<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-Q

(Mark One)

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

          For The Quarterly Period Ended:  August 31, 1997
                                           ---------------

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

          For The Transition Period From      To
                                         ----    ----

     Commission File Number: 0-21367
                             -------

                            DATA TRANSLATION, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

            Delaware                                    04-3332230
  ------------------------------              ------------------------------
   (State or other jurisdiction                      (I.R.S. Employer      
 of organization or incorporation)                Identification Number) 

                                100 Locke Drive
                          Marlborough, Massachusetts
                 --------------------------------------------
                   (Address of principal executive offices)

                                     01752
                 --------------------------------------------
                                  (Zip code)

                                (508) 481-3700
                 --------------------------------------------
             (Registrant's telephone number, including area code)
 
    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                Yes    X    No
                                    -------    -------

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

Common Stock, par value $.01 per share                  2,046,440 shares
--------------------------------------        ---------------------------------
           Class                              Outstanding at September 30, 1997
<PAGE>
 
                                                                    Page 2 of 12

                    DATA TRANSLATION, INC. AND SUBSIDIARIES

                                     INDEX
                                     -----

                                                                        Page No.
                                                                        --------
Part I - Financial Information:
  Consolidated Balance Sheet as of August 31, 1997 and
    Pro Forma Consolidated Balance Sheet as of November 30, 1996.......     3

  Consolidated Statements of Operations for the Three and Nine Months
    Ended August 31, 1997 and Pro Forma Consolidated Statements of
    Operations for the Three and Nine Months Ended August 31, 1996.....     4

  Consolidated Statement of Stockholders' Equity
    For the Nine Months Ended August 31, 1997..........................     5

  Consolidated Statement of Cash Flows for the Nine Months
    Ended August 31, 1997 and Pro Forma Consolidated
    Statement of Cash Flows for the Nine Months Ended
    August 31, 1996....................................................     6

  Notes to Consolidated Financial Statements...........................     7-8

  Management's Discussion and Analysis of
    Financial Condition and Results of Operations......................     9-10

Part II - Other Information............................................     11

Signatures.............................................................     12
<PAGE>
 
                                                                    Page 3 of 12

                         PART I.  FINANCIAL INFORMATION

                    DATA TRANSLATION, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
<TABLE> 
<CAPTION> 
                                                                                       PRO FORMA
                                                             August 31,               November 30,
                                                                1997                      1996
                                                         ----------------         -----------------
<S>                                                      <C>                      <C>
Current Assets:                                       
        Cash and cash equivalents                        $      4,239,000         $       8,828,000
        Accounts receivable, net of reserves of       
        $380,000 in 1997 and $132,000 in 1996                   3,396,000                 2,741,000
        Inventories                                             1,423,000                 1,490,000
        Prepaid expenses                                          883,000                   690,000
                                                         ----------------         -----------------
        Total current assets                                    9,941,000                13,749,000
                                                      
Equipment and Leasehold Improvements, net                       2,063,000                 2,352,000
                                                      
Other Assets - net                                                215,000                   260,000
                                                         ----------------         -----------------
Total Assets                                             $     12,219,000         $      16,361,000
                                                         ================         =================
Current Liabilities:                                  
        Accounts payable                                 $        259,000         $         377,000
        Due to related party                                      273,000                        --
        Accrued expenses                                        1,971,000                 1,939,000
                                                         ----------------         -----------------
        Total current liabilities                               2,503,000                 2,316,000
                                                      
Net liabilities of discontinued operations                      1,424,000                 1,424,000
                                                      
Deferred Income Taxes                                               3,000                     3,000
                                                      
