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 September 30, 1997    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.)


                              5125 Lankershim Blvd.
                      North Hollywood, California  91601
                    (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 November 10, 1997 the Registrant had 3,338,950 shares of its Common Stock,
$.01 par value, issued and outstanding.









                 NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                                    FORM 10-Q
                                September 30, 1997
                                      INDEX


PART I.	FINANCIAL INFORMATION                                       	
                                                                     PAGE
Item 1.  	Financial Statements (Unaudited)	                          NUMBER


          Consolidated Balance Sheet as of September 30, 1997	          3

          Consolidated Statement of Operations for the 
          three-month periods ended September 30, 1997 
          and September 30, 1996 	                                      4

          Consolidated Statements of Cash Flows for the 
          three-month periodsended September 30, 1997 and 1996	         5

          Notes to Consolidated Financial Statements	                  6-7


Item 2.  	Management's Discussion and Analysis of Financial 
           Condition an	 Results of Operations                        7-10

PART II. 	OTHER INFORMATION

Item 6.	Exhibits and Reports on Form 8-K	                               10

Signatures                                                              11


















                             Page 2 of 11

PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements


                   NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES
 
                           CONSOLIDATED BALANCE SHEET


                                                                  September 30,
                                                                      1997
                                                                  -------------
                                                                   (Unaudited)
                                     ASSETS

CURRENT ASSETS:
 Cash and cash equivalents                                          $1,210,275 
 Accounts receivable, net of allowances of $20,566                   1,474,520 
 Due from officer                                                      155,897 
 Inventory                                                           1,216,877 
 Production costs, net                                                 305,685 
 Other                                                                 150,476 
                                                                     ---------
     TOTAL CURRENT ASSETS                                            4,513,730 

EQUIPMENT, net                                                       1,924,327 

GOODWILL, net                                                        2,016,668 

DEPOSITS AND OTHER ASSETS                                              233,455 
                                                                     ---------
                                                                    $8,688,180 
                                                                     =========

                         LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
 Accounts payable and production fee advances                       $1,512,503 
 Accrued expenses                                                      295,064 
 Deferred revenue                                                      371,988 
 Short term notes payable                                              573,756 
 Current portion of long-term debt                                     140,688 
 Current portion of capital lease obligations                          221,367 
                                                                     ---------
     TOTAL CURRENT LIABILITIES                                       3,115,366 

LONG-TERM DEBT                                                          11,251 

CAPITAL LEASE OBLIGATIONS                                              486,165 

MINORITY INTEREST                                                          500 
                                                                      --------

STOCKHOLDERS' EQUITY:
 Preferred stock, $.001 par value, 2,000,000 shares
  authorized; 49,502 shares issued and outstanding                     283,150 
 Common stock, $.01 par value, 6,000,000 shares
  authorized; 3,338,950 shares issued and outstanding                   33,390 
 Additional paid-in capital                                          4,726,125 
 Retained Earnings                                                      32,233 
                                                                     ---------
     TOTAL STOCKHOLDERS EQUITY                                       5,074,898 
                                                                     ---------
                                                                    $8,688,180 
                                                                    ==========

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

                              Page 3 of 12


              NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES
  
                    CONSOLIDATED STATEMENT OF OPERATIONS

                                                     Three Months Ended Sept.30,
                                                     ---------------------------
                                                          1997          1996
                                                     ------------- -------------
                                                      (Unaudited)   (Unaudited)

REVENUES:
   Production                                         $5,844,337     $3,114,176
   Sales                                                 929,533              -
                                                       ---------      ----------
     TOTAL REVENUES                                    6,773,870      3,114,176
                                                       ---------      ----------

EXPENSES:
   Production                                          5,114,389      2,843,716
   Cost of goods sold                                    458,737              -
   General and administrative                          1,106,792        512,031
   Amortization of goodwill                               26,078              -
                                                       ---------      ----------
     TOTAL EXPENSES                                    6,705,996      3,355,747
                                                       ---------      ----------
OPERATING INCOME (LOSS)                                   67,874       (241,571)
                                                       ---------      ----------
OTHER INCOME (EXPENSE):
   Interest income                                         9,910         27,102
   Interest (expense)                                    (53,759)             -
   Other income/(expense)                                  8,026              -
                                                       ---------      ----------
     TOTAL OTHER INCOME (EXPENSE)                        (35,823)        27,102
                                                       ---------      ----------
INCOME BEFORE PROVISION FOR
  INCOME TAXES                                            32,051       (214,469)

PROVISION FOR INCOME TAXES                                18,500              -
                                                       ---------      ----------
NET INCOME (LOSS)                                        $13,551      $(214,469)
                                                       =========      ==========

