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


                                  FORM 10-Q

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

    For the quarterly period ended September 30, 1998

                              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: 0-8125


                         ----------------------------


                           DETECTION SYSTEMS, INC.
            (Exact name of registrant as specified in its charter)


State of New York                               16-0958589
(State or other jurisdiction                    (I.R.S. Employer
of incorporation or organization)               Identification No.)

                130 Perinton Parkway, Fairport, New York 14450
             (Address of principal executive offices) (Zip Code)

                                (716) 223-4060
             (Registrant's telephone number, including area code)

                         ----------------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2)  has  been  subject  to the  filing
requirements for the past 90 days. Yes _X_ No ____


As  of  November  6,  1998  there  were  outstanding  6,327,182  shares  of  the
registrant's common stock, par value $.05 per share.

<PAGE>
                            PART I FINANCIAL INFORMATION
                      DETECTION SYSTEMS, INC. AND SUBSIDIARIES
                             Consolidated Balance Sheet
                       (in thousands, except per share data)
<TABLE>
<S>                                            <C>              <C>  
Assets                                         Sept. 30, 1998   March 31, 1998
Current assets:                                   (Unaudited)
Cash and cash equivalents                              $1,759           $3,160
Accounts receivable, less allowance for
  doubtful accounts ($1,215 and $1,033,
  respectively)                                        24,570           23,505
Inventories                                            41,561           38,154
Other current assets                                    4,557            3,701
                                                       ------           ------
                                                       72,447           68,520

Fixed assets, net                                      11,999           12,142
Goodwill and other intangibles                         10,196            8,907
Other assets                                            4,761            4,475
                                                       ------           ------
                                                      $99,403          $94,044
                                                       ======           ======
Liabilities
Current liabilities:
   Short term borrowings                               $7,186          $ 4,002
   Current portion of long term debt                      400              405
   Accounts payable                                    10,995           12,368
   Accrued payroll and benefits                         1,859            1,636
   Other current liabilities                            7,641            5,165
                                                       ------           ------
                                                       28,081           23,576

Other liabilities                                       2,365            2,655
Long term debt                                         15,442           16,549

Shareholders' equity:
  Common stock, par value $.05 per share;
   Authorized - 24,000 shares; Issued -
   6,555 shares and 6,518 shares,
   respectively                                           328              326
Capital in excess of par value                         45,099           44,805
Retained earnings                                      12,038            9,976
                                                       ------           ------
                                                       57,465           55,107
Less - Treasury stock, at cost                         (3,783)          (3,785)
  Notes receivable for stock purchases                   (146)             (14)
  Cumulative translation adjustment                       (21)             (44)
                                                       ------           ------
                                                       53,515           51,264
                                                       ------           ------
                                                      $99,403          $94,044
                                                       ======           ======
</TABLE>

        (See accompanying notes to consolidated financial statements)
<PAGE>

                  DETECTION SYSTEMS, INC. AND SUBSIDIARIES
    Consolidated Statement of Operations and Retained Earnings (Unaudited)
                    (in thousands, except per share data)

<TABLE>
<S>                                         <C>                <C>  
                                            Sept. 30, 1998      Sept. 30, 1997
For the Three Months Ended:                  (Current Year)    (Preceding Year)
                                            --------------     ---------------
Net sales                                          $35,455             $34,463

Costs and expenses:
 Production                                         22,225              23,033
 Research and development                            1,956               2,203
 Marketing, administrative and general               8,880               7,489
                                                    ------              ------
Total costs and expenses                            33,061              32,725

Operating income                                     2,394               1,738
Other income (expense)
 Interest income                                        64                   3
 Interest expense                                     (427)               (817)
 Other income (expense)                                (20)                 23
                                                    ------              ------
Income before income taxes                           2,011                 947
Provision for income taxes                             781                 275
                                                    ------              ------
Net income                                         $ 1,230               $ 672
                                                    ======              ======

Retained earnings at beginning of period            10,808               9,740
                                                    ------              ------
Retained earnings at end of period                 $12,038             $10,412
                                                    ======              ======
Earnings per share
 Basic                                               $0.19               $0.14
                                                      ====                ====
 Diluted                                             $0.18               $0.12
                                                      ====                ====
</TABLE>

        (See accompanying notes to consolidated financial statements)
<PAGE>
                   DETECTION SYSTEMS, INC. AND SUBSIDIARIES
    Consolidated Statement of Operations and Retained Earnings (Unaudited)
                    (in thousands, except per share data)

<TABLE>
<S>                                         <C>                <C> 
                                            Sept. 30, 1998      Sept. 30, 1997
For the Six Months Ended:                    (Current Year)    (Preceding Year)
                                            --------------     ---------------
Net sales                                          $69,263             $62,671

