Form 10-QSB

                       SECURITIES AND EXCHANGE COMMISSION
                                 Washington D.C.


            (X) Quarterly Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934
 
 

      For the Quarterly 
Period Ended December 31, 1995               Commission File No. 0-26884


                       NETTER DIGITAL ENTERTAINMENT, INC..
               (exact name of registrant as specified in charter)

           Delaware                                   95-3392054
       (State or other                             (I.R.S. Employer
jurisdiction of incorporation)                    Identification No.)


                        5200 Lankershim Blvd., Suite 280
                         No. Hollywood, California 91607
                     (Address of principal executive office)

        Registrant's telephone number, including area code: 818/753-1990


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

                                  YES X NO ____


As of February 12, 1996 the Registrant had 2,720,000 shares of its Common Stock,
$.01 par value, issued and outstanding.



                                  Page 1 of 11

<PAGE>


               NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEET


<TABLE>

                                              December 31,           June 30,
                                                 1995                 1995
                                             ------------         ------------
                                              (Unaudited)
<S>                                          <C>                   <C>

ASSETS
     Cash and cash equivalents              $   3,390,571         $    338,231
     Accounts receivable                          157,985              426,732
     Receivable from related party                213,785              194,876
     Prepaid Expenses                              52,604                  932
                                             ------------         ------------

         Total Current Assets                   3,814,945              960,771
EQUIPMENT, NET OF ACCUMULATED DEPRECIATION          4,782                3,539
DEFERRED REGISTRATION COSTS                            --               60,363
DEPOSITS AND OTHER ASSETS                          93,608               63,289
                                             ------------         ------------
                                            $   3,913,335        $   1,087,962
                                             ------------         ------------


       LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable                            $     381,391        $     377,530
Accrued expenses                                   32,354               74,377
Note payable - line of credit                          --              110,000
Deferred revenue                                  138,635              393,923
                                             ------------         ------------

     Total Current Liabilities                    552,380              955,830

MINORITY INTEREST                                   1,000                  500
COMMITMENT AND CONTINGENCIES                           --                   --
STOCKHOLDERS' EQUITY:

     Preferred stock, $.001 par value, 2,000,000 shares
         authorized; no shares issued and outstanding  --                   --
     Common stock, $.01 par value, 6,000,000 shares
         authorized; 2,720,000 shares issued and 
         outstanding                               27,200               18,600
     Additional paid-in capital                 3,253,646                2,920
     Retained earnings                             79,109              110,112
                                             ------------         ------------

         Total Stockholders' Equity             3,359,955              131,632
                                             ------------         ------------
                                            $   3,913,335        $   1,087,962
                                             ------------         ------------
</TABLE>



          The accompanying notes are an integral part of the condensed
                       consolidated financial statements.

<PAGE>

               NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>

                                     Three Months Ended December 31,  Six Months Ended December 31,
                                     -------------------------------  -----------------------------
                                         1995              1994           1995              1994
                                     -------------------------------  -----------------------------
                                      (Unaudited)      (Unaudited)     (Unaudited)      (Unaudited)
<S>                                   <C>              <C>             <C>               <C>

REVENUES:
  Production Income                   $ 8,735,028       4,827,869      $ 13,727,318     $ 9,425,214
  Interest Income                          18,769              --            18,769              --
  Other Income                              1,003              --             1,003              --
                                     ------------       ---------       -----------      ----------
                                        8,754,800       4,827,869        13,747,090       9,425,214

EXPENSES:
  Production expenses                   8,441,611       4,379,766        12,960,683       8,617,294
  General and administrative expenses     410,693         389,554           837,382         717,596
  Interest Expense                            762           9,777             2,386          22,551
                                     ------------       ---------       -----------      ----------
                                        8,853,066       4,769,320        13,800,451       9,357,441

INCOME (LOSS) BEFORE INCOME TAXES    ------------       ---------       -----------      ----------
                                          (98,266)         58,549           (53,361)         67,773
Provision for Income Tax                  (36,358)         24,884           (22,358)         24,907
                                     ------------       ---------       -----------      ----------
  NET INCOME (LOSS)                   $   (61,908)         33,665      $    (31,003)    $    42,866
                                     ------------       ---------       -----------      ----------
Net Earnings (Loss) Per Share         $     (0.02)           0.02      $      (0.01)           0.02
                                     ------------       ---------       -----------      ----------
Weighted Average Number of 
Common Shares                         $ 2,720,000       1,860,000        $2,720,000     $ 1,860,000
                                     ------------       ---------       -----------      ----------