Cumulative preferred stock dividend                       10,611              -

Net Income to common shareholders                         $2,940      $(214,469)
                                                       =========      ==========
Net Income per common share                                $0.00         $(0.08)
                                                       =========      ==========
Weighted average common shares outstanding             3,327,742      2,795,000 
                                                       =========      ==========

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

                                 Page 4 of 12


               NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES 

                     CONSOLIDATED STATEMENTS OF CASH FLOWS 

                                                Three Months Ended September 30,
                                                    1997                1996
                                                --------------------------------
                                                  (Unaudited)      (Unaudited) 
CASH FLOWS FROM OPERATING ACTIVITIES: 
    Net income                                       $ 13,551         $(214,469)
                                                  -----------       ------------
Adjustments to reconcile net income to net cash 
   provided by operating activities: 
     Depreciation                                     108,583            40,307 
     Amortization                                      26,078                 -

Changes in operating assets and liabilities: 
 (Increase) in accounts receivable                   (608,447)         (442,148)
 (Increase)/decrease in other current assets          (32,363)           42,345 
 (Increase) in inventory                             (226,822)                -
 (Increase) in production costs                       (10,966)           (7,645)
 (Increase)/decrease in deposits and other assets      54,865           (26,892)
  Increase/(decrease) in accounts payable            (899,134)          125,952
 (Decrease) in accrued expenses                       (24,114)          (61,942)
 (Decrease) in deferred revenue                      (158,863)                -
                                                   -----------       -----------
                                                   (1,771,183)         (330,023)
                                                   -----------       -----------
 NET CASH (USED IN) OPERATING ACTIVITIES           (1,757,632)         (544,492)
                                                   -----------       -----------

CASH FLOWS FROM INVESTING ACTIVITIES: 
 Capital expenditures                                 (54,345)         (409,033)
                                                   -----------       -----------
 NET CASH (USED IN) INVESTING ACTIVITIES              (54,345)         (409,033)
                                                   -----------       -----------

CASH FLOWS FROM FINANCING ACTIVITIES: 
 (Increase) in  deferred acquisition costs                  -           (71,639)
 (Increase) in notes receivable                             -          (100,000)
 Proceeds from line of credit                         537,259                 -
 Notes payable principal payments                     (42,990)                - 
 Principal payments of capital lease obligations      (46,539)                -
                                                   -----------       -----------
NET CASH PROVIDED BY (USED IN) 
 FINANCING ACTIVITIES                                 447,730          (171,639)
                                                   -----------       -----------
NET (DECREASE) IN CASH                             (1,364,247)       (1,125,164)

Cash, beginning of period                           2,574,522         2,181,223 
                                                   -----------       -----------
Cash, end of period                                $1,210,275        $1,056,059 
                                                   ===========       ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: 
 Cash paid during the year for:
   Cash paid for interest                          $   53,759       $         - 
   Cash paid for income taxes                      $    9,800       $         -
 Noncash activity:
   Stock issued for legal fee settlement           $   50,000       $         -
   Stock dividend                                  $   10,611       $         -
   Purchase of equipment through leases payable    $  531,531       $         -

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

                                Page 5 of 12


                NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


BASIS OF PREPARATION

The accompanying unaudited 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, 1997 included in 
the Form 10-KSB 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 September 30, 1997, and the results of operations and cash flows 
for the three-month periods ended September 30, 1997, and 1996 have been 
included.

The results of operations for the three-month periods ended September 30, 1997, 
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  Form 10-KSB as filed with the 
Securities and Exchange Commission for the year ended June 30, 1997.

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/RECEIVABLE FROM RELATED PARTY

On  November 20, 1995, the Company's Chief Executive Officer entered into a 
promissory note with the Company in the amount of $194,876, bearing interest at 
7.25% per annum. The unpaid principal balance and accrued interest is due on May
20, 1998.

VIDESSENCE, INC.

On January 10, 1997, the Company completed its acquisition of Videssence, Inc.
("Videssence") through the merger of Videssence into NDEI.  The following
schedule combines the pro-forma results of operations of the Company and
Videssence, Inc. as if the acquisition had occurred on July 1, 1996 and
includes such adjustments which are directly attributable to the acquisitions.
It should not be considered indicative of the results that would have been
achieved had the acquisition not occurred or the results that would have been
obtained had the acquisition actually occurred on July 1, 1996.