Stockholders' Equity:                                 
        Preferred Stock, $.01 par value,              
          Authorized - 5,000,000 shares, none issued or 
          outstanding                                                 --                         --
        Common Stock, $.01 par value,                 
          Authorized - 30,000,000 shares, issued and    
          outstanding - 2,041,040 in 1997 and 2,022,021
          in 1996 pro forma                                        20,000                    20,000
        Capital in excess of par value                         12,643,000                12,629,000
        Retained deficit                                       (4,333,000)                        -
        Cumulative translation adjustment                         (41,000)                  (31,000)
                                                         ----------------         -----------------
        Total stockholders' equity                              8,289,000                12,618,000
                                                         ----------------         -----------------
Total Liabilities and Stockholders' Equity               $     12,219,000         $      16,361,000
                                                         ================         =================
</TABLE> 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
<PAGE>
 
                                                                    Page 4 of 12

                    DATA TRANSLATION, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE> 
<CAPTION> 
                                                       Three Months Ended                     Nine Months Ended
                                                                        PRO FORMA                            PRO FORMA
                                                     August 31,        August 31,         August 31,        August 31,
                                                        1997              1996               1997              1996
                                                -----------------    ------------    -----------------    ------------
<S>                                             <C>                  <C>             <C>                  <C>
Net sales                                       $       5,068,000    $  5,100,000    $      16,287,000    $ 15,858,000
 
Cost of sales                                           2,390,000       2,079,000            7,816,000       6,034,000
                                                -----------------    ------------    -----------------    ------------
     Gross profit                                       2,678,000       3,021,000            8,471,000       9,824,000
 
Research and development expenses                         872,000       1,039,000            2,788,000       2,713,000
Selling and marketing expenses                          2,173,000       2,657,000            8,257,000       6,492,000
General and administrative expenses                       582,000         585,000            1,889,000       1,465,000
                                                -----------------    ------------    -----------------    ------------
     Operating loss from continuing                      
      operations                                         (949,000)     (1,260,000)          (4,463,000)       (846,000)
 
Interest income                                            50,000         145,000              221,000         419,000
Other expense, net                                        (43,000)        (42,000)             (91,000)        (89,000)
                                                -----------------    ------------    -----------------    ------------
     Loss from continuing operations
       before tax benefit                                (942,000)     (1,157,000)          (4,333,000)       (516,000)
 
Tax benefit                                                    --        (443,000)                  --        (318,000)
                                                -----------------    ------------    -----------------    ------------
Loss from continuing operations                          (942,000)       (714,000)          (4,333,000)       (198,000)
 
Loss from discontinued operations                              --      (2,271,000)                  --      (2,605,000)
                                                -----------------    ------------    -----------------    ------------
    Net loss                                    $        (942,000)   $ (2,985,000)   $      (4,333,000)   $ (2,803,000)
                                                =================    ============    =================    ============
Loss from continuing operations per share       $           (0.46)   $      (0.35)   $           (2.14)   $      (0.10)
Loss from discontinued operations per share                    --           (1.13)                  --           (1.31)
                                                -----------------    ------------    -----------------    ------------
Net loss per common and common                              
   equivalent share                             $           (0.46)   $      (1.48)   $           (2.14)   $      (1.41)
                                                =================    ============    =================    ============
Weighted average number of common
     shares outstanding                                 2,036,000       2,015,000            2,024,000       1,991,000
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
<PAGE>
 
                                                                    Page 5 of 12

                    DATA TRANSLATION, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE> 
<CAPTION> 
                                             Common Stock
                                            $.01 Par Value             
                                          --------------------------   Capital in                   Cumulative       Total
                                                Issued                 Excess of      Retained     Translation   Stockholders'
                                                Shares       Amount    Par Value       Deficit      Adjustment       Equity
                                          ------------------------------------------------------------------------------------
<S>                                         <C>             <C>       <C>           <C>            <C>           <C>
Balance, November 30, 1996                              --  $    --   $        --   $        --       $(31,000)    $   (31,000)
 
Stock dividend (Note 9)                          2,022,021    20,000    12,629,000           --             --      12,649,000
 
Proceeds from stock plans                           19,019        --        14,000           --             --          14,000
 
Translation adjustment                                  --        --            --           --        (10,000)        (10,000)
 
