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

                                    FORM 10-Q

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

                  For the quarterly period ended: July 31, 2002
                                                  -------------

[    ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
            SECURITIES EXCHANGE ACT OF 1934


                        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.)


23 Madison Road, Fairfield, NJ                               07004
--------------------------------                   ----------------------------
(Address of principal executive                            (Zip Code)
offices)

                                 (973) 808-4000
                ------------------------------------------------
               Registrant's telephone number, including area code


Check 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 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 July 31, 2002
was 35,688,000.

                                       1





                              DATATEC SYSTEMS, INC.
                                    FORM 10-Q
                        THREE MONTHS ENDED JULY 31, 2001


                                      INDEX
                                      -----


PART I:     FINANCIAL INFORMATION

                                                                                     Page

            Item 1:     Consolidated Financial Statements

                        Balance Sheets at April 30, 2002 and
                        July 31, 2002                                                  3

                        Statements of Operations for the three months ended
                        July 31, 2001 (as restated) and 2002                           4

                        Statements of Comprehensive Income for the
                        three months ended July 31, 2001 (as restated) and 2002        5

                        Statements of Cash Flows for the three months ended
                        July 31, 2001 (as restated) and 2002                           6

                        Notes to Unaudited Consolidated Financial Statements           7 - 10

            Item 2:     Management's Discussion and Analysis of Financial
                        Condition and Results of Operations                            11 - 20

            Item 3:     Quantitative and Qualitative Disclosure About Market Risk      20

            Item 4:     Controls and Procedures                                        20 - 21


PART II:    OTHER INFORMATION


            Item 1: Legal Proceedings                                                  22


            Item 6: Exhibits and Reports on Form 8-K                                   22

Signature Page                                                                         23

Certifications                                                                         24-25

                                       2





                         PART I - FINANCIAL INFORMATION

Item 1:     Consolidated Financial Statements

                              DATATEC SYSTEMS, INC.
                           CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

                                                                                 July 31, 2002
                                                                 April 30, 2002   (unaudited)
                                                                 --------------   -----------

ASSETS
---------------------------------------

CURRENT ASSETS:

   Cash and cash equivalents                                        $        49    $       138
   Receivables, net                                                      21,803         25,377
   Inventory                                                              3,176          3,200
   Prepaid expenses and other current assets                                724            727
                                                                    -----------    -----------

               Total current assets                                      25,752         29,442

Property and equipment, net                                               3,259          3,167
Goodwill, net                                                             2,665          2,665
Other assets                                                              4,170          3,751
                                                                    -----------    -----------

               TOTAL ASSETS                                         $    35,846    $    39,025
                                                                    ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

CURRENT LIABILITIES:

   Short-term borrowings                                            $    17,464    $    17,278
   Accounts payable                                                       7,789         10,222
   Accrued and other liabilities                                          3,742          3,769
   Subordinated secured convertible debentures, net of
    unamortized discount                                                    --           1,573
                                                                    -----------    ------------

               Total current liabilities                                 28,995         32,842
                                                                    -----------    -----------
LONG-TERM DEBT:
   Due to related parties                                                 1,414          1,414
   Capital lease obligation                                                   2

   Subordinated secured convertible debentures, net of
      unamortized discount                                                1,457           --
                                                                    -----------    -----------

               Total long-term debt                                       2,873          1,414
                                                                    -----------    -----------

STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value (authorized 75,000,000
      shares;  issued and outstanding 35,591,000 shares and
      35,688,000 shares as of April 30, 2002 and July 31,
      2002, respectively)                                                    35             35
   Additional paid-in capital                                            53,532         53,593
   Accumulated deficit                                                  (49,239)       (48,507)
   Accumulated comprehensive loss                                          (350)          (352)
                                                                    -----------    -----------

      Total stockholders' equity                                          3,978          4,769
                                                                    -----------    -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $    35,846    $    39,025
                                                                    ===========    ===========
      The accompanying notes to unaudited consolidated financial statements
             are an integral part of these consolidated statements.

                                       3





                              DATATEC SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              (IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
                                   (unaudited)

                                                                    For the Three Months Ended
                                                                            July 31,
                                                                   -----------------------------
                                                                        2001               2002

                                                                   (As Restated)
                                                                   -------------    -------------

Revenue                                                             $     18,062    $     23,072

Cost of revenues                                                          12,316          16,546
                                                                    ------------    ------------

Gross profit                                                               5,746           6,526

Selling, general and administrative expenses                               6,180           5,054
                                                                    ------------    ------------

Operating income (loss)                                                     (434)          1,472

Interest expense                                                            (582)           (740)
                                                                    ------------    ------------
Income (loss) before minority interest                                    (1,016)            732


Minority interest                                                           (170)           --
                                                                    ------------    ------------

Net income (loss)                                                   ($     1,186)   $       --
                                                                    ============    ============

Earnings (loss) per common share - basic:

    Net income (loss) per share                                     $      (0.04)   $       0.02
                                                                    ============    ============

Earnings (loss) per common share - diluted:

    Net income (loss) per share                                     $      (0.04)   $       0.02
                                                                    ============    ============


WEIGHTED AVERAGE COMMON SHARES - BASIC                                33,844,000      35,672,000
                                                                    ============    ============

WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES  - DILUTED       33,844,000      35,750,000
                                                                    ============    ============

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

                                       4





                              DATATEC SYSTEMS, INC.
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (IN THOUSANDS)
                                   (unaudited)

                                                                           For the Three Months Ended
                                                                                  July 31,
                                                                    ---------------------------------------
                                                                          2001                 2002

                                                                     (As Restated)
                                                                     -------------          ---------------

Net income (loss)                                                        ($1,186)              $   732

Other comprehensive income (loss)-
   Foreign currency translation adjustment                                     2                    (2)
                                                                         -------               -------

Comprehensive income (loss)                                              ($1,184)              $   730
                                                                         =======               =======


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

                                       5




                              DATATEC SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (unaudited)


                                                                     For the Three Months Ended
                                                                              July 31,
                                                                 -----------------------------------
                                                                       2001                 2002

                                                                  (As Restated)
                                                                  -------------         -----------


CASH FLOWS FROM OPERATING ACTIVITIES:

  Net income (loss)                                                   ($1,186)            $   732

    Adjustments to reconcile net income (loss) to net cash
    provided by (used) in operating activities --

       Depreciation and amortization                                    1,229               1,013

       Accretion of preferred stock discount                               20                 116

       Changes in operating assets and liabilities:

           Decrease (increase) in accounts receivable                   1,628              (3,574)

           Decrease (increase) in inventory                               930                 (24)

           Decrease (increase) in prepaid expenses and other assets       542                  13

           (Decrease) increase in accounts payable, accrued and
           other liabilities                                           (6,672)              2,475
                                                                      -------             -------

