
of the legal acquiror. An adjustment has also been made to adjust the par value
of the outstanding shares with an offset to additional paid-in capital. Because
of the accounting treatment herein described, the financial statements differ
from the consolidated financial statements of DEI as previously reported. The
operations of DEI have been included in the financial statements commencing on
the date of the merger. In connection with the merger, the Company changed its
fiscal year-end from July 31 to September 30.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998:

Revenue for the three months ended June 30, 1999 was $6,669,000 compared to
$3,756,000 for the three months ended June 30, 1998, resulting in a $2,913,000
or a 77.6% increase. The revenue increase was primarily the result of low
revenues in 1998 that resulted from the expiration of certain long term
contracts and delays in the start-up of newly awarded contracts. U.S. government
subcontract revenues increased $984,000 or 40.6%. Also, export revenue increased
from approximately $19,000 to approximately $245,000.

Cost of revenue, as a percentage of revenue, decreased from 89.2% for the three
months ended June 30, 1998 to 70.5% for the three months ended June 30, 1999.
The decrease resulted from an improved mix of business, including export
revenues, operating efficiencies related to business volume and productivity
improvements in the operations. These gains are the result of the 1998 business
restructuring to focus on the Company's core business and productivity gains in
the current year.

For the three months ended June 30, 1999, general and administrative expenses
increased from $933,000 to $1,075,000 or a 15.2% increase compared to the three
month period ended June 30, 1998. The increase was due to an overall increase in
traditional general and administrative expenses of approximately $304,000,
offset by a reduction in Bid & Proposal/Independent Research and Development
(B&P/IR&D) expenses of $162,000. The general and administrative increase was the
result of an increase in wage and related benefit expense of approximately
$100,000 and expenses of approximately $59,000 were incurred related to meeting
the Company's obligations as a public company. Goodwill amortization, as a
result of the DEI acquisition, accounted for approximately $19,000 of the
increase.

Net interest income was $9,000 for the three months ended June 30, 1999,
compared to net interest expense of $9,000 for the three months ended June 30,
1998. The change was the result of the pay down of debt from an improved cash
position resulting from the sale of property held for resale and improved cash
flow from operations.

Income tax expense consists of federal and state income tax. The Company's
effective tax rate was 38.7% for the three months ended June 30, 1999, compared
to an effective tax rate of 35.3% for the three months ended June 30, 1998. The
principal cause of the change is non-deductible goodwill amortization in 1999



                                       12
<PAGE>   13

recorded in association with the Company's merger with DEI and the impact of the
marginal tax bracket for the tax benefit from the loss in fiscal year 1998.

Net income for the three months ended June 30, 1999, was $551,000, compared to a
net loss of $915,000 for the three months ended June 30, 1998. The loss of
$915,000 was principally the result of a pretax restructuring charge of $879,000
in the 1998 period in addition to the items discussed above.

The total amount of funded contracts in backlog as of June 30, 1999 was
approximately $13,900,000 compared to approximately $10,700,000 at June 30,
1998. The funded contract backlog at June 30, 1999 is expected to be completed
within a year.

Exercisable options for subsequent production under existing contracts are
approximately $40,000,000 at June 30, 1999, compared to $8,400,000 at June 30,
1998. The outstanding options at June 30, 1999 are primarily related to a first
tier subcontract for engineering and production of components of the AIEWS
systems for U.S. Navy surface ships. The Company currently anticipates that the
options will be exercised during the period 2001 through 2005.

NINE MONTHS ENDED JUNE 30, 1999 COMPARED TO NINE MONTHS ENDED JUNE 30, 1998:

Revenue for the nine months ended June 30, 1999 was $20,207,000 compared to
$16,095,000 for the nine months ended June 30, 1998, resulting in a $4,112,000
or 25.5% increase. The increase was primarily the result of revenues of
approximately $1,300,000 from the DEI acquisition on June 9, 1998, and a 109%
increase in U.S. government subcontracts of $1,548,000.

Cost of revenue, as a percentage of revenue, decreased from 86.9% for the nine
months ended June 30, 1998, to 73.9% for the nine months ended June 30, 1999.
These gains are the result of productivity gains resulting from the 1998
restructuring and the Company focusing on its core business.

For the nine months ended June 30, 1999, general and administrative expenses
increased from $2,431,000 to $3,191,000 or a 31.3% increase compared to the
nine-month period ended June 30, 1998. The increase was due principally to an
increase in traditional general and administrative expenses of approximately
$627,000 and Bid & Proposal/Independent Research & Development expenses of
$133,000. The $627,000 increase included an incentive compensation increase of
approximately $150,000, and expenses of approximately $200,000 were incurred
related to meeting the Company's obligations as a public company, which were
offset by a reduction in bad debt expense of $155,000. Goodwill amortization, as
a result of the DEI acquisition, accounted for approximately $56,000 of this
increase.

Interest expense decreased from $156,000 for the nine months ended June 30, 1998
to $61,000, a decrease of $95,000, for the nine months ended June 30, 1999. The
decrease is the result of lower average borrowings by the Company. In January
1998, the Company's private placement generated $3,783,000 which was used to pay
down the line of credit. During the nine month period ended June 30, 1999, the
Company used its improved operating performance and the net proceeds from the
sale of real estate on December 1, 1998, to pay down its outstanding balance on
its line of credit at June 30, 1999.

