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 September 30, 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 (s) 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 per value Common Stock as
of October 24, 1997 was 6,262,480.

<PAGE>

                         PART 1 - FINANCIAL INFORMATION



ITEM 1.  FINANCIAL STATEMENTS

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

         Condensed balance sheets as of September 30, 1997 and December 31, 1996

         Condensed  statements  of income for the three and nine  month  periods
         ended September 30, 1997 and 1996.

         Condensed  statements of cash flows for the nine months ended September
         30, 1997 and 1996.

         Notes to condensed financial statements.

































<PAGE>
                             Digital Dictation, Inc.
                            CONDENSED BALANCE SHEETS
                                   (Unaudited)

                                             September 30,        December 31,
ASSETS                                           1997                 1996
                                            --------------       --------------
Current assets
  Cash and cash equivalents                  $      3,473         $       88,815
  Accounts receivable                           1,643,756              1,156,841
  Employee receivables                              5,725                  2,762
  Prepaid expenses and other                        5,212                 23,801
                                            --------------        --------------
        Total current assets                    1,658,166              1,272,219

Property and equipment, net                     1,307,781                879,983

Rent deposits                                       4,901                  4,901
                                            --------------        --------------


                  Total assets              $   2,970,848         $    2,157,103
                                            ==============        ==============


LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
  Borrowing under line of credit            $        -            $      329,029
  Accounts payable                                331,347                151,485
  Accrued payroll and payroll taxes               478,970                115,060
  Current portion of long-term debt                 6,390                  5,931
  Current portion of capital lease 
   obligations                                     32,592                 33,218
  Current income taxes payable                    222,374                 27,000
  Current deferred income taxes                   351,000                351,000
                                            --------------        --------------
        Total current liabilities               1,422,673              1,012,723

Long-term debt, non-current portion                 2,273                  7,127

Capital lease obligations, non current portion       -                    23,846

Non current deferred income taxes                  69,000                 69,000

Stockholders' equity
  Common stock,  par value $.01 per share 
  20,000,000  shares  authorized,
  6,262,480 and 6,257,480 shares issued 
  and outstanding at 9/30/97 and 12/31/96          62,625                 62,575
  Additional paid-in capital                      578,946                571,496
  Retained earnings                               835,331                410,336
                                            ----------------      -------------
        Total stockholders' equity              1,476,902              1,044,407

Commitments - Note 10                                -                      -
                                            -------------         -------------
        Total liabilities & stockholders' 
         equity                             $   2,970,848         $    2,157,103
                                            =============         ==============

         See   accompanying   notes  to  condensed financial statements.
<PAGE>

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



                          Three months ended            Nine months ended
                             September 30,                 September 30,
                    ----------------------------    ----------------------------
                         1997          1996              1997           1996
                    -------------  -------------    -------------   ------------
Revenues             $ 2,687,365    $ 1,825,326      $ 7,039,341    $ 5,074,387

Cost of services       1,734,159      1,158,935        4,491,848      3,298,657
                     ------------   ------------      -----------     ----------

Gross profit             953,206        666,391        2,547,493      1,775,730

General & administrative
  expense                689,205        470,672        1,848,454      1,237,947
                     ------------    -----------      -----------     ----------

Operating income         264,001        195,719          699,039        537,783

Other income (expense)
  Interest & other income    580             19            1,998            116
  Interest expense        (6,478)        (9,853)         (15,042)       (31,239)
                     ------------    -----------      -----------    -----------
Income before income 
 taxes                   258,103        185,885          685,995         506,660
                     ------------    -----------      -----------    -----------

Provision for income 
 taxes                    99,000         71,000          261,000        193,000
                     ------------    -----------      -----------    -----------


Net income           $   159,103     $  114,885       $  424,995     $  313,660
                     ============    ===========      ===========    ===========


Net income per share $       .03     $      .02       $      .07     $      .05
                     ============    ===========      ===========    ===========


Weighted average shares
 outstanding           6,261,326      6,257,480        6,258,762      6,257,480
                     ============    ===========      ===========    ===========













