UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the Quarterly Period Ended March 31, 2003

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

SENSYTECH, INC.

(Exact name of registrant as specified in its charter)

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

8419 Terminal Road, Newington, Virginia 22122-1430

(Address of principal executive offices)

Registrant’s telephone number (703)550-7000

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

Yes     ü                 No             

     Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes                         No     ü    

     As of May 12, 2003, there were 6,444,678 shares of the Registrant’s Common Stock, par value $.01 per share, outstanding.

SENSYTECH, INC. AND SUBSIDIARIES
FORM 10-Q QUARTERLY REPORT

FOR THE QUARTER ENDED MARCH 31, 2003

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets at March 31, 2003 and September 30, 2002	3-4
	Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2003 and March 31, 2002, and the Six Months Ended March 31, 2003 and March 31, 2002	5
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2003 and March 31, 2002	6
	Notes to Condensed Consolidated Financial Statements	7-10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11-16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	17
Item 4.	Controls and Procedures	17
PART II.	OTHER INFORMATION
Item 4.	Submission of Matters to a Vote of Security Holders	17
Item 6.	Exhibits and Reports of Form 8-K	18
Signatures		19
Certifications		20-21

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PART I. — FINANCIAL INFORMATION

Item 1. Financial Statements

SENSYTECH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

ASSETS

		March 31, 2003		September 30, 2002
CURRENT ASSETS
	Cash and cash equivalents	$	14,368,000	$	700,000
	Accounts receivable, net of allowance for doubtful accounts of $200,000		10,924,000		8,880,000
	Unbilled contract costs, net		7,834,000		8,820,000
	Inventories		2,732,000		3,168,000
	Deferred income taxes		377,000		411,000
	Other current assets		263,000		272,000
TOTAL CURRENT ASSETS			36,498,000		22,251,000
PROPERTY AND EQUIPMENT			2,740,000		2,608,000
OTHER ASSETS
	Deferred income taxes		260,000		260,000
	Intangibles, net		250,000		400,000
	Other assets		70,000		333,000
TOTAL ASSETS		$	39,818,000	$	25,852,000

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

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SENSYTECH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) continued

LIABILITIES AND STOCKHOLDERS’ EQUITY

		March 31, 2003			September 30, 2002
CURRENT LIABILITIES
	Line of credit	$	—		$	2,900,000
	Accounts payable		2,314,000			2,916,000
	Accrued salaries, benefits, and related expenses		1,969,000			2,093,000
	Other accrued expenses		1,086,000			438,000
	Billings in excess of costs		1,159,000			2,342,000
	Income taxes payable		62,000			497,000
TOTAL CURRENT LIABILITIES			6,590,000			11,186,000
STOCKHOLDERS’ EQUITY
	Common Stock, $.01 par value; 25,000,000 shares authorized; 6,571,623 and 4,239,223 shares issued at March 31, 2003 and September 30, 2002		66,000			42,000
	Additional paid-in capital		24,628,000			7,972,000
	Treasury stock, at cost, 126,245 shares at March 31, 2003 and 125,245 shares at September 30, 2002		(534,000	)		(525,000	)
	Retained earnings		9,068,000			7,177,000
TOTAL STOCKHOLDERS’ EQUITY			33,228,000			14,666,000
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	39,818,000		$	25,852,000

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

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SENSYTECH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

			For the Three Months Ended						For the Six Months Ended
			March 31,						March 31,
			2003			2002			2003			2002
REVENUES
	Contract revenues		$	12,853,000		$	7,069,000		$	24,576,000		$	11,478,000
COSTS AND EXPENSES
	Cost of revenues			9,488,000			5,176,000			18,739,000			8,198,000
	General and administrative expenses			1,559,000			1,062,000			2,622,000			1,805,000
		Total costs and expenses		11,047,000			6,238,000			21,361,000			10,003,000
INCOME FROM OPERATIONS				1,806,000			831,000			3,215,000			1,475,000
OTHER INCOME (EXPENSES)
		Interest income		38,000			11,000			43,000			31,000
		Interest expense		(3,000	)		—			(48,000	)		(2,000	)
		Other income		3,000			30,000			7,000			67,000
		Other expenses		—			—			(10,000	)		(11,000	)
INCOME BEFORE INCOME TAXES				1,844,000			872,000			3,207,000			1,560,000
INCOME TAX PROVISION				(757,000	)		(358,000	)		(1,316,000	)		(633,000	)
NET INCOME			$	1,087,000		$	514,000		$	1,891,000		$	927,000
PER SHARE AMOUNT
	Basic earnings per share		$	0.17		$	0.13		$	0.33		$	0.23
	Diluted earnings per share		$	0.16		$	0.12		$	0.32		$	0.22

