<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-Q

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

                  For the quarterly period ended June 30, 1998

                         Commission File Number 1-13424

                        Data Systems Network Corporation

        Michigan                                         38-2649874
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                            Identification No.)

34705 W. 12 Mile Rd., Suite 300                          48331
Farmington Hills, Michigan
(Address of principal executive offices)                  (Zip Code)

Registrant's telephone number, including area code:
(248) 489-8700

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
such filing requirements for the past 90 days.

YES [ ]        NO [X]

Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date: 

Common Stock, $.01 Par Value - 4,859,224 shares as of July 31, 1998


<PAGE>   2
PART I. - FINANCIAL INFORMATION

ITEM I. - FINANCIAL STATEMENTS.

DATA SYSTEMS NETWORK CORPORATION
  CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                      Unaudited                         Audited
                                                                                       June 30,                       December 31,
                                                                                        1998                             1997
                                                                                   -------------                     ------------- 
<S>                                                                                <C>                               <C>
                                                     ASSETS                   
CURRENT ASSETS:                                                               
   Cash and cash equivalents (Note 2)                                              $   1,917,493                     $       5,349
   Investments                                                                                 -                         6,203,361
   Accounts receivable (net of allowance of $986,126 and $800,000          
      at June 30, 1998 and December 31, 1997 respectively).                           18,825,213                        27,098,823
   Notes receivable                                                                      233,811                           197,133
   Inventories                                                                           473,533                           680,673
   Other current assets                                                                  317,078                           537,781
                                                                                   -------------                     ------------- 
         Total current assets                                                         21,767,128                        34,723,120
                                                                              
SERVICE PARTS                                                                            269,237                           320,677
                                                                              
PROPERTY AND EQUIPMENT, net                                                            2,776,452                         2,583,437
                                                                              
GOODWILL, net                                                                          3,085,320                         4,072,207
                                                                              
OTHER ASSETS                                                                           1,581,393                         1,514,125
                                                                                   -------------                     ------------- 

TOTAL ASSETS                                                                       $  29,479,530                     $  43,213,566
                                                                                   =============                     =============

                                      LIABILITIES AND STOCKHOLDERS' EQUITY    
                                                                              
CURRENT LIABILITIES:                                                          
   Bank line of credit (Note 3 )                                                   $   7,121,871                     $  17,296,558
   Accounts payable                                                                   13,202,903                        16,220,200
   Accrued liabilities                                                                 2,179,431                         2,288,198
   Capitalized lease obligation - current portion                                         84,846                            79,988
   Deferred maintenance revenues                                                       1,631,571                           927,154
                                                                                   -------------                     ------------- 
         Total current liabilities                                                    24,220,622                        36,812,098
                                                                              
                                                                              
CAPITAL LEASE OBLIGATION - NON CURRENT                                                   112,502                           157,551
                                                                              
                                                                              
STOCKHOLDERS' EQUITY                                                          
   Preferred stock, authorized 1,000,000 shares, none outstanding             
   Common stock ($.01 par value; authorized 10,000,000                        
      shares; issued and outstanding  4,859,224  and 4,857,974 shares         
      at June 30, 1998 and December 31,1997, respectively)                                48,592                            48,580
   Additional paid-in capital                                                         17,936,219                        17,945,606
   Accumulated deficit                                                               (12,838,405)                      (11,750,269)
                                                                                   -------------                     ------------- 
         Total stockholders' equity                                                    5,146,406                         6,243,917
                                                                                   -------------                     ------------- 
TOTAL LIABILITIES  AND STOCKHOLDERS' EQUITY                                        $  29,479,530                     $  43,213,566
                                                                                   =============                     =============
</TABLE>


       See Accompanying Notes to the Consolidated Financial Statements.


<PAGE>   3

  DATA SYSTEMS NETWORK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                 For the Three Months Ended June 30,             For the Six Months Ended June 30,
                                                                                                   
                                                                         Restated &                                    Restated &
                                                    Unaudited            Unaudited                 Unaudited            Unaudited
                                                      1998             1997 (Note 7)                 1998             1997 (Note 7)
                                                --------------        --------------           --------------        --------------
<S>                                             <C>                   <C>                      <C>                   <C>
REVENUES:                                                                                                                
     Net sales                                  $   20,705,062        $   16,111,572           $   34,587,629        $   30,194,198
     Service revenue                                 5,707,828             5,105,586               10,558,093             8,358,761
                                                --------------        --------------           --------------        --------------
          Total revenues                            26,412,890            21,217,158               45,145,722            38,552,959