            See accompanying notes to condensed financial statements
<PAGE>

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


                                                 Nine months ended September 30,
                                                      1997             1996
Net cash flows from operating activities         -------------     -------------
Net income                                       $    424,995      $    313,660
Charges to operations not affecting cash:
        Provision for bad debts                        20,000                 0
        Depreciation and amortization                 259,562           206,650
        Deferred income tax provision                       0           178,000
Changes in operating assets and liabilities:
        Accounts receivable                         ( 506,915)         (318,848)
        Employee receivables                           (2,963)           17,566
        Prepaid expenses and other                     18,589          (  8,409)
        Accounts payable                              179,862           (61,632)
        Accrued payroll and payroll taxes             363,910           173,748
        Current income taxes payable                  195,374            15,000
                                                 -------------     -------------

   Net cash provided by operating activities          952,414           515,735

Cash flows from investing activities:
        Additions to property and equipment        (  687,360)         (177,806)
                                                 -------------     -------------

         Net cash used by investing activities     (  687,360)         (177,806)

Cash flows from financing activities:
        Net decrease in borrowings under line 
         of credit                                 (  329,029)         (131,505)
        Proceeds from advance from stockholder              0            36,035
        Dividends paid on earnings prior to 
         recapitalization                                   0           (44,791)
        Reduction of balance due stockholder                0           (22,240)
        Reduction of long-term debt                   ( 4,395)          (41,939)
        Reduction of capital lease obligation        ( 24,472)          (61,025)
        Proceeds from sale of common stock              7,500                 0
                                                 -------------     -------------

         Net cash used by financing activities      ( 350,396)         (265,465)

Increase (decrease) in cash                          ( 85,342)           72,464

Cash and cash equivalents at beginning of period       88,815            32,534
                                                 -------------     -------------

Cash and cash equivalents at end of period       $      3,473      $    104,998
                                                 =============     =============






         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 nine month
period ended  September 30, 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

                                                September 30,      December 31,
                                                    1997               1996
                                                -------------     -------------
       Dictation and other equipment            $  2,260,556      $   1,706,294
       Furniture and fixtures                         93,440             84,069
       Leasehold improvements                         64,671             55,083
       Automobile                                     23,958             23,400
       Software                                      158,431             44,850
                                                -------------     --------------
       Total property and equipment                2,601,056          1,913,696
       Accumulated depreciation and amortization  (1,293,275)        (1,033,713)
                                                -------------     --------------

                                                 $ 1,307,781      $     879,983
                                                =============     ==============



Note 4 - Borrowings under Line of Credit

       The Company has a $400,000  line of credit  available  from Crestar Bank,
Inc.  through June 30, 1998.  Interest is payable at prime plus one per cent per
annum (9.5% at September 30, 1997).  The line of credit is secured by all assets
of the Company.  As of September  30, 1997 there were no  borrowings  under this
line of credit.


       Borrowings  under  this line of credit are  solely  for  working  capital
purposes. The related loan and security agreement requires the Company to submit
financial and business information to the Bank as and when required from time to
time. The Company is in compliance with these reporting covenants.

<PAGE>

Note 5 - Long-term Debt

                                           September 30,           December 31,
                                               1997                    1996
                                           -------------          -------------
    Automobile installment loan, 10% interest,
     due December 1998                     $      8,663           $      13,058
                                           -------------          --------------
                                                  8,663                  13,058

    Less current portion                         (6,390)                 (5,931)
                                           -------------          --------------
                                           $      2,273           $       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:
                                           September 30,           December 31,
                                               1997                    1996
                                           -------------          -------------
    Dictation and other equipment          $    104,515           $     104,515
    Allowance for depreciation                  (52,978)                (37,301)
                                           -------------          --------------

                                           $     51,537           $      67,214
                                           =============          ==============



Note 7 - Stock Option Plan

       In March 1996 the Board of Directors  authorized the  establishment  of a
non-qualified  stock option plan for its  full-time  employees and directors and
reserved  1,300,000  shares of the Company's  common stock for issuance upon the
exercise of options  granted under this plan. On September 22, 1997 the Board of
Directors  amended the Plan and  authorized 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 have a term of not more than ten years.  The vesting
periods for options  granted  under the plan have ranged from  immediate to four
years.  The exercise  price for all options  granted under the plan have been at
fair market value on the date of the grant.




<PAGE>

Note 8 - Employee Stock Purchase Plan

       In  December,  1996 the Board of  Directors  approved an  Employee  Stock
Purchase  Plan and reserved  150,000  shares of the Company's  common stock.  No
shares have been issued under the Plan as of September 30, 1997.


