<PAGE>
 
                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON D.C. 20549
                                  FORM 10-QSB


(Mark One)

|X|  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1999.

|_|  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO
     ________________.


                        Commission file number 0-27286

                                 HELISYS, INC.
       (exact name of small business issuer as specified in its charter)

              Delaware                              95-4552813
     (State or other jurisdiction      (I.R.S. Employer Identification Number)
     of incorporation or organization)


               24015 Garnier Street, Torrance, California 90505
                   (Address of principal executive offices)
                                   

                                (310) 891-0600
                          (Issuer's telephone number)

                                NOT APPLICABLE

             (Former name, former address and former fiscal year,
                         if changed since last report)

Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.

                                                 YES   X      NO  ______
                                                     -----

State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.


             Class                           Outstanding at January 31, 1999
             -----                           ------------------------------- 

  Common Stock, $.001 par value                      4,542,760


                              Page 1 of __ Pages
                           Exhibit Index on Page __
<PAGE>
 
                                 HELISYS, INC.
                             INDEX TO FORM 10-QSB

<TABLE> 
<S>                                                                                                           <C> 
PART I.  FINANCIAL INFORMATION

     Item 1.  Financial Statements

                  Balance Sheets as of July 31, 1998 (audited)
                  and January 31, 1999 (unaudited)........................................................     3

                  Statements of Operations (unaudited) for the three months and the six months ended
                  January 31, 1998 and 1999...............................................................     5

                  Statements of Cash Flows (unaudited) for the six months ended
                  January 31, 1998 and 1999...............................................................     6

                  Notes to Financial Statements..........................................................      7

     Item 2.  Management's Discussion and Analysis of Financial
              Condition and Results of Operations........................................................      9

PART II.  OTHER INFORMATION

     Item 1.  Legal Proceedings...........................................................................    17

     Item 2.  Changes in Securities.......................................................................    18

     Item 3.  Defaults Upon Senior Securities.............................................................    18

     Item 4.  Submission of Matters to a Vote of Security Holders.........................................    18

     Item 5.  Other Information...........................................................................    19

     Item 6.  Exhibits and Reports on Form 8-K............................................................    19

SIGNATURES ...............................................................................................    19

EXHIBIT INDEX.............................................................................................    20

EXHIBITS..................................................................................................    21
</TABLE> 

                                       2
<PAGE>
 
                                 HELISYS, INC.
                                BALANCE SHEETS

<TABLE> 
<CAPTION> 
                                                        July 31, 1998    January 31, 1999     
                                                        -------------    ----------------
                                                          (audited)          (unaudited)       
<S>                                                     <C>              <C> 
ASSETS                                                                                               
Current assets:                                                                                      
     Cash and cash equivalents .......................   $   45,766      $    327,099                
     Accounts receivable, net of allowance for                                                       
       doubtful accounts of $140,840 as of                                                          
       July 31, 1998, and $166,840 as of                                                             
       January 31, 1999 ..............................    1,414,254           872,060                
     Inventories .....................................    1,417,379           802,824                
     Prepaid expenses ................................       62,426           170,707                
     Other current assets ............................       17,950                 -                
                                                         ----------------------------                
       Total current assets...........................    2,957,775         2,172,690                
                                                         ----------------------------                
                                                                                                     
Property, plant and equipment:                                                                       
     Office furniture and equipment ..................      583,308           583,308                
     Machinery and equipment..........................      669,270           669,270                
                                                         ----------------------------                
                                                          1,252,578         1,252,578                
     Less - Accumulated depreciation..................      791,412           905,404                
                                                         ----------------------------                
     Property, plant and equipment, net...............      461,166           347,174                
                                                         ----------------------------                
                                                                                                     
Other assets..........................................       27,365            27,365                
                                                         ----------------------------                
Total.................................................   $3,446,306      $  2,547,229                
                                                         ============================                 
</TABLE> 

               See accompanying notes to financial statements. 
            

                                       3
<PAGE>
 
                                 HELISYS, INC.
                                BALANCE SHEETS

<TABLE> 
<CAPTION> 
                                                                 July 31, 1998       January 31, 1999
                                                                 -------------       ----------------
                                                                   (audited)           (unaudited)  
<S>                                                              <C>                 <C>             
LIABILITIES AND STOCKHOLDERS' EQUITY                                                                 
                                                                                                     
Current liabilities:                                                                                 
    Accounts payable............................................ $ 1,136,992         $   768,422     
    Accrued liabilities.........................................     659,956             549,335     
    Customer deposits...........................................      43,722               3,573     
    Deferred maintenance revenues ..............................     565,545             537,207     
    Line of credit..............................................     369,552             330,552     
    Note payable................................................     100,000                   -      
                                                                 -------------------------------
       Total current liabilities................................   2,875,767           2,189,089 
                                                                 -------------------------------

Stockholders' equity:
    Preferred stock, $.001 par value
       5,000,000 shares authorized, 144,000 issued
       and outstanding .........................................          80                 144
    Common stock, $.001 par value
       Authorized 20,000,000 shares
       Issued and outstanding 4,042,760 and 4,542,760 shares
       as of July 31, 1998, and January 31, 1999, respectively..       4,043               4,543    
    Additional paid-in capital .................................   6,646,990           7,085,426    
    Accumulated deficit ........................................  (6,080,574)         (6,731,973)   
                                                                 -------------------------------
       Total stockholders' equity ..............................     570,539             358,140 
                                                                 -------------------------------

Total .......................................................... $ 3,446,306         $ 2,547,229
                                                                 ===============================
</TABLE> 

               See accompanying notes to financial statements. 