COST OF REVENUES:                                                                                                        
     Cost of sales                                  16,549,672            12,842,762               27,724,248            24,404,611
     Cost of service revenue                         4,971,218             3,625,944                9,478,128             6,807,215
                                                --------------        --------------           --------------        --------------
          Total cost of revenues                    21,520,890            16,468,706               37,202,376            31,211,826
                                                                                                                         
GROSS PROFIT                                         4,892,000             4,748,452                7,943,346             7,341,133
                                                                                                                         
OPERATING EXPENSES:                                                                                                      
     Selling expenses                                2,496,724             2,075,030                4,989,852             4,273,192
     General and administrative expenses             2,108,594             1,398,563                3,741,150             2,876,846
                                                --------------        --------------           --------------        --------------
          Total operating expenses                   4,605,318             3,473,593                8,731,002             7,150,038
                                                                                                                         
INCOME (LOSS) FROM OPERATIONS                          286,682             1,274,859                 (787,656)              191,095
                                                                                                                         
OTHER INCOME (EXPENSE):                                                                                                  
     Interest expense                                 (176,362)             (437,569)                (416,598)             (726,366)
     Interest income                                    12,037                80,051                   82,370               112,333
     Other income                                      109,906                54,691                  114,498                61,646
                                                --------------        --------------           --------------        --------------
          Net other (expense)                          (54,419)             (302,827)                (219,730)             (552,387)
                                                                                                                         
INCOME (LOSS) BEFORE INCOME TAXES                      232,263               972,032               (1,007,386)             (361,292)
FROM CONTINUING OPERATIONS                                                                                               
                                                                                                                         
INCOME TAXES                                               -                     -                        -                     -
                                                                                                                         
NET INCOME (LOSS)                                                                                                        
                                                --------------        --------------           --------------        --------------
FROM CONTINUING OPERATIONS                      $      232,263        $      972,032           $   (1,007,386)       $     (361,292)
                                                --------------        --------------           --------------        --------------
                                                                                                                         
DISCONTINUED OPERATIONS (NOTE 4)                                                                                        
LOSS FROM OPERATIONS OF UNS                           (698,593)             (221,459)              (1,686,054)             (137,312)
                                                                                                                         
GAIN  ON DISPOSAL OF UNS (NOTE 4)                    1,605,304                                      1,605,304            
                                                --------------        --------------           --------------        --------------

NET GAIN (LOSS) FROM UNS                               906,711              (221,459)                 (80,750)             (137,312)
                                                --------------        --------------           --------------        --------------
                                                                                                                         
NET INCOME (LOSS)                               $    1,138,974        $      750,573           $   (1,088,136)       $     (498,604)
                                                ==============        ==============           ==============        ==============
                                                                                                                         
                                                                                                                         
                                                                                                                         
INCOME (LOSS) PER COMMON SHARE                       Basic                  Basic                   Basic                  Basic
FROM CONTINUING OPERATIONS                           -----                  -----                   -----                  -----
                                                $         0.05        $         0.22           $        (0.21)       $        (0.09)
                                                ==============        ==============           ==============        ==============

FROM DISCONTINUED OPERATIONS                    $         0.18        $        (0.05)          $        (0.01)       $        (0.04)
                                                ==============        ==============           ==============        ============== 

NET INCOME (LOSS) PER COMMON SHARE              $         0.23        $         0.17           $        (0.22)       $        (0.13)
                                                ==============        ==============           ==============        ============== 
                                                                                                                       
WEIGHTED AVERAGE NUMBER OF                                                                                               
     SHARES OUTSTANDING                              4,859,224             4,346,074                4,858,874             3,906,096
                                                ==============        ==============           ==============        ==============
</TABLE>


       See Accompanying Notes to the Consolidated Financial Statements.
<PAGE>   4
  DATA SYSTEMS NETWORK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                                   For the Six Months Ended June 30,
                                                                          
