<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 March 31, 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 May 10, 1999, there were 3,969,971 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
     March 31, 1999 and September 30, 1998......................................    3-4

Condensed Consolidated Income Statement for the
     Three Months Ended March 31, 1999 and March 31, 1998,
     And Six Months Ended March 31, 1999 and March 31, 1998....................     5-6

Condensed Consolidated Statement of Stockholders' Equity for the
     Six Months Ended March 31, 1999............................................      7

Condensed Consolidated Statement of Cash Flows for the
     Six Months Ended March 31, 1999 and March 31, 1998........................       8

Notes to Condensed Consolidated Financial Statements............................   9-10

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

PART II.  OTHER INFORMATION

Item 1.    Legal Proceedings....................................................     15
-------

Item 4.    Submission of Matters to a Vote of Security Holders..................  15-16
-------

Item 6.    Exhibits and Reports on Form 8-K.....................................     16
-------


Signatures .....................................................................     17
</TABLE>

                                       2

<PAGE>   3

                   SENSYS TECHNOLOGIES INC. AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEET


                                     ASSETS
<TABLE>
<CAPTION>
                                                 March 31,              September 30,
                                                   1999                     1998
                                            -------------------       -----------------
                                                (Unaudited)                   *
<S>                                         <C>                       <C>
CURRENT ASSETS
  Cash and cash equivalents                    $    849,000            $      112,000
  Accounts receivable                             3,473,000                 5,082,000
  Unbilled contract costs, net                    5,093,000                3,826,0005
  Inventories (Note 3)                              447,000                    36,000
  Deferred tax asset                                290,000                   288,000
  Other current assets                               88,000                    89,000
  Refundable and prepaid income taxes                98,000                   311,000
                                            -------------------       -----------------

      TOTAL CURRENT ASSETS                       10,338,000                10,244,000

PROPERTY AND EQUIPMENT                            1,598,000                 1,647,000

OTHER ASSETS
  Deferred tax asset                                 17,000                   236,000
  Costs in excess of net assets acquired            700,000                   782,000
  Property held for resale (Note 5)                       -                 1,446,000
  Other assets                                       81,000                    69,000
                                            -------------------       -----------------

      TOTAL ASSETS                             $ 12,734,000            $   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 consolidated financial
  statements.

                                       3

<PAGE>   4


                   SENSYS TECHNOLOGIES INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED BALANCE SHEET, continued


                      LIABILITIES AND STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                           March 31,                 September 30,
                                                                             1999                        1999
                                                                      -----------------          ------------------
                                                                          (Unaudited)                     *
<S>                                                                   <C>                       <C>
CURRENT LIABILITIES
  Note payable - line of credit                                          $          -             $   2,049,000
  Accounts payable                                                          2,380,000                 2,554,000
  Accrued salaries, benefits, and related expenses                          1,296,000                 1,199,000
  Deferred compensation                                                       334,000                   319,000
  Other accrued expenses                                                      569,000                   619,000
  Mortgage payable (Note 5)                                                         -                   220,000
  Capital leases                                                               45,000                    53,000
                                                                      -----------------          ------------------
      TOTAL CURRENT LIABILITIES                                             4,624,000                 7,013,000
LONG-TERM LIABILITIES

  Capital leases                                                               91,000                   104,000
                                                                      -----------------          ------------------


STOCKHOLDERS' EQUITY (Note 2)
  Common Stock, at March 31, 1999, $.01 par value,
  authorized 5,000,000 shares; issued and outstanding 3,969,971
  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 capital                                                        6,879,000                 6,858,000
  Retained earnings                                                         1,100,000                   409,000
                                                                      -----------------          ------------------

                                                                            8,019,000                 7,307,000
                                                                      -----------------          ------------------

      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $ 12,734,000              $ 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 consolidated financial
statements.

                                  4

<PAGE>   5

                   SENSYS TECHNOLOGIES INC. AND SUBSIDIARIES

                    CONDENSED CONSOLIDATED INCOME STATEMENT


<TABLE>
<CAPTION
                                                        Three Months Ended
                                                            March 31,
                                                     1999              1998
                                                ---------------  ---------------
                                                  (Unaudited)       (Unaudited)
<S>                                             <C>              <C>
REVENUE
   Contract revenue                              $   7,515,000    $   6,502,000

COSTS AND EXPENSES
   Cost of revenues                                  5,591,000        5,508,000
   General and administrative expenses,              1,225,000          787,000
                                                ---------------  ---------------

      Total costs and expenses                       6,816,000        6,295,000
                                                ---------------  ---------------

INCOME FROM OPERATIONS                                 699,000          207,000

OTHER EXPENSES
   Interest expense, net                               (24,000)         (45,000)
                                                ---------------  ---------------

