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


                                   FORM 10-QSB


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

                 For the quarterly period ended March 31, 1997.




                             DIGITAL DICTATION, INC.



                      Incorporated in the State of Delaware

                            8230 Old Courthouse Road
                             Vienna, Virginia, 22182

                           Telephone : (703) 848-2830
                  I.R.S. Employer Identification No. 52-1451022

                         Commission file number 0-27052











Check  whether the Issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days.

                                   YES X     NO 


The number of shares  outstanding of the Issuer's $.01 par value Common Stock as
of April 28, 1997 was 6,257,480.
















                                        1
<PAGE>

                         PART I - FINANCIAL INFORMATION




ITEM 1.  FINANCIAL STATEMENTS


Index to unaudited condensed financial statements presented on pages 3 to 7:

     Condensed balance sheets as of March 31, 1997 and December 31, 1996

     Condensed  statements of income for the three months ended  March 31,  1997
     and 1996

     Condensed  statements  of cash flows for the three months  ended  March 31,
     1997 and 1996
     
     Notes to condensed financial statements
                                        














































                                        2
<PAGE>

                             DIGITAL DICTATION, INC.
                            CONDENSED BALANCE SHEETS
                                   (Unaudited)

                                                         March 31,  December 31,
                             ASSETS                         1997         1996
                                                        -----------  -----------
Current Assets 
     Cash and equivalents                               $  269,866   $   88,815
     Accounts receivable                                 1,008,210    1,156,841
     Employee receivables                                    1,390        2,762
     Prepaid expenses and other                             35,563       23,801
                                                        -----------  -----------
         Total current assets                            1,315,029    1,272,219
                                                        -----------  -----------
Property and equipment, net                                962,726      879,983

Rent deposits                                                4,901        4,901
                                                        -----------  -----------
         Total assets                                   $2,282,656   $2,157,103
                                                        ===========  ===========
               LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
     Borrowings under line of credit                    $     -      $  329,029
     Accounts payable                                      312,312      151,485
     Accrued payroll and payroll taxes                     304,767      115,060
     Current portion of long-term debt                       5,550        5,931
     Current potion of capital lease obligations            37,420       33,218
     Current income taxes payable                           17,000       27,000
     Current deferred income taxes                         351,000      351,000
                                                        -----------  -----------
         Total current liabilities                       1,028,049    1,012,723
                                                        -----------  -----------
Long-term debt, non-current portion                          6,080        7,127

Capital lease obligations, non-current portion              15,995       23,846

Non-current deferred income taxes                           69,000       69,000

Stockholders' equity
     Common stock, par value $0.01 per share, 20,000,000
       Authorized, 6,257,480 shares issued and 
       outstanding                                          62,575       62,575
     Additional paid-in capital                            571,496      571,496
     Retained earnings                                     529,461      410,336
                                                        -----------  -----------
          Total stockholders' equity                     1,163,532    1,044,407
                                                        -----------  -----------
Commitments - Note 8                                          -            -   
                                                        -----------  -----------
          Total liabilities and stockholders' equity    $2,282,656   $2,157,103
                                                        ===========  ===========























            See accompanying notes to condensed financial statements.


                                       3
<PAGE>

                             DIGITAL DICTATION, INC.
                          CONDENSED STATEMENT OF INCOME
                                   (Unaudited)


                                                   Three months ended March 31,
                                                       1997             1996
                                                  -------------    -------------
Revenues                                           $ 1,994,391      $ 1,542,282

Cost of services                                     1,275,589        1,056,191
                                                   -----------      -----------
          Gross profit                                 718,802          486,091

General and administrative expenses                    524,128          335,224
                                                   -----------      -----------
Operating income                                       194,674          150,887

Other income (expense)
          Interest and other income                        958               14
          Interest expense                               4,507          (12,326)
                                                   -----------      -----------
Income before income taxes                             191,125          138,555

Provision for income taxes                              72,000           53,000
                                                   -----------      -----------
          Net income                               $   119,125      $    85,555
                                                   ===========      ===========

Net income per share                               $       .02      $       .01
                                                   ===========      ===========

Weighted average shares outstanding                  6,257,480        6,257,480
                                                   ===========      ===========




































            See accompanying notes to condensed financial statements.

