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

                                    FORM 10-Q

/ X /       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
            SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

                For the quarterly period ended: OCTOBER 31, 1998

/    /      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
            SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)


                        COMMISSION FILE NUMBER: 000-20688
                        ---------------------------------

                              DATATEC SYSTEMS, INC.
                              ---------------------
             (Exact name of Registrant as specified in its charter)

            Delaware                                        94-2914253
--------------------------------                        -------------------
(State or other jurisdiction of                         (I.R.S. Employer
incorporation or organization)                          Identification No.)


20C Commerce Way, Totowa, NJ                             07512-1154
-------------------------------                         -------------------
(Address of principal executive                          (Zip Code)
offices)

                                 (973) 890-4800
                                 --------------
               Registrant's telephone number, including area code


Check whether the Registrant  (1) has filed all reports  required to be filed by
Section 12 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 12
months (or for such shorter period that the Registrant was required to file such
reports) and (2) has been subjected to such filing  requirements for the past 90
days. Yes /X/    No / /.

The number of shares of  Registrant's  Common Stock  outstanding  on October 31,
1998 was 29,387,981.

<PAGE>
                              DATATEC SYSTEMS, INC.
                                    FORM 10-Q
                       THREE MONTHS ENDED OCTOBER 31, 1998


                                      INDEX




PART I:     FINANCIAL INFORMATION

                                                                          Page
            Item 1: Consolidated Financial Statements

                    Balance Sheets at April 30, 1998 and
                    October 31, 1998                                       3

                    Statements of Operations for the three months ended
                    October 31, 1997 and 1998                              4

                    Statements of Operations for the six months ended
                    October 31, 1997 and 1998                              5

                    Statements of Cash Flows for the six months ended
                    October 31, 1997 and 1998                              6

                    Notes to Unaudited Consolidated Financial Statements   7

            Item 2: Management's Discussion and Analysis of Financial
                    Condition and Results of Operations                    8


PART II:    OTHER INFORMATION

            Item 4:  Submission of Matters to a Vote of Security Holders

            Item 6:     Exhibits and Reports of Form 8-K

                                       2
<PAGE>
                              DATATEC SYSTEMS, INC.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                                     OCTOBER 31,
                                                                                                                        1998
                                                                                        APRIL 30, 1998               (UNAUDITED)
                                                                                   --------------------------     ------------------

ASSETS
------------------------------------
CURRENT ASSETS:
<S>                                                                                <C>                               <C>
   Cash and cash equivalents                                                       $   317,000                       $    127,000
   Accounts receivable, net                                                         18,106,000                         22,342,000
   Inventory                                                                         3,118,000                          3,926,000
   Prepaid expenses and other current assets                                         3,433,000                          4,377,000
   Net assets from discontinued operations                                             501,000                            764,000
                                                                                   -----------                       ------------
               Total current assets                                                 25,475,000                         31,536,000
Property and equipment, net                                                          6,012,000                          5,585,000
Goodwill, net                                                                        3,975,000                          3,757,000
Other Assets                                                                         4,601,000                          4,090,000
                                                                                   ===========                       ============
               Total assets                                                        $40,063,000                        $44,968,000
                                                                                   ===========                       ============
LIABILITIES AND SHAREHOLDERS' EQUITY
-----------------------------------
CURRENT LIABILITIES:
   Short-term borrowings                                                           $ 10,759,000                      $ 11,883,000
   Current portion of long-term debt                                                  1,063,000                           987,000
   Accounts payable                                                                   7,085,000                         8,388,000
   Accrued liabilities                                                                3,882,000                         4,193,000
   Other current liabilities                                                          1,214,000                           196,000
                                                                                   ------------                       -----------
               Total current liabilities                                             24,003,000                        25,647,000
                                                                                   ------------                       -----------
Due to related parties                                                                  927,000                           927,000
                                                                                   ------------                       -----------
Long-term debt                                                                        2,415,000                         1,967,000
                                                                                   ------------                       -----------
Commitments and contingencies
Shareholders' equity:
   Preferred stock                                                                           --                                --
   Common stock                                                                          29,000                            29,000
   Additional paid-in capital                                                        26,603,000                        29,303,000
   Accumulated deficit                                                              (13,566,000)                      (12,547,000)
   Cumulative translation adjustment                                                   (348,000)                         (358,000)
                                                                                   ------------                   ---------------
      Total shareholders' equity                                                     12,718,000                        16,427,000
                                                                                   ============                   ===============

       Total liabilities and shareholders' equity                                  $ 40,063,000                      $ 44,968,000
                                                                                   ============                   ===============
</TABLE>

           THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.