INCOME BEFORE INCOME TAXES                             675,000          162,000

INCOME TAX PROVISION                                  (260,000)         (61,000)
                                                ---------------  ---------------

NET INCOME                                       $     415,000    $     101,000
                                                ===============  ===============

PER SHARE AMOUNT (Note 7)
   Basic and diluted earnings per share          $        0.10    $        0.03
                                                ===============  ===============
</TABLE>

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

                                       5


<PAGE>   6

                   SENSYS TECHNOLOGIES INC. AND SUBSIDIARIES

                    CONDENSED CONSOLIDATED INCOME STATEMENT


<TABLE>
<CAPTION>
                                                       Six Months Ended
                                                          March 31,
                                                   1999               1998
                                            ---------------    ---------------
                                               (Unaudited)        (Unaudited)
<S>                                         <C>                <C>
REVENUE                                     
  Contract revenue                           $   13,538,000     $   12,340,000

COSTS AND EXPENSES
  Cost of revenues                               10,221,000         10,644,000
  General and administrative expenses             2,116,000          1,497,000
                                            ---------------    ---------------

     Total costs and expenses                    12,337,000         12,141,000
                                            ---------------    ---------------

INCOME FROM OPERATIONS                            1,201,000            199,000

OTHER EXPENSES
   Interest expense, net                            (70,000)          (148,000)
                                            ---------------    ---------------

INCOME BEFORE INCOME TAXES                        1,131,000             51,000

INCOME TAX PROVISION                               (440,000)           (19,000)
                                            ---------------    ---------------

NET INCOME                                   $      691,000     $       32,000
                                            ===============    ===============

PER SHARE AMOUNT (Note 7)
Basic and diluted earnings per share         $         0.17     $         0.01
                                            ===============    ===============
</TABLE>


The accompanying notes are an integral part of these 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                                -                -          691,000          691,000
Exercise of stock options                 -            21,000               -           21,000
                                   ---------      -----------      -----------      -----------

BALANCE AT MARCH 31, 1999          $  40,000      $ 6,879,000      $1,100,000       $8,019,000
                                   =========      ===========      ===========      ===========
</TABLE>

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

                                       7


<PAGE>   8

                   SENSYS TECHNOLOGIES INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                          Six Months Ended
                                                                                              March 31,
                                                                                    1999                     1998
                                                                             ----------------          ---------------
                                                                                 (Unaudited)              (Unaudited)

<S>                                                                          <C>                        <C>
Cash flows from operating activities:
Net cash provided by operating activities                                    $     1,797,000            $      162,000
                                                                             ----------------           ---------------

Cash flows from investing activities:
 Acquisition expenses, net of cash acquired                                                 -                 (108,000)
 Net acquisitions of property and equipment                                         (237,000)                  (58,000)
 Proceeds from disposal of property held for sale                                  1,446,000                         -
                                                                             ----------------           ---------------

   Net cash provided (used) by investing activities                          $     1,209,000            $     (166,000)
                                                                             ----------------           ---------------

Cash flows from financing activities:

   Net payments under line of credit                                         $    (2,049,000)           $   (3,786,000)
   Principal payments on mortgage debt                                              (220,000)                         -
   Principal payments on capital lease obligations                                   (21,000)                  (51,000)
   Proceeds of stock option exercises                                                 21,000                         -
   Issuance of common stock                                                                -                 3,842,000
                                                                             ----------------           ---------------


   Net cash (used) provided by financing activities                               (2,269,000)                    5,000
                                                                             ----------------           ---------------


Net increase in cash and cash equivalents                                            737,000                     1,000
Cash and cash equivalents, beginning of year                                         112,000                   140,000
                                                                             ----------------           ---------------


Cash and cash equivalents, end of year                                       $       849,000            $      141,000
                                                                             ================           ===============

Supplemental schedule of non-cash investing and financing activities:
   Equipment acquired with capital lease obligations                         $             -            $      143,000
                                                                             ================           ===============

Supplemental disclosure of cash flow information:

   Cash received for income taxes                                            $        24,000           $             -
   Cash paid for interest                                                    $       (65,000)          $      (136,000)
                                                                             ================          ================
</TABLE>

The accompanying notes are an integral part of these 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 six month periods ended March 31, 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>

                                                      March 31,         September 30,
                                                        1999                1998
                                                   ---------------      ---------------
<S>                                                <C>                  <C>
          Materials                                      $  97,000           $   94,000
          Work in process                                  350,000              442,000
                                                   ---------------      ---------------
                                                         $ 447,000           $  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 March 31, 1999, 31,000 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 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 (5.0 percent at March 31, 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 secured 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 March 31, 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 3,968,554 and 2,920,065 for the three month periods ended March
31, 1999 and 1998, respectively, and 3,967,576 and 2,387,932 for the six month
periods ended March 31, 1999 and 1998, respectively. The weighted average
number of shares used in the diluted earnings per share calculation was
4,177,764 and 2,950,242 for the three month periods ended March 31, 1999 and
1998, respectively. The weighted average number of shares used in the diluted
earnings per share calculation was 4,159,775 and 2,429,365 for the six month
periods ended March 31, 1999 and 1998, respectively.