</TABLE>


          The accompanying notes are an integral part of the condensed
                       consolidated financial statements.
<PAGE>


                   NETTER ENTERTAINMENT, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                   (Unaudited)

<TABLE>


                                  Preferred Stock       Common Stock
                                -------------------  -------------------  
                                                                           Additional  Retained       Net
                                 Number of           Number of              Paid-in    Earnings   Shareholders'
                                  Shares     Amount    Shares     Amount    Capital    (Deficit)    Equity
                                ----------   ------  ---------  --------   ----------  ---------  ------------
<S>                              <C>          <C>     <C>       <C>        <C>         <C>

BALANCE - June 30, 1995               --       --    1,860,000  $ 18,600   $    2,920  $110,112     $  131,632

Issuance of common stock in
public offering                       --       --      860,000  $  8,600   $3,250,726         --    $3,259,326
Net Loss                              --       --           --        --          --   $(31,003)    $  (31,003)
                                ----------   ------  ---------  --------   ----------  ---------   -----------


Balance - December 31, 1995           --       --    2,720,000  $ 27,200   $3,253,646  $ 79,109     $3,359,955
                                ----------   ------  ---------  --------   ----------  ---------   ----------

</TABLE>





          The accompanying notes are an integral part of the condensed
                       consolidated financial statements.
<PAGE>

               NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS


<TABLE>

                                                  Six Months Ended December 31,
                                                  -----------------------------

                                                      1995             1994
                                                  ------------     ------------
                                                   (Unaudited)      (Unaudited)
<S>                                                <C>              <C> 

Cash flows from operating activities:
  Net Income (Loss)                                $ (31,003)       $  42,866
                                                   ----------       ----------  
Noncash items included in income:
  Depreciation                                           250              750
Charges in assets and liabilities:
  Increase/(decrease) in accounts receivable         268,747          (15,968)
  (Increase)/decrease in prepaid expenses            (51,672)          67,930
  (Increase)/decrease in other current assets             --               --
  (Increase)/decrease in deposits and other assets   (30,319)          22,826
  Increase/(decrease) in accounts payable              3,861          (78,112)
  Increase/(decrease) in accrued expenses            (42,023)           1,202
  Increase/(decrease) in deferred revenue           (255,288)        (341,517)
                                                  -----------       ----------
    Total Adjustments                               (106,444)        (342,889)
                                                  -----------       ----------

  NET CASH PROVIDED BY OPERATING ACTIVITIES         (137,697)        (300,023)
                                                  -----------       ----------

INVESTING ACTIVITIES
  Capital expenditures                                (1,243)         (2,003)
                                                  -----------       ---------

  Net cash used in investing activities               (1,243)         (2,003)
                                                  -----------       ---------

Cash flows from financing activities
  Increase in due from officer                       (18,909)        (13,474)
  Decrease in deferred registration costs             60,363         (20,655)
  Proceeds from public offering                    3,259,326              --
  Increase in Minority Interest                          500              --
  Proceeds from note payable - line of credit             --              --
  Repayment of note payable - line of credit        (110,000)             --
                                                  -----------       ---------

Net cash provided by (used in) financing 
activities                                         3,191,280         (34,129)
                                                  -----------       ---------

Net increase/(decrease) in cash                    3,052,340        (336,155)
Cash at beginning of period                          338,231         487,891
                                                  -----------       ---------

Cash at end of period                             $3,390,571        $151,736
                                                  -----------       --------

Amounts Paid for:
  Interest                                        $    2,386        $ 22,551
  Taxes                                           $       --        $ 9 ,881

</TABLE>


          The accompanying notes are an integral part of the condensed
                       consolidated financial statements.

<PAGE>





NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


BASIS OF PREPARATION

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  statements and with the instructions to Form 10-QSB and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
disclosures required for annual financial statements. These financial statements
should be read in conjunction  with the  consolidated  financial  statements and
related  footnotes  for the year ended June 30, 1995  included in the  Company's
Registration Statement on Form SB-2 for the year then ended.