Net loss                                                --        --            --    (4,333,000)           --      (4,333,000)
                                          ------------------------------------------------------------------------------------
Balance, August 31, 1997                         2,041,040   $20,000   $12,643,000   $(4,333,000)     $(41,000)    $ 8,289,000
                                          ==================================================================================== 
</TABLE> 

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
<PAGE>
 
                                                                    Page 6 of 12

                    DATA TRANSLATION, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE> 
<CAPTION> 
                                                                               Nine Months Ended
                                                                                                PRO FORMA
                                                                           August 31,           August 31,
                                                                              1997                 1996
                                                                        --------------       --------------
<S>                                                                     <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                              $   (4,333,000)      $   (2,803,000)
  Adjustments to reconcile net loss to
   net cash used in operating activities-
             Depreciation and amortization                                     901,000              617,000
             Loss on disposal of equipment                                       2,000                   --
             Change in assets and liabilities-
             Accounts receivable                                              (655,000)             876,000
             Inventories                                                        67,000             (439,000)
             Prepaid expenses                                                 (193,000)            (407,000)
             Accounts payable                                                 (118,000)            (333,000)
             Due to related party                                              273,000              273,000
             Accrued expenses                                                   32,000             (836,000)
             Net liabilities of discontinued operations                             --            2,706,000
                                                                        --------------       --------------
             Net cash used in operating activities                      $   (4,024,000)      $     (346,000)
                                                                        --------------       --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
             Purchases of equipment and leasehold improvements                (526,000)            (737,000)
             Increase in other assets                                          (50,000)            (207,000)
                                                                        --------------       --------------
             Net cash used in investing activities                      $     (576,000)      $     (944,000)
                                                                        --------------       --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
             Borrowings from bank                                                   --              (39,000)
             Impact of income taxes                                                 --              318,000
             Proceeds from stock plans                                          14,000                   --
             Increase in investment by Media 100 Inc.                               --            1,179,000
                                                                        --------------       --------------
             Net cash provided by financing activities                  $       14,000       $    1,458,000
                                                                        --------------       --------------
EXCHANGE RATE EFFECTS                                                           (3,000)            (168,000)
                                                                        --------------       --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS                               $   (4,589,000)      $           --
 
CASH AND CASH EQUIVALENTS, beginning of period                               8,828,000                   --
                                                                        --------------       --------------
CASH AND CASH EQUIVALENTS, end of period                                $    4,239,000       $           --
                                                                        ==============       ==============
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
<PAGE>
 
                                                                    Page 7 of 12

                    DATA TRANSLATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Basis of Presentation

        In the opinion of management, these unaudited consolidated financial
statements and disclosures reflect all adjustments necessary for fair
presentation. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full year.

        Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. These consolidated condensed
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's latest
audited financial statements, which are contained in the Company's 1996 Annual
Report on Form 10-K, filed with the Securities and Exchange Commission on
February 28, 1997.

        The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.  Actual results could differ from those estimates.

2. Cash Equivalents

        Cash equivalents are carried at cost which approximates market value and
have maturities of less than three months. Cash equivalents include money market
accounts and overnight time deposits.

3.  Inventories

        Inventories are stated at the lower of first-in, first-out (FIFO) cost
or market and consist of the following:

<TABLE>
<CAPTION>
                   August 31,      November 30,
                      1997             1996
                   -----------     ------------
<S>                <C>          <C>
Raw material        $  829,000      $   904,000
Work-in-process        118,000          181,000
Finished goods         476,000          405,000
                    ----------      -----------
                    $1,423,000      $ 1,490,000
                    ==========      ===========
</TABLE>

Work-in-process and finished goods inventories include material, labor and
manufacturing overhead. Management performs periodic reviews of inventory and
disposes of items not required by their manufacturing and marketing plan.

4.  Net Loss Per Common Share

        Net loss per common share is determined by dividing net loss by the
weighted average number of shares outstanding during the period.  Common
equivalent shares have not been included for any period, as such amounts would
be antidilutive. Fully diluted net loss  per share has not been separately
presented, as the amounts would not be materially different from net loss per
share.