Note 9 - Employee Benefit Plan

       In March 1997 the Board of Directors  established a Section 125 Cafeteria
Plan.


Note 10 - 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 September 30, 1997 are as follows:

    Year ending                  Capital          Operating
    September  30,               Leases             Leases           Total
                              -------------     -------------    -------------
         1998                 $     34,458      $    131,990      $    166,448
         1999                                        101,433           101,433
         2000                                          3,179             3,179
                              -------------     -------------     -------------
Total minimum lease 
 payments                           34,458      $    236,602      $    271,060
                                                =============     =============
Amount representing 
 interest                           (1,866)
                              -------------
Present value of net minimum
lease payments (including
$32,592 classified as current)$     32,592
                              =============


     Rent expense under operating leases for the nine months ended September 30,
1997 and 1996 totaled $71,914 and $41,939, 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.

       The Company  presently  serves  thirty-six  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  executing a marketing  plan,  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 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 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  resisting  temptations  to
diversify into other areas.

                         Employees and Transcriptionists


       As of September 30, 1997, the Company had twenty-nine full-time employees
and two  part-time  employees  in its  principal  executive  offices  in Vienna,
Virginia and its regional marketing office in the Santa Barbara, California. 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.
<PAGE>

             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.  The Company has been able to maintain its
existing client base.

       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 weekly run rate was  approximately  $205,000  as of  September  30,  1997 as
compared to  approximately  $145,000 as of as of September 30, 1996.  The actual
revenues  through  September 30,  together  with the current run rate  indicates
annual revenues for 1997 in excess of $9.6 million is likely.

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

                              For the year ended December 31,
               1996          1995          1994          1993          1992
           ------------  ------------  ------------  ------------  ------------
Revenues   $ 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 third  quarter of 1997 were 47.2%  higher than  revenues
for the third  quarter of 1996 and  revenues  for the first nine  months of 1997
were 38.7%  higher than the  revenues  for the first nine months of 1996.  These
results  were  primarily  a result of  additional  hospitals  being  taken on as
clients,  without  substantial  reduction  in the existing  client  base.  As of
September  30,  1996,  the  Company  was  providing  services  to 26 health care
institutions,  while  currently,  DDI is  providing  services  to 36 health care
institutions, a net increase of ten new clients.

       Cost of services,  which includes all costs related to transcriptionists,
telephone and associated equipment  depreciation,  represented 64.5% of revenues
in the third  quarter of 1997 as compared to 63.5% in the third  quarter of 1996
and.  The  increase  in  cost  of  services  as  a  percentage  of  revenues  is
attributable   primarily   to   an   increase   in   telecommunications   costs.
Telecommunications  costs have increased as a percentage of revenues as a result
of new clients being farther from the Company's  Virginia  Operations Center and
from  the  addition  of new  services  requiring  additional  telecommunications
services for delivery.  Cost 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.
<PAGE>

       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,  transcription  recruiting and other administrative expenses.
G&A expenses  were 25.6% and 26.3% of revenue in the third quarter and the first
nine months of 1997 versus  25.8% and 24.4% of revenue in the third  quarter and
first nine months of 1996.  G&A expenses  increased as a percentage  of revenues
because of additional  personnel  expenses in 1997 and the costs associated with
the process of acquiring and commencing  business with new clients.  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  September  30,  1997,  the  Company  held  cash  and  equivalents  of
approximately $3,500, along with trade receivables of approximately  $1,644,000.
As necessary to meet temporary cash flow shortages,  the Company may draw upon a
$400,000  line  of  credit  which  remains  available  through  June  30,  1998.
Borrowings  against  the line of  credit  as of  September  30,  1997  were zero
compared to borrowings of  approximately  $133,000 as of September 30, 1996. Net
cash flow provided by operating  activities was  approximately  $950,000 for the
nine months ended  September  30, 1997 and $516,000 for the first nine months 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.







<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)



                                      Richard D. Cameron
                                  by:      Richard D. Cameron
                                  Chief Executive Officer


                                       Gerald H. Gruber
                                  By:      Gerald H. Gruber
                                  Chief Accounting & Financial Officer



October 24, 1997
<PAGE>