  Net cash provided by (used) in operating activities                  (3,509)                751
                                                                      -------             -------

CASH FLOWS FROM INVESTING ACTIVITIES:

       Purchases of property and equipment                               (397)               (322)

       Investment in software development                                --                  (196)
                                                                      -------             -------

       Net cash used in investing activities                             (397)               (518)
                                                                      -------             -------
CASH FLOWS FROM FINANCING ACTIVITIES:

       Net increase (decrease) in short-term borrowings                 3,475                (186)

       Net payments of indebtedness                                       (57)                (17)

       Net proceeds from issuance of common stock/warrant                  87                  61
                                                                      -------             -------

           Net cash provided by (used in) financing activities          3,505                (142)
                                                                      -------             -------

           Net effect of foreign currency translation on cash               2                  (2)
                                                                      -------             -------

           Net increase (decrease) in cash                               (399)                 89

Cash at beginning of period                                               571                  49
                                                                      -------             -------

Cash at end of period                                                 $   172             $   138
                                                                      =======             =======

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

                                       6





                              DATATEC SYSTEMS, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1)  BUSINESS

Datatec Systems,  Inc. and its subsidiaries  (the "Company" or "Datatec") are in
the business of providing rapid and accurate technology  deployment services and
licensing  software  tools to support  enterprises in the delivery of complex IT
solutions.

(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 accepted for interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Securities and Exchange Commission ("SEC") Regulation S-X. Accordingly,  they do
not  include  all  of the  information  and  footnotes  required  by  accounting
principles  generally  accepted  in the United  States of America  for  complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring adjustments) considered necessary for fair presentation have
been  included.  Operating  results for the three months ended July 31, 2002 are
not necessarily  indicative of the results that may be expected for a full year.
The  accompanying  financial  statements  should be read in conjunction with the
consolidated financial statements and notes thereto included in Datatec's annual
report on Form 10-K for the year ended April 30, 2002.

RESTATEMENT OF FINANCIAL STATEMENTS

During fiscal 2002, the Company determined that it should have included indirect
costs as a  component  of cost of revenue  in its  previously  issued  financial
statements and it identified  certain errors in its previously  issued financial
statements related to total estimated contract values, total costs incurred with
certain  long term  contracts  and certain  accrued and prepaid  expenses.  As a
result, the Company has restated its previously issued financial  statements for
the years ended April 30, 2000 and 2001. As a result,  the financial  statements
for the quarter ended July 31, 2001  contained  herein have been  restated.  The
Company previously  reported a net loss of $1.781 million,  or $(0.05) per share
for the quarter  ended July 31, 2001.  The  restatement  resulted in the Company
reporting net loss of $2.114 million, or $(0.06) per share for the quarter.

CHANGE IN ACCOUNTING

The Company  decided at the  beginning of the current  fiscal year to change its
method of estimating  progress  toward  completion of its  contracts.  Under its
previous  method,  the  percentage  of direct  labor  incurred  to date to total
estimated  direct  labor to be  incurred  on a project  was used to  determine a
contract's percentage of completion,  while under the new method, the percentage
of total  costs  incurred to date to total  estimated  costs to be incurred on a
project  is  used  to  determine  a  contract's  percentage  of  completion.  In
accordance  with  Accounting   Principles  Board  Opinion  No.  20,  "Accounting
Changes,"  paragraph  27, the financial  statements  of prior periods have been
adjusted to apply the new method  retroactively.  The effects of the  accounting
change applied retroactively are shown below:


                                                           As                        As
                                                       Previously               Retroactively
            Three months ended July 31,                 Restated                   Adjusted
            2001:
            ---------------------------               --------------            --------------
              Net Loss                                   ($2.114 million)     ($1.186 million)
              Net loss per share - basic                  $(0.06)              $(0.04)
              Net loss per share - diluted                $(0.06)              $(0.04)


The balance of the  accumulated  deficit at April 30, 2002 has been adjusted for
the effect of applying retroactively the new method of accounting, as follows:


                                                     April 30, 2002
                                                     --------------
Accumulated deficit, as previously reported            ($50,938)
Accumulated deficit, as retroactively adjusted         ($49,239)



                                       7





(3)  EARNINGS PER SHARE

Basic  earnings per share is  calculated  using the weighted  average  number of
shares  outstanding  for the three months ended July 31, 2001 and 2002.  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  months  ended July 31,  2001 and 2002.
Outstanding  options and warrants  have been excluded for the three months ended
July 31, 2001 as their inclusion would have been anti-dilutive for this period.


(4)  SHORT-TERM BORROWINGS

In November  2000,  the Company  replaced its current  lender and entered into a
credit line with IBM Credit Corporation.  Under the credit line, the Company has
a revolving loan that provides for maximum  borrowings of $16.0 million that was
increased from $14.0 million on July 25, 2001.  Availability under the revolving
loan  is  calculated  as the  sum of 85% of  eligible  accounts  receivable,  as
defined,   and  35%  and  25%  of  cable  and  non-cable   eligible   inventory,
respectively,  as defined.  The amounts  outstanding under the credit line as of
April  30,  2002 and  July 31,  2002  were  $14.5  million  and  $14.3  million,
respectively.  There were no additional available borrowings,  as defined, as of
July 31,  2002.  Since July 31,  2002,  IBM Credit  Corporation  has granted the
Company additional  availability and increased the maximum amount eligible to be
borrowed as the Company's accounts receivables and inventory have increased. The
revolving  loan  accrues  interest  at the prime rate plus 4.25% and  matures in
November 2003. However,  IBM Credit Corporation has notified the Company that it
does not intend to renew its working capital financing line and term loan beyond
August 1,  2003.  As a result,  the  Company  is  actively  seeking  replacement
financing.

The Company also has a $3,000,000 term loan with IBM Credit  Corporation that is
due in February  2003 but repayment has been extended to no later than August 1,
2003. The full amount of the term loan was  outstanding as of April 30, 2002 and
July 31, 2002. The term loan accrues  interest at the prime rate plus 4.25% and,
beginning in August 2002 is payable in monthly  installments  of  principal  and
interest of $300,000.

