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 June 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 July 14, 1997 was 6,257,480.

<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 June 30, 1997 and December 31, 1996

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

         Condensed  statements  of cash flows for the six months  ended June 30,
         1997 and 1996.

         Notes to condensed financial statements.
































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


                                            June 30,              December 31,
                           ASSETS             1997                    1996
                                           ------------           ------------
Current assets
    Cash and cash equivalents              $     46,651           $     88,815
    Accounts receivable                       1,434,157              1,156,841
    Employee receivables                          2,965                  2,762
    Prepaid expenses and other                   32,218                 23,801
                                           -------------          -------------
      Total current assets                    1,515,991              1,272,219

Property and equipment, net                   1,169,612                879,983

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

      Total assets                         $  2,690,504           $  2,157,103
                                           =============          =============

LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
    Borrowing under line of credit         $    266,751           $    329,029
    Accounts payable                            298,662                151,485
    Accrued payroll and payroll taxes           253,734                115,060
    Current portion of long-term debt             3,933                  5,931
    Current portion of capital lease 
      obligations                                33,040                 33,218
    Current income taxes payable                 90,000                 27,000
    Current deferred income taxes               351,000                351,000
                                           -------------          -------------
      Total current liabilities               1,297,120              1,012,723

Long-term debt, non-current portion               6,233                  7,127

Capital lease obligations, non current 
 portion                                          7,852                 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, 6,257,480
      shares issued and outstanding              62,575                 62,575
    Additional paid-in capital                  571,496                571,496
    Retained earnings                           676,228                410,336
                                           -------------          -------------
      Total stockholders' equity              1,310,299              1,044,407

Commitments - Note 10                              -                      -
                                           -------------          -------------

  Total liabilities & stockholders' equity $  2,690,504           $  2,157,103
                                           =============          =============










         See   accompanying   notes  to  condensed financial statements.
<PAGE>

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



                             Three months ended           Six months ended
                                  June 30,                    June 30,
                         -------------------------    -------------------------
                             1997          1996           1997         1996
                        ------------- -------------  ------------- -------------
Revenues                 $ 2,357,585   $ 1,706,780    $ 4,351,975  $ 3,249,062

Cost of services           1,482,100     1,083,531      2,757,689    2,139,722
                         ------------  ------------   ------------ ------------

Gross profit                 875,485       623,249      1,594,286    1,109,340

General & administrative
  expense                    635,121       432,051      1,159,247      767,275
                         ------------  ------------   ------------ ------------

Operating income             240,364       191,198        435,039      342,065

Other income (expense)
      Interest & other income    460            82          1,418           96
      Interest expense        (4,057)       (9,060)        (8,565)     (21,386)
                         ------------  ------------   ------------ ------------

Income before income tax     236,767       182,220        427,892      320,775
                         ------------  ------------   ------------ ------------

Provision for income taxes    90,000        69,000        162,000      122,000
                         ------------  ------------   ------------ ------------

       Net income        $   146,767   $   113,220    $   265,892  $   198,775
                         ============  ============   ============ ============


Net income per share     $       .02   $       .02    $       .04  $       .03
                         ============  ============   ============ ============

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
















            See accompanying notes to condensed financial statements
<PAGE>

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


                                                   Six months ended June 30,
                                                   1997                 1996
                                               ------------         ------------
Cash flows from operating activities
Net Income                                     $   265,892          $   198,775
Charges to operations not affecting cash:
        Provision for bad debts                     10,000                    0
        Depreciation and amortization              161,642              134,463
        Deferred income tax provision                    0              107,000
Changes in operating assets and liabilities:
        Accounts receivable                      ( 287,316)            (209,603)
        Employee receivables                         ( 203)              15,825
        Prepaid expenses and other                 ( 8,417)             (21,815)
        Accounts payable                           147,177              (74,751)
        Accrued payroll and payroll taxes          138,674               38,782
        Current income taxes payable                63,000               15,000
                                               ------------         ------------
         Net cash provided by operating 
          activities                               490,449              203,676

Cash flows from investing activities:
        Additions to property and equipment     (  451,270)             (88,055)
                                               ------------         ------------

         Net cash used by investing activities  (  451,270)             (88,055)