Costs and expenses:
 Production                                         43,511              40,589
 Research and development                            4,090               4,288
 Marketing, administrative and general              17,508              13,876
                                                    ------              ------
Total costs and expenses                            65,109              58,753

Operating income                                     4,154               3,918
Other income (expense)
 Interest income                                       118                   6
 Interest expense                                     (836)             (1,454)
 Other income (expense)                                (62)                239
                                                    ------              ------
Income before income taxes                           3,374               2,709
Provision for income taxes                           1,312                 904
                                                    ------              ------
Net income                                         $ 2,062             $ 1,805
                                                    ======              ======

Retained earnings at beginning of period             9,976               8,594

Amortization of redeemable common stock                                     13
                                                    ------              ------
Retained earnings at end of period                 $12,038             $10,412
                                                    ======              ======
Earnings per share
 Basic                                               $0.33               $0.38
                                                      ====                ====
 Diluted                                             $0.30               $0.34
                                                      ====                ====
</TABLE>

        (See accompanying notes to consolidated financial statements)

<PAGE>
                  DETECTION SYSTEMS, INC. AND SUBSIDIARIES
               Consolidated Statement of Cash Flows (Unaudited)
                          (in thousands of dollars)
<TABLE>
<S>                                                     <C>           <C>  

For the Six Months Ended September 30,                    1998          1997
Cash flows from operating activities:                     ----          ----
Net income                                              $2,062        $1,805
                                                         -----         -----
Adjustments to reconcile net income to net cash
   provided by operating activities:
  Depreciation and amortization                          1,829         2,271
  Deferred compensation                                                  457
  Stock based compensation                                                86

Changes in assets and liabilities:
  Accounts receivable                                     (950)       (1,428)
  Inventories                                           (2,777)        3,773
  Accounts payable                                      (1,723)       (3,228)
  Accrued payroll and benefits                             223           (11)
  Other assets & liabilities                               110        (4,980)
                                                        ------        ------
  Total adjustments                                     (3,288)       (3,060)
                                                        ------        ------
   Net cash used in operating activities                (1,226)       (1,255)

Cash flows from investing activities:
   Capital expenditures                                 (1,584)       (1,212)
   Acquisition of businesses                              (473)       (6,816)
                                                        ------        ------
   Net cash used in investing activities                (2,057)       (8,028)
 
Cash flows from financing activities:
   Proceeds from borrowings                              3,322         6,718
   Proceeds from issuance of common stock                             24,259
   Principal payments on debt and
    capital lease obligations                           (1,372)      (18,844)
   Common stock transactions, net                          (91)          486
                                                         -----        ------
   Net cash provided by financing activities             1,859        12,619

Effect of exchange rates                                    23          (144)
                                                         -----         -----
Net(decrease)increase in cash and cash equivalents      (1,401)        3,192

Cash and cash equivalents, beginning of period           3,160         2,244
                                                         -----         -----
Cash and cash equivalents, end of period                $1,759        $5,436
                                                         =====         =====
Cash paid during the period for:
   Interest                                            $   863        $1,113
                                                           ===         =====
   Income taxes                                        $   458        $1,577
                                                           ===         =====
</TABLE>

        (See accompanying notes to consolidated financial statements)

<PAGE>
                   DETECTION SYSTEMS, INC. AND SUBSIDIARIES
                        NOTES TO FINANCIAL STATEMENTS
        THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
                                 (Unaudited)

NOTE 1. GENERAL

The accompanying  unaudited interim consolidated  financial statements have been
prepared in accordance  with the rules and  regulations  of the  Securities  and
Exchange Commission (SEC). The interim consolidated financial statements include
the  consolidated  accounts of Detection  Systems,  Inc. and its  majority-owned
subsidiaries  (collectively,  "the Company") with all  significant  intercompany
transactions  eliminated.   In  the  opinion  of  management,   all  adjustments
(consisting only of normal recurring adjustments) necessary for a fair statement
of the financial position,  results of operations and cash flows for the interim
periods presented have been made. Certain footnote disclosures normally included
in  financial   statements   prepared  in  accordance  with  generally  accepted
accounting principles (GAAP) have been condensed or omitted pursuant to such SEC
rules and regulations.  These financial statements should be read in conjunction
with the Company's Annual Report on Form 10-K for the year ended March 31, 1998.

Cash flow  statement  - During the first  quarter of fiscal  1999,  the  Company
issued  28,161  shares of common stock in  connection  with the  acquisition  of
EFSEC.  During the first quarter of fiscal 1998,  the Company issued 221,738 and
34,141 shares of common stock in  connection  with the  acquisitions  of Digital
Audio Ltd. ("DA Systems") and Seriee S.A. ("Seriee"), respectively (see Note 3).