(5)  RECENT ACCOUNTING PRONOUNCEMENTS

On June 30, 2001, the Financial  Accounting Standards Board ("FASB") issued SFAS
No.  141,  "Business  Combinations,"  and  SFAS  No. 142   "Goodwill  and  Other
Intangible  Assets,"  (collectively "the Standards").  The Standards require all
business  combinations  initiated  after June 30, 2001 to be accounted for using
the  purchase  method of  accounting,  that  goodwill  no longer be  subject  to

                                       8





amortization  but rather be reviewed  periodically for impairment and that other
identifiable  intangibles  be separated and those with finite lives be amortized
over their useful lives.  Goodwill and intangible  assets with indefinite  lives
must  be  assessed  once  a  year  for   impairment,   and  more  frequently  if
circumstances  indicate a possible  impairment.  The first step of the  two-step
impairment  assessment  identifies  potential  impairment  and compares the fair
value of the  applicable  reporting  unit with its  carrying  amount,  including
goodwill.  If the fair value of the reporting  unit exceeds its carrying  value,
goodwill of the reporting unit is not considered  impaired,  and the second step
of the impairment test is not necessary.  If the carrying value of the reporting
unit  exceeds its fair value,  the second step of the  impairment  test shall be
performed  to measure the amount of  impairment  loss,  if any.  The Company was
required to adopt these provisions on May 1, 2002;  however, it elected to early
adopt the Standards on May 1, 2001 as permitted and evaluated the carrying value
of its Goodwill and other intangible assets. Based on its evaluation,  which, in
part, was based on certain fair value  assumptions,  the Company determined that
there is no impairment to its goodwill and other intangible  assets.  Subsequent
impairment tests will be performed,  at a minimum, in the fourth quarter of each
fiscal year, in conjunction with the Company's annual planning process.

The Company  was  assisted in its  measurement  of fair value by an  independent
valuation  firm.  The  measurement  of fair value was based on an  evaluation of
future  discounted cash flows,  public company trading  multiples and merger and
acquisition transaction multiples. This evaluation utilized the best information
available in the circumstances, including reasonable and supportable assumptions
and projections.  The Company's  discounted cash flow evaluation used a range of
discount  rates that  corresponds  to the  Company's  weighted  average  cost of
capital.  This  discount  range is  consistent  with  that  used for  investment
decisions and takes into account the specific and detailed  operating  plans and
strategies of the reporting unit.

Goodwill is no longer amortized under SFAS No. 142.

In June 2001,  the FASB issued SFAS No. 143,  "Accounting  for Asset  Retirement
Obligations," which addresses financial accounting and reporting for obligations
associated with the retirement of tangible  long-lived assets and the associated
retirement costs. SFAS No. 143 applies to legal obligations  associated with the
retirement of long-lived assets that result from the acquisition,  construction,
development  and normal  operation  of  long-lived  assets,  except for  certain
obligations  of lessees.  The  provisions  of this  Statement are required to be
applied  starting with fiscal years  beginning  after June 15, 2001. The Company
has adopted the new accounting standard on existing long-lived assets during the
quarter  ended July 31,  2002.  There was no impact on the  Company's  financial
position or results of  operations  for the quarter as a result of adopting this
standard.

In August 2001, the FASB issued SFAS No. 144,  "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 addresses financial  accounting and
reporting  for the  impairment or disposal of  long-lived  assets.  SFAS No. 144
supercedes FASB Statement No. 121,  "Accounting for the Impairment of Long-Lived
Assets  and  Long-Lived  Assets  to Be  Disposed  Of,"  and the  accounting  and
reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations
-  Reporting  the  Effects  of  Disposal  of  a  Segment  of  a  Business,   and
Extraordinary,  Unusual and Infrequently Occurring Events and Transactions," for
the disposal of a segment of a business.  This Statement also amends  Accounting
Research Bulletin No. 51, "Consolidated  Financial Statements," to eliminate the
exception to  consolidation  for a subsidiary  for which control is likely to be
temporary.  The provisions of this Statement are required to be applied starting
with fiscal years beginning after December 15, 2001. The Company has adopted the
new accounting  standard on existing  long-lived assets during the quarter ended
July 31,  2002.  There was no  impact on the  Company's  financial  position  or
results of operations for the quarter as a result of adopting this standard.

                                       9





In April 2002, the FASB issued SFAS No. 145,  "Rescission of FASB Statements No.
4, 44 and 64,  Amendment of FASB  Statement No. 13, and Technical  Corrections."
This  Statement  eliminates  the  automatic  classification  of  gain or loss on
extinguishment of debt as an extraordinary item of income and requires that such
gain or loss be evaluated for extraordinary classification under the criteria of
APB Opinion No. 30. This Statement also requires  sale-leaseback  accounting for
certain  lease  modifications  that have  economic  effects  that are similar to
sale-leaseback  transactions,  and makes various other technical  corrections to
existing  pronouncements.  This  Statement will be effective for the Company for
the fiscal year  ending  April 30,  2004.  The  Company  does not  believe  that
adoption of this Statement will have a material effect on the Company's  results
of operations or financial position.

In July 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities." SFAS No. 146 will supercede  Emerging Issues
Task  Force  Issue  No.  94-3,  "Liability   Recognition  for  Certain  Employee
Termination  Benefits  and Other  Costs to Exit an Activity  (including  Certain
Costs Incurred in a Restructuring)." SFAS No. 146 requires that costs associated
with an exit or disposal  plan be recognized  when  incurred  rather than at the
date of a commitment to an exit or disposal plan.  SFAS No. 146 is to be applied
prospectively to exit or disposal activities  initiated after December 31, 2002.
The  Company  does not  believe  that  adoption  of this  Statement  will have a
material effect on the Company's results of operations or financial position.


(6)  SUPPLEMENTAL DISCLOSURE OF CASH FLOWS

       Cash paid during the three months ended July 31 (in thousands):

                               2001                  2002
                           ------------           ---------
           Interest Paid       $ 530                $ 500

                                       10





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

The following  discussion of results of  operations  and financial  condition is
based  upon  and  should  be read in  conjunction  with  Datatec's  Consolidated
Financial Statements and Notes for the year ended April 30, 2002.

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains "forward-looking  statements" within
the  meaning of the  Private  Securities  Litigation  Reform Act of 1995.  These
statements can sometimes be identified by the use of forward-looking  words such
as "anticipate,"  "believe,"  "estimate," "expect," "intend," "may," "will," and
similar  expressions.   These  statements  are  based  on  management's  current
expectations and are subject to risks, uncertainties and assumptions. Should one
or more of  these  risks  or  uncertainties  materialize  or  should  underlying
assumptions  prove  incorrect,  actual  results may vary  materially  from those
anticipated, expected, estimated or projected.

The  following  factors  among  others,  could  cause  actual  results to differ
materially from those described in the  forward-looking  statements:  changes in
demand  for,  or  in  the  mix  of,  Datatec's   services;   project  delays  or
cancellations;  cost overruns with regard to fixed price  projects;  competitive
pressures;  general  economic  conditions;  Datatec's  inability  to replace its
current  working  capital  financing  line,  and other such  factors  related to
financing,  obtaining  new  projects  and  delivering  its  services at targeted
margins.

