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 December 31, 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  January  31,  1999  there  were  outstanding  6,330,873  shares  of  the
registrant's common stock, par value $.05 per share.



<PAGE>


<TABLE>
<CAPTION>

                         PART I FINANCIAL INFORMATION
                      DETECTION SYSTEMS, INC. AND SUBSIDIARIES
                             Consolidated Balance Sheet
                       (in thousands, except per share data)

                                                Dec. 31, 1998   March 31, 1998
                                                  (Unaudited)
<S>                                              <C>                  <C> 
Assets
Current assets:
  Cash and cash equivalents                      $  2,480             $  3,160
  Accounts receivable, less allowance for
  doubtful accounts ($1,282 and $1,033,
  respectively)                                    22,085               23,505
Inventories                                        41,701               38,154
Other current assets                                5,801                3,701
                                                 --------             --------
                                                   72,067               68,520

Fixed assets, net                                  11,732               12,142
Goodwill and other intangibles                      9,982                8,907
Other assets                                        4,833                4,475
                                                 --------             --------
                                                 $ 98,614             $ 94,044
                                                 ========             ========
Liabilities
Current liabilities:
   Short term borrowings                         $  2,927             $  4,002
   Current portion of long term debt                  386                  405
   Accounts payable                                10,298               12,368
   Accrued payroll and benefits                     1,685                1,636
   Other current liabilities                        8,731                5,165
                                                 --------             --------
                                                   24,027               23,576

Other liabilities                                   2,396                2,655
Long term debt                                     17,542               16,549

Shareholders' equity:
  Common stock, par value $.05 per share;
   Authorized - 24,000 shares; Issued -
   6,557 shares and 6,518 shares,
   respectively                                       328                  326
Capital in excess of par value                     45,105               44,805
Retained earnings                                  13,269                9,976
                                                 --------             --------
                                                   58,702               55,107
Less - Treasury stock, at cost                     (3,780)              (3,785)
  Notes receivable for stock purchases                (18)                 (14)
  Cumulative translation adjustment                  (255)                 (44)
                                                 --------             --------
                                                   54,649               51,264
                                                 --------             --------
                                                 $ 98,614             $ 94,044
                                                 ========             ========
</TABLE>

        (See accompanying notes to consolidated financial statements)


<PAGE>

<TABLE>
<CAPTION>


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

For the Three Months Ended:                 Dec. 31, 1998        Dec. 31, 1997
                                            -------------        -------------
<S>                                              <C>                  <C>     
Net sales                                        $ 34,201             $ 31,347

Costs and expenses:
 Production                                        21,054             $ 21,437
 Research and development                           2,106                2,266
 Marketing, administrative and general              8,807                7,153
                                                 --------             --------
Total costs and expenses                           31,967               30,856

Operating income                                    2,234                  491

Other income (expense)
 Interest income                                       27                   92
 Interest expense                                    (430)                (419)
 Other income (expense)                               182                 (274)
                                                 --------             --------
Income (loss) before income taxes                   2,013                 (110)
Provision (benefit) for income taxes                  782                  (34)
                                                 --------             --------
Net income (loss)                                $  1,231             $    (76)
                                                 ========             ========

Retained earnings at beginning of period           12,038               10,412
                                                 --------             --------
Retained earnings at end of period               $ 13,269             $ 10,336
                                                 ========             ========
Earnings per share
 Basic                                           $   0.19             $  (0.01)
                                                 ========             ========
 Diluted                                         $   0.18             $  (0.01)
                                                 ========             ========
</TABLE>

        (See accompanying notes to consolidated financial statements)


<PAGE>


<TABLE>
<CAPTION>

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

For the Nine Months Ended:                  Dec. 31, 1998        Dec. 31, 1997
                                            -------------        -------------
<S>                                              <C>                  <C>     
Net sales                                        $103,464             $ 94,018

Costs and expenses:
 Production                                        63,988               62,026
 Research and development                           6,196                6,554
 Marketing, administrative and general             26,892               21,029
                                                 --------             --------
Total costs and expenses                           97,076               89,609