NOTE 2.  INVENTORIES

Major classifications of inventory follow (in thousands):
<TABLE>
<S>                                <C>                   <C>   
                                   Sept. 30, 1998        March 31, 1998
                                   --------------        --------------
Component Parts                           $18,711               $22,061
Work In Process                             2,782                 1,488
Finished Products                          20,068                14,605
                                           ------                ------
                                          $41,561               $38,154
                                           ======                ======
</TABLE>

NOTE 3.  ACQUISITIONS

Fiscal  1999  Acquisitions  - In June  1998,  the  Company  acquired  all of the
outstanding stock of EFSEC AB ("EFSEC")for approximately $1,250,000 comprised of
cash and 28,161 shares of its common stock.  EFSEC is a Swedish  distributor  of
electronic  security  equipment  and  had  annual  net  sales  of  approximately
$3,000,000 prior to its acquisition.

In June 1998, the Company acquired all of the outstanding  stock of Alarm Center
Kft  ("Alarm  Center")  for  $125,000  in  cash.  Alarm  Center  is a  Hungarian
distributor  of  electronic  security  equipment  and had  annual  net  sales of
approximately $500,000 prior to its acquisition.

<PAGE>
Fiscal  1998  Acquisitions  - In  May  1997,  the  Company  acquired  all of the
outstanding  stock of DA Systems in exchange  for  221,738  shares of its common
stock.  The shares were callable at the  Company's  option at $17 per share plus
interest at 8.25% until June 30,  1998,  and could be put to the Company at that
price after that date. The Company exercised its call option to repurchase these
shares in connection  with the issuance of common stock in September  1997.  The
cost of this acquisition was approximately  $4,000,000.  DA Systems is a British
manufacturer  of  security  control  equipment  and  had  annual  net  sales  of
approximately $10,800,000 prior to its acquisition.

In June 1997, the Company  acquired 99.5% of the outstanding  stock of Seriee of
France,  in  exchange  for  34,141  shares  of  its  common  stock,   valued  at
approximately  $600,000.  Seriee is a  manufacturer  of  electronic  control and
communication  equipment  and had annual net sales of  approximately  $6,300,000
prior to its acquisition.

In  June  1997,  the  Company  acquired  98.7%  of  the  outstanding   stock  of
Radio-Active  Systems  N.V.("RAS")  of Belgium for  approximately  $3,600,000 in
cash.  RAS had  annual  net  sales  of  approximately  $9,900,000  prior  to its
acquisition.

In November 1997, the Company acquired all of the outstanding  stock of Security
Supplies NZ Ltd. ("Security  Supplies") of New Zealand for approximately $50,000
in cash.  Security Supplies had annual sales of approximately  $800,000 prior to
its acquisition.

In  January  1998,  the  Company  acquired  all  of  the  outstanding  stock  of
Electronics  Design & Manufacturing Pty Limited ("EDM") of Australia in exchange
for 186,667  shares of its common stock and  $2,800,000 in cash.  EDM had annual
net sales of approximately $4,600,000 prior to its acquisition.

These  transactions have been accounted for as purchases and,  accordingly,  the
results of DA Systems,  Seriee,  RAS,  Security  Supplies,  EDM, EFSEC and Alarm
Center are included in the consolidated  financial  statements as of the date of
acquisition.  The  financial  statements  reflect  the final  allocation  of the
purchase  price for each business,  except for EDM, EFSEC and Alarm Center,  for
which the purchase price allocation has not been finalized.  Unallocated  excess
of  purchase  price  over  net  assets  acquired  as of  September  30,  1998 is
$3,331,000 and is included with goodwill and other intangibles.

NOTE 4 - EARNINGS PER SHARE

There are no  significant  reconciling  items between net income as presented in
the  consolidated  statement of  operations  and net income  available to common
shareholders  used in the calculation of earnings per share.  Reconciling  items
between  the  number  of shares  used in the  calculation  of basic and  diluted
earnings per share relate to deferred  compensation plans, options and warrants,
as follows (in thousands):

<TABLE>
<S>                                           <C>               <C>    
                                              Three months        Six months
                                             ended Sept. 30,    ended Sept. 30,
                                              1998     1997      1998    1997
                                              ----     ----      ----    ----
Weighted average number of shares
outstanding                                  6,324    4,837     6,307   4,724

Shares associated with deferred
  compensation, option and warrant plans       515      603       523     583
</TABLE>

<PAGE>

NOTE 5 - RESTRUCTURING

The Company recorded a restructuring charge of approximately $400,000 during the
first quarter of fiscal 1999 for severance  costs related to the  termination of
employees at the Fairport, New York and Southall, England facilities. The charge
has been included in the results from  continuing  operations and had a material
impact on operating  results in the first quarter of 1999.  These  manufacturing
employees  will be  terminated  during  fiscal  1999,  thus the accrual has been
included in other current liabilities at September 30, 1998.