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

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SENSYTECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

			Six Months Ended
			March 31,
Cash flows from operating activities:			2003			2002
	Net income		$	1,891,000		$	927,000
	Adjustments to reconcile net income to net cash provided by (used in) operating activities:
		Depreciation and amortization		598,000			279,000
		Stock-based compensation expense		53,000			—
		Deferred taxes		34,000			238,000
	Cash provided (used) by assets and liabilities
		Accounts receivable		(2,044,000	)		(270,000	)
		Unbilled contract costs		986,000			(2,755,000	)
		Inventories		436,000			(2,449,000	)
		Other assets		272,000			(269,000	)
		Accounts payable		(610,000	)		870,000
		Other accrued expenses		524,000			769,000
		Billing in excess of costs		(1,183,000	)		1,981,000
		Income taxes payable		(393,000	)		494,000
	Net cash provided by (used in) operating activities			564,000			(185,000	)
Cash flows from investing activities:
	Net acquisition of property and equipment			(572,000	)		(513,000	)
	Acquisition of FEL Corporation assets			—			(1,950,000	)
	Net cash used in investing activities			(572,000	)		(2,463,000	)
Cash flows from financing activities:
	Stock issuance costs			(1,933,000	)		—
	Proceeds from line of credit			2,055,000			—
	Repayments of line of credit			(4,955,000	)		—
	Proceeds from stock issuance			18,400,000			—
	Proceeds of stock option exercises			118,000			76,000
	Purchase of treasury stock			(9,000	)		—
	Net cash provided by financing activities			13,676,000			76,000
Net increase (decrease) in cash and cash equivalents				13,668,000			(2,572,000	)
Cash and cash equivalents, beginning of period				700,000			4,362,000
Cash and cash equivalents, end of period			$	14,368,000		$	1,790,000
Supplemental disclosure of cash flow information:
	Cash paid for interest		$	43,000		$	—
	Cash paid for income taxes		$	1,712,000		$	—
Non-cash investing and financing activities:
	Tax benefit on stock option exercises included in income taxes payable		$	42,000		$	—
	Acquisition related costs included in accounts payable and accrued expenses		$	—		$	150,000
	Acquisition of property and equipment included in Property and Equipment and Accounts Payable		$	8,000		$	—

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

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SENSYTECH, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for fair presentation have been included. Operating results for the six-month period ended March 31, 2003, are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2003. Inter-company accounts and transactions have been eliminated in consolidation. For further information, refer to the consolidated financial statements and footnotes thereto included in Sensytech, Inc.’s Annual Report on Form 10-K for the fiscal year ended September 30, 2002. Certain reclassifications have been made to the prior year financial statements to conform to the 2003 presentation.

2. INVENTORIES

     Inventories consist of the following:

	March 31, 2003		September 31, 2002
Raw materials	$	836,000	$	989,000
Component parts, work in process		1,868,000		2,004,000
Finished component parts		28,000		175,000
	$	2,732,000	$	3,168,000

3. EARNINGS PER SHARE

     Basic earnings per share is computed using the weighted average number of common shares outstanding during each period. Diluted earnings per share is computed using the weighted average number of common and common equivalent shares outstanding during each period. The following summary is presented for the three months and six months periods ended March 31:

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2003		2002		2003		2002
Net income	$	1,087,000	$	514,000	$	1,891,000	$	927,000
Weighted average shares outstanding — basic		6,434,177		3,999,325		5,734,112		3,982,975
Effect of dilutive securities:
Net shares issuable upon exercise of stock options		163,843		274,910		142,196		209,901
Weighted average shares outstanding — diluted		6,598,020		4,274,235		5,876,308		4,192,876
Basic earnings per share	$	.17	$	.13	$	.33	$	.23
Diluted earnings per share	$	.16	$	.12	$	.32	$	.22

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4. ACQUSITION

     On February 1, 2002, our wholly-owned subsidiary, ST Production Systems, Inc. (“STPSI”), acquired the operating assets and assignment of certain defense contracts of FEL Corporation (“FEL”), for an aggregate purchase price of approximately $2,050,000. The acquisition has been recorded under the purchase method of accounting and, accordingly, the results of operations of STPSI since February 1, 2002 have been included in the consolidated financial statements. In connection with the acquisition, $600,000 of intangible assets were identified, related to acquired contracts, and were determined to have estimated lives of eighteen to thirty-six months. The Company recognized no goodwill in connection with the acquisition. Amortization expense was $75,000 and $150,000 for the three months and six months ended March 31, 2003. Amortization expense was $50,000 for the three months and six months ended March 31, 2002.