                                Page 6 of 11


                                                        	Three months ended	
                                                        	September 30, 1996	
                                                         ------------------
           Revenue	                                          $ 4,412,198	
           Net loss	                                          ($ 243,194)	
           Net loss per share	                                   ($ 0.07)
           Shares used in computation                         	3,317,221


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

General

Historically, the Company's primary operations have been to develop and produce 
media entertainment projects ("Productions" or "Projects") under agreements with
studios, networks and distributors such as Warner Bros., The Walt Disney 
Company, ABC and NBC.  While entertainment production remains the Company's 
principal activity, (1) in January 1997 it entered the business of designing, 
manufacturing and distributing lighting products in various entertainment 
industries, through its acquisition of Videssnce, and (2) in the fourth quarter 
of fiscal 1997, it began marketing its computer animation and visual effects 
services to outside clients.  Its business activities now are:

Entertainment Production.  It has been the Company's practice to arrange for the
studio, network or distributor to fund 100% of the production costs of its 
Projects, while retaining a back-end producer's profit participation.  Employing
this strategy, the Company avoids the financial risk of funding such production 
costs, but limits its ongoing revenue participation since the studio, network or
distributor retains a significant portion of the rights to the main and 
ancillary markets for the Projects.  Under these arrangements, revenues are 
recognized when earned (typically upon receipt) and  associated costs are 
recognized when incurred.  These revenues are primarily dependent on the number 
of Projects being produced by the Company and the agreements relating to such 
Projects.  Accordingly, year to year comparisons of production revenues from 
these sources are not necessarily indicative of future revenues.

To increase production margins, the Company has invested in in-house post 
production and computer graphics/animation facilities.  These leading-edge 
production technologies are used intensively to create the visual effects for 
"Babylon 5" and the Company's other production activities and have enabled the 
Company to significantly reduce the need for contracting out to third party 
vendors, thus allowing it to realize higher margins on its Projects.

Computer Animation and Visual Effects Production Services.  As an outgrowth of 
its traditional core business of developing and producing media Productions, the
Company has recently entered the business of providing digital media production 
services to outside clients.  From experience gained in producing its own 
Projects, especially "Babylon 5," the Company has developed significant 
expertise in computer graphics, digital post-production and various other 

                               Page 7 of 11

digital imaging techniques which it can utilize to service outside clients.  The
Company believes that an active market exists for projects requiring creative, 
high quality, cost effective digital graphics and effects.  These activities 
have generated relatively minor revenues to date and there can be no assurance 
that the Company will successfully market these new services.

Videssence Lighting Products.  The Company's Videssence subsidiary manufactures 
and distributes media lighting products which incorporate its patented SRGB(tm) 
lighting technology.  These products are used for the illumination of studios, 
stages and other production environments in the sound stage, motion picture, 
theater and theme park industries, as well as in the video conferencing, distant
learning, and pre-press digital photography markets.  The Company's high-tech 
fluorescent lights consume significantly less electricity than traditional 
incandescent production lighting products while generating greatly reduced 
amounts of heat.  Thus, these lights are easier for talent to work under and can
generate significant electricity and air-conditioning related savings.  The 
Company markets its lighting products in the USA and internationally through a 
network of distributors, dealers, and direct sales staff.  To date, Videssence 
sales have been primarily to television studio and video production operations. 
The Company is currently in the process of introducing new products which have 
been developed for the film production markets.  Of course, there can be no 
assurance that the Company will successfully enter these markets.

Results of Operations

Net Revenues.  Net Revenues increased 118% to $6.77 million for the three months
ended September 30, 1997, as compared to $3.11 million in net revenues for the 
three months ended September 30, 1996.  This increase primarily resulted from 
three factors.  First, the Company realized approximately $400,000 of additional
revenue from its "Babylon 5" television series which represents increased 
production activity for the quarter.  This difference will even out over the 
duration of fiscal 1998 as budgets for the varying seasons are relatively 
similar.  Second, during the three months ended September 30, 1997, the Company 
continued production on two all new made for television movies for Turner 
Network Television,  which contributed approximately $2.15 million in revenues. 
Third, Videssence contributed approximately $930,000 in revenues from sales of 
its lighting products.  However, the Videssence revenues were lower than 
expected, which management attributes to lower international sales as compared 
to the respective quarter in the prior year.

Gross Margin.  The Company's gross profit for the three months ended September 
30, 1997 was $1.2 million, or 17.7% of net revenues, compared with $270,460, or 
8.7%, for the three months ended September 30, 1996.  This increase resulted 
from two factors: First, the gross profit from the Company's entertainment 
production business increased to approximately $730,000 (approximately 12.5% of 
revenues from entertainment production activities) for the period ended 
September 30, 1997, up from approximately $270,460 (approximately 8.7%) from the
same period the previous year.  This increase was the result of the Company 
bringing in-house a significant amount of post-production and graphics/animation
work, greatly reducing its need for outside production services.  Second, sales 
of the Videssence lighting products generated gross profits of approximately 
$471,000 (approximately 50.7% of revenues from sales of such products).

                                 Page 8 of 11

General and Administrative Expenses.  General and administrative expenses 
increased 116% to $1,106,792, or 16.3% of net revenues, for the three months 
ended September 30, 1997 as compared to $512,031, or 16.4% of net revenues, for 
the three months ended September 30, 1996.  This increase was primarily 
attributable to the addition of Videssence's operations which added 
approximately $570,000 to such expenses.