                   DETECTION SYSTEMS, INC. AND SUBSIDIARIES
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

Overview

The Company is a leading  supplier of  equipment  to the  electronic  protection
industry.  The Company designs,  manufactures and markets electronic  detection,
control and  communication  equipment  for  security,  fire  protection,  access
control and CCTV  applications,  offering products  primarily for the commercial
and mid- to high-end  residential  portions of the market.  From its founding in
1968 until  1995,  the  Company was  primarily  a niche  provider  of  intrusion
detection  devices for the  domestic  market.  In 1995,  the  Company  adopted a
strategy designed to substantially  expand its product  offerings,  establish an
international  sales presence,  increase its manufacturing  capacity and improve
its manufacturing  cost structure.  The Company has since made nine acquisitions
and  established a  manufacturing  facility in China.  Recent  acquisitions  are
described  in  Note  3.  These  acquisitions  had a  significant  impact  on the
comparative  information  for the six  month  and  three  month  periods  ending
September 30, 1998 and 1997 with respect to results of operations.

The  Company  recognizes  net sales upon  shipment  of  products  to  customers.
Production expenses include materials,  direct labor and manufacturing  overhead
as well as an allocated portion of indirect overhead.  Outgoing freight, customs
and other costs associated with delivery of products to customers are classified
under marketing,  administrative and general expenses.  Research and development
expenses  include  costs  associated  with  salaries  and  benefits  for certain
engineering employees,  supplies, agency approvals,  depreciation and occupancy,
as well as charges for independent  testing and independent  contractors engaged
for specific  projects.  Marketing,  administrative and general expenses include
costs  related  to  the  Company's  sales  efforts  and  corporate  and  general
administrative functions, including costs of executive, administrative and sales
personnel,    marketing/selling   supplies,   advertising,    depreciation   and
professional fees.

<PAGE>
Results of Operations

The following table sets forth, for the periods indicated, the percentages which
certain items of income and expense bear to net sales:
<TABLE>
<S>                         <C>                 <C>             <C>    
                                Fiscal Year      Three Months      Six Months
                              Ended March 31,   Ended Sept. 30,  Ended Sept. 30
                               1998     1997     1998     1997     1998    1997
                               ----     ----     ----     ----     ----    ----
Net sales                    100.0%    100.0%  100.0%    100.0%  100.0%   100.0%
Costs and expenses:
 Production                   66.4      64.2    62.7      66.8    62.8     64.8
 Research and development      6.8       8.0     5.5       6.4     5.9      6.8
 Marketing, administrative
  and general                 23.2      21.2    25.0      21.8    25.3     22.1
                              ----      ----    ----      ----    ----     ----
Operating income               3.6       6.6     6.8       5.0     6.0      6.3
Other income (expense)
 Interest income               0.2       0.1     0.2       0.0     0.2      0.0
 Interest expense             (1.8)     (1.7)   (1.2)     (2.3)   (1.2)    (2.3)
 Other income (expense)       (0.2)      0.2    (0.1)      0.0    (0.1)     0.3
                              ----      ----    ----       ----   ----     ----
Income before income taxes     1.8       5.2     5.7       2.7     4.9      4.3
Provision for income taxes     0.7       1.5     2.2       0.8     1.9      1.4
                              ----       ----   ----       ----   ----     ----
 Net income                    1.1%      3.7%    3.5%      1.9%    3.0%     2.9%
                               ===       ===     ===       ===     ===      ===

</TABLE>
 
Three Months Ended  September 30, 1998 Compared to Three Months Ended  September
30, 1997

The Company's net sales  increased 2.9% to $35,455,000 in the fiscal 1999 period
from  $34,463,000  in the  comparable  period in fiscal  1998.  The net sales of
acquired  businesses  accounted  for  $2,839,000  of net  sales.  Net sales from
on-going  operations  were  $32,616,000 in the fiscal 1999 period.  Sales by the
Company's  on-going  operations  have been impacted  compared to the  comparable
period of the prior year by lower sales to one of the Company's  major customers
and by the acquisition of two of the Company's customers by other businesses who
are not standardized on the Company's products.

Production expenses decreased 3.5% to $22,225,000 in the fiscal 1999 period from
$23,033,000  in the  comparable  period in fiscal 1998.  As a percentage  of net
sales, production expenses decreased to 62.7% in the fiscal 1999 period compared
to 66.8% in the  comparable  period in fiscal 1998.  The decrease in  production
expenses in aggregate  and as a  percentage  of net sales was  primarily  due to
changes in product mix and  improvements  in the  Company's  manufacturing  cost
structure.