     The following condensed proforma results of operations reflect the proforma combination of the Company and the acquired FEL assets as if the combination occurred at the beginning of the periods presented, compared with the actual results of operations for Sensytech for the three months and six months ended March 31, 2002.

	Three Months Ended				Six Months Ended
	March 31, 2002				March 31, 2002
	Historical		Proforma		Historical		Proforma
Revenues	$	7,069,000	$	8,075,000	$	11,478,000	$	15,502,000
Income from operations		831,000		776,000		1,475,000		1,255,000
Net income		514,000		451,000		927,000		686,000
Basic earnings per share		.13		.12		.23		.18
Diluted earnings per share		.12		.11		.22		.16

     Proforma adjustments include the amortization of intangible assets over an eighteen to thirty-six month period, the reduction of interest income for cash used for the acquisition and depreciation for acquired equipment using a three year life.

5. SEGMENT INFORMATION

     We operate in the passive surveillance and countermeasures market for domestic and international clients. Our systems are globally applicable to the defense markets and their allied information agencies for land, air, and sea-based applications. We believe that our passive surveillance and countermeasures products and services are among the best in the world.  Our goal is to provide customers with total system surveillance solutions across the electromagnetic spectrum, using products manufactured by us and by others. We are customer-focused by providing tailored solution-based systems as follows:

• Defense Systems (DS) Group designs, develops, manufactures, and supports products which intercept, analyze, classify, identify, locate and track microwave signals from radars and weapons, which may originate from potentially hostile sources. It provides communication data links and remote targeting systems and provides equipment and systems that are used to carry out defensive measures against hostile signals or their sources to protect high value assets. The group’s systems are used on military platforms, such as ships, submarines, patrol aircraft, as well as at ground installations. Included in this group are the programs acquired through our February 2002 acquisition of the operating assets of FEL Corporation, which we operate through our ST Productions Systems, Inc. subsidiary.

• Communication (Comms) Group designs, develops, manufactures, and supports products which intercept signals and analyze communications in a variety of transmission media, and then identify and locate the sources of these signals and communication. These systems are generally used by operators on board aircraft, ships and ground installations to intercept various kinds of transmissions over established communications networks.

8

• Imaging Group designs, develops, manufactures and supports products that are installed on special purpose aircraft and land vehicles and use multispectral, infrared, and light imaging systems to perform remote surveys. Applications of this technology include environmental pollution, facility inspection, utility monitoring, surface mineral exploration and other special purpose inspections where on-site inspections are not possible or desirable.

     All three business segments offer applicable system engineering services which provide concept studies, system definition and services to aid in specification of customer requirements. These activities are performed for either present or prospective customers and are principally undertaken to assist the customer in the procurement of major integrated passive surveillance systems and where applicable, active electronic countermeasures.

     Manufacturing of the Communications Group is in Newington, Virginia. The Defense Systems Group manufactures in its Newington, Virginia, Farmingdale, New Jersey and Camarillo, CA facilities. The Imaging Group products are manufactured in the Ann Arbor, Michigan facility.

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

     The revenue and income from operations by segment for the three and six months ended March 31, 2003 and 2002 are as follows:

		Three Months Ended				Six Months Ended
		March 31,				March 31,
		2003		2002		2003		2002
Revenue:
	DS	$	7,501,000	$	3,991,000	$	13,950,000	$	5,608,000
	Comms		4,117,000		2,416,000		7,871,000		4,195,000
	Imaging		1,235,000		662,000		2,755,000		1,675,000
	Total	$	12,853,000	$	7,069,000	$	24,576,000	$	11,478,000
Income from operations
	DS	$	476,000	$	221,000	$	893,000	$	267,000
	Comms		1,138,000		529,000		1,919,000		950,000
	Imaging		192,000		81,000		403,000		258,000
	Total	$	1,806,000	$	831,000	$	3,215,000	$	1,475,000