In the opinion of the  Company's  management,  all  adjustments  (consisting  of
normal recurring  accruals)  necessary to present fairly the Company's financial
position as of December 31, 1995,  and the results of operations  and cash flows
for the three and six month periods ended  December 31, 1995, and 1994 have been
included.

The results of operations for the three and six month periods ended December 31,
1995, are not necessarily  indicative of the results to be expected for the full
fiscal  year.  For  further  information,  refer to the  consolidated  financial
statements  and  footnotes  thereto  included  in  the  Company's   Registration
Statement on Form SB-2 as filed with the Securities and Exchange  Commission for
the year ended June 30, 1995 and the quarter ended September 30, 1995.

Earnings per share has been calculated based upon the weighted average number of
common  shares  outstanding.  Stock  options have been  excluded as common stock
equivalents  because  they  are  either  antidilutive  or  their  effect  is not
material.

DUE FROM OFFICER

As of November 20, 1995,  the officer  entered into a promissory  note agreement
for the amount advanced, bearing interest at the prime rate plus 2%.

PUBLIC OFFERING OF SECURITIES

In November 1995, the Company completed a public offering of its securities. The
Company  sold  860,000  shares of  common  stock and  430,000  warrants  for net
proceeds (after  deducting  underwriting  commissions  and related  expenses) of
approximately $3,300,000.

NOTE PAYABLE -LINE OF CREDIT

One June 1, 1995, the Company renewed a $250,000 revolving line of credit with a
bank, at an index rate equal to the certificate of deposit interest rate plus 3%
interest per annum.  Interest is payable monthly through  maturity at which time
the  principle  balance  plus  any  accrued  interest  is due and  payable.  The
revolving  line of credit is due and payable on June 3, 1996. As of December 31,
1995 there was no outstanding principal on the line of credit.

<PAGE>

NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


COMMITMENT AND CONTINGENCIES

The  Company  recently  settled a claim for  damages  and costs made by a former
vendor in connection with termination of the vendors'  services.  The Company is
not  obligated to make any  payments  and has not  incurred  any  liability as a
result of the settlement.

The Company is defending a sexual harassment claim for damages and costs made by
a former employee.  The Company believes it has meritorious defenses and intends
to vigorously defend the action.  The Company believes that the outcome will not
materially  affect the Company's  financial  position and results of operations.
Accordingly, no provision has been made for this contingency.

PRODUCTION  AND GENERAL AND ADMINISTRATIVE EXPENSES

Certain  expense  classifications  in fiscal 1995 have been reclassed to conform
with fiscal 1996 classifications.

<PAGE>

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations

In November  1995, the Company  completed its public  offering of securities and
expanded its  operations to include  merchandising  and new project  development
operations.

Results of Operations

For the six months ended December 31, 1995,  the Company  reported a net loss of
$31,001 on revenues of  approximately  $13.7 million compared to a net profit of
$42,866 on revenues of approximately $9.4 million for the same period last year.
Revenues  during the three month period ended  December 31, 1995  increased from
approximately $4.8 million during the three month period ended December 31, 1994
to  $8,754,800  during the current  three month period ended  December 31, 1995.
Revenues for the current  period  increased  from the prior year  primarily as a
result of  production  related  revenues for "Babylon 5" and the new  children's
series, "Hypernauts".  Management believes that continued dependence on "Babylon
5" will continue to decrease as a result of additional productions and expansion
of operations  including the new merchandising  operations,  but there can be no
assurance that such lessened dependence will occur.

Costs  relating  to revenue  during  the six  months  ended  December  31,  1995
increased as a percentage of revenue to 94% from 91% during the six month period
ended  December  31,  1994,  and were 97% and 91%% during the three month period
ended  1995 and 1994  respectively.  Costs  during  the six month  period  ended
December 31, 1995,  relate to production  costs of "Babylon 5" and  "Hypernauts"
the productions  discussed above on which revenue was recognized.  The six month
period ended December 31, 1994 reflected  similar  production costs for "Babylon
5" and "Siringo" incurred during that period.

Selling,  general,  and  administrative  costs  increased  by $120,236 or 17% to
$837,382  during the six  months  ended  December  31,  1995.  The costs for the
quarter ending  December 31, 1995 increased 5% to $410,695 from $389,554 for the
three months ended  December 31, 1994.  The  increased  costs are  primarily the
result  of  increased  staffing  requirements  for  expansion  of the  Company's
merchandising and new project  development  operations.  Several executives were
hired to head and run the Company's  Merchandising  and New Project  Development
Divisions. Both divisions were established during the quarter ended December 31,
1995.