                                       4
<PAGE>
 
                                 HELISYS, INC.
                           STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

<TABLE> 
<CAPTION> 
                                                                    For the                           For the
                                                                    -------                           -------
                                                               Three Months Ended                 Six Months Ended
                                                               ------------------                 ----------------
                                                                   January 31,                       January 31,
                                                                   -----------                       -----------
                                                               1998          1999                1998           1999
                                                               ----          ----                ----           ----
<S>                                                      <C>            <C>                   <C>            <C>       
Net sales ............................................   $ 2,030,167    $ 2,161,633           $ 4,543,918    $ 4,157,776

Cost of sales ........................................     1,545,613      1,342,997             3,366,385      2,744,667
                                                         ---------------------------          ---------------------------
     Gross profit ....................................       484,554        818,636             1,177,533      1,413,109
                                                         ---------------------------          ---------------------------

Operating expenses:
     Selling, general and administrative .............     1,001,418        770,129             2,130,686      1,692,505
     Research and development ........................       318,365        167,604               891,157        337,491
                                                         ---------------------------          ---------------------------
                                                           1,319,783        937,733             3,021,843      2,029,996
                                                         ---------------------------          ---------------------------
         Loss from operations ........................      (835,229)      (119,097)           (1,844,310)      (616,887)
                                                         ---------------------------          ---------------------------

Other income (expense):
     Interest and other income .......................           329            237                45,450         46,354
     Interest and other expense ......................      (113,933)       (34,465)             (179,285)       (80,866)
                                                         ---------------------------          ---------------------------

         Net loss ....................................   $  (948,833)   $  (153,325)          $(1,978,145)   $  (651,399)
                                                         ===========================          ===========================

         Net loss per share ..........................         (0.24)         (0.04)                (0.49)         (0.16)


         Weighted average number of common outstanding
             basic and diluted .......................     4,026,075      4,132,688             4,027,696      4,087,724
                                                         ===========================          ===========================
</TABLE> 

                See accompanying notes to financial statements.

                                       5
<PAGE>
 
                                 HELISYS, INC.
                           STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

<TABLE>
<CAPTION>  
                                                                                      For the
                                                                                      -------
                                                                                 Six Months Ended
                                                                                 ----------------
                                                                                    January 31,
                                                                                 1998          1999
                                                                                 ----          ----   
<S>                                                                       <C>              <C> 
Cash flows from operating activities:
Net loss...............................................................    ($ 1,978,145)   $  (651,399)
Adjustments to reconcile net loss to
  net cash used in operating activities:
    Depreciation.......................................................         194,201        113,992
    Amortization of credit facility commitment fee paid with warrants..          39,600              -
    Amortization of deferred compensation..............................           5,048              -
    Net book value of equipment sold to customers......................          72,548              -
    Changes in operating assets and liabilities:
      Accounts receivable..............................................         329,396        542,194
      Inventories......................................................         (89,763)       614,555
      Income taxes receivable..........................................           9,961              -
      Prepaid expenses.................................................         (20,056)      (108,281)
      Other current assets.............................................               -         17,950
      Other assets.....................................................             382              -
      Accounts payable.................................................         369,415       (368,570)
      Accrued liabilities..............................................        (287,092)      (110,621)
      Customer deposits................................................          15,054        (40,149)
      Deferred maintenance revenues....................................        (250,652)       (28,338)
      Deferred gross profits...........................................        (109,716)             -
                                                                          --------------------------------
        Net cash used in operating activities..........................      (1,699,819)       (18,667)
                                                                          --------------------------------

Cash flows from financing activities:
      Payments on long term debt and capital lease obligations.........         (21,320)       (39,000)
        Proceeds from issuance of preferred ($400,000) and restricted
        ($39,000) stock ...............................................         500,000        439,000
        Net borrowings on bank credit line ............................       1,000,000              -
        Proceeds from issuance of note payable ........................               -       (100,000)
                                                                          --------------------------------

        Net cash provided by financing activities......................       1,478,680        300,000
                                                                          --------------------------------
Net increase (decrease) in cash........................................        (221,139)       281,333
Cash, beginning of period..............................................         626,976         45,766
                                                                          --------------------------------

Cash an cash equivlanets, end of period................................     $   405,837    $   327,099
                                                                          ================================
Supplemental disclosures of cash flow information:
      Cash paid during the period for interest.........................     $   108,614    $    28,466
                                                                          ================================
Supplemental disclosure of non-cash financing and investing activities:
      Issuance of shares under employee purchase plan..................     $     5,396              -
                                                                          ================================
      Warrants issued as commitment fee to secure credit facilities....     $   132,000              -
                                                                          ================================
      Inventory transfers to property, plant and equipment.............     $    67,422              -
                                                                          ================================
      Sale of 500,000 shares of restricted stock in exchange for a
          note receivable..............................................               -    $    39,000
                                                                          ================================
</TABLE> 

                See accompanying notes to financial statements.