6. LINE OF CREDIT

     The Company entered into a line of credit and related note payable with Bank of America in February 2001. Effective February 2002, the Company renewed the line of credit and the amount available under the line of credit was increased from $5,000,000 to $10,000,000. Effective February 28, 2003, the Company renewed its line of credit and increased the availability to $15,000,000. However, the total borrowing base generally cannot exceed the sum of 90% of qualified government accounts receivable and 80% of qualified non-government accounts receivable. The line of credit is available to finance the performance of government contracts, to support the issuance of stand-by letters of credit, and for short-term working capital purposes and expires February 28, 2004. At March 31, 2003, there were no borrowings under the line of credit.

9

     The bank agreement establishes the interest rate at the LIBOR plus 200 to 285 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 are collateralized by the Company’s accounts receivable, equipment, contracts, and general intangibles. The agreement also contains various covenants as to dividends restrictions, working capital, tangible net worth, earnings and debt-to-equity ratios. Unused commitment fees of one quarter of one percent per annum are required.

     7.     STOCK — BASED COMPENSATION

     The Company continues to account for stock-based compensation in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations using the intrinsic value method, which resulted in no compensation cost for options granted. Had compensation expense for the Company’s four stock-based compensation plans been determined based upon fair values at the grant dates for awards under those plans in accordance with SFAS No. 123 and 148, “Accounting for Stock-Based Compensation,” the Company’s net income and earnings per share would have been reduced to the pro forma amounts indicated below.

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2003		2002		2003		2002
Net income, as reported	$	1,087,000	$	514,000	$	1,891,000	$	927,000
Less: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects		57,000		114,000		123,000		215,000
Pro forma net income	$	1,030,000	$	400,000	$	1,768,000	$	712,000
Earnings per share:
Basic — as reported	$	0.17	$	0.13	$	0.33	$	0.23
Basic — pro forma	$	0.16	$	0.10	$	0.31	$	0.18
Diluted — as reported	$	0.16	$	0.12	$	0.32	$	0.22
Diluted — pro forma	$	0.16	$	0.09	$	0.30	$	0.17

The Black-Scholes model was used to estimate the fair value of the options. The expected life is equal to the term of the option. For the three and six months ended March 31, 2003, we assume an expected volatility of 48.8% and a risk free rate of 1.17%, compared to an expected volatility of 68.8% and a risk free rate of 2.5% for the three and six months ended March 31, 2002.

8. RECENTLY ISSUED ACOUNTING STANDARDS

     FASB Interpretation No.46 (FIN 46), “Consolidation of Variable Interest Entities,” addresses consolidation and disclosure by business enterprises of variable interest entities. FIN 46 does not have any impact on the consolidated financial statements or disclosures of the Company as it does not have any variable interest entities.

9. SUBSEQUENT EVENT

     On April 4, 2003, The Company withdrew the letter of intent to purchase Codem Systems, Inc. The Companies will continue their existing business relationship to jointly sell products that provide synergistic value to respective customers.

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

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

Forward-looking Statements

     Statements in this filing which are not historical facts are forward-looking statements under the provision of the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve risks and uncertainties. These statements are based upon numerous assumptions about future conditions that could prove not to be accurate. Actual events, transactions or results may materially differ from the anticipated events, transactions or results described in such statements. The Company’s ability to consummate such transactions and achieve such events or results is subject to certain risks and uncertainties. In addition to those specifically mentioned above, such risks and uncertainties include, but are not limited to, the existence of demand for, and acceptance of the Company’s products and services, policy decisions of the federal government, particularly in the defense area, regulatory approvals, export approvals, economic conditions both domestically and internationally, the impact of competition and pricing, results of financing efforts and other factors affecting the Company’s business that are beyond the Company’s control. All of our forward-looking statements should be considered in light of these factors. You should not put undue reliance on any forward-looking statements. The Company undertakes no obligation to update these forward-looking statements to reflect new information, future events or otherwise, except as provided by law.

Overview

     We are a designer, developer and manufacturer of electronics, communications and technology products for the defense and intelligence markets. Specifically, we specialize in integrated passive surveillance, communications and data links, electronic countermeasures and threat simulators, and airborne imaging and scanning systems. Our products are developed for use primarily by U.S. federal government customers and U.S. approved foreign governments, including U.S. defense and intelligence agencies, foreign governments agencies, and civilian agencies.

