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: JULY 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 July 31, 1998
was 29,064,670.


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


                                      INDEX




PART I:  FINANCIAL INFORMATION

                                                                            PAGE
         Item 1:   Consolidated Financial Statements

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

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

                   Statements of Cash Flows for the three months ended
                   July 31, 1997 and 1998                                     5

                   Notes to Unaudited Consolidated Financial Statements       6

         Item 2:   Management's Discussion and Analysis of Financial
                   Condition and Results of Operations                        7


PART II: OTHER INFORMATION

         Item 4:  Submission of Matters to a Vote of Security Holders         9

         Item 6:  Exhibits and Reports of Form 8-K                           10


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

<TABLE>
<CAPTION>

                                                                                                                       JULY 31, 1998
                                                                                             APRIL 30, 1998             (UNAUDITED)
                                                                                             --------------            -------------

ASSETS

CURRENT ASSETS:

<S>                                                                                          <C>                       <C>         
   Cash and cash equivalents                                                                 $    317,000              $    137,000
   Accounts receivable, net                                                                    18,106,000                18,337,000
   Inventory                                                                                    3,118,000                 3,760,000
   Prepaid expenses and other current assets                                                    3,433,000                 4,003,000
   Net assets from discontinued operations                                                        501,000                   773,000
                                                                                             ------------              ------------

               Total current assets                                                            25,475,000                27,010,000

Property and equipment, net                                                                     6,012,000                 5,716,000
Goodwill, net                                                                                   3,975,000                 3,866,000
Other Assets                                                                                    4,601,000                 4,298,000
                                                                                             ============              ============

               Total assets                                                                  $ 40,063,000              $ 40,890,000
                                                                                             ============              ============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

   Short-term borrowings                                                                     $ 10,759,000              $  8,830,000
   Current portion of long-term debt                                                            1,063,000                 1,074,000
   Accounts payable                                                                             7,085,000                 8,121,000
   Accrued liabilities                                                                          3,882,000                 3,771,000
   Other current liabilities                                                                    1,214,000                   338,000
                                                                                             ------------              ------------

               Total current liabilities                                                       24,003,000                22,134,000
                                                                                             ------------              ------------

Due to related parties                                                                            927,000                   927,000
                                                                                             ------------              ------------

Long-term debt                                                                                  2,415,000                 2,116,000
                                                                                             ------------              ------------

Commitments and contingencies

Shareholders' equity:

   Preferred stock                                                                                   --                        --
   Common stock                                                                                    29,000                    29,000
   Additional paid-in capital                                                                  26,603,000                29,135,000
   Accumulated deficit                                                                        (13,566,000)              (13,106,000)
   Cumulative translation adjustment                                                             (348,000)                 (345,000)
                                                                                             ------------              ------------

      Total shareholders' equity                                                               12,718,000                15,713,000
                                                                                             ============              ============

       Total liabilities and shareholders' equity                                            $ 40,063,000              $ 40,890,000
                                                                                             ============              ============
</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
                                                                                                                JULY 31,
                                                                                                ------------------------------------
                                                                                                   1997                      1998
                                                                                                -----------              -----------

<S>                                                                                             <C>                      <C>        
Net sales                                                                                       $18,600,000              $25,143,000

Cost of sales                                                                                    11,277,000               16,151,000
                                                                                                -----------              -----------

Gross profit                                                                                      7,323,000                8,992,000

Selling, general and administrative expenses                                                      6,844,000                8,039,000
                                                                                                -----------              -----------

Operating income                                                                                    479,000                  953,000
                                                                                                -----------              -----------

Interest expense                                                                                    454,000                  493,000
                                                                                                -----------              -----------
 Income before provision (benefit) for income
  taxes                                                                                              25,000                  460,000

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

Net income                                                                                       $   25,000              $   460,000
                                                                                                ===========              ===========

 INCOME (LOSS) PER SHARE :
   BASIC
                                                                                                $      0.00                    $0.02
                                                                                                ===========              ===========
   DILUTED
                                                                                                $      0.00                    $0.02
                                                                                                ===========              ===========

 WEIGHTED AVERAGE COMMON SHARES - BASIC

                                                                                                 23,709,000               29,054,000
                                                                                                ===========              ===========
  WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
    SHARES  - DILUTED                                                                            25,834,000               30,561,000
                                                                                                ===========              ===========
</TABLE>

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

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

<TABLE>
<CAPTION>

                                                                                                        FOR THE THREE MONTHS ENDED
                                                                                                               JULY 31,
                                                                                                   ---------------------------------
                                                                                                       1997                  1998
                                                                                                   -----------          ------------
   CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                                                                                <C>                  <C>        
  Net income                                                                                       $    25,000          $   460,000

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

       Depreciation and amortization                                                                   489,000              746,000

       Changes in operating assets and liabilities:

           Increase in accounts receivable                                                            (256,000)            (231,000)

           Increase in inventory                                                                      (339,000)            (642,000)

           Increase in prepaid expenses and other assets                                            (2,114,000)            (340,000)

           Decrease (increase) in assets held for sale or disposition                                  395,000             (284,000)