                                                                                                                 Restated &
                                                                                Unaudited                        Unaudited
                                                                                  1998                         1997 (Note 7)
                                                                            ---------------                    -------------
<S>                                                                         <C>                                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:                                     
   Net  (loss)                                                              $    (1,088,136)                   $    (498,604)
   Adjustments to reconcile net  (loss)                                                                                     
      to net cash used in operating activities:                                                                      485,852
      Depreciation and amortization                                                 574,767
      Gain on disposal of UNS                                                       866,335                                -
      Changes in assets and liabilities that provided (used) cash,        
                   net of effects of discontinued operations              
         Investments                                                              6,203,361                                -
         Accounts receivable                                                      8,273,610                       (7,923,178)
         Notes receivable                                                           (36,678)                         (18,508)
         Inventories                                                                207,140                          446,262
         Other current assets                                                       220,702                         (564,392)
         Service parts                                                               51,441                          535,104
         Other assets                                                               (67,268)                         (36,132)
         Accounts payable                                                        (3,017,297)                         348,396
         Accrued liabilities                                                       (108,767)                         412,995
         Deferred maintenance revenues                                              704,417                           79,796
                                                                            ---------------                    -------------
            Net cash provided by (used in) operating activities                  12,783,627                       (6,732,409)
                                                                            ---------------                    -------------
                                                                                                                             
CASH FLOWS FROM INVESTING ACTIVITIES :                                    
   Acquisition of property and equipment, net                                      (657,230)                        (614,875)
   Redemption of warrants and exercise of stock options, net                            625                        7,324,633
                                                                            ---------------                    -------------
            Net cash provided by (used in) investing activities                    (656,605)                       6,709,758
                                                                            ---------------                    -------------
                                                                          
CASH FLOWS FROM FINANCING ACTIVITIES:                                     
       Net current borrowings (repayment)  under bank line of credit            (10,174,688)                       5,249,290
       Net proceeds(repayments) from capital lease obligation financing             (40,190)                         274,076
                                                                            ---------------                    -------------
            Net cash provided by (used in) financing activities                 (10,214,878)                       5,523,366
                                                                            ---------------                    -------------
                                                                          
NET INCREASE IN CASH AND CASH EQUIVALENTS                                         1,912,144                        5,500,715
                                                                          
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                      5,349                        1,522,434
                                                                            ---------------                    -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                  $     1,917,493                    $   7,023,149
                                                                            ===============                    =============
                                                                          
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:                                   
     Cash paid during the period for:                                     
                 Interest                                                   $       523,436                    $     710,980
                                                                            ===============                    =============
                 Income taxes                                                         None                             None
                                                                            ===============                    =============
</TABLE>

        See Accompanying Notes to the Consolidated Financial Statements.
<PAGE>   5
                        DATA SYSTEMS NETWORK CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JUNE 30, 1998
                                    UNAUDITED




1. BASIS OF PRESENTATION - The consolidated financial statements included herein
have been prepared by Data Systems Network Corporation ("Company") without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
the financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.

   The information provided in this report reflects all adjustments consisting
of normal recurring accruals which are, in the opinion of management, necessary
for the fair presentation of the Company's financial position as of June 30,
1998, the results of its operations for the three month and six month periods
ending June 30, 1998 and 1997 and its cash flows for the six month periods ended
June 30, 1998 and 1997. These consolidated financial statements should be read
in conjunction with the Company's financial statements for the year ended
December 31, 1997 as filed with the Securities and Exchange Commission.

   Results for the interim period are not necessarily indicative of results that
may be expected for the entire year.


2. SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION The accompanying consolidated financial statements include the
accounts of Data Systems Network Corporation , its 70% - owned subsidiary,
Unified Network Services, Inc. ("UNS") from February 1996 through May 31, 1998,
(Note 4 ) and the operation of the Network Systems Group ("NSG") from date of
purchase . The principal activities of Data Systems Network Corporation (the
"Company") involve the sales of microcomputer and network hardware and software
and the performance of maintenance and advance services, such as network
management, imaging and systems consulting, to major corporate and state and
local government customers in the United States. The Company's corporate
headquarters are in Michigan. Additionally, there are two technical centers, one
in Michigan and one in North Carolina, and 20 direct sales offices located
throughout the United States.


CASH AND CASH EQUIVALENTS includes liquid investments with maturities of three
months or less and cash received and deposited into an escrow account. The
escrow account was established to receive monies for payment of maintenance
services from a single customer. Funds are released to the Company on a monthly
basis based upon a predetermined schedule. As of June 30, 1998 there was
approximately $518,000 in the escrow account of which $258,000 will be released
in the next twelve months.


PRODUCT RETURNS AND SERVICE ADJUSTMENTS are estimated based upon historical
data. Actual credits are recorded against the established reserve in the month
they are authorized and accepted. The Company's customers have no contractual
rights to return products. The Company determines whether to accept product
returns on a case by case basis and will generally accept product returns only
upon payment of a restocking fee and/or if the products may be returned to the
manufacturer. The Company offers no warranty separate from the product
manufacturers' warranties. As of June 30, 1998 the Company had recorded a
reserve of $500,000 for potential product returns and service adjustments.