     To record revenues for performance under U.S. federal government fixed-price and cost-reimbursement contracts, including customer-funded research and development, we use the percentage of completion method of accounting under which revenues are determined on the basis of completion to date (i.e., the total contract amount multiplied by percent of performance to date less revenue value recognized in previous periods). We record revenues under cost-reimbursement contracts as costs are incurred and we include earned fees in the proportion that costs incurred to date bear to total estimated costs. We increase or decrease fees under certain U.S. federal government contracts in accordance with cost or performance incentive provisions which measure actual performance against established targets or other criteria. We include such incentive fee awards or penalties, which historically are not material, in revenues at the time the amounts can be determined reasonably. We recognize anticipated losses at the time they become known. Our future operating results may be affected if actual contract costs incurred differ from our current estimates of total contract costs.

     Our revenues are primarily derived from fixed-price contracts, under which we perform specific tasks for a fixed price. Under fixed-price contracts we assume the risk of cost overruns and receive the benefit of cost savings. All of our U.S. federal government contracts, whether we are the prime contractor or a subcontractor, are subject to audit and cost controls. As a result, the U.S. federal government contracting authorities typically have the right to object to our costs as not allowable or as unreasonable, which can result in our bearing all or a portion of these costs ourselves rather than recovering them from the U.S. federal government.

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     We expense operating costs such as cost of revenues, general and administrative, independent research and development expenses, and bid and proposal costs in the period incurred. The major components of these costs are compensation, materials, and overhead. Intangible assets are amortized over their useful lives.

     Our results of operations, particularly our revenues, gross profit and cash flow, may vary significantly from period to period depending on a number of factors, including the progress of contract performance, revenues earned on contracts, the timing of customer orders and billing of other direct costs, the commencement and completion of contracts during any particular quarter, the timing of government contract awards, the term of each contract that we have been awarded, foreign budget reallocations, currency fluctuations, and general political and economic conditions. Because a significant portion of our expenses, such as personnel and facilities costs, are fixed in the short term, successful contract performance and variation in the volume of activity, as well as in the number of contracts commenced or completed during any period may cause significant variations in operating results. As a result of the factors above, period-to-period comparisons of our revenues and operating results may not be meaningful.

Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

Revenues:

     Revenues increased $5,784,000, or 81.8% to $12,853,000 for the three months ended March 31, 2003 from $7,069,000 for the three months ended March 31, 2002. The increase was due primarily to new contract awards in the Communications Group and the Imaging Group of approximately $2,274,000, in addition to revenues attributable to ST Production Systems, Inc., the subsidiary that holds the assets we acquired from FEL Corporation and which we include as part of our Defense Systems Group, of approximately $3,094,000. The remaining increase is attributed to other Defense Systems revenue. During the three months ended March 31, 2003, the four largest non-classified revenue producing contracts were the AN/SLQ-25A Surface Ship Torpedo Defense System, the AN/SLQ-4A Radio Terminal Set, the Hyperspectral Imaging System, and the AN/DPT-2B Based Payload for Lead In Fighter Hawk Radar Emulator, which contributed 39.6% of revenues.

     The total amount of negotiated backlog, including both unfilled firm orders for the Company’s products for which funding had been authorized and appropriated by the customer and firm orders for which funding had not been appropriated as of March 31, 2003 and 2002, was $29,574,000 and $21,403,000, respectively.

Cost of Revenues:

     Cost of revenues increased $4,312,000, or 83.3%, to $9,488,000 for the three months ended March 31, 2003 from $5,176,000 for the three months ended March 31, 2002. The increase was primarily attributed to costs associated with the revenues generated by ST Production Systems, Inc. This subsidiary operates in a price sensitive market, which results in lower gross margin. Cost of revenues as a percentage of revenues increased to 73.8% for the three months ended March 31, 2003 from 73.2% for the three months ended March 31, 2002.

General and Administrative Expenses:

     General and administrative expenses increased $497,000, or 46.8%, to $1,559,000 for the three months ended March 31, 2003 from $1,062,000 for the three months ended March 31, 2002. The increase was due principally to added salaries, benefits and other related expenses of new employees hired and to increases in salaries and benefits for our existing employees.

     For the three months ended March 31, 2003, internal research and development was $477,000 compared to $423,000 for the three months ended March 31, 2002 and represented 30.6% and 39.8% of general and administrative expense, respectively.

