U. S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, D.C.  20549

                                   FORM 10-QSB/A  



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

                 For the quarterly period ended: July 31, 1998
                          Commission file number: 0-20824



                        COMPUTER OUTSOURCING SERVICES, INC. 
         (Exact name of small business issuer as specified in its charter)


                    New York                               13-3252333     
         (State or other jurisdiction of                 (IRS Employer    
          incorporation or organization)              Identification No.)

                 360 West 31st Street     New York, New York 10001
                     (Address of principal executive offices)

                                   (212) 564-3730     
                            (Issuer's telephone number)




Check whether the registrant (1) filed all reports required to be filed by 
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.  
Yes [X]   No [  ]

There were 4,255,115 shares of the registrant's Common Stock, $0.01 par value,
outstanding as of September 1, 1998.

Transitional Small Business Disclosure Form (check one);     Yes [  ]   No [X]










                                                                Page 1 of 4 
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1.  Financial Statements


              COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
                  AMENDED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)
                                                 
                                                   Nine Months Ended July 31, 
                                                 ------------------------------
                                                      1998             1997
                                                 -------------    -------------

CASH FLOWS FROM OPERATING ACTIVITIES:                                         
Income from continuing operations .............  $  1,573,496     $    486,048
Adjustments to reconcile income from continuing
  operations to cash (used in)/provided by 
  operating activities:                                                       
  Depreciation and amortization ...............     1,010,635        1,098,900
  Increase/(reduction) in deferred income taxes       (35,355)         175,545
  Decrease/(increase) in:  
    Trade accounts receivable .................      (714,865)        (730,271)
    Prepaid expenses and other current assets .      (369,889)        (289,759)
    Security deposits and other noncurrent 
      assets ..................................       (48,992)        (184,453)
  Increase/(decrease) in:
    Accounts payable ..........................      (162,218)          96,767
    Income taxes payable ......................       120,092          (27,939)
    Accrued expenses ..........................       (36,198)          34,853
    Customer deposits and other current 
      liabilities .............................       (78,295)         (58,152)
  Deferred lease credits ......................       (53,965)            -
                                                    ----------       ----------
    Net cash provided by operating activities .     1,204,448          601,539
                                                    ----------       ----------

CASH FLOWS FROM INVESTING ACTIVITIES:                                          
  Purchase of property and equipment ..........    (1,227,425)        (281,976)
  Disposal of equipment .......................        14,960            2,074
  Proceeds from the sale of the Payroll 
    Division ..................................    12,210,000             -   
  Payment of expenses related to the sale of 
    the Payroll Division ......................    (1,795,898)            -
  Proceeds from a covenant not to compete .....     1,440,000             -
  Settlement of contingencies relating to
    acquisitions ..............................          -            (423,938)
  Increase in deferred software costs .........      (603,311)        (353,772)
                                                   -----------      -----------
    Net cash provided by/(used in) investing 
      activities ..............................  $ 10,038,326     $ (1,057,612)
                                                   -----------      -----------
                                

                            Continued on Next Page
              
             See Notes to Consolidated Interim Financial Statements        

                                                                
                                                                Page 2 of 4
<PAGE>
              COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
                  AMENDED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (Unaudited - Continued)
                                                
                                                   Nine Months Ended July 31,
                                                 ------------------------------
                                                      1998             1997
                                                 -------------    -------------
CASH FLOWS FROM FINANCING ACTIVITIES:                                          
  Repayment of long-term debt .................  $ (2,080,188)     $ (789,928)
  Proceeds from the exercise of options and                  
    warrants ..................................     1,662,186            -
  Proceeds from longterm debt .................          -            500,000
  Repayments from/(borrowings by) related 
    parties, net ..............................       (47,218)         22,735
  Repayments of capital leases ................       (17,047)        (77,935)
                                                   -----------      ----------
    Net cash used in financing activities .....      (482,267)       (345,128)
                                                   -----------      ----------
  CASH FLOWS FROM DISCONTINUED OPERATIONS:                                 
  Income/(loss) from discontinued operations ..       (60,509)          27,452
  Adjustments to reconcile income/(loss) from
    discontinued operations to cash (used in)/
    provided by discontinued operations:
    Depreciation and amortization .............       151,118          627,380
    Increase in net assets of discontinued         
      operations ..............................      (307,813)        (459,701)
                                                   -----------      -----------
    Net cash (used in)/provided by discontinued 
      operations ..............................  $   (217,204)    $    195,131
                                                   -----------      -----------
    Net increase/(decrease) in cash and cash
      equivalents .............................    10,543,303         (606,070)
    Cash and cash equivalents at the beginning
      of the period ...........................       972,459          857,204
                                                   -----------      -----------
    Cash and cash equivalents at the end of the
      period ..................................  $ 11,515,762     $    251,134
                                                   ===========      ===========
SUPPLEMENTAL CASH FLOW INFORMATION:                                            
  Cash paid during the period for:
    Interest ..................................  $    110,622     $    205,906
                                                   ===========      ===========
    Income taxes ..............................  $  1,013,106     $     91,958
                                                   ===========      ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
  INVESTING AND FINANCING ACTIVITIES:
  Capitalized leases for data processing
    equipment .................................          -              81,312
                                                   ==========       ===========
  Note received in connection with the sale  
    of the Payroll Division (Note 2) ..........  $    750,000     $       -    
                                                   ==========       ===========
For the nine months ended July 31, 1997, $19,594 (net of tax benefits) was 
accreted through a charge to retained earnings in connection with a stock 
option.
             See Notes to Consolidated Interim Financial Statements    
                                                                
                                                                Page 3 of 4
<PAGE>



               COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES

                                  SIGNATURES

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



                                    COMPUTER OUTSOURCING SERVICES, INC.


                                     /s/
                                    -----------------------------------
September 25, 1998                  Zach Lonstein
                                    Principal Executive Officer


                                     /s/
                                    -----------------------------------
September 25, 1998                  Laurence L. Carpenter
                                    Acting Principal Accounting Officer





























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