<PAGE>   6




                        DATA SYSTEMS NETWORK CORPORATION
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JUNE 30, 1998
                                    UNAUDITED

EARNINGS (LOSS) PER COMMON SHARE - In February 1997, the Financial Accounting
Standards Board issued Statement No. 128, "Earnings per Share" ("SFAS 128").
SFAS 128 specifies the computation; presentation and disclosure requirements for
earnings per share ("EPS") of entities with publicly held common stock or
potential common stock. SFAS 128 defines two EPS calculations, basic and
diluted. The objective of basic EPS is to measure the performance of an entity
over the reporting period by dividing income available to common stock by the
weighted average of shares outstanding. The objective of diluted EPS is
consistent with that of basic EPS while giving effect to all dilutive potential
common shares that were outstanding. All potential common shares were excluded
from the computations of diluted earnings per share for the periods ended June
30, 1998 and 1997 because the effect would have been anti-dilutive.

RECENT ACCOUNTING PRONOUNCEMENTS - On January 1, 1998, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for reporting and
displaying of comprehensive income and its components. For the three months
ended March 31, 1998 and 1997, the Company had no items of comprehensive income,
and as a result the Company's reported net income was the same as comprehensive
income. In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures About Segments of and Enterprise and Related Information."
SFAS No. 131 establishes standards for the way that public business enterprises
report information about operating segments and related information in interim
and annual financial statements. The Company intends to provide financial and
descriptive information about its reportable operating segments to conform to
the requirements in its annual financial statements for 1998 and quarterly
thereafter.

3. LINES OF CREDIT

As of June 30, 1998, the Company had a credit agreement ("Agreement") with NBD
Bank ("NBD"). The Agreement provided for a discretionary line of credit not to
exceed $9 million. Borrowing limits under the discretionary line are determined
based on a collateral formula. Previously, the Company had a credit agreement
which provided for a revolving line of credit not to exceed $12 million, a
discretionary line of credit not to exceed $8 million and a discretionary lease
line not to exceed $500,000, collateralized by an interest in all of the
Company's accounts receivable, inventory (other than equipment financed through
IBM Credit) and equipment. This was modified by a Letter Agreement on June 18,
1998. The Letter Agreement also contained certain covenants including minimum
current ratio and leverage ratios. The Company was not in compliance with the
covenants as of June 30, 1998 but has obtained a waiver from NBD.

The Company and NBD have recently concluded negotiations to replace the
Agreement with a new credit agreement. The terms of the new credit agreement
provide for a $11 million facility based on a collateral formula, which includes
80% of qualified trade receivables. Borrowings under the new credit agreement
would bear interest at 2% over NBD prime and would have a term extending to
September 30, 1998.

The Company has also entered into a finance agreement with IBM Credit
Corporation. As of June 30, 1998, the agreement extended a maximum of $2,000,000
to be used exclusively for the acquisition of inventory for resale.  Use of 
this credit line is at the Company's option. As collateral for payment of all 
debt incurred under this agreement, IBM Credit Corporation was granted a first
security interest in the Company's inventory equal to the amount of the 
outstanding debt. This agreement allows for thirty (30) day interest free
financing of eligible inventory and a variable discount off of invoice for
eligible product purchases paid for within fifteen days from the date of
invoice. The Company or the lender can terminate this agreement at any time.
The terms and conditions of this financing agreement can be changed at the
discretion of IBM Credit Corporation. The line of credit was fully utilized as
of June 30, 1998 and has been included in accounts payable.


<PAGE>   7
                        DATA SYSTEMS NETWORK CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JUNE 30, 1998
                                    UNAUDITED

4. DISCONTINUED OPERATIONS

During fiscal 1998, the Company decided to sell its large account network
management services operation. This business has been accounted for as a
discontinued operation. The results of this segment of the business have been
excluded from continuing operations in the consolidated statement of operations
for all periods presented.

Under the terms of the original 1996 purchase agreement, the minority   
shareholders of Unified Network Services Inc. ("UNS") elected to exercise a 
contract option to initiate re-purchase of the UNS subsidiary. The Company's
Board of Directors accepted the proposal and adopted a plan to discontinue
operations. Effective June 1, 1998, the Company sold its 70% interest in
the UNS subsidiary for cash and notes, and discontinued operations in its large
account network management business. The net gain upon disposal of the
discontinued segment was $1,605,304. The terms of the sale included $7,000 in
cash and a note for $3,000,000 which is secured by the stock of UNS. The buyers
will also assume the existing liabilities of the subsidiary. The Company has
decided to defer the recognition of a gain on sale related to the note until
payments on the note begin in 1999.