                                       3
<PAGE>
                              DATATEC SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                             FOR THE THREE MONTHS ENDED
                                                                     OCTOBER 31,
                                                    ----------------------------------------------
                                                               1997                      1998
                                                     -------------------       -------------------


<S>                                                        <C>                        <C>
Net sales                                                  $ 19,523,000               $ 25,574,000

Cost of sales                                                12,085,000                 16,538,000
                                                     -------------------       --------------------

Gross profit                                                  7,438,000                  9,036,000

Selling, general and administrative expenses                  6,855,000                  8,005,000
                                                     -------------------       --------------------

Operating income                                                583,000                  1,031,000

Interest expense                                                550,000                    472,000
                                                     -------------------       --------------------
Income before income taxes                                       33,000                    559,000

Provision (benefit) for income taxes                                 --                         --
                                                     ===================       ====================

Net income                                                 $     33,000           $        559,000
                                                     ===================       ====================

 INCOME (LOSS) PER SHARE:
   BASIC                                                            $--                      $0.02
                                                     ===================       ====================
   DILUTED                                                          $--                      $0.02
                                                     ===================       ====================

 WEIGHTED AVERAGE COMMON SHARES - BASIC                      27,959,000                 29,110,000
                                                     ===================       ====================
  WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
    SHARES  - DILUTED                                        30,223,000                 29,931,000
                                                     ===================       ====================
</TABLE>

           THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.

                                       4
<PAGE>
                              DATATEC SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                  FOR THE SIX MONTHS ENDED
                                                                           OCTOBER 31,
                                                    -------------------------------------------------
                                                             1997                        1998
                                                     ---------------------       ---------------------


<S>                                                       <C>                         <C>
Net sales                                                 $38,124,000                 $50,721,000

Cost of sales                                              23,362,000                  32,690,000
                                                     ---------------------       ---------------------
Gross profit                                               14,762,000                  18,031,000

Selling, general and administrative expenses               13,698,000                  16,047,000
                                                     ---------------------       ---------------------
Operating income                                            1,064,000                   1,984,000

Interest expense                                            1,005,000                     965,000
                                                     ---------------------       ---------------------
 Income before income taxes                                    59,000                   1,019,000

Provision (benefit) for income taxes                               --                          --
                                                     ---------------------       ---------------------

Net income                                             $       59,000                  $1,019,000
                                                     =====================       =====================

 INCOME (LOSS) PER SHARE :
   BASIC                                                          $--                       $0.04
                                                     =====================       =====================
   DILUTED                                                        $--                       $0.03
                                                     =====================       =====================

 WEIGHTED AVERAGE COMMON SHARES - BASIC                    26,804,000                  29,082,000
                                                     =====================       =====================
  WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
    SHARES  - DILUTED                                      29,068,000                  30,232,000
                                                     =====================       =====================
</TABLE>

           THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.

                                       5
<PAGE>
                              DATATEC SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                         FOR THE SIX MONTHS ENDED
                                                                                               OCTOBER 31,
                                                                         -----------------------------------------------
                                                                                1997                       1998
                                                                         -------------------------     -----------------
   CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                                                        <C>                          <C>
  Net income                                                               $     59,000                 $ 1,019,000

    Adjustments to reconcile net income to net cash used in
    operating activities --

       Depreciation and amortization                                            998,000                   1,527,000

       Changes in operating assets and liabilities:

           Increase in accounts receivable                                   (2,328,000)                 (4,236,000)

           Increase in inventory                                               (843,000)                   (808,000)

           Increase in prepaid expenses and other assets                     (2,602,000)                   (726,000)

           Decrease (increase) in assets held for sale or disposition         1,109,000                    (287,000)

         Increase in accounts payable, accrued and other liabilities             44,000                     596,000
                                                                         ----------------     ---------------------

       Net cash used in operating activities                                 (3,563,000)                 (2,915,000)
                                                                         ----------------     ---------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
       Purchases of property and equipment                                     (354,000)                   (565,000)
                                                                         ---------------      ---------------------
       Net cash used in investing activities                                   (354,000)                   (565,000)
                                                                         ----------------     ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
        Net (payments) borrowings of short-term borrowings                  (10,507,000)                  1,124,000
        Net payments of indebtedness                                           (543,000)                   (524,000)
         Net proceeds from stock/warrant issuances                           14,105,000                   2,700,000
                                                                         ----------------     ---------------------
              Net cash provided by financing activities                       3,055,000                   3,300,000
                                                                         ----------------     ---------------------
              Net effect on foreign currency translation on cash                (18,000)                    (10,000)
                                                                         ----------------     ---------------------
              Net decrease in cash                                             (880,000)                   (190,000)

CASH AT BEGINNING OF PERIOD                                                   1,135,000                     317,000
                                                                         ================     =====================
CASH AT END OF PERIOD                                                      $    255,000           $         127,000
                                                                         ================     =====================
</TABLE>

           THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.