RESTATEMENT OF FINANCIAL STATEMENTS

During fiscal 2002, the Company determined that it should have included indirect
costs as a  component  of cost of revenue  in its  previously  issued  financial
statements and it identified  certain errors in its previously  issued financial
statements related to total estimated contract values, total costs incurred with
certain  long term  contracts  and certain  accrued and prepaid  expenses.  As a
result, the Company has restated its previously issued financial  statements for
the years ended April 30, 2000 and 2001. As a result,  the financial  statements
for the quarter ended July 31, 2001  contained  herein have been  restated.  The
Company previously  reported a net loss of $1.781 million,  or $(0.05) per share
for the quarter  ended July 31, 2001.  The  restatement  resulted in the Company
reporting net loss of $2.114 million, or $(0.06) per share for the quarter.

CHANGE IN ACCOUNTING

The Company  decided at the  beginning of the current  fiscal year to change its
method of estimating  progress  toward  completion of its  contracts.  Under its
previous  method,  the  percentage  of direct  labor  incurred  to date to total
estimated  direct  labor to be  incurred  on a project  was used to  determine a
contract's percentage of completion,  while under the new method, the percentage
of total  costs  incurred to date to total  estimated  costs to be incurred on a
project  is  used  to  determine  a  contract's  percentage  of  completion.  In
accordance  with  Accounting   Principles  Board  Opinion  No.  20,  "Accounting
Changes,"  paragraph  27, the  financial  statements  of prior periods have been
adjusted to apply the new method  retroactively.  The effects of the  accounting
change applied retroactively are shown below:

                                                           As                        As
                                                       Previously               Retroactively
            Three months ended July 31,                 Restated                   Adjusted
            2001:
            ---------------------------               --------------            --------------
              Net Loss                                   ($2.114 million)     ($1.186 million)
              Net loss per share - basic                  $(0.06)              $(0.04)
              Net loss per share - diluted                $(0.06)              $(0.04)


The balance of the  accumulated  deficit at April 30, 2002 has been adjusted for
the effect of applying retroactively the new method of accounting, as follows:


                                                     April 30, 2002
                                                     --------------
Accumulated deficit, as previously reported            ($50,938)
Accumulated deficit, as retroactively adjusted         ($49,239)


                                       11




RECENT DEVELOPMENTS

SUBORDINATED SECURED CONVERTIBLE DEBENTURES. On April 3, 2002 the Company raised
$2.0  million  of  financing  (less  out-of-pocket  transaction  costs of $0.170
million) to be used for working capital purposes by issuing an aggregate of $2.0
million  principal  amount of Subordinated  Secured  Convertible  Debentures and
Warrants to purchase an  aggregate  of 270,000  shares of the  Company's  common
stock at  $1.416  per  share.  The  debentures  mature  on July 2, 2003 and bear
interest at a rate of 5% per annum.  The interest is due  quarterly on March 31,
June 30,  September  30, and  December 31 of each year (with the first  interest
payment due and payable on September  30, 2002) and is payable in cash or Common
Stock at the Company's  option.  The Company  recorded a discount of $582,000 in
connection with the issuance of the Debentures. The warrants have been valued at
approximately  $291,000,  based on the Black Scholes Pricing Model utilizing the
following  assumptions:  expected life of 5.0 years;  volatility of 119 percent,
and risk free borrowing rate of 4.405 percent.  This amount has been recorded as
a discount  against the debt and will be accreted as interest  expense  over the
remaining life of the debt. In addition, in accordance with Emerging Issues Task
Force 98-5, an embedded beneficial conversion feature of approximately  $291,000
has been  recognized  as  additional  paid-in-capital  and will be  accreted  as
additional  interest  expense over the remaining life of the debt.  Through July
31, 2002, $155,000 of the above discounts has been accreted.  The Debentures are
secured by all assets of the Company,  which security  interest is junior to the
security interest granted to the Company's existing senior lender.

The holder of each Debenture is entitled,  at its option, to convert at any time
the  principal  amount of the  Debenture or any portion  thereof,  together with
accrued but unpaid  interest,  into shares of the  Company's  Common  Stock at a
conversion  price for each share of common stock equal to the lower of (a) $1.16
or (b) 100% of the  average of the two lowest  closing  bid prices of the Common
Stock on the principal market during the twenty consecutive  trading days ending
with the last trading day prior to the date of conversion.  The conversion price
may not be less than the floor  price of $0.65,  except to the  extent  that the
Company does not exercise its right to redeem the Debentures.

The agreement with the investors  contains a requirement for the Company to have
effected the  registration of a sufficient  number of shares of its common stock
by July 2, 2002 or incur penalties  equal to: (1) 2% of the product  obtained by
multiplying the average closing sale price for the immediately  preceding 30 day
period times the number of  registrable  securities  the  investor  holds or may
acquire pursuant to conversion of the Convertible  Debenture and the exercise of
Warrants on the last day of the applicable 30 day period  (without giving effect
to any  limitation  on conversion or exercise) and (2) 3% of the product for all
continuing or subsequent registration defaults.

Although  the  Company  filed  the  required  registration  statement  with  the
Securities  and  Exchange  Commission  within the  required  time  period,  such
registration  statement  has not yet been declared  effective  and as such,  the
Company is currently in default of its  Registration  Rights  Agreement with the
Debenture holders and is incurring the penalties  described herein.  Pursuant to
an  agreement  dated  September  27,  2002,  the  Company has agreed to issue an
aggregate of 60,736  shares of Common Stock to the investors in exchange for the
cancellation of


                                       12




penalties  incurred  through  September 1, 2002. As of July 31, 2002,  penalties
under this default amounted to approximately $48,600.

Also, the Debentures  contain a provision which reduces the conversion  price by
five percent  (5%) if the  Company's  common  stock into which the  Debenture is
converted is not listed on NASDAQ  National  Market or NASDAQ Smallcap Market on
the  conversion  date and will be reduced by an additional  five percent (5%) on
such  date if the  Common  Stock  is also  not  listed  on the  Over-The-Counter
Bulletin Board (without,  in either such case,  regard to the Floor Price).  The
conversion price is subject to further  reduction in the event the Company sells
common stock below the applicable conversion price.


SENIOR CREDIT FACILITY.  The Company's  existing credit facility with IBM Credit
Corporation  consists of (i) a $16 million three-year  revolving credit facility
and (ii) a $3 million  three-year  term loan payable in monthly  installments of
principal and interest.  The  borrowings  under the revolving line of credit are
based on a  formula  of 85% of  eligible  receivables  and  25-35%  of  eligible
inventory.  Both the revolving line of credit and the term loan bear interest at
prime plus 4.25%. The amounts  outstanding under the credit line as of April 30,
2002 and July 31, 2002 were $14.5 million and $14.3 million, respectively. There
were no additional available borrowings,  as defined, as of July 31, 2002. Since
July 31,  2002,  IBM Credit  Corporation  has  granted  the  Company  additional
availability  and  increased the maximum  amount  eligible to be borrowed as the
Company's accounts receivable and inventory have increased.