Interest expense for the three months ended December 31, 1995, was $762 compared
to $9,777 for the three  months ended  December  31, 1994.  Interest for the six
month period  ended  December 31, 1995 was $2,386 as compared to $22,551 for the
same period in 1994. The decline reflects a reduction in borrowing and repayment
of the revolving credit facility in the current three month period.

Liquidity and Capital Resources


As of  December  31,  1995,  the  Company  had  cash  and  cash  equivalents  of
approximately  $3.4 million.  In November 1995,  the Company  completed a public
offering of its securities receiving net proceeds of approximately $3.3 million.
Of these  proceeds,  $110,000 was used to repay the Company's  revolving  credit
facility and approximately $250,000 was used to repay a bridge loan. The balance
of these  net  proceeds  (approximately  $3.2  million)  has been set  aside for
equipment and software  purchases,  further  merchandising  operating costs, the
development   and   acquisition  of  new   properties   and   production-related
technologies, and working capital.
<PAGE>

Together,  proceeds of the public offering and the results of operations for the
period resulted in a current ratio increase of approximately 708% as of December
31, 1995 compared to approximately 90% for the same period last year.

The Company's  sources of working capital are principally  derived from contract
production receipts from distributors  including a major studio and a subsidiary
of a major television  network.  The Company has in the past been able to secure
production  financing  from a major  studio or  distributor.  While the  Company
believes that such an arrangement can be made for future productions,  there can
be no assurance the Company will be successful  in obtaining  such  arrangements
and its working capital will be reduced  accordingly.  Moreover,  as the Company
begins to expand its production and merchandising  activities,  and develops new
projects for additional  ancillary  markets,  it must make additional  financial
commitments  to acquire and develop these new  properties  and projects,  and to
cover the resulting  increased  overhead.  These  financial  commitments  create
additional  risk for the Company as to whether such projects and properties will
be  produced  or sold and as to  whether  they  will ever  recover  the costs of
investment and generate a profit.

In addition, in the past, the Company has relied exclusively on external sources
for production  funding.  It is possible similar projects will be produced for a
license fee instead of relying on external production funding sources.  Entering
into licensing fee arrangements  increases the Company's  equity  position,  and
there is a risk the license fee may not cover the total production cost. In that
instance, the Company will be required to generate additional revenue from other
ancillary markets in order to cover the cost of production.

The  Company  currently  has no debt and does not  presently  intend  to  pursue
debt-related   financing  for  its  production-related  and  growth  activities.
Management may, however,  pursue such  debt-financing at some time in the future
for expansion by way of acquisitions or mergers.

Management  believes that the net proceeds from the recently completed offering,
together  with  anticipated  operating  revenue will be  sufficient  to fund its
working capital and expansion  requirements for at least the next twelve months.
Nonetheless,  the foregoing  activities  are dependent in the long term upon the
Company's ability to generate sufficient cash flow to cover its ongoing overhead
expenses by making a  sufficient  number of  productions  during each period and
developing successful merchandising operations.

<PAGE>

PART  II.  OTHER INFORMATION

Item 1.    Legal Proceedings

The  Company  recently  settled a claim for  damages  and costs made by a former
vendor in connection with termination of the vendors'  services.  The Company is
not  obligated to make any  payments  and has not  incurred  any  liability as a
result of the settlement. The Company is defending a sexual harassment claim for
damages  and  costs  made by a former  employee.  The  Company  believes  it has
meritorious  defenses and intends to vigorously  defend the action.  The Company
believes that the outcome will not  materially  affect the  Company's  financial
position and results of operations.  Accordingly, no provision has been made for
this contingency.



Item 6.    Exhibits and Reports on Form 8-K


(a.)       Exhibits - None

(b.)       Reports on Form 8K - None


<PAGE>

                                    SIGNATURE



Pursuant to the  requirements  of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned  thereunto
duly authorized.



                                        NETTER DIGITAL ENTERTAINMENT, INC.



Dated: February 12, 1996                /s/Geoffrey Talbot                
                                        Acting Chief Financial Officer