Operating income                                    6,388                4,409

Other income (expense)
 Interest income                                      145                   98
 Interest expense                                  (1,266)              (1,873)
 Other income (expense)                               120                  (35)
                                                 --------             --------
Income before income taxes                          5,387                2,599
Provision for income taxes                          2,094                  869
                                                 --------             --------
Net income                                       $  3,293             $  1,730
                                                 ========             ========

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

Amortization of redeemable common stock                                     12
                                                 --------             --------
Retained earnings at end of period               $ 13,269             $ 10,336
                                                 ========             ========
Earnings per share
 Basic                                           $   0.52             $   0.34
                                                 ========             ========
 Diluted                                         $   0.48             $   0.31
                                                 ========             ========
</TABLE>

        (See accompanying notes to consolidated financial statements)


<PAGE>

<TABLE>
<CAPTION>

                   DETECTION SYSTEMS, INC. AND SUBSIDIARIES
               Consolidated Statement of Cash Flows (Unaudited)
                          (in thousands of dollars)

For the Nine Months Ended December 31,                         1998       1997
<S>                                                        <C>        <C>
Cash flows from operating activities:                          --         --
Net income                                                 $  3,293   $  1,730
                                                           --------   --------
Adjustments to reconcile net income to net cash
  provided by (used in) operating activities:
  Depreciation and amortization                               2,807      2,951
  Deferred compensation                                                    457
  Stock based compensation                                                  86
  Gain on sale of land                                                    (205)

Changes in assets and liabilities:
  Accounts receivable                                         1,535     (1,820)
  Inventories                                                (2,917)     2,313
  Accounts payable                                           (2,420)    (2,448)
  Accrued payroll and benefits                                   49     (1,643)
  Other assets & liabilities                                    116     (4,324)
                                                           --------   --------
  Total adjustments                                            (830)    (4,633)
                                                           --------   --------
  Net cash provided by (used in)operating activities          2,463     (2,903)

Cash flows from investing activities:
  Capital expenditures                                       (2,250)    (1,977)
  Proceeds from sale of land                                               312
  Acquisition of businesses                                    (505)    (6,816)
                                                           --------   --------
  Net cash used in investing activities                      (2,755)    (8,481)

Cash flows from financing activities:
  Proceeds from borrowings                                    1,443      6,718
  Proceeds from issuance of common stock                                28,519
  Principal payments on debt and
   capital lease obligations                                 (1,666)   (19,135)
  Common stock transactions, net                                 46        468
                                                           --------   --------
  Net cash (used in) provided by financing activities          (177)    16,570

Effect of exchange rates                                       (211)      (302)
                                                           --------   --------
Net(decrease)increase in cash and cash equivalents             (680)     4,884

Cash and cash equivalents, beginning of period                3,160      2,244
                                                           --------   --------
Cash and cash equivalents, end of period                   $  2,480   $  7,128
                                                           ========   ========
Cash paid during the period for:
  Interest                                                 $  1,311   $  1,532
                                                           ========   ========
  Income taxes                                             $    614   $  1,612
                                                           ========   ========
</TABLE>

        (See accompanying notes to consolidated financial statements)



<PAGE>


                   DETECTION SYSTEMS, INC. AND SUBSIDIARIES
                        NOTES TO FINANCIAL STATEMENTS
        THREE AND NINE MONTH PERIODS ENDED DECEMBER 31, 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  prior  period  balances  have been
reclassified to conform with the current period  presentation.  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  -  Non-cash  transactions  during  fiscal  1999  and 1998
consisted of the acquisition of certain  businesses with shares of the Company's
common stock. See Note 3.

NOTE 2. - INVENTORIES

Major classifications of inventory follow (in thousands):

                                    Dec. 31, 1998        March 31, 1998
                                   --------------        --------------
Component Parts                           $17,067               $22,061
Work In Process                             3,534                 1,488
Finished Products                          21,100                14,605
                                           ------                ------
                                          $41,701               $38,154
                                           ======                ======

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.

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 December 31, 1998 is $3,272,000
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):

                                                Three months      Nine months
                                               Ended Dec. 31,    Ended Dec. 31,
                                                1998     1997     1998    1997
                                                ----     ----     ----    ----
Weighted average number of shares
outstanding                                    6,328    6,048    6,313   5,165

Shares associated with deferred
  compensation, option and warrant plans         504       --      513     398


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 December 31, 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
nine  month and three  month  periods  ending  December  31,  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.