                                       6
<PAGE>
 
                                 HELISYS, INC.

                         NOTES TO FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION

      The unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB. The accompanying financial statements
include all adjustments (consisting only of normal recurring accruals) which
are, in the opinion of management, necessary for a fair presentation of the
results for the interim periods presented. Operating results for the three and
the six month periods ending January 31, 1999 are not necessarily indicative of
the results that may be expected for the year ending July 31, 1999. Certain
reclassifications have been made to the 1998 financial statements to conform
with the 1999 presentation.

      The financial statements and related disclosures have been prepared with
the presumption that users of the interim financial information have read or
have access to the audited financial statements for the preceding fiscal year.
Accordingly, these financial statements should be read in conjunction with the
audited financial statements and the related notes thereto included in the
Company's Annual Report on Form 10-KSB as filed with the Securities and Exchange
Commission on November 19, 1998.

      The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. For the years ended July 31, 1996,
1997, 1998 and for the six months ended January 31, 1999 the company reported a
net loss of $886,695, $3,031,671, $3,635,132 and $651,399 and negative cash flow
from operations of $2,438,241, $1,826,864, $1,926,875 and $18,667, respectively.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plan to overcome these conditions include
continuing cost cutting programs implemented in 1997 and 1998, which included
the sale and subsequent lease-back of its corporate facilities (consummated in
July 1998) and raising additional debt and equity capital to fund operations.

      In November 1997, to cure the covenant defaults with its Bank, the Company
amended its existing Primary Facility (from $1,500,000 to $500,000) and obtained
an additional line of credit facility for $500,000 (the "Secondary Facility")
with the Bank. These facilities provided for maximum aggregate borrowings of
$1,000,000 and were guaranteed, in part, by an investment banker. The Primary
Facility was repaid in July 1998 upon the sale of the Company's building.

      In connection with the amendment to the credit facilities, the investment
banker agreed to guarantee up to $500,000 of the line of credit facility with
the bank in exchange for a five year warrant to purchase 100,000 shares of the
Company's common stock at an exercise price of $1.75 per share (which exercise
price is subject to adjustment), plus $10,000 in cash.  Additional consideration
of 10,000 five year warrants to purchase the Company's common stock at $1.75 per
share will be granted to the investment banker for each $100,000 that the

                                       7
<PAGE>
 
Company borrows under the secondary line of credit facility up to the $500,000
guaranteed. As of January 31, 1999, the Company is obligated to issue 50,000
warrants in conjunction with the borrowing of $500,000 against the line of
credit facility.

      At January 31, 1999 the Company's borrowings under the Secondary Facility
with the Bank, bearing interest at prime plus three percent (new rate effective
January 19, 1999) amounted to $330,552.

      The Secondary Facility is collateralized by substantially all assets of
the Company. Under the Facility the Company is subject to certain financial
covenants. The major financial covenants include requirements for maintaining
defined levels of tangible net worth and working capital, as well as various
ratios, including the current ratio and the senior liabilities to tangible net
worth ratio.

      The Company did not comply with certain financial covenants at January 31,
1999, and accordingly, is subject to a forbearance agreement with its bank for
periods up to and including April 15, 1999.

      Monthly payments of $6,500 ($7,500 effective February 1, 1999) plus
interest, commenced effective August 1, 1998. All amounts outstanding under the
credit facility are classified as current at January 31, 1999.

      There can be no assurance that the Bank will continue to extend
accommodations or an extension of such facilities will be granted or that the
Company will be successful in returning to profitability, obtaining additional
capital or that the capital will be sufficient to fund the Company's operations
until such time as the Company is able to operate profitably. If the Company is
unsuccessful in extending its agreement with the bank, in returning to
profitable operations or in raising additional capital it may be unable to
continue as a going concern.

 
(2) EARNINGS (LOSS) PER COMMON SHARE
------------------------------------

      Earnings per share is computed using the weighted average number of shares
outstanding and dilutive stock equivalents from the Company's stock option plan,
calculated using the treasury stock method.  Such common stock equivalents are
excluded from the loss per share calculation as their effect is anti-dilutive
for the periods ending January 31, 1998 and 1999.