The Company has restated its prior financial statements to present the operating
results of the UNS segment as a discontinued operation. The net assets of UNS
amounted to $925,925 and the net liabilities totaled $4,633,049 leaving negative
shareholder equity of $3,707,124. Operating results from discontinued operations
are as follows:


                                1998         1997                
                              ----------------------             
Net Sales                     $  278,061  $1,155,735             
Cost and Expense:                                                
      Cost of Sales            1,420,938     942,786             
      Selling, General &                                         
      Administrative             543,177     350,261             
Total Cost                     1,964,115   1,293,047             
                              ----------------------             
Operating (Loss)             ($1,686,054)   (137,312)            
Income Tax Credits                  -           -                
                              ----------------------             
(Loss) from Operations       ($1,686,054) $ (137,312)            
                              ----------------------             


5. GOING CONCERN MATTERS

The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements for the six months ended 1998 and 1997, the Company incurred losses
of $1,088,136 and $498,604, respectively. The working capital deficiency as of
June 30, 1998 was $2,453,495.

The financial statements do not include any adjustment relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. Management has successfully negotiated a
continuation of its previously authorized line of credit with its primary lender
as discussed in Note 3. Management continues to explore other financing
alternatives and has begun negotiating with another qualified lender to provide
a long-term commitment for line of credit financing. Additionally, management
continues to consolidate its business operations and stabilize strategic
business relationships so the Company can meet its obligations and attain a
level of operations that is profitable.


<PAGE>   8


                        DATA SYSTEMS NETWORK CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JUNE 30, 1998
                                    UNAUDITED


As part of management's plans, the Company discontinued operations in its large
account network management operation. The Company sold its interest in the
UNS subsidiary effective June 1, 1998. The divestiture results in substantial
cost savings without significant loss of customer relationships or the
ability to deliver specialized technical services in any related area. The
Company continues to operate the remote network management center in Raleigh,
NC, and continues to market its ENCOR (TM) software product.


6.  LEGAL PROCEEDINGS

In February, March and April 1998 civil actions were filed against the Company,
certain officers, and the Board of Directors. The complaints allege violations
of the Securities Exchange Act of 1934 resulting from alleged nondisclosures and
misrepresentations of information concerning the Company's financial results and
future prospects due to accounting irregularities. Management is unable to
assess the potential amount of any liability resulting from such class action
lawsuits, however, management currently believes that the resolution of these
proceedings will not have a material adverse effect on the Company's financial
position or results of operations. Future events and circumstances could alter
management's belief.


7.  RESTATEMENT OF PRIOR FINANCIAL STATEMENTS

As announced on February 24, 1998, the Company became aware of certain
accounting errors and irregularities affecting previously issued financial
statements. Contemporaneously, the Company's independent accountants advised the
Company that their unqualified auditor's report on the Company's consolidated
financial statements as of December 31, 1996 and 1995 and for each of the years
ended in that two year period was being withdrawn and should no longer be relied
upon. On March 13, 1998, the Company's independent accountants informed the
Board of Directors that they were resigning.

In connection with their audits for the two most recent fiscal years and through
March 13 there were no disagreements between the Company and the independent
accountants on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of the independent accountants would have caused
them to make reference thereto in their report on the financial statements for
such fiscal years.

A special committee of the outside members of the Company's Board of Directors
has investigated the accounting errors and irregularities. All known adjustments
to the prior year financial statements have been reflected in the restated 1997
financial statements presented, although such statements remain unaudited.

<PAGE>   9


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

The following analysis of financial condition and results of operations of the
Company should be read in conjunction with the Company's financial statements
and notes thereto included under Item 1. Financial Statements.

RESULTS OF OPERATIONS

REVENUES. For the three months ended June 30, 1998, total revenue increased
24.5% to $26.4 million from $21.2 million for the same period in 1997. For the
six months ended June 30, 1998, total revenue increased 17.1% to $45.1 million
from $38.6 million in 1997. These increases were primarily due to organic growth
in all regions serviced by the Company. The Company continued to leverage off of
the successful expansion into the eastern region of the United States as well
as, from increases in government work in Michigan, Florida and Louisiana.