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Interest Income:

     Interest income increased $27,000 or over 100% to $38,000 for the three months ended March 31, 2003 from $11,000 for the three months ended March 31, 2002. The increase was primarily the result of the income on a larger amount of investments.

Other Income and Other Expenses:

     Other income decreased $27,000 to $3,000 for the three months ended March 31, 2003 from $30,000 for the three months ended March 31, 2002. The decrease was due to a reduction in sublease income.

Income Tax Expense:

     Income tax expense consists of federal and state income taxes. Income tax expense increased $399,000 or 111.5% to $757,000 for the three months ended March 31, 2003, from $358,000 for the three months ended March 31, 2002. The increase was primarily due to increased and improved profitability for the three month period ended March 31, 2003. Our effective tax rate was 41% for the three months ended March 31, 2003 and 2002 and varies from the federal statutory rate primarily due to state taxes and other nondeductible expenses.

Net Income:

     Net income increased $573,000 or 111.5% to $1,087,000 for the three months ended March 31, 2003, from $514,000 for the three months ended March 31, 2002. The increase is due primarily to an 81.8% increase in revenues and a decrease in G&A as a percentage of revenue to 12.1% from 15.0% for the three months ended March 31, 2003 and 2002, respectively. Net income as a percentage of revenue was 8.5% for the three months ended March 31, 2003 compared to 7.3% for the three months ended March 31, 2002. The increase is primarily due to increased and improved profitability.

Six Months Ended March 31, 2003 Compared to Six Months Ended March 31, 2002

Revenues:

     Revenues increased $13,098,000, or 114.1% to $24,576,000 for the six months ended March 31, 2003 from $11,478,000 for the six months ended March 31, 2002. The increase was due primarily to new contract awards in the Communications Group and the Imaging Group of approximately $4,756,000, in addition to revenues attributable to ST Production Systems, Inc., the subsidiary that holds the assets we acquired from FEL Corporation and which we include as part of our Defense Systems Group, of approximately $7,273,000. The remaining increase is attributed to other Defense Systems revenue. During the six months ended March 31, 2003, the four largest non-classified revenue producing contracts were the AN/SLQ-25A Surface Ship Torpedo Defense System, the AN/SLQ-4A Radio Terminal Set, the Hyperspectral Imaging System, and the AN/DPT-2B Based Payload for Lead In Fighter Hawk Radar Emulator, which contributed 39.3% of revenues.

Cost of Revenues:

     Cost of revenues increased $10,541,000, or 128.6%, to $18,739,000 for the six months ended March 31, 2003 from $8,198,000 for the six months ended March 31, 2002. The increase was primarily attributed to costs associated with the revenues generated by ST Production Systems, Inc. This subsidiary operates in a price sensitive market, which results in lower gross margin. Cost of revenues as a percentage of revenues increased to 76.3% for the six months ended March 31, 2003 from 71.4% for the six months ended March 31, 2002.

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General and Administrative Expenses:

     General and administrative expenses increased $817,000, or 45.3%, to $2,622,000 for the six months ended March 31, 2003 from $1,805,000 for the six months ended March 31, 2002. The increase was due principally to added salaries, benefits and other related expenses of new employees hired and to increases in salaries and benefits to our existing employees.

     For the six months ended March 31, 2003, internal research and development was $631,000 compared to $836,000 for the six months ended March 31, 2002 and represented 24.1% and 46.3% of general and administrative expense, respectively.

Interest Income and Interest Expense:

     Interest income increased $12,000 or 38.7% to $43,000 for the six months ended March 31, 2003 from $31,000 for the six months ended March 31, 2002. The increase was primarily the result of the return on a larger investment amount. Interest expense increased $46,000 or over 100% to $48,000 for the six months ended March 31, 2003 from $2,000 for the six months ended March 31, 2002. The increase was primarily due to interest expense incurred due to borrowings on the line of credit.

Other Income and Other Expenses:

     Other income decreased $60,000 to $7,000 for the six months ended March 31, 2003 from $67,000 for the six months ended March 31, 2002. The decrease was due to a reduction in sublease income.

Income Tax Expense:

     Income tax expense consists of federal and state income taxes. Income tax expense increased $683,000 or 107.9% to $1,316,000 for the six months ended March 31, 2003, from $633,000 for the six months ended March 31, 2002. The increase was primarily due to increased and improved profitability for the six month period ended March 31, 2003. Our effective tax rate was 41% for the six months ended March 31, 2003 and 2002 and varies from the federal statutory rate primarily due to state taxes and other nondeductible expenses.