      In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share," which is required to be adopted for
interim and annual financial statements for fiscal years ending after December
31, 1997. SFAS requires the Company to change the method currently used to
compute earnings per share and to restate all prior periods. Under the
requirements, primary earnings per share was replaced by basic earnings per
share from which the dilutive effect of stock options is excluded. There was no
impact of

                                       8
<PAGE>
 
adopting Statement No. 128 for the periods ended January 31, 1998 and 1999 due
to the anti-dilutive effect of common stock equivalents during these periods.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

      The Company designs, develops, manufactures and markets rapid prototyping
systems used by manufacturers, design engineering firms, universities and others
to make physical models, molds, industrial patterns and prototypes directly from
3-D CAD files. The Company's systems use the Company's LOM technology to produce
physical models and other three-dimensional objects used as models, or in the
preliminary testing of the form, fit or function of a part, or the conversion of
patterns into usable parts through secondary processes, such as sand casting and
rubber molding, or in industrial pattern making and similar applications. The
Company also sells sheet-form materials and other supplies used with its LOM
systems.

      During its early years, the Company obtained government funding to conduct
research and development activities relating to its Laminated Object
Manufacturing ("LOM") technology process. Commencing in 1991, commercial
operations were funded through the receipt of advance deposits from customers to
cover the costs of manufacturing the LOM systems. More recently, the Company has
funded its cash requirements primarily from cash flow from operations, bank
credit lines and additional equity investments.

      The future growth of the Company is dependent upon market acceptance of
its latest-generation rapid prototyping systems, as well as continued sales of
materials and services. During fiscal year ended July 31,1997 the Company began
to implement cost-cutting programs in an effort to return to profitability.
Further staff reductions took place in August 1997 as the number of employees
was reduced by approximately 10 percent, in March of 1998 as the number of
employees was reduced again by approximately 24%, and again in September/October
of 1998 as the number of employees was reduced by approximately 10%. The Company
began commercial shipment of its latest-generation rapid prototyping systems,
the LOM-2030H, in October of 1996. In addition, the Company commenced shipment
of its latest generation LOM-1015 Plus and new plastic material in March of 1997
and new composite material in November of 1997. There can be no assurance that
the sales revenue generated by the LOM-2030H or LOM 1015 Plus and existing
products and services will be commensurate with current and future levels of the
Company's operating expenses.

      The Company has experienced significant losses from operations in the
three most recent fiscal years and anticipates experiencing further losses in
fiscal 1999. Although the Company anticipates achieving profitable operations in
the future, there can be no assurance that profitable operations will ever be
achieved. The Company's ability to achieve profitable operations in the future
will depend in large part on achieving significant sales of its latest-
generation LOM systems. Moreover, there can be no assurance that even if the
Company generates anticipated product and materials/services sales, the Company
will not continue to

                                       9
<PAGE>
 
incur losses from operations. The likelihood of the long-term success of the
Company must be considered in light of the expenses, difficulties and delays
frequently encountered in the development and commercialization of new products
and competitive factors in the marketplace. The Company used cash of
approximately $19,000 in operations during the six months ended January 31,
1999, which was a significant improvement over the six months ended January 31,
1998 when $1,700,000 in cash was used for operations. While the Company expects
sales of its existing products and its latest-generation LOM systems to support
current and future levels of research and development and other expenses, there
can be no assurance that the Company will achieve such sales levels.

      The Company sold 80,000 shares of the Company's Convertible Series A
preferred stock, $.001 par value ("Preferred Stock"), to an investment banker
for $500,000 in November 1997 and 64,000 shares of the Company's Preferred Stock
to investors for $400,000 in September 1998. Purchasers of the Preferred Stock
in the September 1998 transaction also received warrants to purchase 800,000
shares of the Company's Common Stock at a purchase price of $0.35 per share.
Pursuant to this transaction, each share of the Preferred Stock issued
(including the 80,000 shares of Series A Preferred Stock issued to the
investment banker in November 1997) is convertible into 25 shares of the
Company's Common Stock. Each holder of Preferred Stock is entitled to a number
of votes equal to five times the number of shares of Common Stock into which
each share of the Preferred Stock is convertible. The number of votes that the
holders of the Preferred Stock are entitled decreases as the share price of the
Company's Common Stock increases. The documents evidencing this transaction,
including the Certificate which details the voting rights of the holders of the
Preferred Stock, are attached to the Schedule 13D filed by Telantis Venture
Partners V, Inc. and Robert F. Myerson on September 24, 1998. This transaction
was disclosed on Form 8-K filed October 9, 1998, which is incorporated by
reference herein. In addition, 500,000 shares of restricted common stock were
sold to the Company's president in December 1998 in exchange for a $39,000 note.
If the Company is unable to generate sufficient sales or to reduce expenses to
match its sales levels, the Company will require additional debt or equity
financing to continue operations. There can be no assurance that the Company
will be able to obtain such financing or obtain such financing on terms
acceptable to the Company.

RESULTS OF OPERATIONS

      Net Sales. The Company's gross sales include sales of LOM systems,
materials used in the LOM process, and services, which consist primarily of
contracts for the repair and maintenance of installed LOM systems. Net sales
consist of gross sales less the amount of discounts, returns and allowances,
plus any income in excess of costs incurred on research and development grants.
Net sales for the three months and the six months ended January 31, 1999 were
approximately $2,162,000 and $4,158,000, respectively, which was an increase
(decrease) of approximately $132,000 (6.5%) and ($386,000) (8.5%), respectively,
from the three and six month periods ended January 31, 1998.