      Product (net) sales increased $4.6 million or 28.5% and service revenues
increased $.6 million or 11.8% for the three months ended June 30,1998 compared
to the same period in 1997. Service revenues declined slightly to 22% of total
revenues during the three months ended June 30, 1998 compared to 24% in 1997.
For the six months ending June 30, 1998, service revenue accounted for 23% of
total revenue, a 1% increase in the service to product business mix compared to
the same period in 1997. Product (net) sales increased during the quarter
primarily due to a significant non-government integration project in the
Northeastern Region. The service revenue increases resulted primarily from an
increase in maintenance revenues from government work. The Company's focus on
training, installation and project service revenue continues to improve the
balance in the business mix between product and service sales.

The State of Michigan blanket purchase order had been renewed to September 1998.
The Company's sales management team had been meeting with representatives of the
State of Michigan on a continued basis to improve the terms under the current
purchase order and to work towards securing an extension or the award of a new
blanket purchase order. As with all of the Company's service contracts and
purchase orders, there can be no assurance that the State of Michigan agreement
will continue to be extended or that, if re-bid, the Company will be awarded a
new agreement on terms and conditions which are at least as favorable to the
Company as the current agreement.


COST OF REVENUES. The cost of total revenues increased to 81% for the three
months ended June 30, 1998 from 78% in 1997. For the six months ended June 30,
1998, the cost of revenue increased slightly to 82% from 81% in 1997. The cost
of service revenue increased to 19% of total revenues for the three months ended
June 30, 1998, from 17% in the same period in 1997. Service revenue cost also
increased for the six months ending June 30, 199 to 21% from 18% a year earlier.
The increase was due primarily to the Company's continued investment in
technical personnel, which increased both pre-sale and post-sale field support


<PAGE>   10
cost. Total headcount in technical support has leveled and is consistent with
expectations for the anticipated growth in service offerings. The increase in
the cost of service revenue for the three months ended June 30, 1998 was also
due to the utilization during the period of third party subcontractors to
support installations in areas where the Company does not have a physical
presence. The cost of product (net) sales increased to 63% for the three months
ended June 30, 1998 compared to 61% for the same period in 1997. The increase in
cost parallels the increase in the product (net) sales revenue that relates to
the non-government project in the Northeast Region. For the six months ended
June 30, 1998, product (net) sales cost declined to 61% of total revenue from
63% in the same time period in the prior year. The Company attributes these
decreases primarily to the success of its efforts to negotiate discounts from
key product suppliers.

OPERATING EXPENSES. As a percent of total sales, selling, general and
administrative expense did not change in the three months ended June 30, 1998 at
17%, when compared to the same period in 1997. Overall cost control in sales and
administration along with decreases in systems related expenses account for the
stabilization. For the six months ending June 30, 1998, total operating expenses
increased to 19% from 18% of total revenue. The increase is primarily due to
legal and auditing expenses that amount to almost $690,000 year to date. The
extraordinary efforts required to complete year end 1997 and 1996 reporting,
cost incurred in connection with the pending shareholder law suits, and, bank
audit and examination expenses, account for the 1% increase in total general and
administrative expenses.

OTHER (EXPENSE) INCOME. Net other expenses decreased by $248,408 for the three
months ending June 30, 1998 and by $332,657 for the six months ending June 30,
1998 when compared to the same time periods in the prior year. Interest expense
accounts for the majority of the decrease, declining $261,207 for the quarter
and, $309,768 year to date, when compared to the same time period in the prior
year. The decrease reflects lower average borrowings in 1998 due to the
Company's collection of accounts receivables and repayment of bank indebtedness.
The Company continues to manage its working capital needs from ongoing
operations.

DISCONTINUED OPERATIONS. Under the terms of the original 1996 purchase
agreement, the minority shareholders of Unified Network Services Inc. ("UNS")
elected to exercise a contract option to initiate re-purchase of the UNS
subsidiary. The Company's Board of Directors accepted the proposal and adopted a
plan to discontinue operations. Effective June 1, 1998, the Company sold its 70%
interest in the UNS subsidiary for cash and notes and discontinued operations in
its large account network management business. The net gain upon disposal of the
discontinued segment was $1,605,304. The terms of the sale included $7,000 in
cash and a note for $3,000,000, secured by the stock of UNS. The buyers will
also assume the existing liabilities of the subsidiary. The Company is deferring
the recognition of a gain on sale related to the note until payments on the note
begin in 1999.

The Company has restated its prior financial statements to present the
operating results of the UNS segment as a discontinued operation. The net
assets of UNS amounted to $925,925 and the net liabilities totaled $4,633,049
leaving negative shareholder equity of $3,707,124. The divestiture results in 
substantial cost savings without significant loss of customer relationships or 
the ability to deliver specialized technical services in any related area. The 
Company continues to have a presence in the Raleigh, NC market, and retains 
ownership of its proprietary remote network management ENCORE(TM) software
product.