                                       6
<PAGE>
                              DATATEC SYSTEMS, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(1)    Business

       Datatec Systems,  Inc. (the  "Company"),  and its subsidiaries are in the
business of providing rapid and accurate technology deployment services.

(2)    Basis of Presentation

       The consolidated financial statements include the accounts of the Company
and its  subsidiaries.  All  intercompany  accounts and  transactions  have been
eliminated.

       The accompanying  unaudited  consolidated  financial statements have been
prepared in conformity with generally accepted accounting  principles consistent
with those  applied  in, and should be read in  conjunction  with,  the  audited
financial  statements for the year ended April 30, 1998.  The interim  financial
information is unaudited,  but reflects all normal  recurring  adjustments  that
are, in the opinion of management, necessary for a fair statement of results for
the interim  periods  presented.  The results for the three and six months ended
October 31, 1998 are not necessarily  indicative of the results expected for the
full fiscal year.

(3)    Comprehensive Income

       Effective  May 1,  1998,  the  Company  adopted  Statement  of  Financial
Accounting Standards ("SFAS") No. 130 "Reporting  Comprehensive  Income",  which
establishes  standards for reporting and display of comprehensive income and its
components   (revenue,   expenses,   gains,   and  losses)  in  a  full  set  of
general-purpose financial statements. For the three and six months ended October
31, 1998, the components of comprehensive income were immaterial. The components
of  other  comprehensive   income  consists  of  foreign  currency   translation
adjustments.

(4)    Equity

       In May 1998,  the  Company  issued  300  shares  of Series E  Convertible
Preferred  Stock.  The  net  proceeds  from  this  issuance  were  approximately
$2,350,000. In connection with this transaction,  the Company issued warrants to
purchase  165,000 shares of common stock at $6.29. In October 1998, 40 shares of
the Series E Convertible  Preferred  Stock were converted into 195,400 shares of
common stock. In November 1998, 110 shares of the Series E Convertible Preferred
Stock were converted into 405,600 shares of common stock.

(5)    Earnings per share:

       Basic earnings per share is calculated  using the weighted average number
of shares  outstanding  for the three and six months ended  October 31, 1997 and
1998. Diluted earnings per share is calculated using the weighted average number
of shares  outstanding plus the incremental  shares from assumed  conversions of
options, debt and preferred stock for the three and six months ended October 31,
1997 and 1998.

(6)    Supplemental Disclosure of Cash Flows

       Cash paid during the six months ended October 31:

                                       1997                       1998
                                   -----------------      ---------------------
               Interest Paid         $828,000                   $935,000

                                       7
<PAGE>
                              DATATEC SYSTEMS, INC.
                         PART I - FINANCIAL INFORMATION


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

RESULTS OF OPERATIONS - FOR THE THREE AND SIX MONTHS ENDED OCTOBER 31, 1998

            NET SALES.  Net sales for the three and six months ended October 31,
1998 were  $25,574,000 and  $50,721,000  compared to $19,523,000 and $38,124,000
for the three and six months ended October 31, 1997, respectively,  representing
an  increase  of 31% and 33% for the three  and six  months,  respectively.  The
increase  in sales is  attributable  to an  increase  in sales to the  Company's
strategic alliance partners.

            GROSS  PROFIT.  Gross  profits  for the three and six  months  ended
October 31, 1998 were  $9,036,000  and  $18,031,000,  respectively,  compared to
$7,438,000 and  $14,762,000 for the three and six months ended October 31, 1997,
respectively.  Gross  profits as a percentage  of net sales were 35.3% and 35.6%
for the three and six months ended  October 31, 1998 compared to 38.1% and 38.7%
for the three and six months ended October 31, 1997,  respectively.  Included in
sales and gross  margins for the three and six months ended October 31, 1997 was
approximately  $1.1  million  of  revenue  associated  with the  license  of the
Company's proprietary software.  Excluding the effects of this software sale, as
no such sale occurred during the first six months of fiscal 1999,  gross margins
for the three and six months  ended  October 31, 1997 were 34.3% and 36.9%.  The
Company has undertaken several initiatives to improve its overall margins. These
initiatives  include  further  automation  of the field force as well as several
other initiatives aimed at improving overall operating efficiencies and quality.

            SELLING, GENERAL AND ADMINISTRATIVE  EXPENSES.  Selling, general and
administrative expenses for the three and six months ended October 31, 1998 were
$8,005,000 and $16,047,000, respectively, compared to $6,855,000 and $13,698,000
for the  three  and six  months  ended  October  31,  1997,  respectively.  As a
percentage of sales, selling, general and administrative expenses were 31.3% and
31.6% for the three and six months ended October 31, 1998, compared to 35.1% and
35.9% for the three and six months  ended  October  31,  1997.  The  decrease in
selling,   general  and   administrative   expense  as  a  percentage  of  sales
demonstrates  the  Company's  ability to leverage  its  expense  base to support
increased sales volume.