                                       4
<PAGE>

                             DIGITAL DICTATION, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)


                                                    Three months ended March 31,
                                                         1997          1996
                                                    -------------  -------------
Cash flows from operating activities
     Net income                                        $ 119,125     $   85,555
     Changes to operations not affecting cash
         Depreciation and amortization                    74,210         65,834
         Deferred income tax provision                      -            18,000
     Changes in operating assets and liabilities
         Accounts receivable                             148,631       (123,083)
         Employee receivables                              1,372          5,390
         Prepaid expenses and other                      (11,762)       (23,812)
         Accounts payable                                127,494        (44,126)
         Accrued payroll and payroll taxes               189,707         62,577
         Current income taxes payable                    (10,000)        35,000
                                                       ----------     ----------
             Net cash provided by operating activities   638,777         81,335
                                                       ----------     ----------
Cash flows from investing activities
     Additions to property and equipment                (156,953)       (29,831)
                                                       ----------     ----------
             Net cash from investing activities         (156,953)       (29,831)
                                                       ----------     ----------
Cash flows from financing activities
     Net (decrease) in borrowing under line of 
     credit                                              (29,029)       (43,391)
     Proceeds from bank loan                                -            18,000
     Increase (reduction) of long-term debt               31,905        (14,519)
     Reduction of capital lease obligations               (3,649)       (21,325)
                                                       ----------     ----------
           Net cash used by financing activities        (300,773)       (61,235)
                                                       ----------     ----------
Increase (decrease) in cash                              181,051         (9,731)

Cash and cash equivalents at beginning of period          88,815         32,534
                                                       ----------     ----------
Cash and cash equivalents at end of period             $ 269,866     $   22,803
                                                       ==========     ==========
































            See accompanying notes to condensed financial statements

                                       5
<PAGE>

                             DIGITAL DICTATION, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 1 - THE COMPANY

     Digital  Dictation,  Inc. (the "Company" or "DDI")  provides  transcription
services for various  medical  facilities.  The Company is  incorporated  in the
State of Delaware and commenced operations during 1989.

NOTE 2 - PRESENTATION OF FINANCIAL STATEMENTS

     The  accompanying   unaudited  condensed  financial  statements  have  been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, these financial statements do not include all of
the  information  and  footnotes  required  by  generally  accepted   accounting
principles for complete financial statements. In the opinion of management,  all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair  presentation  have been included.  Operating  results for the  three-month
period ended March 31,  1997 are not necessarily  indicative of the results that
may be expected for the year ending December 31, 1997. For further  information,
reference is made to the financial  statements and notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996.

NOTE 3 - PROPERTY AND EQUIPMENT

                                                    March 31,      December 31,
                                                      1997           1996       
                                                  -------------   -------------
         Dictation and other equipment            $   1,842,596   $   1,706,294
         Furniture and fixtures                          85,073          84,069
         Leasehold improvements                          55,878          55,083
         Automobile                                      23,958          23,400
         Software                                        63,144          44,850
                                                  -------------    -------------
         Total Property Assets                        2,070,649       1,913,696
         Accumulated depreciation and amortization   (1,107,923)     (1,033,713)
                                                  -------------    -------------
                                                  $     962,726   $     879,983
                                                  =============    =============

NOTE 4 - BORROWINGS UNDER LINE OF CREDIT

     The Company has a $450,000  line of credit  available  from  Merrill  Lynch
Business Financial Services,  Inc. through June 30, 1997. Interest is payable at
prime plus one per cent per annum (9.5% at March 31,  1997).  The line of credit
is secured by all assets of the  Company.  There were no  borrowings  under this
line of credit at March 31, 1997.

     Borrowings  under  this line of  credit  are  solely  for  working  capital
purposes. The related loan and security agreement requires the Company to submit
annual  reviewed  financial  statements  within  120 days  after the end of each
fiscal year, and unaudited interim financial statements within 45 days after the
end of each fiscal  quarter.  The Company is in compliance  with these reporting
covenants.

NOTE 5 - LONG-TERM DEBT

                                                     March 31,     December 31,
                                                       1997           1996     
                                                  -------------   -------------
         Automobile installment loan, 10% interest,
             due December 1998                    $     11,630    $      13,058
                                                  ------------    -------------
                                                        11,630           13,058
         Less current portion                           (5,550)          (5,931)
                                                  ------------    --------------
                                                  $      6,080    $       7,127
                                                  ============    ==============

NOTE 6 - CAPITAL LEASES

     The Company leases various  equipment under long-term  contracts.  Property
and  equipment  includes  the  following  amounts  for  leases  that  have  been
capitalized:
    
                                                     March 31,     December 31,
                                                       1997           1996     
                                                  -------------   -------------
         Dictation and other equipment            $    104,515    $     104,515
         Allowance for depreciation                    (42,527)         (37,301)
                                                  -------------   --------------
                                                  $     61,988    $      67,214
                                                  =============   ==============

                                       6
<PAGE>

NOTE 7 - STOCK OPTION PLANS

     In March 1996  the Board of Directors  authorized  the  establishment  of a
non-qualified  stock  option plan for its  full-time  employees  (the  "Employee
Plan") and reserved  800,000  shares of the Company's  common stock for issuance
upon the exercise of options  granted  under this plan.  All options  granted to
date under the  Employee  Plan vest at the rate of 25% per year,  beginning  one
year after the date of grant and have a term of ten years.