IBM Credit Corporation has notified the Company that it does not intend to renew
the existing  revolving  credit facility upon its expiration in November 2003 or
the term loan upon its expiration in February 2003. Such  expiration  dates will
be  extended  to  August  1,  2003 in the  event  the  Company  fails to  secure
replacement  financing  before  that date.  Accordingly,  the  Company is in the
process of seeking a replacement for these  facilities.  Although the Company is
confident that it will be able to refinance this debt, there can be no assurance
that it will be able to do so.

Pursuant to a letter from The Nasdaq Stock Market  ("Nasdaq") dated September 6,
2002,  the Company  received  notification  from Nasdaq that the Company did not
comply  with  Nasdaq's  minimum  stockholder  equity  requirement.  The  Company
presented a plan to NASDAQ in which it outlined a strategy for  bringing  itself
in compliance with NASDAQ's  minimum equity  requirements.  On November 4, 2002,
Nasdaq  determined  to transfer the listing of the  Company's  securities to the
Nasdaq  SmallCap  Market (the  "Nasdaq  SmallCap").  The  transfer to the Nasdaq
SmallCap is conditioned upon the Company filing with the Securities and Exchange
Commission  and Nasdaq,  on or before  November  7, 2002,  its Form 10-Q for the
quarter ended July 31, 2002,  demonstrating compliance with all requirements for
continued  listing on the Nasdaq  SmallCap and the  successful  completion of an
application  and review  process  for  listing on the  Nasdaq  SmallCap.  Nasdaq
reserves the right to modify,  alter or extend the terms of these  conditions to
listing on the Nasdaq SmallCap upon a review of the Company's reported financial
statements.

BUSINESS DESCRIPTION

Datatec Systems,  Inc. and its subsidiaries  (the "Company" or "Datatec") are in
the business of providing rapid and accurate technology  deployment services and
licensing  software  tools,  designed  to  accelerate  the  delivery  of complex
Information   Technology   ("IT")   solutions  for   Technology   Providers  and
Enterprises.  The  Company  markets its  services  primarily  to large  Original
Equipment  Manufacturers  ("OEM"),  systems  integrators,  independent  software
vendors,   telecommunications  carriers  and  service  providers  (collectively,
"Technology  Providers")  as  well  as to a  select  number  of  "Fortune  2000"
customers in the United States and Canada.

The Company's  deployment  services  include the  following:  (i) the process of
"customizing"   Internetworking  devices  such  as  routers  and  switches,  and
computing devices such as servers and workstations to meet the specific needs of
the user  (hereinafter  referred  to as  "configuration"),  (ii) the  process of
integrating  these  hardware  devices  as well as  integrating  operational  and
application  software on a network to ensure that they are  compatible  with the
topology  of the  network  and all legacy  systems  (hereinafter  referred to as
"integration")  and (iii) the process of  physically  installing


                                       13




technology on networks  (hereinafter  referred to as "installation").  Also, the
Company  licenses its software  tools  through its Global  Integration  Services
division to organizations with their own installation forces.

The Company utilizes internally developed Web-enabled  implementation tools that
differentiate  its  deployment   services.   These  tools,   together  with  its
proprietary processes, allow the Company to rapidly and efficiently deliver high
quality and cost effective  large-scale  technology  deployment solutions to its
clients,  which  it  does  primarily  on a  fixed  time/fixed  cost  basis.  The
components of the Company's implementation model are made up of a combination of
people, processes and technology that include:

o     The  utilization of eDeploy(TM),  a Web-based  software tool that provides
      collaboration  capabilities for remote planning and design,  communication
      capabilities   through  fax,  voice,  data,  or  digital  photographs  and
      monitoring capabilities, ensures that best practices are employed and that
      mission  critical  milestones or timelines  are  escalated to  supervisory
      levels if missed by the responsible parties. These features and others are
      designed to enhance the speed, accuracy and productivity of the deployment
      process.

o     The utilization of IW2000 provides  automation and mass  customization  in
      the  configuration/integration of Computing and Internetworking devices as
      well  as   application   and   operational   software.   This   automation
      significantly  reduces labor costs through time savings as well as through
      reduced technical skill level requirements.

o     Two (2) staging and configuration centers at which the Company carries out
      most of its complex integration and configuration processes. By conducting
      these  activities  at Datatec's  staging  centers,  and  utilizing,  where
      applicable, its software tools, the Company is able to prepare and rollout
      project  components  so that they arrive at a customer site in a "plug and
      play" state. In this way, customers' operations are minimally disrupted.

o     A field  deployment  force  capable  of  delivering  all types of  complex
      technologies   due  to  the  "plug  and  play"  nature  of  the  Company's
      "configuration/integration" process.

The  Company  operates  out of 15  offices  and has a field  deployment  team of
approximately  280  people,  allowing  it  to  conduct  multiple,   simultaneous
large-scale  deployments  across the United  States and  Canada.  The  Company's
deployment  capabilities further enable Technology Providers to rapidly increase
the "absorption" of their products in the marketplace.

CRITICAL ACCOUNTING POLICIES

The Company's  deployment  services are generally  provided at a fixed  contract
price pursuant to purchase orders or other agreements with its customers,  while
its software  licensing is done on a "per seat" basis over a specified period of
time and its Application Service Provider ("ASP") activities are based on usage.

Services from  deployment  activities are performed  primarily  under  long-term
contracts, but may be performed under short-term workorders or time and material
arrangements.   The  Company's  typical  long-term  contract  contains  multiple
elements  designed to track the various services  required under the arrangement
with the customer.  These  elements are used to identify  components of progress
billings,  but are  combined  for  revenue  recognition  purposes.  The  Company
recognizes revenue earned under long-term  contracts utilizing the percentage of
completion  method  of  accounting  by  measuring  a  contract's  percentage  of
completion as


                                       14




determined by the percentage of total costs incurred to date to total  estimated
costs.  Prior to the current fiscal year, the Company  determined the percentage
of completion on its long-term  contracts by measuring  direct labor incurred to
date against  total  estimated  direct  labor.  In  accordance  with  Accounting
Principles  Board  Opinion  No.  20,  "Accounting  Changes,"  paragraph  27, the
financial statements of prior periods have been adjusted to apply the new method
retroactively  (see Note 2).  Contracts  are reviewed at least  quarterly and if
necessary,  revenue,  costs and gross  margin  are  adjusted  prospectively  for
revisions in estimated total contract value and total estimated  contract costs.
Estimated losses are recognized when identified.