8.   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


                                       10

<PAGE>   11

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, 1999. 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 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

                                       11


<PAGE>   12

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 MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31,
1998:

Revenue for the three months ended March 31, 1999 was $7,515,000 compared to
$6,502,000 for the three months ended March 31, 1998, resulting in a $1,013,000
or a 15.6% increase. The increase was primarily the result of additional
revenues of approximately $257,000 from the former DEI business and revenue
from an engineering development subcontract that started in the fourth quarter
of fiscal year 1998.

Cost of revenue, as a percentage of revenue, decreased from 84.7% for the three
months ended March 31, 1998 to 74.4% for the three months ended March 31, 1999.
The decrease primarily resulted from a reduction in revenue from contracts in
which losses were sustained and lower profit margins were realized, as well as
an overall increase in the profit margins under other contracts. The Company
attributes this improvement to focusing the business and streamlining the
operations for higher productivity.

For the three months ended March 31, 1999, general and administrative expenses
increased from $787,000 to $1,225,000 or a 55.7% increase compared to the three
month period ended March 31, 1998. The increase was due principally to an
overall increase in its traditional general and administrative expenses of
approximately $125,000, and Bid & Proposal/Independent Research and Development
(B&P/IR&D) expenses of $185,000 incurred by the acquired DEI business
activities. In addition, incentive compensation benefits increased
approximately $45,000 and expenses of approximately $100,000 were incurred
related to meeting the Company's obligations as a public company, which were
offset by a reduction in bad debt expense of $105,000. Goodwill amortization,
as a result of the DEI acquisition, accounted for approximately $17,000 of the
increase.

Interest expense decreased from $45,000 for the three months ended March 31,
1998 to $24,000 for the three months ended March 31, 1999, which represents a
46.7% decrease. The decrease was principally the result of lower average
borrowings. For the three months ended March 31, 1999, the Company was able to
utilize its improved operating performance and the net proceeds from the sale
of real estate on December 1, 1998, to reduce to zero, at March 31, 1999, its
outstanding balance on its line of credit.

Income tax expense consists of federal and state income tax. The Company's
effective tax rate was 38.5% for the three months ended March 31, 1999,
compared to an effective tax rate of 37.7% for the three months ended March 31,
1998. The principal cause of the change is non-deductible goodwill amortization
in 1999 recorded in association with the Company's merger with DEI and the
impact of marginal tax bracket for lower taxable income in fiscal year 1998.

Net income for the three months ended March 31, 1999 increased to $415,000,
compared to a net income of $101,000 for the three months ended March 31, 1998.
The increase of $314,000 was the result of the items discussed above.

The total amount of funded contracts in backlog as of March 31, 1999 and March
31, 1998 was $12,100,000 and $10,300,000, respectively, including both the
uncompleted portion of contracts in progress and contracts awarded but not yet
started. The funded contract backlog at March 31, 1999 is expected to be
completed


                                       12


<PAGE>   13

within a year.

In addition, at March 31, 1999, the Company had an unfunded backlog of
$4,900,000 compared to an unfunded backlog of $416,000 at March 31, 1998.

Exercisable options for subsequent production under existing contracts are
approximately $44,000,000 at March 31, 1999, compared to $8,400,000 at March
31, 1998.The outstanding options at March 31, 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.

SIX MONTHS ENDED MARCH 31, 1999 COMPARED TO SIX MONTHS ENDED MARCH 31, 1998:

Revenue for the six months ended March 31, 1999 was $13,538,000 compared to
$12,340,000 for the six months ended March 31, 1998, resulting in a $1,198,000
or 9.7% increase. The increase was primarily the result of additional revenues
of approximately $650,000 from the former DEI business and revenue from an
engineering development subcontract that started in the fourth quarter of
fiscal year 1998.

Cost of revenue, as a percentage of revenue, decreased from 86.3% for the six
months ended March 31, 1998 to 75.5% for the six months ended March 31, 1999.
The decrease primarily resulted from a reduction in revenue from contracts on
which losses were sustained and contracts on which lower margins were realized, 
as well as an overall increase in the profit margins under other contracts. The
Company attributes its improvement to focusing the business and streamlining
the operations for higher productivity.