Research and  development  expenses  decreased 11.2% to $1,956,000 in the fiscal
1999  period  from  $2,203,000  in the  comparable  period in fiscal  1998.  The
decrease in research and development  expenses is primarily  attributable to the
reduced use of outside consultants.  As a percentage of net sales,  research and
development  expenses  decreased  to 5.5% in the fiscal 1999 period from 6.4% in
the comparable period in 1998. The decrease in research and development expenses
as a  percentage  of net sales was  primarily  due to the reduced use of outside
consultants and the acquisition of redistributor  businesses  during fiscal 1999
and  1998  which  have  sales  but  do  not  incur   research  and   development
expenditures.

<PAGE>

Marketing,  administrative and general expenses increased 18.6% to $8,880,000 in
the fiscal 1999 period from $7,489,000 in the comparable  period in fiscal 1998.
As a percentage of net sales,  marketing,  administrative  and general  expenses
increased to 25.0% in the fiscal 1999 period from 21.8% in the comparable period
in fiscal 1998. The increase in marketing,  administrative  and general expenses
in  aggregate  and  as a  percentage  of  net  sales  was  primarily  due to the
acquisition of businesses in fiscal 1999 and additional  marketing  expenditures
incurred by the Company's domestic businesses.

Interest  expense  decreased to $427,000 in the fiscal 1999 period from $817,000
in the  comparable  period in 1998.  This  decrease was  primarily  due to lower
borrowings outstanding.  Approximately $18,800,000 in debt was repaid during the
second  quarter of fiscal 1998 with proceeds from the Company's  September  1997
public offering of common stock.

The  Company's  effective  income tax rate for the fiscal  1999 period was 38.8%
compared to 29.0% for the comparable period in fiscal 1998. The higher effective
rate is  attributable  to changes in the mix of the Company's  income  generated
from domestic and international entities as well as the impact of non-deductible
goodwill.

Six Months Ended  September 30, 1998 Compared to Six Months Ended  September 30,
1997

     The Company's net sales  increased  10.5% to $69,263,000 in the fiscal 1999
period from  $62,671,000 in the comparable  period in fiscal 1998. The net sales
of acquired  businesses  accounted for  $8,239,000 of net sales.  Net sales from
on-going  operations  were  $61,024,000 in the fiscal 1999 period.  Sales during
this period by the Company's on-going  operations have been impacted compared to
the  comparable  period of the prior year by lower sales to one of the Company's
major  customers and by the  acquisition  of two of the  Company's  customers by
other businesses who are not standardized on the Company's products.

     Production expenses increased 7.2% to $43,511,000 in the fiscal 1999 period
from $40,589,000 in the comparable period in 1998. As a percentage of net sales,
production  expenses  decreased  to 62.8% in the fiscal 1999 period  compared to
64.8% in the  comparable  period in fiscal  1998.  The  increase  in  production
expenses was  primarily  due to a  corresponding  increase in the  Company's net
sales.  The decrease in  production  expenses as a  percentage  of net sales was
primarily  due to changes  in  product  mix and  improvements  in the  Company's
manufacturing cost structure.

     Research and  development  expenses  decreased  4.6% to  $4,090,000  in the
fiscal 1999 period from $4,288,000 in the comparable  period in fiscal 1998. The
decrease in research and development  expenses is primarily  attributable to the
reduced use of outside consultants.  As a percentage of net sales,  research and
development  expenses  decreased  to 5.9% in the fiscal 1999 period from 6.8% in
the comparable period in 1998. The decrease in research and development expenses
as a  percentage  of net sales was  primarily  due to the reduced use of outside
consultants and the acquisition of redistributor  businesses  during fiscal 1999
and  1998  which  have  sales  but  do  not  incur   research  and   development
expenditures.

     Marketing,   administrative   and  general  expenses   increased  26.2%  to
$17,508,000 in the fiscal 1999 period from $13,876,000 in the comparable  period
in fiscal 1998.  As a percentage  of net sales,  marketing,  administrative  and

<PAGE>

general expenses  increased to 25.3% in the fiscal 1999 period from 22.1% in the
comparable period in fiscal 1998. The increase in marketing,  administrative and
general  expenses was primarily due to the  acquisition  of businesses in fiscal
1998. In addition, a charge of approximately  $400,000 was recorded in the first
quarter of fiscal 1999 relating to the restructuring of the Company's  Fairport,
New York and Southall,  England  manufacturing  facilities.  This  restructuring
relates to severance  associated with the transfer of  manufacturing  from those
facilities to the Company's  China  facility.  It is expected that these actions
will be  substantially  completed by the end of fiscal 1999. The Company expects
to save approximately $2.0 million annually in salaries and benefits as a result
of this action.

     Interest  expense  decreased  to  $836,000  in the fiscal  1999 period from
$1,454,000 in the comparable  period in 1998. This decrease was primarily due to
lower  borrowings  outstanding.  Approximately  $18,800,000  in debt was  repaid
during  the second  quarter  of fiscal  1998 with  proceeds  from the  Company's
September 1997 public offering of common stock.