<PAGE>   11
FINANCIAL CONDITION

As of June 30, 1998, the Company finances its business primarily through funds
generated internally through operations trade credit and advances under a $9
million discretionary line of credit with NBD Bank (the "Bank"). The previous
credit agreements were modified by a Letter Agreement with the Bank on June 18,
1998. The line of credit is secured by substantially all of the Company's
assets, with the exception of those inventory assets acquired under the IBM
credit line, and is due on demand by the Bank. The term of the current agreement
extends to September 30, 1998, and could be terminated at any time by the
Company or the Bank. The agreement contains certain financial ratio covenants
requiring the Company's receivables to be genuine and free of all other
encumbrances and requiring the Company's inventory to be kept only at certain
locations and to be free of all other encumbrances. As of June 30, 1998, the
line of credit bore interest at prime rates plus 2.0%. Borrowing under the line
of credit was determined based on a collateral formula. As of June 30, 1998, the
formula would have permitted borrowings of up to $11.9 million, of which $7.1
million was outstanding.

         At June 30, 1998 the Company was not in compliance with certain
covenants in its credit agreement regarding allowable minimum current ratio and
total leverage.  However, on July 30, 1998, the Company obtained the necessary 
waiver from NBD.  The Company recently received a commitment from the Bank to 
replace the current credit agreement with a new credit agreement. A definitive 
Agreement has been negotiated. The terms of the new credit agreement provide 
for an $11 million facility based on a collateral formula that includes 80% of 
qualified trade receivables. Borrowings under the new credit agreement will 
bear interest at 2% over NBD prime and has a term extending to September 30, 
1998. The Company continues to explore other financing alternatives and has 
begun negotiating with another qualified lender to provide a long-term 
commitment for line of credit financing.

The secured financing agreement with IBM Credit Corporation continues to offer
thirty days interest free financing up to $2.0 million on certain products
purchased by the Company for resale. As of June 30, 1998, the IBM Credit
Corporation line of credit was fully utilized and is reflected in the total
accounts payable balance.

For the six months ended June 30, 1998, the Company increased cash and cash
equivalents by approximately $1.9 million primarily due to the $8.3 million
decrease in accounts receivable and the liquidation of $6.2 million of
investments. The increase was partially offset by the $10.2 million decrease in
line of credit borrowings and the $3.0 million decrease in accounts payable.
Working capital deficiency as of June 30, 1998 was $2.5 million compared to a
working capital deficiency of $4.6 million at March 31, 1998. The change was due
to improved profits from continuing operations, the benefits from the sale of
UNS, and, the Company's concerted efforts to manage its working capital.

The Company believes that the combination of present cash balances, future
operating cash flows, and credit facilities will be adequate to fund the
Company's currently anticipated internal growth and current short and long term
cash flow requirements.

YEAR 2000 COMPLIANCE

          The Company is in the process of addressing the effect of the Year
2000 problem on its computer systems. The Company is currently engaged in a
project to upgrade its information, technology, and accounting software to
programs that will consistently and properly recognize the Year 2000. Many of
the Company's systems include new hardware and packaged software recently
purchased from vendors who have represented that these systems are already "Year
2000 compliant". The Company is also obtaining assurance from other vendors that
timely updates will be made available to ensure the software they have provided
is Year 2000 compliant.

          The Company has initiated formal communications with all of its
significant suppliers and large customers to determine the extent to which the
Company may be vulnerable if those third parties fail to remediate their own
Year 2000 issues. The Company can give no assurance that the systems of other
companies on which the Company's systems rely will be converted on time or that
a failure to convert by another company or a conversion that is incompatible
with the Company's systems would not have a material adverse effect on the
Company.

          The Company will utilize both internal and external resources to
reprogram, replace and test its software for Year 2000 compliance, and the
Company expects to complete the project in early 1999. The total cost associated
with the required modification and conversion is not yet known but, based upon
current plans, such cost is not expected to be material to the Company's
consolidated results. Costs associated with Year 2000 modification and 
conversion will be expensed as incurred.