     Also in March 1996,  the Board of Directors authorized the establishment of
a  non-qualified  stock option plan for its directors (the "Director  Plan") and
reserved  500,000  shares of the  Company's  common stock for issuance  upon the
exercise of options  granted under this plan.  These options vest at the rate of
one-third per year beginning one year after the date of grant,  have an exercise
price of $.76 per share, and have a term of ten years.


NOTE 8 - COMMITMENTS

     The Company rents office space under two agreements which expire August 31,
1999 and October 31, 1999.

     Future  minimum  lease  payments  under  capital  leases for  equipment and
non-cancelable operating leases for office space, equipment and an automobile as
of March 31, 1997 are as follows:

             Year ending          Capital         Operating
              March 31,           Leases            Leases             Total    
            -------------      -------------     -------------     -------------
                1998           $     37,420      $    101,842      $    139,262
                1999                 15,995            94,204           110,199
                2000                                   41,556            41,556
                               ------------      ------------      ------------
     Total minimum lease 
       payments                $     53,415      $    237,602      $    290,017
                                                 ============      ============
     Amount representing 
       interest                      (4,094)
                               ------------
     Present value of net 
       minimum lease payments
       (including $37,420 
       classified as current)  $     49,321
                               ============

     Rent expense  under  operating  leases for the three months ended March 31,
1997 and 1996 totaled $23,921 and $13,600, respectively.
































                                       7
<PAGE>


ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND 
          RESULTS OF OPERATIONS

                           DESCRIPTION OF THE BUSINESS

     Digital  Dictation,   Inc.  ("DDI"  or  the  "Company")   provides  medical
transcription  services  to  institutional  health  care  providers,   including
hospitals,  health  maintenance  organizations  (HMO's),  and emergency medicine
facilities  located in various  parts of the  country.  The  Company's  business
involves  the  transcription  of medical  reports  which have been  dictated  by
physicians and other medical  professionals,  into computer readable form and/or
hard copy. The Company's emphasis is on the management and control of the entire
dictation and transcription process for its clients.

     Management  believes  that DDI is one of the few firms in its industry that
has successfully created a centralized,  automated transcription service able to
serve a  national  client  base  from a single  location.  DDI has  developed  a
proprietary  in-hospital  transcription  processing system that provides totally
automated processing of all incoming  transcriptions  through an electronic link
with the  Company's  centralized  processing  system in its Virginia  Operations
Center in Vienna,  Virginia.  The  Company  utilizes  high  caliber  independent
medical  transcriptionists  ("IMT's"),  working from their homes  throughout the
country, who are connected to the Virginia Operations Center via computer modem.

     The Company presently serves thirty major hospitals.  Twelve are located in
the general  Washington,  DC metropolitan area while the others do not represent
any major geographic concentration.

     The Company has  prepared  and is  launching a major  marketing  offensive,
aimed at exposing and  educating  potential  clients to the benefits that can be
realized from a technology-based,  quality-focused  company. This marketing plan
capitalizes on the Company's  excellent  reputation in the industry and utilizes
the willingness of existing clients to testify as to the Company's high level of
service. The Company has one regional manager in California, and expects to hire
additional  regional  managers in other parts of the country during the next two
years, to provide new business development and locally based client support.

     Management  has  evaluated  opportunities  to expand  the  Company  through
acquisitions,  to expand its service offerings to include overflow transcription
services, to diversify its client base to serve physicians' offices, and to sell
or license its  technology to other  companies.  Management  strongly  believes,
however,  that the growth and profitability of the Company can best be optimized
by  continuing  to focus on DDI's core  business  and resist the  temptation  to
diversify into other areas.


                         EMPLOYEES AND TRANSCRIPTIONISTS

     As of March 31,  1997, the Company had twenty-one  full-time  employees and
one  part-time  employee  in  its  principal   executive  offices  and  Virginia
Operations  Center,  in addition to the regional  marketing manager in the Santa
Barbara,  California  office.  DDI  also has  arrangements  with  more  than 200
home-based  transcriptionists  who are either CMT-certified or in the process of
becoming certified.  Transcriptionists  work from their homes, setting their own
hours any time during the day or night. The transcriptionists are paid bi-weekly
in accordance with the amount of  transcription  they produce,  as opposed to an
hourly  rate.  The  Company  has   subcontract   agreements   with  all  of  the
transcriptionists  which specify the quality and delivery  requirements  and set
forth the method and rate for payment.