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>
<CAPTION>

                                                 (Unaudited)       (Unaudited)
                               Fiscal Year      Three Months       Nine Months
                             Ended March 31,   Ended Dec. 31,     Ended Dec. 31
                              1998     1997     1998     1997     1998     1997

<S>                          <C>      <C>      <C>      <C>      <C>      <C>   
Net sales                    100.0%   100.0%   100.0%   100.0%   100.0%   100.0%
Costs and expenses:
 Production                   66.4     64.2     61.6     68.4     61.8     66.0
 Research and development      6.8      8.0      6.2      7.2      6.0      7.0
 Marketing, administrative
  and general                 23.2     21.2     25.7     22.8     26.0     22.3
                             -----    -----    -----    -----    -----    -----
Operating income               3.6      6.6      6.5      1.6      6.2      4.7
Other income (expense)
 Interest income               0.2      0.1      0.1      0.3      0.1      0.1
 Interest expense             (1.8)    (1.7)    (1.2)    (1.3)    (1.2)    (2.0)
 Other (expense) income       (0.2)     0.2      0.5     (0.9)     0.1     (0.1)
                             -----    -----    -----    -----    -----    -----
Income (loss) before income
taxes                          1.8      5.2      5.9     (0.3)     5.2      2.7
Provision (benefit) for        0.7      1.5      2.3     (0.1)     2.0      0.9
income taxes
                             -----    -----    -----    -----    -----    -----
 Net income (loss)             1.1%     3.7%     3.6%    (0.2)%    3.2%     1.8%
                             =====    =====    =====    =====    =====    =====

</TABLE>

Three Months Ended December 31, 1998 Compared to Three Months Ended December
31, 1997

    The Company's net sales  increased  9.1% to  $34,201,000  in the fiscal 1999
period from  $31,347,000 in the comparable  period in fiscal 1998. The net sales
of acquired businesses accounted for $1,875,000 of this increase. Net sales from
on-going operations were $32,326,000 in the fiscal 1999 period. Net sales during
the current  period by the Company's  on-going  operations  have been  favorably
impacted  compared  to the prior  year  period by  increased  sales of  security
sensors and controls as well as CCTV products. This has been offset, in part, by
the  continued  impact of lower  sales to one of the  Company's  major  domestic
customers and by the acquisition of two of the Company's  domestic  customers by
other businesses who are not standardized on the Company's products.

    Production  expenses decreased 1.8% to $21,054,000 in the fiscal 1999 period
from $21,437,000 in the comparable period in fiscal 1998. As a percentage of net
sales, production expenses decreased to 61.6% in the fiscal 1999 period compared
to 68.4% in the  comparable  period in fiscal 1998.  The decrease in  production
expenses in the  aggregate and as a percentage of net sales was primarily due to
improvements  in the  Company's  manufacturing  cost  structure  and  changes in
product mix.

    Research and development expenses decreased 7.1% to $2,106,000 in the fiscal
1999  period from  $2,266,000  in the  comparable  period in fiscal  1998.  As a
percentage of net sales,  research and development expenses decreased to 6.2% in
the fiscal 1999 period from 7.2% 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 23.1% to $8,807,000
in the fiscal 1999 period from  $7,153,000  in the  comparable  period in fiscal
1998.  As a  percentage  of net sales,  marketing,  administrative  and  general
expenses  increased  to  25.7%  in the  fiscal  1999  period  from  22.8% in the
comparable period in fiscal 1998. The increase in marketing,  administrative and
general expenses in the aggregate and as a percentage of net sales was primarily
due to the acquisition of redistributor businesses in fiscal 1999 and additional
marketing and technical support expenditures  incurred by the Company's domestic
and international businesses.

    Interest  expense  increased  to  $430,000  in the fiscal  1999  period from
$419,000 in the comparable  period in 1998, as borrowings  outstanding  remained
relatively consistent during the two periods.

    The Company's effective income tax rate for the fiscal 1999 period was 38.8%
compared to 30.9% for the comparable period in fiscal 1998. The higher effective
rate was  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 arising from the Company's acquisitions.

