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, 1998




                             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 22, 1998 was 6,325,503.




<PAGE>




                         PART I - FINANCIAL INFORMATION




ITEM 1.  FINANCIAL STATEMENTS


Index to unaudited condensed financial statements presented on pages 3 to 8:

     Condensed balance sheets as of March 31, 1998 and December 31, 1997

     Condensed statements of income for the three months ended March 31, 1998
     and 1997

     Condensed statements of cash flows for the three months ended March 31, 
     1998 and 1997

     Notes to condensed financial statements


<PAGE>


                             DIGITAL DICTATION, INC.
                            CONDENSED BALANCE SHEETS
                                   (Unaudited)

                                             March 31,             December 31,
           ASSETS                              1998                    1997
Current Assets                           ---------------         ---------------
     Cash and equivalents                $      171,140          $        2,530
     Accounts receivable                      1,481,326               1,709,503
     Employee receivables                        13,626                   7,605
     Prepaid expenses and other                  41,998                  22,898
                                          --------------          --------------
         Total current assets                 1,708,090               1,742,536
                                          --------------          --------------

Property and equipment, net                   1,863,093               1,546,079
                                          --------------          --------------

         Total assets                     $   3,571,183            $  3,288,615
                                          ==============          ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
     Borrowings under line of credit      $     214,000            $    132,318
     Accounts payable                           398,830                 313,113
     Accrued payroll and payroll taxes          418,784                 325,894
     Current portion of long-term debt            5,543                   6,547
     Current potion of capital lease 
      obligations                                15,395                  24,314
     Current income taxes payable               228,050                 405,575
     Current deferred income taxes               41,000                  41,000
                                         ---------------          --------------
         Total current liabilities            1,321,602               1,248,761

Long-term debt, non-current portion                -                        576

Non-current deferred income taxes               290,000                 339,000

Stockholders' equity
     Common stock, par value $0.01 per share, 
      20,000,000 Authorized, 6,325,503 shares 
      issued and outstanding at March 31, 1998   63,255                  62,816
     Additional paid-in capital                 672,915                 610,900
     Retained earnings                        1,223,411               1,026,562
                                         ---------------          --------------
          Total stockholders' equity          1,959,581               1,700,278
                                         ---------------          --------------

Commitments - Note 8                               -                       -
                                         ---------------          --------------

Total liabilities & stockholders' equity $    3,571,183           $   3,288,615
                                         ===============          ==============
















                  See accompanying notes to condensed financial
                                  statements.



<PAGE>


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

                                         Three months ended March 31,
                                         1998                    1997
                                   ----------------        ----------------
Revenues                            $   2,996,787           $   1,994,391

Cost of services                        1,960,296               1,275,589
                                    --------------          --------------

          Gross profit                  1,036,491                 718,802

General and administrative expenses       716,019                 524,128
                                    --------------          --------------

Operating income                          320,472                 194,674

Other income (expense)
          Interest and other income         3,415                     958
          Interest expense                 (4,038)                 (4,507)
                                    --------------          --------------

Income before income taxes                319,849                 191,125

Provision for income taxes                123,000                  72,000
                                    --------------          --------------

          Net income                $     196,849           $     119,125
                                    ==============          ==============

Basic net income per share          $         .03           $         .02
                                    ==============          ==============
Weighted average shares outstanding     6,289,401               6,257,480
                                    ==============          ==============

Diluted net income per share        $         .03           $         .02
                                    ==============          ==============






















                  See accompanying notes to condensed financial
                                  statements.