                                       10
<PAGE>
 
      For the six month period ending January 31, 1999, as compared to the same
period ending January 31, 1998, the net sales changes were almost entirely a
result of the decrease in the sales of materials and services. For the six
months ended January 31, 1999, sales of materials and services amounted to
$1,509,272 as compared to $1,899,357 for the six months ended January 31, 1998.
Regarding sales changes relating to the number of LOM systems shipped for the
three months ended January 31, 1999, a total of 15 LOM systems were shipped as
compared to a total of 13 LOM systems shipped for the three months ended January
31, 1998. For the six months ended January 31, 1999, a total of 24 LOM systems
were shipped as compared to a total of 28 LOM systems shipped for the six months
ended January 31, 1998. Six months LOM systems revenues for the periods ending
January 31, 1999 and January 31, 1998 were approximately $2,645,000 for each
period. Net changes in average selling prices and product mix differences
balanced out the differences in total units shipped. 

 
Product Mix Percentages:
-----------------------
                                                   Six Months Ended
                                          -----------------------------------
                                          January 31, 1998   January 31, 1999
                                          ----------------   ----------------
     LOM Systems                                58.2%              63.7%
     Materials and Service                      41.8%              36.3%
 
 
LOM System Units Sold During the
--------------------------------
Periods Indicated:
-----------------
                                          LOM 1015s          LOM 2030s
                                          ---------          ---------
 
Three Months ended January 31, 1998            5                  8        
Three Months ended January 31, 1999           10                  5        
Six Months ended January 31, 1998             11                 17        
Six Months ended January 31, 1999             14                 10        


As of January 31, 1998 and 1999, the Company had deferred revenue in the amount
of approximately $154,000 and $-0-, respectively, relating to shipment of LOM
systems subject to agreements providing the customer the right to exchange such
systems for an upgraded version.

      Gross Profit. Cost of sales consists primarily of the costs of labor, raw
materials and overhead used in the production of the Company's rapid prototyping
systems. Gross profit for the three months ended January 31, 1999 was
approximately $819,000, an increase of approximately $334,000, or 69%, compared
to the gross profit of approximately $485,000 for the three months ended January
31, 1998. Gross profit as a percentage of sales increased to 38% for the three
months ended January 31, 1999 as compared to 24% for the three months ended
January 31, 1998. Gross profit for the six months ended January 31, 1999 was
approximately $1,413,000, an increase of approximately $236,000, or 20%,
compared to the gross profit of approximately $1,178,000 for the six months
ended January 31, 1998. Gross

                                       11
<PAGE>
 
profit as a percentage of sales increased to 34% for the six months ended
January 31, 1999 as compared to 26% for the six months ended January 31, 1998.

     Increased margins, both in the sales of LOM systems and in the sales of
materials, paper sales and services, were the main contributors to the increase
in gross profit for the reportable periods as compared to the same periods for
the last fiscal year. Net positive effects of price increases announced in May
of 1998 were factors in margin increases, as were reduced manufacturing costs.
Additionally, price concessions given to close sales in the period ended January
31, 1998 exceeded those given during the period ended January 31, 1999.

     Selling, Marketing, General and Administrative Expense. Selling, marketing,
general and administrative expense consists primarily of commissions, sales and
administrative salaries, office expenses and general overhead. Selling,
marketing, general and administrative expense for the three months ended January
31, 1999 was approximately $770,000, a decrease of approximately $231,000, or
23%, compared to approximately $1,001,000 for the three months ended January 31,
1998. Selling, marketing, general and administrative expense for the six months
ended January 31, 1999 was approximately $1,693,000, a decrease of approximately
$438,000, or 21%, compared to approximately $2,131,000 for the six months ended
January 31, 1998. Significant reductions in the sales functional area took place
in September and October 1998 with the elimination of the domestic field sales
staff. In addition, expenses related to participation in certain industry trade
shows were curtailed. A new sales staff is presently being hired and a new Vice
President of Sales and a Marketing Director have been added. The Company intends
to make a substantial investment in marketing over the next six months, the
results of which are expected to be seen in the fourth quarter of 1999 and
throughout the subsequent year.

     Research and Development Expense. Research and development expense consists
of engineering costs incurred in the development and enhancement of LOM systems
and new materials research. Research and development expense also includes costs
expended to secure government grants, which the Company uses to subsidize
certain research activities. To the extent that grants are awarded to the
Company, the costs incurred in performing the grant are offset by income
received from the grant. Research and development expense for the three months
ended January 31, 1999 was approximately $168,000, a decrease of approximately
$151,000, or 47%, compared to approximately $318,000 for the three months ended
January 31, 1998. Research and development expense for the six months ended
January 31, 1999 was approximately $337,000, a decrease of approximately
$554,000, or 62%, compared to approximately $891,000 for the six months ended
January 31, 1998. The decreases in research and development expenses were
primarily attributable to engineering staff and related expense level reductions
associated with the overall staff reductions made in August 1997 and March 1998.