Net Income:

     Net income increased $964,000 or 104.0% to $1,891,000 for the six months ended March 31, 2003, from $927,000 for the six months ended March 31, 2002. The increase is due primarily to a 114.1% increase in revenues; a decrease in G&A as a percentage of revenue to 10.7% from 15.7% for the six months ended March 31, 2003 and 2002, respectively; offset by an increase in cost of revenue as a percentage of revenue to 76.3% from 71.4% for the same six month period. Net income as a percentage of revenue was 7.7% for the six months ended March 31, 2003 compared to 8.1% for the six months ended March 31, 2002. The decrease is primarily due to lower margins in our subsidiary ST Productions Systems, Inc.

Liquidity and Capital Resources

     Historically, our primary source of liquidity is cash provided by operations and our line of credit. Our liquidity requirements depend on a number of factors, including the timing of production under our federal government and foreign sales contracts. On November 22, 2002, the Company sold 2 million shares of common stock for net proceeds, after costs and underwriters commissions, of $14,235,000. On December 12, 2002 the underwriters exercised their overallotment option which provided net proceeds to the Company of $2,232,000 from the sale of an additional 300,000 shares. We had cash and cash equivalents of $14,368,000 at March 31, 2003, as compared to $700,000 at September 30, 2002. The increase was primarily due to the net proceeds of $16,467,000 received from the sale of 2.3 million shares of common

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stock. The increase was partially offset by cash used in investing activities and the repayment of the line of credit.

     Cash provided by operating activities was approximately $564,000 for the six months ended March 31, 2003, compared to cash used in operating activities of approximately $185,000 for the six months ended March 31, 2002, an increase of approximately $749,000. The primary reasons for this increase were an increase in net income, a net decrease in billed and unbilled accounts receivables, and a decrease in inventories and other assets. The increase was partially offset by a decrease in accounts payable, billing in excess of costs, income taxes payable and other accrued expenses.

     Cash used in investing activities was approximately $572,000 during the six months ended March 31, 2003, compared to approximately $2,463,000 for the six months ended March 31, 2002, a decrease of approximately $1,891,000. The primary reasons for the decrease were the acquisition of FEL Corporation assets and lower expenditures for other property and equipment during the six months ended March 31, 2002 compared to only capital expenditures for property and equipment in 2003.

     Cash provided by financing activities was approximately $13,676,000 during the six months ended March 31, 2003, compared to cash provided by financing activities of approximately $76,000 for the six months ended March 31, 2002, an increase of $13,600,000. The increase was primarily due to the net proceeds of $16,467,000 received from the sale of 2.3 million shares of common stock. The increase was partially offset by cash used for the repayment of the line of credit.

     The Company has a $15,000,000 line of credit with Bank of America. The line of credit is available to finance the performance of government contracts, to support the issuance of stand-by letters of credit, and for short-term working capital purposes and expires February 28, 2004. Prior to renewal of its line of credit, the Company had a $10,000,000 line that expired on February 28, 2003. The bank agreement establishes the interest rate at the London Interbank Offering Rate (LIBOR) plus 200 to 285 basis points, determined by the Company ratio of funded debt to earnings before interest, taxes, depreciation and amortization. Under the line of credit, the total borrowing base generally cannot exceed the sum of 90% of qualified government accounts receivable and 80% of qualified non-government accounts receivable. As of March 31, 2003, there were no borrowings under our line of credit. We have given the lender a security interest in substantially all of our assets to secure the debt under our credit facility.

     We believe our existing funds, cash we generate by operations, and amounts available for borrowings under our line of credit will be sufficient to meet our current working capital.

Market Risks

     In addition to the risks inherent in our operations, we are exposed to financial, market, political and economic risks. The following discussion provides additional detail regarding our exposure to credit, interest rates and foreign exchange rates.

Cash and Cash Equivalents:

     All unrestricted, highly liquid investments purchased with a remaining maturity of three months or less are considered to be cash equivalents. We maintain cash and cash equivalents with various financial institutions in excess of the amount insured by the Federal Deposit Insurance Corporation. We believe credit risk related to these cash and cash equivalents is minimal.