<PAGE>


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


                                                 Three months ended March 31,
                                                    1998              1997
                                               ---------------    --------------
Cash flows from operating activities
Net income                                     $     196,849      $     119,125
  Changes to operations not affecting cash
    Depreciation and amortization                    126,466             74,210
    Deferred income tax provision                    (49,000)              -
  Changes in operating assets and liabilities
    Accounts receivable                              228,177            148,631
    Employee receivables                              (6,021)             1,372
    Prepaid expenses and other                       (19,100)           (11,762)
    Accounts payable                                  85,719            127,494
    Accrued payroll and payroll taxes                 92,890            189,707
    Current income taxes payable                    (177,525)           (10,000)
                                               --------------      -------------
                  
    Net cash provided by operating activities        478,455            638,777
                                               --------------      -------------
Cash flows from investing activities
   Additions to property and equipment              (443,480)          (156,953)
                                               --------------      -------------

   Net cash from investing activities               (443,480)          (156,953)
                                               --------------      -------------

Cash flows from financing activities
   Net (decrease) in borrowing under line of credit   81,682           (329,029)
   Issue of common stock - 
        Employee Stock Purchase Plan                  39,932               -
        Exercise of stock options                     22,522               -
   Increase (reduction) of long-term debt             (1,582)            31,905
   Reduction of capital lease obligations             (8,919)            (3,649)
                                               --------------      -------------

   Net cash used by financing activities             133,635           (300,773)
                                               --------------      -------------

Increase in cash                                     168,610            181,051

Cash and cash equivalents at beginning of period       2,530             88,815
                                               --------------      -------------

Cash and cash equivalents at end of period     $     171,140       $    269,866
                                               ==============      =============
















            See accompanying notes to condensed financial statements




<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, 1998 are not  necessarily  indicative of the results that
may be expected for the year ending December 31, 1998. 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, 1997.


NOTE 3 - PROPERTY AND EQUIPMENT

                                           March 31,               December 31,
                                             1997                      1997
Dictation and other equipment          $    2,798,267            $    2,480,673
         Furniture and fixtures                96,280                    94,157
         Leasehold improvements                67,146                    64,671
         Automobile                            23,400                    23,400
         Software                             377,269                   255,981
                                       --------------            --------------
         Total Property Assets              3,362,362                 2,918,882
         Accumulated depreciation and 
          amortization                     (1,499,269)               (1,372,803)
                                       --------------            --------------
                                       $    1,863,093            $    1,546,079
                                       ==============            ==============


NOTE 4 - BORROWINGS UNDER LINE OF CREDIT

       The Company has a $700,000  line of credit  available  from  Crestar Bank
subject to annual reviews and expires  December 3, 2002.  Interest is payable at
prime plus one per cent per annum (9.5% at March 31,  1998).  The line of credit
is secured by all assets of the Company. There were borrowings of $214,000 under
this line of credit at March 31, 1998.

       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 20 days after the
end of each fiscal  quarter.  The Company is in compliance  with these reporting
covenants.


<PAGE>

NOTE 5 - LONG-TERM DEBT


                                         March 31,               December 31,
                                            1998                      1997

Automobile installment loan, 10% 
 interest, due December 1998         $        5,543            $          7,123
                                      -------------             ---------------
                                              5,543                       7,123
         Less current portion                (5,543)                     (6,547)
                                     --------------             ---------------
                                     $         -               $            576
                                     ==============             ===============



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,
                                           1998                      1997

Dictation and other equipment         $      104,515            $      104,515
Allowance for depreciation                   (63,430)                  (58,204)
                                      ---------------           ---------------
                                      $       41,085            $       46,311
                                      ===============           ===============



NOTE 7 - STOCK OPTION PLANS

       In March 1996 the Board of Directors  authorized the  establishment  of a
non-qualified  stock  option plan for its  directors,  full-time  employees  and
consultants  (the "Plan") and reserved  1,300,000 shares of the Company's common
stock for issuance  upon the  exercise of options  granted  under this plan.  In
September, 1997, the Board of Directors approved reserving an additional 300,000
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 Plan are granted
at fair market value as of the date of the grant, and have a maximum 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, 1998 are as follows:

                        Year ending       Capital     Operating
                         MARCH 31,        LEASES        LEASES         TOTAL

                              1999      $   15,995  $  97,479    $    113,474
                              2000                     42,967          42,967
                                        ----------  ---------    ------------
     Total minimum lease payments           15,995  $ 140,446    $    156,441
                                                    =========    ============

     Amount representing interest             (600)

     Present value of net minimum 
      lease payments                    $   15,395
                                        ==========


     Rent expense  under  operating  leases for the three months ended March 31,
1998 and 1997 totaled $24,967 and $23,921, respectively.