<PAGE>   12



Forward-Looking Statement

The foregoing discussion and analysis contain a number of "forward looking
statements" within the meaning of the Securities Exchange Act of 1934 and are
subject to a number of risks and uncertainties. These include general business
conditions, continuing favorable economic conditions, the failure of the
Company's customers to fulfill contractual commitments, the ability of the
Company to recruit and retain qualified personnel, the ability of the Company to
develop and sustain new customers in geographic areas in which the Company has
recently begun to operate, the ability of the Company to successfully complete
the integration of new offices and divisions into its operations, the ability of
management to implement new systems to manage the Company's growth effectively
and efficiently, the impact of undetected errors or defects associated with year
2000 date functions on the Company's current products and internal systems, the
relative uncertainties in the market direction of emerging technologies, the
willingness of the Bank to continue to lend under the credit facility, the
potential loss of key personnel within the new regions, the Company's ability to
retain the State of Michigan contract and a lack of market acceptance of the
Company's products and services in the new regions.

<PAGE>   13


ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

         On or about February 26, 1998, Plaintiff Tony DiFatta filed civil
action, Case No. 98CV70854 DT (the "DiFatta Complaint"), in the United States
District Court for the Eastern District of Michigan, Southern Division, against
the Company and individual defendants Michael W. Grieves and Philip M. Goy. 
Mr. DiFatta seeks to represent a class of all purchasers of the Company's stock
on the open market between March 5, 1997 and February 24, 1998, excluding the
individual defendants and any officer, director or control person of the
Company and members of their immediate families.  The DiFatta Complaint alleges
violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934,
15 U.S.C. Sections 78j(b) and 78t(a), and SEC Rule 10b-5, through nondisclosure
and misrepresentations of information concerning the Company's financial
results and future prospects.  In particular, DiFatta claims that press
releases and SEC filings by the Company were materially false and misleading in
that they overstated revenues and earnings for the year and quarter ended
December 31, 1996, and for the quarters ended March 31, 1997, June 30, 1997 and
September 30, 1997 due to accounting irregularities.

         On or about March 17, 1998, Plaintiff Jeffrey P. Emrich filed civil
action, Case No. 98CV1223 DT (the "Emrich Complaint"), in the United States
District Court for the Eastern District of Michigan, Southern Division, against
the Company and individual defendants Grieves and Goy.  On or about April 17,
1998, Plaintiff David L. Ronick filed a civil action, Case No. 98-71644 DT (the
"Ronick Complaint") in the same court against the Company and individual
defendants Grieves, Goy, Walter J. Aspatore and Jerry A. Dusa.  The Emrich
Complaint and the Ronick Complaint each seek to certify an essentially
identical class of purchasers of the Company's stock as the class proposed in
the DiFatta Complaint, and present essentially identical claims.

         On or about June 10, 1998, the DiFatta, Emrich and Ronick actions were
consolidated for all purposes under the caption In Re: Data Systems Network 
Corporation Securities Litigation, Case No. 98-70854.

         On or about July 10, 1998, Plaintiffs in the consolidated action filed
a consolidated complaint in lieu of the previously filed complaints, against
the Company and individual defendants Grieves and Goy, seeking to represent a 
class of purchasers of the Company's stock between May 15, 1996 and February 
24, 1998.

ITEM 3 - DEFAULT UPON SENIOR SECURITIES

         At June 30, 1998 the Company was not in compliance with certain 
covenants of its bank credit agreement regarding allowable minimum current
ratio and total leverage. However, on July 30, 1998, the Company obtained the
necessary waiver from NBD.  In addition, the Company recently received a
commitment from the Bank to replace the current credit agreement with a
new credit agreement.   See "Item  2 - Management's Discussion and Analysis of
Financial Condition and  Results of Operations - Financial Condition."

Item 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a)      EXHIBITS

27.      Financial Data Schedule

(b)      REPORTS ON FORM 8-K

         The following filings occurred during the second quarter of 1998:

               Date                 Information Reported

               May 7, 1998          Items 5 and 7

               May 21, 1998         Items 5 and 7

               July 31, 1998        Items 5 and 7


         No financial statements were filed with these Reports on Form 8-K.

<PAGE>   14
SIGNATURES

Pursuant to the requirement 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.

                                  Data Systems Network Corporation

     August 11, 1998              /s/ John O. Lychos, Jr.
                                  -------------------------------------
                                  John O. Lychos, Jr.
                                  Vice President - Finance, Treasurer and Chief
                                  Financial Officer
                                  (principal financial officer)

     August 11, 1998              /s/ Michael W. Grieves
                                  -------------------------------------
                                  Michael W. Grieves
                                  President and Chief Executive Officer
                                  (duly authorized officer)



<PAGE>   15




                                 Exhibit Index
                                 -------------


<TABLE>
<CAPTION>

Exhibit                      Description
-------                      -----------
<S>                          <C>                      
   27                        Financial Data Schedule

</TABLE>