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Interest Rates:

     Our line of credit financing provides available borrowing to the Company at variable interest rates. There are no outstanding borrowings at March 31, 2003. Accordingly, the Company does not believe that any movement in interest rates would have a material impact on future earnings or cash flows. However, if the Company were to significantly increase borrowing under the current line of credit agreement, future interest rate changes could potentially have a material impact.

Foreign Currency:

     The Company has contracts to provide services to U.S. approved foreign countries. Our foreign sales contracts require payment in U.S. dollars, so we are not affected by foreign currency fluctuations.

Contractual Obligations and Commitments

     The Company’s line of credit balance was $2,900,000 as of September 31, 2002. All outstanding borrowings under the line of credit were paid off in the first quarter of 2003 with proceeds of the sale of common stock. There were no outstanding borrowings under the line of credit at March 31, 2003.

     In connection with the February 2003 line of credit renewal, the letters of credit were revised. Total letters of credit at March 31, 2003 were $4,000,000. Letters of credit of $2,564,000 expire in less than one year and $1,436,000 expire in one to three years.

Critical Accounting Policies and Estimates

     There have been no material changes in our critical accounting policies and estimates during the six months ended March 31, 2003, except as noted below. A complete description of the Company’s critical accounting policies and estimates is included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended September 30, 2002.

Inventories:

     We are required to state our inventories at the lower of cost or market. In assessing the ultimate realization of inventories, we are required to make judgments as to future demand requirements and compare these with the current or committed inventory levels. Inventory is generally purchased to fulfill a specific contract commitment. At March 31, 2003, we had $1,266,000 in inventory related to a program for the Egyptian Navy. Although we have no reason to believe this contract is in jeopardy, given the delays experienced, we cannot, with any certainty, plan on a contract notice to proceed until sometime after September 30, 2003.

Research and Development:

     We include internally funded research and development costs in general and administrative expenses in our consolidated income statements. Our applied research and development during the six months ended March 31, 2003 focused on advanced scanning capabilities, an upgrade to a digital receiver and upgraded pulse analyzer; all of which are expected to assist in anticipated future contracts. We expensed $477,000 and $429,000 of internally funded research and development costs during the three months ended March 31, 2003 and 2002, respectively. We expensed $631,000 and $836,000 of internally funded research and development costs during the six months ended March 31, 2003 and 2002, respectively.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

     The information called for by this item is provided under Item 2 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Item 4. Controls and Procedures

(a)	The Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective based on their evaluations of these controls, which was done within the last 90 days.
(b)	During the last quarter, there were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the evaluation of these controls.

PART II — OTHER INFORMATION

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 18, 2003.

(a)	The Company’s Annual Meeting of Stockholders was held on February 18, 2003.
(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

			Number of Votes		Abstentions and
Nominee for Office	Number of Votes “For”		“Against”		Broker Non-Votes
Charles W. Bernard		5,253,188		200		21,510
John Irvin		5,244,588		8,800		21,510
S. R. Perrino		5,244,388		9,000		21,510
Philip H. Power		5,244,688		8,700		21,510
S. Kent Rockwell		4,207,610		1,045,778		21,510
John D. Sanders		5,244,488		8,900		21,510
Lloyd A. Semple		4,207,559		1,045,829		21,510

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 2003 fiscal year:

			Abstentions and Broker
Number of Votes “For”	Number of Votes “Against”		Non-Votes
5,231,062		21,510		3,226

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Item 6. Exhibits and Reports on Form 8-K

(a)	Exhibits
	Item 99. Additional Exhibit. Section 906 Certification.

(b)	Reports on Form 8-K
	The Company did not file any Reports on Form 8-K during the three months ended March 31, 2003.

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SIGNATURES

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

SENSYTECH, INC.

May 14, 2003; By: /s/ S. Kent Rockwell                         
      S. Kent Rockwell
      Chairman and Chief Executive Officer

May 14, 2003 By: /s/ Donald F. Fultz                          
      Donald F. Fultz
      Vice President and Chief Financial Officer

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FORM OF CERTIFICATION

I, S. Kent Rockwell, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Sensytech, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a.	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b.	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c.	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize, and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

/s/ S. Kent Rockwell                   

S. Kent Rockwell
Chief Executive Officer

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FORM OF CERTIFICATION

I, Donald F. Fultz, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Sensytech, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a.	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b.	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c.	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize, and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

/s/ Donald F. Fultz                      

Donald F. Fultz
Chief Financial Officer

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