Payment  milestones  differ  according  to the  customer  and  the  type of work
performed.  Generally,  the Company invoices customers and payments are received
throughout  the  deployment  process and, in certain  cases,  in advance of work
performed  if a  substantial  amount of up front costs is  required.  In certain
cases  payments  are  received  from  customers  after  the  completion  of site
installation.  However,  revenue  and costs  are only  recognized  on  long-term
contracts to the extent of the  contracts'  percentage of  completion.  Unbilled
revenue,  which is classified as a current asset,  is recorded for the amount of
revenue earned in excess of billings to customers.  Deferred revenue is recorded
as a current liability for the amount of billings in excess of revenue earned.

The Company's  cost of  deployment  services  consists of four main  categories:
labor,  materials,  project  expenses and allocated  indirect costs. The Company
estimates progress toward completion of its contracts by applying the percentage
of costs incurred to date to total  estimated costs to be incurred on a project.
Direct costs (labor,  materials,  and project  expenses) are charged directly to
projects as they are incurred. Indirect costs, which include amortization of the
eDeploy(TM)  software and various other overhead  expenses,  are then applied to
projects and a gross margin is determined.  This enables management to track all
costs associated with delivering services to its customers. Project managers and
other field  supervisors  manage and are  evaluated,  in part,  on how projects'
actual  direct  costs  compare  to  their  estimated  direct  costs.  Operations
management  manages and is evaluated,  in part,  on how  projects'  actual gross
margins compare to targeted gross margins.

Labor  consists of salaries and  benefits of the  Company's  field  installation
force as well as staging and  configuration  personnel.  The materials  category
includes all materials used in the installation process such as connectors, wall
plates, conduits, and data and electrical cable. Project expenses include travel
and living  expenses for the  installation  teams,  equipment  rentals and other
costs that are not labor or materials costs. In addition,  indirect costs,  such
as software amortization,  warehouse expense, material handling costs, etc., are
allocated to projects on bases that reflect management's  estimate of absorption
of these costs by each project (generally direct labor hours).

The Company  capitalizes  certain computer software costs incurred in accordance
with Statement of Financial  Accounting  Standards No. 86,  "Accounting  for the
Costs of Computer Software to be Sold, Leased or Otherwise  Marketed." Also, the
Company capitalizes certain costs of computer software developed or obtained for
internal use in accordance with Statement of Position No. 98-1,  "Accounting for
the Costs of Computer  Software  Developed or Obtained  for Internal  Use." Once
technological  feasibility has been established,  software development costs are
captured in the Company's job costing system under specific  projects related to
the development effort. Costs related to software developed for external use are
amortized  using the  greater  of the ratio that  current  gross  revenue  for a
product bears to the total of current and anticipated  future gross revenues for
the  product,  or a  maximum  of three  years  using  the  straight-line  method
beginning  when the products are  available  for general  release to  customers.
Amortization of the costs of software used in delivery of the Company's services
is charged  to cost of  revenue as  incurred.  Costs  related  to  internal  use
software are amortized over a period not to exceed three years.


                                       15




On June 30, 2001, the FASB issued Statements on Financial  Accounting  Standards
No. 142, "Goodwill and Other Intangible  Assets." With the adoption of Statement
142,  goodwill is no longer subject to  amortization  over its estimated  useful
life.  Rather,  goodwill  will be subject to at least an annual  assessment  for
impairment  by  applying a  fair-value-based  test.  Although  the new rules are
effective for fiscal years beginning after December 15, 2001,  early adoption is
allowed if an entity's  fiscal year begins after March 15, 2001. The Company has
elected early adoption and based on its evaluation, which, in part, was based on
certain  fair  value  assumptions,  the  Company  determined  that  there  is no
impairment to its goodwill and other intangible  assets.  Had early adoption not
been elected,  the amortization of goodwill would have been $109,000 for each of
the quarters ended July 31, 2001 and 2002.


RESULTS OF OPERATIONS

The  consolidated  statements  of opertions for the Company for the three months
ended July 31 are summarized below.

                                                               2001                          2002
                                                     -----------------------         ---------------------
                                                     (AS RESTATED AND AS
                                                      RETROACTIVELY ADJUSTED)
                                                       $                %               $             %
                                                     -----------------------------------------------------
Revenue                                              $ 18,062          100.0%        $ 23,072       100.0%

Cost of revenues                                       12,316           68.2%          16,546        71.7%
                                                     -----------------------------------------------------
Gross profit                                            5,746           31.8%           6,526        28.3%

Selling, general and administrative
 expenses                                               6,180           34.2%           5,054        21.9%
                                                     -----------------------------------------------------
Operating income (loss)                                  (434)          (2.4%)          1,472         6.4%

Interest expense                                         (582)          (3.2%)           (740)       (3.2%)
                                                     -----------------------------------------------------
 Income (loss) before minority interest                (1,016)          (5.6%)            732         3.2%

Minority interest                                        (170)          (0.9%)           --          --
                                                     -----------------------------------------------------
 Net income (loss)
                                                     ($ 1,186)          (6.5%)       $    732         3.2%
                                                     =====================================================


                                       16





REVENUE.  Revenue  for the three  months  ended July 31, 2002 and 2001 was $23.1
million and $18.1 million, respectively,  representing an increase of 27.7%. The
increase in revenue is  attributed  primarily  to work  performed  on  long-term
contracts entered into during the fourth quarter of fiscal 2002.

GROSS  PROFIT.  Gross  profit for the three  months ended July 31, 2002 and 2001
amounted  to $6.5  million  and  $5.7  million,  respectively,  representing  an
increase of 13.6%.  Gross profit as a percentage  of revenue was 28.3% and 31.8%
for the three months ended July 31, 2002 and 2001, respectively. The decrease in
gross margin is attributed to a higher  proportion of the materials  component on
contracts previously entered into.

SELLING,   GENERAL   AND   ADMINISTRATIVE   EXPENSES.   Selling,   general   and
administrative  expenses  for the three  months  ended  July 31,  2002 were $5.1
million  compared to $6.2 million for the three months ended July 31, 2001. As a
percentage of sales, selling, general and administrative expenses were 21.9% for
the three  months  ended July 31, 2002  compared  to 34.2% for the three  months
ended July 31,  2001.  The  decrease  in  selling,  general  and  administrative
expenses as a percentage of revenue is attributed to the cost reduction  program
initiated  by the  Company  during the fiscal  year ended  April 30,  2001 which
carried into the three months ended July 31, 2002.

INTEREST EXPENSE.  Net interest expense for the three months ended July 31, 2002
was $740,000 compared to $582,000 for the three months ended July 31, 2001.

LIQUIDITY AND CAPITAL RESOURCES

CHANGES IN MAJOR BALANCE SHEET CLASSIFICATIONS

CURRENT  ASSETS.  Current assets as of July 31, 2002 and April 30, 2002 amounted
to approximately $29.4 million and $25.8 million,  respectively. The increase of
approximately  $3.6 million is the result of higher revenue generated during the
quarter ended July 31, 2002, resulting in an increase in accounts receivable and
unbilled receivables of approximately $3.6 million.