Nine Months Ended December 31, 1998 Compared to Nine Months Ended December
31, 1997

    The Company's net sales  increased  10.0% to  $103,464,000 in the nine-month
fiscal 1999 period from $94,018,000 in the comparable period in fiscal 1998. The
net sales of acquired businesses accounted for $8,353,000 of this increase.  Net
sales from on-going operations were $95,111,000 in the fiscal 1999 period. Sales
during  the  current  period  by the  Company's  on-going  operations  have been
favorably  impacted  compared  to the prior year  period by  increased  sales of
security sensors and controls as well as CCTV products. This has been offset, in
part, by lower sales to one of the Company's major domestic customers and by the
acquisition of two of the Company's  domestic  customers by other businesses who
are not standardized on the Company's products.

    Production  expenses increased 3.2% to $63,988,000 in the fiscal 1999 period
from $62,026,000 in the comparable period in 1998. As a percentage of net sales,
production  expenses  decreased  to 61.8% in the fiscal 1999 period  compared to
66.0% 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  improvements  in the Company's  manufacturing  cost  structure
changes in product mix.

    Research and development expenses decreased 5.5% to $6,196,000 in the fiscal
1999  period  from  $6,554,000  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 6.0% in the fiscal 1999 period from 7.0% 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  27.9%  to
$26,892,000 in the fiscal 1999 period from $21,029,000 in the comparable  period
in fiscal 1998.  As a percentage  of net sales,  marketing,  administrative  and
general expenses  increased to 26.0% in the fiscal 1999 period from 22.3% 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 production related salaries and
benefits as a result of this action.

    Interest  expense  decreased  to  $1,266,000  in the fiscal 1999 period from
$1,873,000 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 was  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 arising from the Company's acquisitions.

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.

    Nine Months Ended  December 31, 1998.  During the nine months ended December
31, 1998, the Company's  operating  activities  provided $2,463,000 of operating
cash flow. Net income,  depreciation and amortization  provided  $6,100,000.  An
increase in inventories  used  $2,917,000.  A decrease in accounts  payable used
$2,420,000 and an increase in accounts receivables  provided  $1,535,000.  Other
account changes provided $165,000 of operating cash flow.

    During the nine months  ended  December  31,  1998,  cash used in  investing
activities  was  $2,755,000  and was utilized for the  acquisition  of EFSEC and
Alarm Center and for capital expenditures.

    During the nine months  ended  December  31,  1998,  cash used in  financing
activities was $177,000, primarily representing principal repayments of debt.

    Capital  Resources.  On December 31, 1998,  the Company had cash balances of
$2,480,000.  On that  date,  the  Company  had a  $17,000,000  revolving  credit
facility  under which it had borrowed  $2,093,000.  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,  and
matures on July 31, 2000.
    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 led by the Vice  President of
Operations. To ensure year 2000 compliance, the Company has established specific
categories to be reviewed:

Products.  The Company  places a high priority on ensuring its products are year
2000 ready.  The  Company  has  completed  its review of all  products  that are
manufactured  domestically  and at its China  manufacturing  facility as well as
products purchased for resale by its domestic  businesses.  The Company believes
these  products  to be year 2000  compatible.  The  Company  is  completing  its
assessment of 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  products  sold by its foreign
subsidiaries  as  products  sold  by  the  Company  generally  do 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  date-sensitive  tools and equipment used by it to manufacture
products are now year 2000  compatible.  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. The Company is in the process of 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 compatible.  These upgrades have been made and
are  currently  being  tested.  All  necessary  upgrades  to  other  information
technology  infrastructure  have been  identified and remediation is in process.
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  has  purchased  a new  enterprise
resource  planning  system  capable of handling  the year 2000 that is currently
being inplemented at its foreign subsidiaries. The Company expects to be capable
of handling the year 2000 at all locations without  significant  interruption to
business activity.


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
compatible. 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.  Of  importance  to the  Company  for year 2000 is the  readiness  of
suppliers  and the  products  the Company  procures  from  suppliers  as well as
customers  and service  providers.  The Company has a  comprehensive  program to
identify and obtain year 2000 information from its critical suppliers, customers
and service providers.  The program includes awareness letters,  questionnaires,
and a review of year 2000 web-sites.  The Company has mailed a questionnaire  to
substantially all suppliers, customers and service providers regarding year 2000
readiness.  Responses are currently being received and evaluated. If a supplier,
customer or service  provider is of concern  regarding year 2000 readiness,  the
Company will develop contingency plans to minimize the year 2000 risk.