           Increase in accounts payable, accrued and other  liabilities                              1,430,000               49,000
                                                                                                   -----------          -----------

       Net cash used in operating activities                                                          (370,000)            (242,000)
                                                                                                   -----------          -----------

CASH FLOWS FROM INVESTING ACTIVITIES:

       Purchases of property and equipment                                                            (280,000)            (256,000)
                                                                                                   -----------          -----------

       Net cash used in investing activities                                                          (280,000)            (256,000)
                                                                                                   -----------          -----------

CASH FLOWS FROM FINANCING ACTIVITIES:

        Net payments of short-term borrowings                                                       (2,441,000)          (1,929,000)

        Net payments of indebtedness                                                                  (381,000)            (288,000)

        Net proceeds from common stock/warrant issuances                                             3,085,000            2,532,000
                                                                                                   -----------          -----------

              Net cash provided by financing activities                                                263,000              315,000
                                                                                                   -----------          -----------

              Net effect on foreign currency translation on cash                                        11,000                3,000
                                                                                                   -----------          -----------

              Net decrease in cash                                                                    (376,000)            (180,000)

CASH AT BEGINNING OF PERIOD                                                                          1,135,000              317,000
                                                                                                   ===========          ===========

CASH AT END OF PERIOD                                                                              $   759,000          $   137,000
                                                                                                   ===========          ===========
</TABLE>

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


                                       5
<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 months ended July 31,
1998 are not  necessarily  indicative  of 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 months ended July 31, 1998,
the components of comprehensive income were immaterial.  The components of other
comprehensive   income  consist   primarily  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 of common stock at $6.29.

(5)    Supplemental Disclosure of Cash Flows

       Cash paid during the quarter for:

                                      1997                      1998
                                   --------                   --------
            Interest Paid          $380,000                   $429,000



                                       6
<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 MONTHS ENDED JULY 31, 1998

            NET SALES.  Net sales for the three  months ended July 31, 1998 were
$25,143,000  compared to  $18,600,000  for the three  months ended July 31, 1997
representing an increase of 35.2%.

            GROSS PROFIT. Gross profits for the three months ended July 31, 1998
were $8,992,000 compared to $7,323,000 for the three months ended July 31, 1997.
Gross profits as a percentage of net sales were 35.8% for the three months ended
July 31, 1998  compared to 39.4% for the three  months  ended July 31,  1997.  A
large number of recent hires in the  Company's  field service  operations  had a
short term negative impact on gross profit.  Approximately  33% of the Company's
450  field  service  personnel  were  hired  during  the  last  six  months  and
consequently  were at the  initial  stages  of the  learning  curve  during  the
quarter.

            SELLING, GENERAL AND ADMINISTRATIVE  EXPENSES.  Selling, general and
administrative expenses for the three months ended July 31, 1998 were $8,039,000
compared to  $6,844,000  for the three months ended July 31, 1997,  representing
32.0% and 36.8% of net sales, respectively. The increase in selling, general and
administrative  expenses is partly attributable to an increase in infrastructure
costs,  including  personnel  to support  the  Company's  migration  to the more
complex service business.

            INTEREST  EXPENSE.  Interest expense for the three months ended July
31, 1998 was  $493,000  compared to $454,000 for the three months ended July 31,
1997, representing an increase of 8.6%.

FINANCIAL POSITION

            During the three months ended July 31, 1998, cash used in operations
was $242,000 compared to a year-ago cash usage of $370,000.

            Cash used for investing  activities  during the first quarter of the
fiscal year ending April 30, 1999 was $256,000  compared to $280,000  during the
first quarter of the fiscal year ended April 30, 1998.

            Cash provided by financing  activities during the three months ended
July 31, 1998 was $315,000 compared to $263,000 in the year-ago period. Included
in the current  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


                                       7
<PAGE>
subsidiary  Computer-Aided Software,  Integration,  Inc. and for working capital
purposes. Also included in the current period were net proceeds of $182,000 from
the issuance of common stock  related to stock option and employee  stock plans.
Offsetting  the  proceeds  from the  preferred  and common stock  activity  were
principal payments of debt of $2,217,000.

            The Company's  working capital improved from $1,472,000 at April 30,
1998 to $4,876,000 at July 31, 1998.

            At July 31, 1998, total debt was $12,020,000 compared to $14,237,000
at April 30, 1998.

            Stockholders'  equity increased  $2,995,000  during the three months
ended July 31, 1998, principally reflecting net income of $460,000,  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 stock option and
employee stock plans of $182,000.

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.


                                       8
<PAGE>
                              DATATEC SYSTEMS, INC.
                                    FORM 10-Q
                           PART II - OTHER INFORMATION

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

            None






                                       9
<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

                  (1)   On May 6, 1998, the Company filed a Form 8-K dated April
                        30, 1998  reporting  the private sale of  $3,000,000  of
                        Series E Convertible Preferred Stock.







                                       10
<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



Date: September 3, 1998                      By: /S/ JAMES M. CACI
                                                ----------------------
                                                James M. Caci
                                                Chief Financial Officer and Duly
                                                Authorized Officer


                                       11