CURRENT LIABILITIES.  Current liabilities as of July 31, 2002 and April 30, 2002
amounted to  approximately  $32.8 million and $29.0 million,  respectively.  The
increase  of  approximately  $3.8  million  is  attributable  primarily  to  the
reclassification of approximately $1.6 million  subordinated secured convertible
debentures to current  liabilities  as they are due in July 2003, an increase in
accounts payable of approximately  $2.4 million  primarily  related to materials
requirements  during the  quarter  ended July 31, 2002.


                                       17




CASH FLOW.  Cash generated from operating  activities  increased to $0.8 million
for the quarter  ended July 31,  2002 as compared to net cash used in  operating
activities of $3.5 million for the quarter ended July 31, 2001.  The increase is
due  primarily  to  improved  results  caused by an  increase  in revenue  and a
decrease in selling, general and administrative costs.

Short-term  borrowings  were  reduced by  approximately  $0.186  million for the
quarter  ended July 31,  2002  while  cash of  approximately  $3.5  million  was
provided by short-term borrowings for the quarter ended July 31, 2001.

LIQUIDITY

The net income of $0.7 million  realized  during the quarter ended July 31, 2002
resulted in an easing on the Company's  resources.  However, the impact of prior
years'  losses are still  exerting  a strain on the  Company's  cash  resources.
Although the Company  realized a profit for the most recent two quarters and had
taken dramatic  measures to cut costs, the Company's  working capital  financing
line  remains  close  to its  maximum  allowable  levels  and the  average  days
outstanding  of its trade  payables  have  extended  beyond  normal credit terms
granted by  vendors.  The  Company  continues  to manage its cash  aggressively.
Furthermore,  IBM Credit Corporation,  the Company's working capital lender, has
notified  the  Company  that it does not  intend  to renew its  working  capital
financing line and term loan beyond August 1, 2003. As a result,  the Company is
actively seeking replacement financing.

Achievement  of its fiscal 2003  operating  plan depends upon the timing of work
performed  by the  Company on existing  projects,  the ability of the Company to
gain and perform  work on new  projects,  the ability of the Company to maintain
positive  relations  with its key  vendors  and the  ability  of the  Company to
replace  its  current  working  capital   financing   line.   Multiple   project
cancellations, delays in the timing of work performed by the Company on existing
projects, the inability of the Company to gain and perform work on new projects,
or the inability of the Company to replace its current working capital financing
line could have an adverse impact on the Company's  liquidity and on its ability
to execute its operating plan.

The Company has taken action to ensure its  continuation  as a going concern.  A
summary of recent events and the Company's  completed or planned  actions are as
follows:

     Demand  for the  Company's  services  has  increased  dramatically  and the
     backlog of contracted  business as of October 25, 2002 was at $74.3 million
     and its sales pipeline stood at $190.3 million as of that date.

     The Company initiated and completed substantial cost saving measures during
     the fiscal years ended April 30, 2001 and 2002 and now has a cost structure
     in line with its expected revenue.

     As a result of the  increase in demand for the  Company's  services and the
     cost  reduction  measures  initiated  over the past two years,  the Company
     achieved  profitability  during the fourth  quarter of fiscal  2002 and the
     first  quarter  of  fiscal  2003.  It  expects  to  maintain  profitability
     throughout fiscal 2003.

     Management has been seeking to replace its working  capital  financing line
     and raise  additional  capital to support  its  growth in  business.  It is
     encouraged by the  preliminary  response it has received from the financial
     community and it expects to raise the necessary financing.


                                       18




The Company was not in compliance with one or more of the financial covenants of
its credit  facility as of the quarter ended July 31, 2002.  The Company and IBM
Credit Corporation  entered into an Acknowledgment,  Waiver and Amendment to the
Inventory and Working Capital Financing Agreement as of the end of the quarter.

IBM Credit Corporation has notified the Company that it does not intend to renew
its working  capital  financing  line and term loan beyond  August 1, 2003. As a
result, the Company is actively seeking replacement financing.


RECENT ACCOUNTING PRONOUNCEMENTS

On June 30, 2001, the Financial  Accounting Standards Board ("FASB") issued SFAS
No.  141,  "Business  Combinations,"  and  SFAS  No.  142  "Goodwill  and  Other
Intangible  Assets,"  (collectively "the Standards").  The Standards require all
business  combinations  initiated  after June 30, 2001 to be accounted for using
the  purchase  method of  accounting,  that  goodwill  no longer be  subject  to
amortization  but rather be reviewed  periodically for impairment and that other
identifiable  intangibles  be separated and those with finite lives be amortized
over their useful lives.  Goodwill and intangible  assets with indefinite  lives
must  be  assessed  once  a  year  for   impairment,   and  more  frequently  if
circumstances  indicate a possible  impairment.  The first step of the  two-step
impairment  assessment  identifies  potential  impairment  and compares the fair
value of the  applicable  reporting  unit with its  carrying  amount,  including
goodwill.  If the fair value of the reporting  unit exceeds its carrying  value,
goodwill of the reporting unit is not considered  impaired,  and the second step
of the impairment test is not necessary.  If the carrying value of the reporting
unit  exceeds its fair value,  the second step of the  impairment  test shall be
performed  to measure the amount of  impairment  loss,  if any.  The Company was
required to adopt these provisions on May 1, 2002;  however, it elected to early
adopt the Standards on May 1, 2001 as permitted and evaluated the carrying value
of its Goodwill and other intangible assets. Based on its evaluation,  which, in
part, was based on certain fair value  assumptions,  the Company determined that
there is no impairment to its goodwill and other intangible  assets.  Subsequent
impairment tests will be performed,  at a minimum, in the fourth quarter of each
fiscal year, in conjunction with the Company's annual planning process.

The Company  was  assisted in its  measurement  of fair value by an  independent
valuation  firm.  The  measurement  of fair value was based on an  evaluation of
future  discounted cash flows,  public company trading  multiples and merger and
acquisition transaction multiples. This evaluation utilized the best information
available in the circumstances, including reasonable and supportable assumptions
and projections.  The Company's  discounted cash flow evaluation used a range of
discount  rates that  corresponds  to the  Company's  weighted  average  cost of
capital.  This  discount  range is  consistent  with  that  used for  investment
decisions and takes into account the specific and detailed  operating  plans and
strategies of the reporting unit.

Goodwill is no longer amortized under SFAS No. 142.