Operating Income (Loss).  The Company achieved operating income of $67,874 for 
the quarter ended September 30, 1997, as operating income of $191,008 from its 
Entertainment Production activities outweighed an operating loss of $123,134 
from its Videssence activities.  This Videssence loss resulted primarily from 
the lower than expected sales as discussed above.

Other Income and Expenses.  Interest income decreased to $9,910 for the three 
months ended September 30, 1997 compared to $27,102 for the three months ended 
September 30, 1996, as proceeds from the Company's November 1995 initial public 
offering were drawn from short term investments and used for expansion of its 
in-house post-production and graphics/animation facilities during fiscal 1997 
and working capital for Videssence.  Interest expense increased to $53,759 for 
the three months ended September 30, 1997 from $0 in the same period of the 
previous year due to the acquisition of Videssence which has long-term debt and 
the Company's new utilization of capital lease lines for continued expansion of 
its computer animation and visual effects facilities.

Liquidity and Capital Resources

The Company has funded its operations to date primarily through cash from 
operations, its initial public offering of Common Stock and Warrants completed 
in November 1995 which generated net proceeds of approximately $3.2 million and,
with respect to production costs for particular entertainment Projects, through 
production contracts with studios, networks and distributors who cover 100% of 
the production funding.  Such production funds are received by the Company 
during the production stage of a Project.  To date, the Company has been able to
secure production financing from a major studio, network or distributor for all 
its Projects.  While the Company believes that similar financing arrangements 
can be made for future productions, there can be no assurance that the Company 
will be successful in obtaining such production financing.  In that event, the 
Company would have to secure alternative sources for financing Projects.  
Moreover, as the Company continues to develop new forms of high technology 
production activities and projects for new entertainment ancillary markets, it 
may elect to make additional commitments for these new projects and to cover the
resulting increased overhead with these endeavors.  These potential, new 
financial commitments, if pursued, could create additional risk for the Company 
as to whether it will recover the costs of its investment and generate a profit.

During the three months ended September 30, 1997, the Company derived 
approximately 90% of its entertainment production revenues from its agreements 

                                Page 9 of 11

with Warner Bros. relating to the production of the "Babylon 5" series and the 
associated made for television movies.  If the "Babylon 5" series is not renewed
through an additional agreement extension after the current fifth season of 
production ending approximately May 1998, and the Company is unable to replace 
the series with one generating comparable revenues, the Company's financial 
condition and operations could be materially adversely affected.

Cash used in operating activities was approximately $1.76 million for the three
months ended September 30, 1997.  The biggest uses of cash were a build up of
inventory at Videssence as well as an increase in accounts receivable in the
Company's entertainment production activities.  Further, this period saw a large
decrease in accounts payable as pre-billed items for the Company's "Babylon 5"
series and its movies of the week were used for production.

Effective July 1997, the Company's Videssence subsidiary obtained a $750,000 
line of credit with a bank, guaranteed by the Company, which required monthly 
payments of interest on outstanding principal amounts at 2% above the bank's 
reference rate.  The loan documents also require the Company to comply with 
certain restrictive covenants, including maintaining a minimum working capital 
and specific financial ratios.  As of September 30, 1997, the Company owed an 
outstanding principal amount of $537,000 on such line.

Management believes that its present cash position and overall liquidity will 
enable the Company to meet its operating commitments for the next twelve months.
As of September 30, 1997, the Company's sources of liquidity included cash and 
cash equivalents totaling approximately $1.2 million, of which approximately 
$280,000 is contractually committed to fund specific Projects.  The Company has 
$725,697 of outstanding debt and $707,532 of outstanding capital leases as of 
September 30, 1997.  Of the latter, approximately $500,000 was added during the 
three months ended September 30, 1997 for equipment additions to its in-house
post-production and graphics/animation facilities.


PART  II.     OTHER INFORMATION

Item 6.	Exhibits and Reports on Form 8-K

(a.)	    Exhibits

        	Exhibit	        Description
         -------         -----------
           10            Letter agreement, dated October 20, 1997, between the
                        	Company and Martin E. Janis & Company, Inc. (1)
           27            Financial Data Schedule. (1)

         ----------------------
         (1) Filed herewith.

(b.)	    Reports on Form 8-K

        	None


                                 Page 10 of 11



                                 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.
                                             Registrant	


Dated: November 11, 1997	                    By: /s/Thomas Jorgenson
                                             -----------------------
                                             Thomas Jorgenson
                                             Chief Operating Officer


                                             By: /s/Chad Kalebic
                                             -----------------------
                                             Chad Kalebic
                                             Chief Financial Officer