     Loss from Operations. Loss from operations for the three months ended
January 31, 1999 was approximately $153,000, compared to a loss of approximately
$949,000 for the

                                       12
<PAGE>
 
three months ended January 31, 1998. Loss from operations for the six months
ended January 31, 1999 was approximately $651,000, as compared to the loss from
operations for the six months ended January 31, 1998 of approximately
$1,978,000.

     Other Expense. Other expense for the three months ended January 31, 1999
was approximately $34,000 as compared to approximately $114,000 for the three
months ended January 31, 1998. Other expense for the six months ended January
31, 1999 was approximately $81,000, as compared to approximately $179,000 for
the six months ended January 31, 1998.

     Benefit for Income Tax.  There was no tax provision or benefit from income
taxes recorded for the periods presented.  No benefit was provided due to the
limited remaining available loss carryback and the uncertainty of realizing loss
carryforwards.

LIQUIDITY AND CAPITAL RESOURCES

     The Company used cash of approximately $19,000 in operations during the six
months ended January 31, 1999, and used cash from operating activities of
approximately $1,700,000 for the six months ended January 31, 1998. These
operating cash flow changes are consistent with the operating losses incurred by
the Company, as well as changes in sales along with changes in accounts
receivable, inventories and accounts payable. Cash and cash equivalents
increased from approximately $46,000 at July 31, 1998 to approximately $327,000
at January 31, 1999 due, in part, to changes in collection procedures which
incorporated letter of credit payments, 20% down payments, and balances due, in
some cases, prior to shipment. In addition, inventories have been reduced
significantly (balance was approximately $1,417,000 at July 31, 1998 as compared
to approximately $803,000 at January 31, 1999) due to a combination of unit
sales and the curtailment of manufacturing in anticipation of projected
backlogs.

     Working capital was approximately $82,000 at July 31, 1998, compared to
approximately $16,000 at January 31, 1999. This decrease was primarily due to
the increased net loss experienced during the six months ended January 31, 1999.

     No cash was used in investing activities (which includes purchases of
property, plant and equipment) during the six months ended January 31, 1999 and
January 31, 1998. The Company anticipates that its capital expenditures for the
fiscal year ending July 31, 1999 will be minimal, if anything at all.

     There can be no assurance that the Company will be successful in returning
to profitability or obtaining additional capital or that capital raised will be
sufficient to fund the Company's operations until such time that the Company is
able to operate profitably. If the Company is unsuccessful in returning to
profitable operations or in raising additional capital it may be unable to
continue as a going concern.

                                       13
<PAGE>
 
     The Company believes that the funds from operations and equity investments
will be sufficient to meet its capital needs for existing operations and future
anticipated growth of the Company for the next 3 to 6 months. To the extent that
such amounts are insufficient to finance the Company's working capital
requirements, the Company will be required to raise additional funds through
public or private equity or debt financing. There can be no assurance that such
additional financing will be available, if needed, or, if available, will be on
terms satisfactory to the Company. Significant additional dilution may be
incurred by investors in this offering as a result of additional financing.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share." The
statement was effective for interim periods and fiscal years ending after
December 15, 1997. The implementation of this statement by the Company did not
have a material effect on the Company's financial statements.

     In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting for Comprehensive Income" and
No. 131 "Disclosure about Segments of an Enterprise and Related Information," in
June 1997. These statements are effective for financial statements issued for
periods beginning after December 15, 1997. The Company has not yet analyzed the
impact of adopting these statements.

FORWARD-LOOKING STATEMENTS

     This 10-QSB report contains forward-looking statements that involve risk
and uncertainties. As discussed below in "Certain Factors That May Affect The
Company's Business and Future Results" and in the Company's Annual Report on
Form 10-KSB, as filed with the Securities and Exchange Commission on November
19, 1998, and other periodic filings with the Securities and Exchange
Commission, the Company's future operating results are uncertain and may be
impacted by the following factors, among others: uncertainty of market
acceptance of the Company's products and services, including the LOM 2030H and
LOM 1015Plus and uncertainty of the introduction and acceptance of the Company's
plastic and composite materials, potential development of similar products by
competitors, and potential future capital requirements and uncertainty of
additional funding.

CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S BUSINESS AND FUTURE RESULTS

     Operating Losses; Future Profitability and Liquidity Uncertain. The Company
has experienced significant losses from operations in the most recent fiscal
year and during the six months ended January 31, 1999 and anticipates
experiencing further losses in fiscal 1999. Although the Company anticipates
achieving profitable operations in the future,

                                       14
<PAGE>
 
there can be no assurance that profitable operations will ever be achieved. The
Company's ability to achieve profitable operations in the future will depend in
large part on achieving significant sales of its latest-generation LOM systems,
materials and service. There can be no assurance that, even if the Company
generates anticipated product and service sales, the Company will not continue
to incur losses from operations. The likelihood of long-term success of the
Company must be considered in light of the expenses, difficulties and delays
frequently encountered in the development and commercialization of new products
and competitive factors in the marketplace.