5.  Contingencies

        From time to time the Company is involved in disputes and/or litigation
encountered in its normal course of business. The Company does not believe that
the ultimate impact of the resolution of such outstanding matters will have a
material effect on the Company's financial condition or results of operations.
<PAGE>
 
                                                                    Page 8 of 12

                    DATA TRANSLATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Capitalized Software Development Costs

        The Company capitalizes certain computer software development costs.
Such costs, net of accumulated amortization, were approximately $211,000 and
$256,000 as of August 31, 1997 and November 30, 1996, respectively and are
included in other assets.  These costs are amortized on a straight-line basis
over two years which approximates the life of the product. Amortization expense,
included in cost of goods sold, was approximately $95,000 and $50,000 for the
nine months ended August 31, 1997 and 1996, respectively.

7. Income Taxes

        For the period ended August 31, 1996, the income tax benefit in the
accompanying consolidated statement of operations has been calculated on a
separate tax return basis.  Prior to the Company's spin-off from Media 100 Inc.
("Media") on December 2, 1996 (the "Spin-off"), the Company filed its return as
part of a consolidated group with Media.

8. Discontinued Operations

        On November 11, 1996, Media sold certain assets of its networking
distribution business, primarily inventories, equipment and its ongoing
business, for approximately $1.3 million.  The balance of Media's networking
distribution business was contributed to the Company in connection with the
Spin-off.  The Company is in the process of discontinuing and winding-up the
remainder of such business.

        The components of net liabilities of discontinued operations included in
the accompanying consolidated balance sheets at August 31, 1997 and November 30,
1996 follow:

<TABLE>
<CAPTION>
                                                  August 31,      November 30,
                                                     1997             1996
                                              ------------------  -------------
<S>                                           <C>                 <C>
Accounts receivable, net                            $   183,000    $ 1,563,000
Inventories                                                  --      1,159,000
Prepaid expenses                                             --        433,000
Equipment and leasehold improvements, net                    --         68,000
Accounts payable                                       (343,000)    (1,450,000)
Borrowings from a bank                                 (864,000)    (1,577,000)
Accrued expenses                                       (400,000)    (1,620,000)
                                                    -----------    -----------
Net liabilities of discontinued operations          $(1,424,000)   $(1,424,000)
                                                    ===========    ===========
</TABLE>

9. Pro Forma Results

        The pro forma consolidated balance sheet as of November 30, 1996
reflects the financial position of the Company adjusted for a cash contribution
from Media and the capitalization of the Company in connection with the Spin-off
effective December 2, 1996.  The consolidated statement of stockholders' equity
is also reflective of a stock dividend in connection with the Spin-off of the
Company.  The pro forma statement of operations and the consolidated statement
of cash flows for the nine months ended August 31, 1996 reflects the results of
the Company as a wholly owned subsidiary of Media and does not necessarily
reflect the actual results of operations had the Company been a separate,
independent company during the period.  Included are certain allocations of
general corporate expenses which were not directly related to the Company's
business.

10. New Accounting Standard

        In March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard ("SFAS") No. 128, Earnings Per Share.  SFAS No.
128 establishes standards for computing and presenting earnings per share and
applies to entities with publicly held common stock or potential common stock.
This statement is effective for fiscal years ending after December 15, 1997 and
early adoption is not permitted.  When adopted, the statement will require
restatement of prior years' earnings per share.  The Company will adopt this
statement for its fiscal year ended November 30, 1998.  The Company believes
that the adoption of SFAS No. 128 will not have a material effect on its
financial statements.
<PAGE>
 
                                                                    Page 9 of 12

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

          This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934.  The Company's actual results could differ materially from
those set forth in the forward-looking statements as a result of the following
risk factors: dependence on new products, impact of competitive products,
ability of the Company to meet its future capital requirements, ability to
attract qualified personnel, the absence of history as an independent company,
and the dependence on proprietary technology.

Results of Operations

  The following table sets forth certain consolidated statement of operations
  data as a percentage of total net sales.