     The  Company's  effective  income tax rate for the fiscal  1999  period was
38.9%  compared to 33.4% for the  comparable  period in fiscal 1998.  The higher
effective  rate is  attributable  to changes in the mix of the Company's  income
generated  from  domestic  and  international  entities as well as the impact of
non-deductible goodwill.

Liquidity and Capital Resources

     The  Company  considers  liquidity  to be its ability to meet its long- and
short-term cash  requirements.  Prior to 1996, those requirements were primarily
met by cash generated by the Company's  operating  activities and cash reserves.
Since the 1995  implementation of the Company's strategy designed to enhance its
product  offerings,   manufacturing   capacity  and  international   operations,
particularly  its  acquisitions  and the development of the China facility,  the
Company has required  external  sources of  financing  to satisfy its  liquidity
needs.

     Six Months Ended September 30, 1998.  During the six months ended September
30, 1998, the Company's  operating  activities used $1,226,000 of operating cash
flow. Net income, depreciation and amortization provided $3,891,000, an increase
in  inventories  used  $2,777,000,  and a  decrease  in  accounts  payable  used
$1,723,000. Other account changes used $617,000 of operating cash flow.

     During the six months ended  September  30, 1998,  cash used for  investing
activities  was  $2,057,000  and was utilized for the  acquisition  of EFSEC and
Alarm Center and for capital expenditures.

     During the six months ended  September 30, 1998, cash provided by financing
activities was $1,859,000,  primarily  representing  proceeds from borrowings to
finance operations and capital expenditures.

     Capital Resources.  On September 30, 1998, the Company had cash balances of
$1,759,000.  On that  date,  the  Company  had a  $17,000,000  revolving  credit
facility  under which it had borrowed  $5,784,000.  This credit  facility  bears
interest  based on the prime rate or the London  Interbank  Offered  Rate,  plus
applicable  points  based on the  Company's  degree of financial  leverage.  The
agreement  matured  on July 31,  1998.  However,  the line has now been  renewed
through July 31, 2000.

<PAGE>

     The Company expects to continue to pursue  acquisitions and the development
of  new  products  and  markets.  On-going  capital  expenditures  will  include
continued investment in facilities and equipment necessary to produce and market
its security, fire detection, access control and CCTV products. The Company also
plans to continue its efforts to market its products internationally.

     The Company  believes that the  combination  of its current cash  balances,
cash flows from operations and existing credit  facilities will be sufficient to
fund its planned operations during fiscal 1999.

     Year 2000 Issues.  The Company has appointed a team to assess the impact of
the year 2000 on its  information  systems,  products,  and business.  This team
includes two members of senior  management  and is lead by the Vice President of
Operations. To ensure year 2000 compliance, the Company has established specific
categories to be reviewed:

Products.  The Company has placed a high  priority on ensuring  its products are
year 2000 ready and is completing a comprehensive  review of year 2000 readiness
of its  products.  The Company has reviewed all products  that are  manufactured
domestically and at its China manufacturing facility and believes these products
to be year 2000 compatible.  The Company has also evaluated  products  purchased
for resale by its domestic  businesses  and believes  these  products to be year
2000 compatible.  The Company is currently  assessing year 2000 compatibility of
products   manufactured   and   purchased   for  resale  at  its  other  foreign
subsidiaries.  The  Company  does not expect  significant  issues with year 2000
readiness  of product  sold by its foreign  subsidiaries  as product sold by the
Company generally does not use date information for calculations or comparisons.

Manufacturing.  Some of the tools and equipment  (hardware and software) used to
develop and manufacture the Company's products are  date-sensitive.  The Company
believes  that  the  critical  tools  and  equipment  used by it to  manufacture
products will be "year 2000 ready" or will be made ready through upgrades by the
suppliers  of the tools or  equipment.  As a result the Company  does not expect
significant  interruption  to  its  manufacturing  capabilities  because  of the
failure of tools and/or equipment.

Non-Manufacturing Business Applications.  Throughout the business the Company is
fixing and  testing all  non-manufacturing  business  applications  such as core
financial    information    and   reporting    systems,    procurement,    human
resources/payroll,  factory applications,  customer service systems, and revenue
systems, and does not expect any significant year 2000 problems in this area.

The  Company's  domestic  business  information  systems  required  upgrades and
enhancements to be made year 2000  compliant.  These upgrades have been made and
are  currently  being  tested.  Testing of year 2000  upgrades is expected to be
completed prior to the year 2000.