     The Company used cash of approximately $1,926,000 in operations in fiscal
1998 and $19,000 during the six months ended January 31, 1999. While the Company
expects sales of its existing products and latest-generation LOM systems to
support current and future levels of research and development and other
expenses, there can be no assurance that the Company will achieve such sales
levels. In addition, the Company is obligated to pay $330,552 under its existing
line of credit with Comerica Bank. If the Company is unable to generate
sufficient sales or to reduces expenses to enable it to repay such amount, the
Company will require additional debt or equity financing to continue operations.
There can be no assurance that the Company will be able to obtain such financing
or obtain financing on terms acceptable to the Company.

     Quarterly Results of Operations. The Company's quarterly operating results
may fluctuate significantly due to a variety of factors, including changes in
the Company's sales and customer mix, delays in shipping new systems, the
introduction of new products and new product enhancements by the Company or its
competitors, pricing pressures, increases in expenditures relating to pursuing
the Company's business strategies, general economic conditions and other
factors. Due to the sales pricing of the LOM systems and the long sales cycle
for the products, quarterly results may be adversely affected if orders are not
received and shipped prior to the end of the forecasted quarter.

     The Company will also continue to incur product development, marketing and
promotional expenses based upon management's expectations as to future sales.
Since many of these expenses are committed in advance, the Company generally is
unable to adjust spending in a timely manner to compensate for any unexpected
shortfall in sales. If operating revenues do not meet the Company's expectations
in any given quarter, operating results may be adversely affected. There can be
no assurance that the Company will be profitable in a given quarter.

     Emerging Nature of the Rapid Prototyping Industry; Reliance on a Single
Product Line. The rapid prototyping industry is an emerging industry, and the
Company believes that the development and future growth of the rapid prototyping
industry will relate to the general trend of increased automation of product
design and manufacturing processes, including the expanded use of 3-D CAD. There
can be no assurance that the rapid prototyping industry otherwise will continue
to develop and grow.

                                       15
<PAGE>
 
     Product Reliability, Ongoing Technical Changes. Although the LOM technology
utilized in the Company's systems has been in development since 1985, until
recently there has been only limited commercial use of LOM technology in rapid
prototyping applications. In this respect, certain of the customers experienced
past performance problems with the Company's first generation LOM systems, which
from time to time did not perform to the Company's specifications. The Company
believes that it has identified all of these problems and that the LOM systems
currently being marketed by the Company meet applicable product specifications.
However, no assurance can be given that new problems will not be identified by
customers or that any such problems could be adequately addressed by the Company
in a timely manner. There can be no assurance, therefore, that the Company's
customers will not make claims against the Company arising from dissatisfaction
with the performance of the Company's LOM systems.

     In the first quarter of the fiscal year ending July 31, 1997, the Company
commenced sales of the latest generation of LOM 2030 systems, which the Company
believes adequately addresses certain performance problems associated with the
first generation LOM systems and represents significant improvements in overall
product performance and reliability. There can be no assurance, however, that
the Company's latest generation LOM systems will not experience similar
performance or reliability problems. In addition, the Company is unable to
predict what effect the problems associated with its first generation LOM
systems will have on the Company's efforts to market and sell its latest
generation LOM systems. The immediate prospects for future growth are dependent
on the market acceptance of its latest-generation rapid prototyping systems.

     Dependency on Proprietary Technology. The Company's ability to compete in
the market for rapid prototyping products is dependent significantly on its
ability to protects its proprietary technology. The Company seeks to protect its
proprietary technology through a combination of patents, copyrights, trade
secrets, proprietary know how, confidentiality agreements and ongoing
development of new products, features and designs. Any finding that the patent
claims with respect to the Company's LOM process are invalid could have a
material adverse effect on the business and the prospects of the Company. An
invalidation of the patent claims relating to the Company's LOM process would
not, however, affect the other claims in the United States patents relating to
the LOM systems. The laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as do laws of the United States. The
Company could incur substantial costs in seeking enforcement of its proprietary
rights against infringement or the unauthorized use of its proprietary
technology by others or in defending itself against similar claims of others.
Insofar as the Company relies on trade secrets and proprietary know-how to
maintain its competitive position, there can be no assurance that others may not
independently develop similar or superior technologies or gain access to the
Company's trade secrets or know-how.