             DISCUSSION OF OPERATING RESULTS AND FINANCIAL CONDITION


OPERATING RESULTS

     The Company has reported  average  annual  growth in revenues over the past
five  fiscal  years of 34%.  DDI  focuses on securing  long-term  contracts  for
full-service  (outsourced) medical  transcription  services rather than overflow
services from medical institutions. As a result, each client contract produces a
fairly consistent stream of revenue.

     Total revenue from all contracts each week (the "run rate") is management's
key indicator of current financial performance.  The acquisition of a new client
requires  initial  start-up  expenses  prior to the  cut-over  of  service,  and
thereafter  results in an immediate  positive  impact on the weekly run rate, as
revenue is increased by the full weekly amount of the new contract.  The Company
has been able to maintain  its  existing  client  base.  The weekly run rate was
approximately  $160,000  as of  March  31,  1997 as  compared  to  approximately
$130,000  as of as of March 31,  1996.  The  current  run rate  indicates  total
revenues for 1997 in excess of $8.3 million is likely.


                                       8
<PAGE>



     Annual revenues for the preceding five fiscal years were as follows:

                               For the year ended December 31,              
               ---------------------------------------------------------------
                 1996          1995         1994          1993          1992  
             -----------   -----------   -----------   -----------   -----------
    Revenue  $ 6,936,730   $ 5,057,585   $ 3,838,076   $ 2,745,897   $ 2,354,043


     The  Company's  record of adding new  clients  while  maintaining  existing
client loyalty has resulted in a stable and generally predictable annual revenue
growth rate.  As DDI continues to expand its market  nationally  and exploit its
technology and client support, management anticipates the ability to continue to
increase annual revenue in line with historic  trends,  although there can be no
assurances that such annual revenue growth rates will be sustained.

     Revenues  for the first  quarter of 1997 were 29% higher than  revenues for
the first quarter of 1996  primarily as a result of additional  hospitals  being
taken on as clients,  without any  reduction in the existing  client base. As of
March 31,   1996,  the  Company  was  providing   services  to  23  health  care
institutions,  while  currently,  DDI is  providing  services  to 30 health care
institutions.

     Cost of services,  which  includes all costs related to  transcriptionists,
telephone and associated equipment  depreciation,  represented 63.9% of revenues
in the first  quarter of 1997 as compared to 68.5% in the first quarter of 1996.
The  decrease in cost of services as a  percentage  of revenues is  attributable
primarily to a decrease in telecommunications  costs.  Telecommunications  costs
were high during the first quarter of 1996, and the Company took steps to reduce
these  costs.  Costs of  services  are  directly  related to  revenue  and it is
expected that such costs will continue at the rate of  approximately  two-thirds
of total revenue.

     General and  administrative  ("G&A") expenses consist primarily of salaries
and  benefits  of all  technical,  marketing,  operations  and  client  support,
administrative  and  executive   personnel,   occupancy  costs,   marketing  and
promotional costs, and other administrative expenses. G&A expenses were 26.3% of
revenue  in the first  quarter  of 1997  versus  21.7% of  revenue  in the first
quarter of 1996. G&A expenses  increased as a percentage of revenues  because of
additional  personnel  expenses  in 1997 and  launching  of  marketing  campaign
expenses.  The Company has  otherwise  shown the ability to increase its revenue
base without a similar percentage  increase in fixed expenses in part due to its
strategy of nationwide expansion from a central operating facility.


FINANCIAL CONDITION

     At March 31, 1997, the Company held cash and  equivalents of  approximately
$270,000, along with trade receivables of approximately $1,008,000. As necessary
to meet temporary cash flow shortages, the Company may draw upon a $450,000 line
of credit which remains available through June 30, 1997;  management  expects to
be able to renew the line.  There were no borrowings  against the line of credit
as of March 31, 1997  compared to  borrowings  of  approximately  $230,000 as of
March 31, 1996. Net cash flow from  operations was $638,777 for the three months
ending March 31, 1997 and $81,335 in 1996.

     Given that the  Company is  expected to grow at a rate in excess of its net
profit  margin,  it is  possible  the  Company  will  need to secure a source of
additional  funding to finance such growth.  Management  believes that projected
increases in revenues  will be sufficient  to fund the  associated  increases in
operating costs of the Company.














                                       9
<PAGE>

                           PART II - OTHER INFORMATION


 
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits:    None


(b)      Reports on Form 8-K:       None.




                                   SIGNATURES


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


                                               DIGITAL DICTATION, INC.
                                               (Registrant)



                                                    /S/ Richard D. Cameron     
                                               ---------------------------------
                                      By:      Richard D. Cameron
                                               Chief Executive Officer


                                                    /S/ Gerald H. Gruber        
                                               ---------------------------------
                                      By:      Gerald H. Gruber
                                               Chief Financial Officer



April 28, 1997































                                        10