<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED           NINE MONTHS ENDED
                                                                       AUGUST  31,                 AUGUST  31,
                                                               ---------------------------  --------------------------
                                                                                 PRO FORMA                  PRO FORMA
                                                                                 ---------                  ---------
                                                                     1997          1996         1997          1996
                                                                     ----          ----         ----          ----
<S>                                                            <C>               <C>           <C>          <C>
Net sales                                                             100.0         100.0        100.0          100.0
Gross margin                                                           52.8          59.2         52.0           61.9
Research and development expenses                                      17.2          20.4         17.1           17.1
Selling and marketing expenses                                         42.9          52.1         50.7           40.9
General and administrative expenses                                    11.4          11.4         11.6            9.2
                                                                     ------        ------       ------         ------
Operating loss from continuing operations                             (18.7)        (24.7)       (27.4)          (5.3)
Interest income and other, net                                          0.1           2.0          0.8            2.0
                                                                     ------        ------       ------         ------
Loss from continuing operations before tax benefit                    (18.6)        (22.7)       (26.6)          (3.3)
Tax benefit                                                             0.0          (8.7)         0.0           (2.0)
                                                                     ------        ------       ------         ------
Loss from continuing operations                                       (18.6)        (14.0)       (26.6)          (1.3)
Loss from discontinued operations                                       0.0         (44.5)         0.0          (16.4)
                                                                     ------        ------       ------         ------
Net loss                                                             (18.6)%       (58.5)%      (26.6)%        (17.7)%
                                                                     ======        ======       ======         ======
</TABLE>

Comparison of Third Fiscal Quarter of 1997 to Third Fiscal Quarter of 1996:

  Net sales for the fiscal quarter ended August 31, 1997 were $5,068,000,
relatively flat from the $5,100,000 in the same period a year ago.  Net sales of
the Company's data acquisition and imaging products were down approximately
16.0% from the previous year's third fiscal quarter. This decrease was mainly
due to lower international sales, decreases in average selling prices, and a
continued decrease in sales of older, mature products. The lower sales of data
acquisition and imaging products were offset by sales of the Company's digital
video products, Broadway(TM) and Broadway(TM) Beginner which began shipping at
the end of the third quarter in fiscal 1996 and 1997, respectively.

  Gross margin for the fiscal quarter ended August 31, 1997 was 52.8%, compared
to 59.2% in the comparable quarter of the prior year. The decrease in gross
margin was primarily a result of lower average selling prices in the data
acquisition and imaging product lines, under utilization of the Company's
manufacturing capacity, as well as the increase in sales from Broadway products
which carry a lower margin than the data acquisition and imaging products.

The operating loss from continuing operations for the third fiscal quarter of
1997 was $949,000, compared to $1,260,000 in the comparable period of the prior
year.  A decrease in operating expenses contributed to reducing this loss.
Operating expenses decreased $654,000 to 71.5% of net sales compared to 83.9% in
the comparable quarter of the prior year.  The decrease in operating expenses
from the comparable period was mainly due to lower marketing expenses, primarily
advertising. Research and development expenses were $872,000 or 17.2% of net
sales compared to $1,039,000 or 20.4% of net sales for the comparable period
last year. Sales and marketing expenses were $2,173,000 or 42.9% of net sales
compared to $2,657,000 or 52.1% of net sales in the comparable quarter of the
prior year. General and administrative expenses were $582,000 or 11.4% of net
sales compared to $585,000 or 11.4% of net sales for the same period last year.
This year's general and administrative expenses are reflective of the Company on
a stand-alone basis compared to allocated expenses for fiscal 1996.
<PAGE>
 
                                                                   Page 10 of 12

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS
                                  (CONTINUED)

 

  The loss from continuing operations was $942,000 for the three months ended
August 31, 1997, compared to $714,000 in the comparable period of fiscal 1996.
The prior year's comparable period includes a tax benefit on a stand-alone, pro-
forma basis, of $443,000.  The Company incurred a net loss of $942,000 or $0.46
per share for the quarter ended August 31, 1997, compared to a net loss of
$2,985,000 or $1.48 per share for the same period in 1996.  The prior year
results include a loss on discontinued operations of $2,271,000 or $1.13 per
share.