                                       16
<PAGE>
 
YEAR 2000 ISSUE
 
     The Company is currently in the process of addressing a potential problem
that is facing all users of automated information systems. This problem is
commonly known as the "Year 2000" or "Y2K" problem and results from the use of
two digits rather than four digits to identify a year in the date field in many
computer software and hardware systems. As a result, certain date-sensitive
software does not recognize "00" as 2000, and may produce errors in information
or systems failures. The Company relies on its internal computer systems in
financial systems (such as general ledger, accounts payable, accounts
receivable, inventory and order management), customer services, infrastructure
and network and telecommunication equipment. The Company is currently in the
process of conducting a comprehensive review of its internal systems and, at the
present time, does not believe that the Year 2000 problem will pose significant
operational problems for the Company. The Company currently estimates that its
costs associated with Year 2000 compliance, including any costs associated with
the consequences of incomplete or untimely resolution of Year 2000 compliance
issues, are not material to the Company's business, its financial condition or
results of operations. However, the Company cannot be sure that it has fully
identified the impact of the Year 2000 problem on the Company's internal systems
and has not concluded that it can resolve all of the issues that may arise in
connection with the Year 2000 problem without disruption of its business or
without incurring significant expense. At a minimum, the Company estimates that
the software necessary to resolve certain Year 2000 problems associated with the
Company's internal systems will cost at least between $40,000 and $75,000.

     Even if the Company's internal systems are not materially affected by the
Year 2000 problem, the Company could be affected through disruption in the
operation of the enterprises with which the Company interacts. The Company is
therefore in the process of assessing possible effects on the Company's
operations with respect to the Year 2000 readiness of customers, suppliers,
creditors, financial organizations and domestic and international governments on
which the Company directly and indirectly relies. The Company's reliance on the
enterprises, and therefore, on the proper functioning of their information and
computer systems, means that failure by these enterprises to address their
potential Year 2000 problems could have a material adverse impact on the
Company's operations. The potential impact and related costs of such failures
are not known at this time.

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

     The Company is, from time to time, involved in routine litigation. In the
opinion of management, no such routine litigation in which the Company is
presently involved is material to its financial position, results of operations,
or liquidity.

                                       17
<PAGE>
 
ITEM 2.  CHANGES IN SECURITIES.

     On September 14, 1998, the Company sold 64,000 shares of the Company's
Preferred Stock to investors for $400,000. The investors in the transaction were
Telantis Venture Partners V, Inc. and Visalia Trust (collectively, the
"Purchasers"). In addition to receiving the shares of Preferred Stock in the
transaction, the Purchasers received warrants to purchase an aggregate of
800,000 shares of the Company's Common Stock at a purchase price of $0.35 per
share (the "Warrants").

     The sale of the Preferred Stock and the Warranty was exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended
("Securities Act") on the basis that such transaction met the requirements of
Rule 506 of Regulation D of the Securities Act.

     Each share of the Preferred Stock (including the 80,000 shares of Preferred
Stock issued to the investment banker in November 1997) is convertible into 25
shares of the Company's Common Stock, and each holder of Preferred Stock is
entitled to a number of votes equal to five times the number of shares of Common
Stock into which each share of the Preferred Stock is convertible. The number of
votes that the holders of the Preferred Stock are entitled decreases as the
share price of the Company's Common Stock increases.

     The documents evidencing this transaction, including the Certificate which
details the voting rights of the holders of the Preferred Stock, are attached to
the Schedule 13D filed by Telantis and Robert F. Meyerson on September 24,1998.
The transaction was also disclosed on the Company's Current Report on Form 8-K
filed October 9, 1998, which is incorporated by reference herein.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

         NONE.

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

     On January 29, 1999, the Company held its Annual Meeting of Stockholders.
At the Annual Meeting, the following matters were considered and voted upon:

         (1)  The election of four (4) directors to serve until the next Annual
              Meeting or until their successors are elected and duly qualified
              (Proposal 1); and

         (2)  The approval of an amendment to the Company's 1999 Stock Incentive
              Plan to increase the authorized number of shares of Common Stock
              issuable thereunder from 900,000 to 1,500,000 (Proposal 2).

     The directors elected at the meeting, who compose all of the directors of
the Company, were Michael Feygin, Gary Moskovitz, Robert D. Crangle and Gregory
J. Chambers. The votes cast for the election of Michael Feygin, Robert Crangle
and Gregory J. Chambers were

                                       18
<PAGE>
 
1,347,697, with 55,850 votes abstaining and -0- votes against. The votes cast
for the election of Gary Moskovitz as a director of the Company were 1,344,597,
with 58,950 votes abstaining and -0- votes against.

     The votes cast for the approval of Proposal 2 (amendment to the Company's
1995 Stock Incentive Plan) were 250,505, with 67,600 votes against the approval,
2,000 votes abstaining and 1,083,442 broker non-votes.

ITEM 5.  OTHER INFORMATION.

         NONE.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

         (A) EXHIBITS

         See Exhibit Index on Page 20.

         (B) REPORTS ON FORM 8-K

The Company filed no reports on Form 8-K for the quarter ended January 31, 1999.


SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                 HELISYS, INC.



Date: March 12, 1999             By:  /s/ Gary S. Moskovitz
                                    ---------------------------------------
                                    Gary S. Moskovitz
                                    President and Chief Executive Officer

                                       19
<PAGE>
 
                                 EXHIBIT INDEX


Exhibit                                                                   Page
Number    Description                                                    Number
------    -----------                                                    ------

27.1      Financial Data Schedule                                          21

                                       20