<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.

       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, 1998, the Company had  twenty-nine  full-time  employees.
DDI also has arrangements  with more than 250 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
four  fiscal  years of 38%.  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   $225,000  as  of  March  31,  1998  as  compared  to
approximately  $160,000  as of as of  March  31,  1997.  The  current  run  rate
indicates total revenues for 1998 in excess of $11.8 million is likely.

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

                            FOR THE YEAR ENDED DECEMBER 31,
              1997          1996          1995          1994          1993
         -------------  ------------  ------------  ------------  ------------
Revenues $  10,025,825  $  6,936,730  $  5,057,585  $  3,838,076  $  2,745,897

<PAGE>


       The fact that the Company does not accept overflow  contracts  permits it
to  anticipate  a  continuous   stream  of  revenue  and  to  plan  and  execute
improvements  in technology  and services  which are designed to enhance  client
satisfaction  and  retention.  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 1998 were 50.3%  higher than  revenues
for the  first  quarter  of 1997  primarily  as a  result  of net  additions  of
hospitals obtained as new clients, and by expansion of services among clients in
the existing client base. Quarter-to-quarter price increases have also occurred,
but are not a significant reason for the increase in revenues.

       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 65.4% in the first quarter of 1998.
The  increase in cost of services as a  percentage  of revenues is  attributable
primarily  to  telecommunications  costs.   Telecommunications  costs  increased
substantially  throughout calendar year 1997. During the second half of 1997, an
extensive   software   development   program  and  re-design  of  the  Company's
telecommunications  network  was  undertaken.  During the first  quarter of 1998
there is redundant telecommunications expense as the shift in network facilities
begins.  Costs of services are and will remain to be 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  23.9% of  revenue  in the first
quarter of 1998. G&A expenses  decreased as a percentage of revenues  because of
the spreading of fixed costs over a larger amount of revenue in 1998.

       Operating  income  increased from 9.8% of revenue in the first quarter of
1997 to 10.7% of revenue in the first  quarter of 1998.  The  increase in margin
illustrates the Company's ability to increase its revenue base without a similar
percentage increases in fixed expenses,  which is in part due to its strategy of
nationwide expansion from a central operating facility. This is indicated by the
fact that revenues increased 50% compared to the first quarter of 1997 while G&A
expenses increased from the comparable quarter by approximately 37%.


FINANCIAL CONDITION

       At March 31, 1998, the Company held cash and equivalents of approximately
$170,000, along with trade receivables of approximately $1,480,000. As necessary
to meet temporary cash flow shortages, the Company may draw upon a $700,000 line
of credit  ($450,000  as of March 31,  1997)  which  remains  available  through
December 3, 2002; 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 $214,000 as of March 31, 1998.  Net cash flow from  operations was
$638,777  for the three  months  ending  March 31, 1997 and  $478,455 in 1998. A
major reason for the decrease in cash flow relates to the manner in which income
taxes were paid in prior years.  Until 1996,  the Company  qualified to use cash
basis tax  accounting,  and  thereafter  was required to adopt accrual basis tax
accounting. The deferred tax liability is being paid over a four year period.

       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.


<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)


                                                   By:   /s/RICHARD D. CAMERON
                                                         ---------------------
                                                         Richard D. Cameron
                                                         Chief Executive Officer


                                                         /s/GERALD H. GRUBER
                                                         ---------------------
                                                   By:   Gerald H. Gruber
                                                         Chief Financial Officer



April 22, 1998