The Company  estimates that its aggregate  costs for year 2000  activities  from
1997  through  2000 will be  approximately  $750,000.  External  costs  incurred
through December 31, 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.  No amount of  preparation  and
testing can guarantee year 2000 compliance. Nevertheless, the Company recognizes
that failing to resolve its year 2000 issues on a timely basis would, in a worst
case scenario, significantly limit its ability to manufacture and distribute its
products  and  process  its daily  business  transactions  for a period of time,
especially  if such  failure  is  coupled  with  third  party or  infrastructure
failures.  Similarly, the Company could be significantly affected by the failure
of  one  or  more   significant   suppliers,   customer  or  components  of  the
infrastructure to conduct their respective operations without interruption after
1999.  Because of the  difficulty of assessing the year 2000  compliance of such
third parties,  the Company considers the potential  disruptions  caused by such
parties to present the most  reasonably  likely  worst-case  scenarios.  Adverse
effects on the Company could include business disruption,  increased costs, loss
of sales and other similar  ramifications.  However,  the Company believes it is
taking  appropriate  preventive  measures and will be successful in avoiding any
material adverse effect on the Company's operations or financial condition.

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 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.

    New Accounting  Standards.  In June 1997, the Financial Accounting Standards
Board   (FASB)   issued  SFAS  No.  130,   "Reporting   Comprehensive   Income."
Comprehensive  income  includes net income and several  other items that current
accounting  standards  require  to be  recognized  outside of net  income.  This
standard requires enterprises to display comprehensive income and its components
in financial  statements,  to classify  items of  comprehensive  income by their
nature in financial items statements, and to display the accumulated balances of
other  comprehensive  income in  stockholders'  equity  separately from retained
earnings and additional  paid-in  capital.  SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997.

In June 1997,  the FASB issued SFAS No. 131,  "Disclosures  About Segments of an
Enterprise  and Related  Information."  This standard  requires  enterprises  to
report certain  information about their operating  segments in a complete set of
financial  statements  to  shareholders;   to  report  certain   enterprise-wide
information  about  products and services,  activities  in different  geographic
areas,  and  reliance  on  major  customers;  and to  disclose  certain  segment
information in their interim financial statements.  The basis for determining an
enterprise's  operating segments is the manner in which financial information is
used internally by the enterprise's chief operating decision maker. SFAS No. 131
is effective for fiscal years beginning after December 15, 1997.

The adoption of the disclosure requirements of SFAS 130 and SFAS 131 as required
for the  Company's  1999 Annual  Report are not  expected to have a  significant
impact on the Company's financial statement disclosures.

    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.



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 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:  February 12, 1999                  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

Item
No.                  Exhibits                         Location

3(a)       Detection Systems, Inc.       Incorporated by reference to
           Certificate of                Exhibit 3 of the Company's
           Incorporation as amended      Quarterly Report on Form 10-Q for
                                         the quarter ended 9/30/98

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       Incorporated by reference to
           plan                          Exhibit 10 of the Company's 1994
                                         Annual Report on Form 10-K
                                                                          
10(c)      Fleet Amended & Restated      Incorporated by reference to
           Credit Facility Agreement     Exhibit 10(c) of the Company's
           dated September 30, 1998      Quarterly Report on Form 10-Q for
                                         the quarter ended 9/30/98

10(d)      Deferred Compensation Plan    Incorporation by reference to
           and Deferred Bonus Plan       Exhibit 10(c) of 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     Incorporated by reference to
           employment contract with      Exhibit 10(i) of the Company's
           Karl H. Kostusiak             Quarterly Report on Form 10-Q for
                                         the quarter ended 9/30/98

10(j)      Executive employment          Incorporated by reference to
           contract with David B.        Exhibit 10(j) of the Company's
           Lederer                       Quarterly Report on Form 10-Q for
                                         the quarter ended 9/30/98

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   Incorporated by reference to
           Option Plan                   Exhibit 10(m) of the Company's
                                         Quarterly Report on Form 10-Q for
                                         the quarter ended 9/30/98

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