For the six months ended March 31, 1999, general and administrative expenses
increased from $1,497,000 to $2,116,000 or a 41.3% increase compared to the
six-month period ended March 31, 1998. The increase was due principally to an
overall increase in traditional general and administrative expenses of $210,000
and Bid & Proposal/Independent Research & Development expenses of $240,000,
incurred by the acquired DEI business activities. In addition, incentive
compensation benefits increased approximately $115,000 and expenses of
approximately $125,000 were incurred related to meeting the Company's
obligations as a public company, which were offset by a reduction in bad debt
expense of $135,000. Goodwill amortization, as a result of the DEI acquisition,
accounted for approximately $35,000 of this increase.

Interest expense decreased from $148,000 for the six months ended March 31,
1998 to $70,000, a decrease of 52.7%, for the six months ended March 31, 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 six month period ended March
31, 1999, the Company used its improved operating performance and the net
proceeds from the sale of real estate on December 1, 1998, to reduce to zero,
at March 31, 1999, its outstanding balance on its line of credit.

Income tax expense consists of federal and state income tax. The Company's
effective tax rate was 38.9% for the six months ended March 31, 1999, compared
to an effective tax rate of 37.3% for the six months ended March 31, 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 on the lower taxable income in fiscal year 1998.

Net income for the six months ended March 31, 1999 increased to $691,000,
compared to a net income of $32,000 for the six months ended March 31, 1998.
The increase of $659,000 was the result of the items discussed above.



                                       13

<PAGE>   14

LIQUIDITY AND SOURCES OF CAPITAL

At March 31, 1999, the Company's cash and cash equivalents totaled $849,000 as
compared to $112,000 at September 30, 1998. During the six-month period ended
March 31, 1999, the net cash provided to the company by its operating
activities was $1,797,000, as compared to $162,000 for the first six months of
fiscal year 1998, an increase of $1,635,000.

The net cash provided to the Company by its investing activities during the
six-month period ended March 31, 1999 was $1,209,000, as compared to cash used
for investing activities of $166,000 during the first six months of fiscal year
1998. This increase is attributable to the realization of net proceeds from the
sale of the real estate sold on December 1, 1998 of $1,446,000, and the
Company's acquisition of property and equipment during the six months ended
March 31, 1999 for $237,000. 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 six month
period ended March 31, 1999 was $2,269,000, compared to net cash provided by
financing activities of $5,000 during the comparable six month period of fiscal
year 1998. For the six month period ended March 31, 1999, the net cash used was
primarily devoted to reducing to zero the Company's line of credit 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 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, 1999. 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.

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


                                       14

<PAGE>   15

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 1.  LEGAL PROCEEDINGS

The Company is not a party to, nor is any of its property the subject of, any
pending legal proceedings other than that which is incidental to the ordinary
course of business.

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

During the period covered by this report, the Company filed with the Securities
and Exchange Commission and delivered to its shareholders the Company's Proxy
Statement for its Annual Meeting of Stockholders held February 10, 1999.

(a) The Company's Annual Meeting of Stockholders was held on February 10, 1999.

(b) The nominees for the Board of Directors are identified below.

(c) The inspector of election tabulated the following votes for the election of
    directors:

                              Election of Directors

<TABLE>
<CAPTION>
                                                      Number of Votes      Abstentions and Broker
   Nominee for Office      Number of Votes "For"         "Against"                Non-Votes
   ------------------      ---------------------         ---------                ---------
<S>                             <C>                       <C>                     <C>
Charles W. Bernard               3,192,681                  359                     - 0 -
</TABLE>


                                       15

<PAGE>   16

<TABLE>
<S>                             <C>                       <C>                      <C>
James B. Busey                   3,189,623                 3,417                    - 0 -
Thomas R. Ory                    3,191,283                 1,757                    - 0 -
S. R. Perrino                    3,189,592                 3,448                    - 0 -
Philip H. Power                  3,183,380                 9,660                    - 0 -
S. Kent Rockwell                 3,192,682                  358                     - 0 -
John D. Sanders                  3,189,823                 3,217                    - 0 -
</TABLE>


The inspector of election tabulated the following votes for the ratification of
the selection of PricewaterhouseCoopers LLP as the Company's independent
accountants for the 1999 fiscal year:

<TABLE>
<CAPTION>
                                                                       Abstentions and Broker
     Number of Votes "For"           Number of Votes "Against"                Non-Votes
<S>                                             <C>                            <C>
           3,185,637                             1                              - 0 -
</TABLE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
Exhibits
<S>                   <C>
10.1                  Financing and Security Agreement

10.2                  Revolving Credit Note

27                    Financial Data Schedule
</TABLE>


                                       16


<PAGE>   17




                                   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.

<TABLE>
<S>                                             <C>
May 15, 1999                                    By:          /s/S. Kent Rockwell
                                                   --------------------------------------
                                                                S. Kent Rockwell
                                                               Chief Executive Officer





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

                                       17