Income tax expense consists of federal and state income tax. The Company's
effective tax rate was 38.8% for the nine months ended June 30, 1999, compared
to an effective tax rate of 35.2% for the nine months ended June 30, 1998. The
principal cause of the change is the nondeductible goodwill amortization in 1999
recorded in association with the Company's merger with DEI and the impact of the
marginal tax bracket related to the losses in fiscal year 1998.



                                       13
<PAGE>   14

Net income for the nine months ended June 30, 1999 was $1,241,000, compared to a
net loss of $883,000 for the nine months ended June 30, 1998. The change of
$2,124,000 was the result of a pretax restructuring charge of $879,000 in the
1998 period in addition to the items discussed above.

LIQUIDITY AND SOURCES OF CAPITAL

At June 30, 1999, the Company's cash and cash equivalents totaled $3,523,000 as
compared to $112,000 at September 30, 1998. During the nine-month period ended
June 30, 1999, the net cash provided to the company by its operating activities
was $4,507,000, as compared to $2,729,000 for the first nine months of fiscal
year 1998, an increase of $1,778,000. The improved cash flow was the result of
the improved profitability and improved accounts receivable turnover.

The net cash provided to the Company by its investing activities during the
nine-month period ended June 30, 1999 was $1,133,000, as compared to cash used
for investing activities of $423,000 during the first nine months of fiscal year
1998. This increase is attributable to the realization of net proceeds from the
sale of the real estate on December 1, 1998 of $1,446,000. Capital expenditures
for the nine month period ended June 30, 1999 were $313,000. The Company
anticipates that it will continue to incur capital expenditures at this
approximate rate through the end of the fourth quarter of fiscal year 1999.

The net cash used by the Company in financing activities during the nine-month
period ended June 30, 1999 was $2,229,000, compared to net cash provided by
financing activities of $98,000 during the comparable nine-month period of
fiscal year 1998. For the nine month period ended June 30, 1999, the net cash
used was primarily devoted to reducing to zero the Company's line of credit
borrowings and satisfying the mortgage on the real estate which was sold. The
generation of cash during the 1998 period is attributable to the Company's
private placement of common stock that occurred in January 1998, the proceeds of
which were $3,783,000. The proceeds of the placement were primarily used to
satisfy outstanding line of credit obligations of the Company.

The Company believes that cash on hand, anticipated cash flows from 1999
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.

NEW ACCOUNTING PRONOUNCEMENTS

On June 15, 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes a new
model for accounting for derivatives and hedging. The new standard requires
enhanced disclosure of accounting policies for derivative financial instruments
and derivative commodity instruments in the footnotes to the financial
statements. In addition, the standard expands disclosure requirements to include
quantitative and qualitative information about market risk inherent in market
risk sensitive instruments.

The Company will adopt SFAS No. 133 effective October 1, 2000. The Company
believes that the adoption of this statement will not have a material effect on
the Company's consolidated financial position or results of operations.



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IMPLICATIONS OF YEAR 2000

The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
internal business systems, facilities and products that have software, whether
installed or embedded, may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. In addition, disruptions in the economy generally resulting
from Year 2000 issues could have a material adverse affect on the Company.

The Company began its assessment of the implications of the Year 2000 issue
during March 1998, by developing plans and a program to address the potential
impact of the Year 2000 on its internal business systems, facilities and
products which might include embedded software. The Company has substantially
completed its review of each of these areas for potential Year 2000 impact.
Based on current information, the Company believes there are no material
operational problems or expenses related to the Year 2000 problem. Certain
versions of the Company's products require modifications and it appears there
may be opportunities to sell upgrades to its customer base. The Company does not
believe that it has any contingent liabilities associated with any products it
has previously manufactured which may not be Year 2000 fully compliant. Detailed
implementation plans are in place for the required modifications or
replacements. Products currently in production have been determined to be Year
2000 compliant and require no remediation. While initial assessments of Year
2000 implications are substantially complete, the Company plans to continually
re-assess its software-embedded products and operational software applications
to insure Year 2000 compliance. In addition, the Company has gathered
information about the Year 2000 compliance status of its significant suppliers,
vendors and subcontractors and continues to monitor their compliance. There have
been no significant compliance issues identified. The Year 2000 review process
and progress are monitored on a regular basis by a special task group of
management. There appears to be no material financial risk to the Company.

The Company has contingency plans for certain critical applications. Such plans
include, among other actions, manual workarounds, increasing inventories and
adjusting staffing strategies.


PART II.  OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

Exhibits
  10.1                              Newington Lease Agreement
  27                                Financial Data Schedule






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                                   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 officers thereunto duly authorized.


                             SENSYS TECHNOLOGIES INC.


August 13, 1999              By:        /s/S. Kent Rockwell
                                -----------------------------------
                                          S. Kent Rockwell
                                       Chief Executive Officer




                             By:       /s/Robert R. Bower
                                -----------------------------------
                                         Robert R. Bower
                                Chief Financial Officer & Treasurer

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