            INTEREST  EXPENSE.  Interest  expense  for the three and six  months
ended  October 31, 1998 was $472,000  and  $965,000,  respectively,  compared to
$550,000 and  $1,005,000  for the three and six months  ended  October 31, 1997,
respectively.

FINANCIAL POSITION

            During  the  six  months  ended  October  31,  1998,  cash  used  in
operations was $2,916,000  compared to a year-ago cash usage of $3,563,000.  The
cash used in operations is supporting Company growth in sales and receivables.

            Cash used for  investing  activities  during the first six months of
the fiscal year ending April 30, 1999 was $565,000  compared to $354,000  during
the first six months of the fiscal year ended April 30, 1998.

                                       8
<PAGE>
            Cash  provided by financing  activities  during the six months ended
October 31, 1998 was $3,300,000  compared to $3,055,000 in the year-ago  period.
Included in the current  six-month  period  were net  proceeds of  approximately
$2,350,000  from the  issuance of 300 shares of Series E  Convertible  Preferred
Stock.  The net proceeds were used to repay the  convertible  note issued during
March  1998  to the  former  minority  interest  shareholder  of  the  Company's
subsidiary  Computer-Aided Software,  Integration,  Inc. and for working capital
purposes. Also included in the current period were net proceeds of $350,000 from
the  issuance  of common  stock  related to the  exercise  of stock  options and
purchases under the employee stock purchase plan.

            The Company's  working capital improved from $1,472,000 at April 30,
1998 to $5,889,000 at October 31, 1998.

            At  October  31,  1998,  total  debt  was  $14,837,000  compared  to
$14,237,000 at April 30, 1998.

            Stockholders'  equity  increased  $3,709,000  during  the six months
ended  October  31,  1998,  principally  reflecting  net  income of  $1,019,000,
proceeds of  approximately  $2,350,000 from the issuance of Series E Convertible
Preferred  Stock and proceeds  from the issuance of common stock  related to the
exercise  of stock  options  and  purchases  under the  employee  stock  plan of
$350,000.

IMPACT OF THE YEAR 2000 ISSUE

            Many  computer  systems and  software  products  currently in use by
businesses and government  organizations are coded to accept two digits,  rather
than four, to specify the year. Such computer systems and software products will
be unable to properly  interpret dates beyond the year 1999, which could lead to
business  disruptions  (the "Year 2000  Issue").  As a result,  in less than two
years,  computer  systems and/or  software used by many companies may need to be
upgraded to properly  interpret  dates  beyond  1999.  The  Company's  technical
personnel  are in the process of assessing  the impact of the Year 2000 Issue on
the Company's products.

            Based on a recent assessment of its internal  computer systems,  the
Company determined that it will be required to modify or replace portions of its
internal  software so that its computer  systems  will  properly  utilize  dates
beyond  December 31, 1999.  The Company is in the process of performing its Year
2000  modifications  and expects to have its internal computer systems year 2000
compliant by the end of 1999. If such  modifications  are not completed  timely,
the Year 2000  Issue  could  have a  material  impact on the  operations  of the
Company.

            The  Company has  initiated  formal  communications  with all of its
significant  suppliers and large  customers to determine the extent to which the
Company is vulnerable  to those third  parties'  failure to remediate  their own
Year 2000 Issue.  However,  there can be no guarantee  that the systems of other
companies on which the Company's systems rely will be timely converted,  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, or replace, and test software for Year 2000 modifications.  The total
cost of the  program  is  being  funded  through  operating  cash  flows.  Costs
associated with the purchase of new software will be capitalized. The total cost
associated with the required modifications and conversions is not expected to be
material to the  Company's  consolidated  results of  operations  and  financial
position.

                                       9
<PAGE>
                              DATATEC SYSTEMS, INC.
                                    FORM 10-Q
                           PART II - OTHER INFORMATION

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

                        None



                                       10
<PAGE>
                              DATATEC SYSTEMS, INC.
                                    FORM 10-Q
                     PART II - OTHER INFORMATION - CONTINUED


ITEM 6:     EXHIBITS AND REPORTS ON FORM 8-K

            (a)         Exhibit 27 - Financial Data Schedule

            (b)         Reports on Form 8-K

                             None


                                       11
<PAGE>
                                   SIGNATURES


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

                                                DATATEC SYSTEMS, INC.
                                                     REGISTRANT


December 15, 1998                          By:  /s/ JAMES M. CACI
                                                --------------------------------
                                                James M. Caci
                                                Chief Financial Officer and Duly
                                                Authorized Officer


                                       12