Most of the  Company's  non-US  subsidiaries'  information  systems will require
various  degrees of upgrade or  replacement  to be capable of handling year 2000
issues  (excluding  the Hong  Kong  subsidiary,  which  utilizes  the  Company's
domestic  information  system). The Company is in the process of converting each
of its non-US  subsidiaries to new enterprise  resource planning systems capable
of handling  the year 2000.  The Company  expects to be capable of handling  the
year  2000  at  all  locations  without  significant  interruption  to  business
activity.

<PAGE>

Facilities  and  Infrastructure.  The Company has evaluated its  facilities  and
infrastructure   (health,    safety   and   environment   systems,    buildings,
security/alarms/doors, desktop computers, networks) to ensure they are year 2000
ready.  Upgrades  are being  implemented  where  needed and the Company does not
expect significant  interruption to its operations because of year 2000 problems
with its facilities and infrastructure.

Logistics.  The  Company has devoted  significant  resources  to ensure that its
operations  are not  disrupted  because of services or products  supplied to the
Company.

Of importance to the Company for year 2000 is the readiness of suppliers and the
products the Company  procures from  suppliers.  The Company has a comprehensive
program  to  identify  and  obtain  year  2000  information  from  its  critical
suppliers. The program includes awareness letters, questionnaires,  and a review
of  suppliers'  year 2000  web-sites.  If a  supplier  is of  concern  regarding
non-year  2000  readiness,  the Company will develop  contingency  and alternate
sourcing plans to minimize the year 2000 risk.

The Company  estimates that the expected total aggregate costs for its year 2000
activities from 1997 through 2000 will be approximately $700,000. External costs
incurred through  September 30, 1998 were  approximately  $145,000 and primarily
related to computer  software.  It is  anticipated  that the remaining year 2000
costs will relate to computer  software,  computer hardware and consulting fees.
The Company does not  separately  track internal costs relating to the year 2000
and they are not included in the  Company's  estimate of year 2000 costs.  These
costs do not include  estimates for potential  litigation,  which at the present
time is not viewed as a significant risk.

The Company  reviews and updates data for costs  incurred and  forecasted  costs
each  quarter.  These  costs are based on  management's  estimates,  which  were
determined  based on  assumptions  of future  events,  some within the Company's
control,  but some outside the Company's control.  Management's  estimate of the
costs and  completion  dates are  dependent  on various  factors  including  the
availability  of  skilled  resources  and the  ability  to locate and modify all
relevant software code. However, there can be no assurance that these costs will
not be greater than anticipated,  or that corrective  actions undertaken will be
completed before any year 2000 problems could occur.

For additional  information  regarding the risks  associated  with the Company's
compliance  with  year  2000,  see  "Risk  Factors-Year  2000"  in Item 1 of the
Company's Form 10-K for the year ended March 31, 1998.

     Euro  Conversion.  The Company is assessing the  potential  impact that may
result from the euro  conversion.  The Company is assessing the potential impact
from the euro  conversion  in a number of areas,  including the  following:  (1)
accounting and tax; (2) management  information  systems required to accommodate
euro-denominated  transactions;  (3) the impact on currency  exchange  costs and
currency exchange rate risk; and (4) the impact on existing contracts.

Since the  Company is still in its  assessment  phase,  the  Company  cannot yet
predict the anticipated impact of the euro conversion on the Company.

     Dividend Policy.  The Company is dedicated to promoting  shareholder  value
through   long-term   profitability  and  growth  and  believes  that  continued
investments in future product  development  are essential to this goal. For this
reason, it has been the Company's policy to not pay cash dividends.

<PAGE>

Forward-Looking Statements

     This quarterly report contains certain "forward-looking  statements" within
the  meaning of Section  27A of the  Securities  Act of 1933,  as  amended,  and
Section 21E of the Securities Exchange Act of 1934, as amended,  which represent
the Company's expectations or beliefs, including, but not limited to, statements
concerning  industry  performance,   the  Company's   operations,   performance,
financial condition,  growth and acquisition  strategies,  margins and growth in
sales of the Company's products.  For this purpose,  any statements contained in
this quarterly  report that are not statements of historical  fact may be deemed
to be  forward-looking  statements.  Without  limiting  the  generality  of  the
foregoing,   words  such  as  "may,"  "will,"   "expect,"   "believe,"   "plan,"
"anticipate," "intend," "could," "estimate," "continue," "goal" or "strategy" or
the negative or other variations thereof or comparable  terminology are intended
to identify forward-looking statements. These statements by their nature involve
substantial risks and  uncertainties,  certain of which are beyond the Company's
control,  and actual  results may differ  materially  depending  on a variety of
important  factors,  including those described  previously in the "Risk Factors"
section of the Company's 1998 Form 10-K for the year ended March 31, 1998.