Cash flows from financing activities:
        Net increase in borrowings under line 
          of credit                               ( 62,278)              14,829
        Proceeds from advance from stockholder           0               36,035
        Reduction of balance due to stockholder          0               (9,265)
        Dividends paid on earnings prior to 
          recapitalization                               0              (44,791)
        Reduction of long-term debt                ( 2,893)             (40,581)
        Reduction of capital lease obligat        ( 16,172)             (43,943)
                                               ------------         ------------

         Net cash used by financing activities    ( 81,343)             (87,716)

Increase (decrease) in cash                       ( 42,164)              27,905

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

Cash and cash equivalents at end of period     $    46,651          $    60,439
                                               ============         ============









         See accompanying notes to condensed financial statements.
<PAGE>

                             DIGITAL DICATION, 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 six month period
ended June 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

                                           June 30,                December 31,
                                             1997                      1996

    Dictation and other equipment      $   2,100,620            $   1,706,294
    Furniture and fixtures                    91,842                   84,069
    Leasehold improvements                    63,228                   55,083
    Automobile                                23,958                   23,400
    Software                                  85,318                   44,850
                                       --------------           ---------------
    Total Property Assets                  2,364,966                1,913,696
    Accumulated depreciation and 
     amortization                         (1,195,354)              (1,033,713)
                                       --------------           ---------------
                                       $   1,169,612            $     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 June 30, 1997). The line of credit is
secured by all assets of the Company. As of June 30, 1997, borrowings under this
line of credit were $266,751.


       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

                                            June 30,               December 31,
                                              1997                     1996
    Automobile installment loan, 10% interest,
     due December 1998                   $     10,166              $    13,058
                                         -------------             ------------
                                               10,166                   13,058
    Less current portion                       (3,933)                  (5,931)
                                         -------------             ------------
                                         $      6,233              $     7,127
                                         =============             ============
<PAGE>

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:

                                          June 30,               December 31,
                                            1997                     1996
                                       --------------           --------------
         Dictation and other equipment $      104,515           $      104,515
         Allowance for depre                  (48,143)                 (37,301)
                                       ---------------          ---------------
                                       $       56,372           $       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.

       All options  granted  have a term of 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.


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 June 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 June 30, 1997 are as follows:

       Year ending                   Capital      Operating
        June  30,                    Leases        Leases           Total

          1998                    $    35,939   $   100,854     $   136,793
          1999                          7,998        93,195         101,193
          2000                                       18,092          18,092
                                  ------------  -----------     ------------
     Total minimum lease payments      43,937   $   212,141     $   256,078
                                                ===========     ============

     Amount representing interest      (3,045)
                                  ------------
     Present value of net minimum
     lease payments (including
     $33,040 classified as current)$   40,892
                                  ============


       Rent  expense  under  operating  leases for the six months ended June 30,
1997 and 1996 totaled $47,872 and $27,839, 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-four  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 June 30, 1997, the Company had twenty-five  full-time employees and
two  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 225
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.  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  $190,000 as of June 30, 1997 as compared
to approximately $135,000 as of as of June 30, 1996. The actual revenues through
June 30,  together with the current run rate indicates  annual revenues for 1997
in excess of $9.0 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

<PAGE>
       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 second quarter of 1997 were 38% higher than revenues for
the  second  quarter  of 1996 and  revenues  for the first half of 1997 were 34%
higher  than the  revenues  for the  first  half 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 June 30, 1996,  the
Company was providing services to 25 health care institutions,  while currently,
DDI is providing services to 34 health care institutions, a net increase of nine
new clients.

       Cost of services,  which includes all costs related to transcriptionists,
telephone and associated equipment  depreciation,  represented 62.9% of revenues
in the second  quarter  of 1997 as  compared  to 63.5% in the second  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,  transcription  recruiting and other administrative expenses.
G&A expenses were 26.9% and 26.6% of revenue in the second quarter and the first
half of 1997 versus  25.3% and 23.6% of revenue in the second  quarter and first
half 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 June 30, 1997, the Company held cash and equivalents of  approximately
$46,000, along with trade receivables of approximately  $1,434,000. 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 June 30,  1997 were  approximately  $267,000  compared  to
borrowings of approximately $280,000 as of June 30, 1996. Net cash flow provided
by operating activities was approximately $490,000 for the six months ended June
30, 1997 and $204,000 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



July 17, 1997