Comparison of the first nine months of Fiscal 1997 to the first nine months of
Fiscal 1996:

  Net sales for the nine months ended August 31, 1997 were $16,287,000, an
increase of 2.7% or $429,000 from the same period a year ago.  The increase in
net sales from the comparable period in the prior year was attributable to
shipments of the Broadway product.  Sales from the Company's data acquisition
and imaging products have decreased approximately 14% from the same period in
fiscal 1996 mainly due to lower average selling prices in addition to a decline
in sales of older, more mature products.

  Gross margin for the nine months ended August 31, 1997 was 52.0%, compared to
61.9% in the comparable period of the prior year.  The decrease in gross margin
was primarily the result of lower average selling prices in the data acquisition
and imaging product lines, under utilization of the Company's manufacturing
capacity, as well as the increase in sales from Broadway products which carry a
lower margin than the data acquisition and imaging products.

  The operating loss from continuing operations for the first nine months of
fiscal 1997 was $4,463,000, compared to $846,000 for the comparable period of
the prior year.  An increase in operating expenses as well as the lower gross
margins contributed to this loss.  Operating expenses increased $2,264,000 to
79.4% of net sales compared to 67.2% from the same period a year ago. Sales and
marketing expenses were $8,257,000 or 50.7% of net sales compared to $6,492,000
or 40.9% of net sales in the comparable period of the prior year.  This increase
was due mainly to the continued promotion, advertising and sales channel
development for Broadway products.  General and administrative expenses were
$1,889,000 or 11.6% of net sales compared to $1,465,000 or 9.2% of net sales for
the same period last year.  This year's general and administrative expenses are
reflective of the Company on a stand-alone basis compared to allocated expenses
for fiscal 1996.

  Loss from continuing operations was $4,333,000 for the nine months ended
August 31, 1997, compared to $198,000 in the comparable period of fiscal 1996.
The prior year's comparable period includes a tax benefit on a stand-alone, pro-
forma basis, of $318,000.  The Company incurred a net loss of $4,333,000 or
$2.14 per share for the nine months ended August 31, 1997, compared to
$2,803,000 or $1.41 per share for the same period in 1996.  The prior year
results include a loss on discontinued operations of $2,605,000  or $1.31 per
share.

Liquidity and Capital Resources

  During the first nine months of fiscal 1997, there was a net decrease in cash
and cash equivalents of $4,589,000. Net cash used in operations was $4,024,000
which included a net loss of $4,333,000. Though the Company expects a loss in
the next fiscal quarter, the Company believes that current available funds will
be sufficient to meet current operating requirements for at least the next six
months. However, the Company's liquidity position has been declining over the
last fiscal year. As a result, in an effort to improve cash flow, the Company
implemented a workforce reduction of approximately 20% in the fourth quarter of
fiscal 1997 and, commencing in the first quarter of fiscal 1998, intends to
lower operating expenses including, but not limited to, sales and marketing
expenses for all of its product lines. If such efforts are unsuccessful in
improving cash flow and the Company's liquidity position materially worsens, the
Company may need to secure external financing in order to meet its ongoing
capital requirements. Consequently, the Company is pursuing possible financing
alternatives but, there can be no assurance whether the Company would be
successful in obtaining any required external financing.
<PAGE>
 
                                                                   Page 11 of 12


                          PART II.  OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K
        --------------------------------

        a)  Exhibits

               Exhibit
               Number              Description
               -------       -----------------------
                27           Financial Data Schedule

        b)  Reports on Form 8-K

            No reports were filed.
<PAGE>
 
                                                                   Page 12 of 12

                                  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.

                                      Data Translation, Inc.

Date: October 15, 1997                By:     /s/ Gary B. Godin
                                          ------------------------
                                                Gary B. Godin
                                          Chief Financial Officer