In June 2001,  the FASB issued SFAS No. 143,  "Accounting  for Asset  Retirement
Obligations," which addresses financial accounting and reporting for obligations
associated with the retirement of tangible  long-lived assets and the associated
retirement costs. SFAS No. 143 applies to legal obligations  associated with the
retirement of long-lived assets that result from the acquisition,  construction,
development  and normal  operation  of  long-lived  assets,  except for  certain
obligations  of lessees.  The  provisions  of this  Statement are required to be
applied  starting with fiscal years  beginning  after June 15, 2001. The Company
has adopted the new accounting


                                       19



standard on existing  long-lived  assets during the quarter ended July 31, 2002.
There was no impact on the Company's financial position or results of operations
for the quarter as a result of adopting this standard.

In August 2001, the FASB issued SFAS No. 144,  "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 addresses financial  accounting and
reporting  for the  impairment or disposal of  long-lived  assets.  SFAS No. 144
supercedes FASB Statement No. 121,  "Accounting for the Impairment of Long-Lived
Assets  and  Long-Lived  Assets  to Be  Disposed  Of,"  and the  accounting  and
reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations
-  Reporting  the  Effects  of  Disposal  of  a  Segment  of  a  Business,   and
Extraordinary,  Unusual and Infrequently Occurring Events and Transactions," for
the disposal of a segment of a business.  This Statement also amends  Accounting
Research Bulletin No. 51, "Consolidated  Financial Statements," to eliminate the
exception to  consolidation  for a subsidiary  for which control is likely to be
temporary.  The provisions of this Statement are required to be applied starting
with fiscal years beginning after December 15, 2001. The Company has adopted the
new accounting  standard on existing  long-lived assets during the quarter ended
July 31,  2002.  There was no  impact on the  Company's  financial  position  or
results of operations for the quarter as a result of adopting this standard.

In April 2002, the FASB issued SFAS No. 145,  "Rescission of FASB Statements No.
4, 44 and 64,  Amendment of FASB  Statement No. 13, and Technical  Corrections."
This  Statement  eliminates  the  automatic  classification  of  gain or loss on
extinguishment of debt as an extraordinary item of income and requires that such
gain or loss be evaluated for extraordinary classification under the criteria of
APB Opinion No. 30. This Statement also requires  sale-leaseback  accounting for
certain  lease  modifications  that have  economic  effects  that are similar to
sale-leaseback  transactions,  and makes various other technical  corrections to
existing  pronouncements.  This  Statement will be effective for the Company for
the fiscal year  ending  April 30,  2004.  The  Company  does not  believe  that
adoption of this Statement will have a material effect on the Company's  results
of operations or financial position.

In July 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities." SFAS No. 146 will supercede  Emerging Issues
Task  Force  Issue  No.  94-3,  "Liability   Recognition  for  Certain  Employee
Termination  Benefits  and Other  Costs to Exit an Activity  (including  Certain
Costs Incurred in a Restructuring)." SFAS No. 146 requires that costs associated
with an exit or disposal  plan be recognized  when  incurred  rather than at the
date of a commitment to an exit or disposal plan.  SFAS No. 146 is to be applied
prospectively to exit or disposal activities  initiated after December 31, 2002.
The  Company  does not  believe  that  adoption  of this  Statement  will have a
material effect on the Company's results of operations or financial position.

ITEM 3:     QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

There has been no material  change in the market risk of  financial  instruments
since the Company filed its annual report on Form 10-K for the fiscal year ended
April 30, 2002.

ITEM 4: CONTROLS AND PROCEDURES

Based on their  evaluation,  as of a date  within 90 days of the  filing of this
Form 10-Q, the Company's  Chief Executive  Officer and Chief  Financial  Officer
have concluded the Company's  disclosure  controls and procedures (as defined in
Rules  13a-14  and  15d-14  under  the  Securities  Exchange  Act of  1934)  are
effective.  There have been no  significant  changes in internal  controls


                                       20




or in other factors that could significantly affect these controls subsequent to
the date of their  evaluation,  including any corrective  actions with regard to
significant deficiencies and material weaknesses.


                                       21




                           PART II - OTHER INFORMATION


ITEM 1: LEGAL PROCEEDINGS

On September 22, 2000,  Petsmart,  Inc. filed a complaint against the Company in
the Superior Court of Maricopa County, Arizona. Petsmart has alleged that it has
been  damaged  by  the  Company's  failure  to   satisfactorily   complete  work
contemplated by an agreement between the parties. Damages were unspecified. At a
settlement  meeting  held on April  17,  2002,  discussions  were  held in which
Petsmart  proposed a series of  settlement  offers under which the Company would
pay  damages  ranging  between  $7,000,000  and  $8,000,000.  In a letter to the
Company dated May 3, 2002,  Petsmart proposed  settlement offers under which the
Company would pay damages ranging between $5,000,000 and $7,000,000. The Company
believes that it has meritorious defenses to the claims and it intends to defend
this  vigorously.  Datatec  has further  counter-claimed  against  Petsmart  for
amounts owing to the Company under the contract.



ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

a)          Exhibits

            Exhibit No.             Exhibits
            -----------             --------

               10.1           Acknowledgment,  Waiver and Amendment to Financing
                              Agreement  dated  July 30, 2002 by and between the
                              Company and IBM Credit Corporation.

               10.2           Acknowledgment,  Waiver and Amendment to Financing
                              Agreement  dated  November  5, 2002 by and between
                              the Company and IBM Credit Corporation.

               18.1           Letter from Deloitte & Touche LLP regarding change
                              in accounting principles.

               99.1           Certification of Chief Executive Officer.

               99.2           Certification of Chief Financial Officer.


b)    Reports on Form 8-K

      (1) On May 15,  2002,  the  Company  filed with the  Securities  and
      Exchange  Commission  a Form 8-K/A dated May 15, 2002  amending  its
      report on Form 8-K filed on April 18, 2002 reporting a change in the
      Company's certifying accountant under Item 4 of Form 8-K.


                                       22





                                   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.

                                                 DATATEC SYSTEMS, INC.



Date:  November 7, 2002              By: /s/ Albert G. Pastino
                                         ------------------------------------
                                         Albert G. Pastino
                                         Chief Financial Officer


                                       23





                  CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
                            Section 302 Certification

I, Isaac J. Gaon, certify that:

1.   I have  reviewed  this  quarterly  report on Form 10-Q of Datatec  Systems,
     Inc.;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and

     c)   presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

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

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

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

     Date: November 7, 2002
          ----------------------

          /s/ Isaac J. Gaon
       ---------------------------
             Isaac J. Gaon
        Chief Executive Officer


                                       24





                  CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
                            Section 302 Certification

I, Albert G. Pastino, certify that:

1.   I have  reviewed  this  quarterly  report on Form 10-Q of Datatec  Systems,
     Inc.;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     d)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;

     e)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and

     f)   presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

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

     c)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     d)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

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


     Date: November 7, 2002
          -----------------------

       /s/ Albert G. Pastino
     -------------------------------------
             Albert G. Pastino
         Chief Financial Officer

                                       25`