<PAGE>
                         PART II OTHER INFORMATION

Item 5.  Other Information

     A.   Shareholder  Proposals - Deadline for Inclusion in Proxy  Materials As
          set forth in the Company's Proxy Statement for the 1998 Annual Meeting
          of Stockholders, any proposal by a stockholder of the Company intended
          to be presented  at the 1999 Annual  Meeting of  Stockholders  must be
          received by the Company on or before  April 29, 1999 to be included in
          the proxy materials of the Company relating to such meeting.

     B.   Shareholder  Proposals - Discretionary Voting of Proxies In accordance
          with recent amendments to Rule 14a-4 under the Securities Exchange Act
          of 1934,  if notice of a  proposal  by a  shareholder  of the  Company
          intended to be presented at the 1999 Annual Meeting of Shareholders is
          received by the Company  after June 14, 1999,  the persons  authorized
          under the  Company's  management  proxies may  exercise  discretionary
          authority to vote or act on such proposal if the proposal is raised at
          the 1999 Annual Meeting of Shareholders.



Item 6.  Exhibits and Reports for Form 8-K.

         A. Exhibits

            See Exhibit Index

         B. Reports on Form 8-K

         No reports on Form 8-K were filed during the quarter.


<PAGE>
                                  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.

                                          DETECTION SYSTEMS, INC.
                                          Registrant

DATE: November 16, 1998                   By: /s/ Karl H. Kostusiak
                                          Karl H. Kostusiak, President


                                          By: /s/ Frank J. Ryan
                                          Frank J. Ryan, Vice President,
                                          Secretary and Treasurer
                                          (Principal Financial Officer)


                                          By: /s/ Christopher P. Gerace
                                          Christopher P. Gerace
                                          Chief Accounting Officer
                                          (Principal Accounting Officer)

<PAGE>
                               EXHIBIT INDEX
<TABLE>
<S>        <C>                           <C>    
Item
No.                  Exhibits                         Location

3(a)       Detection Systems, Inc.       Included as Exhibit 3 of this
           Certificate of                Quarterly Report on Form 10-Q
           Incorporation as amended

3(b)       Detection Systems, Inc.       Incorporated by reference to
           By-Laws as amended            Exhibit 3(b) of the Company's 1997
                                         Annual Report on Form 10-K

10(a)      Medical reimbursement plan    Incorporated by reference to
                                         Exhibit 10(b) of the Company's
                                         1997 Annual Report on Form 10-K

10(b)      Employee stock purchase plan  Incorporated by reference to
                                         Exhibit 10 of the Company's 1994
                                         Annual Report on Form 10-K

10(c)      Fleet Amended & Restated      Included as Exhibit 10(c) of this
           Credit Facility Agreement     Quarterly Report on Form 10-Q
           dated September 30, 1998


10(d)      Deferred Compensation Plan    Incorporation by reference to
           and Deferred Bonus Plan.      Exhibit 10(c) to the Company's
                                         Quarterly Report on Form 10-Q, for
                                         the quarter ended 12/31/97

10(e)      1992 Restated Stock Option    Incorporated by reference to
           Plan                          Exhibit 22 of the Company's 1995
                                         Annual Report on Form 10-K
                                          
10(f)      1997 Stock Option Plan        Incorporated by reference to
                                         Exhibit 10(o)of the Company's
                                         Registration Statement on Form S-2
                                         (No. 333-31951) filed on 7/24/97

10(g)      Executive Officer Cash        Incorporated by reference to
           Bonus Plan                    Exhibit 10(g) of the Company's
                                         1998 Annual Report on Form 10-K

10(h)      Executive employment          Incorporated by reference to
           contract with Karl H.         Exhibit 10(h) of the Company's
           Kostusiak.                    1998 Annual Report on Form 10-K

10(i)      Amendment #1 to executive     Included as Exhibit 10(i) of this
           employment contract with      Quarterly Report on Form 10-Q
           Karl H. Kostusiak

10(j)      Executive employment          Included as Exhibit 10(j) of this
           contract with David B.        Quarterly Report on Form 10-Q
           Lederer.

10(k)      Executive employment          Incorporated by reference to
           contract with Lawrence R.     Exhibit 10 of the Company's 1995
           Tracy.                        Annual Report on Form 10-K

10(l)      Stock Purchase Agreements     Incorporated by reference to
           with Karl H. Kostusiak and    Exhibit 10(l) of the Company's
           David B. Lederer              1997 Annual Report on Form 10-K

10(m)      Non-Employee Director Stock   Included as Exhibit 10(m) of this
           Option Plan                   Quarterly Report on Form 10-Q

11         Statement re: Computation     Included as Exhibit 11 of this
           of Per Share Earnings         Quarterly Report on Form 10-Q

24         Powers of Attorney            Incorporated by reference to
                                         Exhibit 24 of the Company's 1998
                                         Annual Report on Form 10-K

27         Financial Data Schedule       Included as Exhibit 27 of this
                                         Quarterly Report on Form 10-Q
<PAGE>
</TABLE>