Form 10-Q

                     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                        Commission File No. 0-26884
  Ended December 31, 1998

                      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 February 12, 1999 the Registrant had 3,334,405 shares of its Common Stock,
$.01 par value, issued and outstanding.







             NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                               FORM 10-Q
                            December 31, 1998
                                INDEX


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

        Consolidated Balance Sheets as of 
        December 31, 1998 and June 30, 1998.	                    3

        Consolidated Statements of Operations for 
        the three-month and six-month periods ended 
        December 31, 1998 and December 31, 1997.	                4

        Consolidated Statements of Cash Flows for the 
        six-month periods ended December 31, 1998 
        and December 31, 1997.	                                  5

        Notes to Consolidated Financial Statements	             6-7


Item 2.	Management's Discussion and Analysis of 
        Financial Condition and	Results of Operations	          8-12

PART II.	OTHER INFORMATION

Item 4.	Submission of Matters to a Vote of Security Holders	     13

Item 6.	Exhibits and Reports on Form 8-K	                        13

Signatures		                                                     14














                              Page 2 of 14



PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements

               NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
                                                              December 31,        JUNE 30,
                                                                  1998              1998
                                                              ------------     ------------
                                                               (Unaudited)
<S>                                                           <C>              <C>  
                                   ASSETS
                                   ------
CURRENT ASSETS:
  Cash and cash equivalents                                 $      423,593    $   1,634,809
  Accounts receivable                                            1,641,903          781,374
  Due from officer                                                 155,897          155,897
  Inventory                                                        236,409          153,529
  Production costs, net                                            288,196          251,632
  Other Current Assets                                             144,399           81,180
  Net Current Assets, Discontinued Operations                    3,435,956        3,728,998
                                                             --------------    -------------
      TOTAL CURRENT ASSETS                                       6,326,353        6,787,419

EQUIPMENT,  net                                                  3,114,396        2,954,601

DEPOSITS AND OTHER ASSETS                                          222,572          184,666
                                                             --------------    -------------
                                                            $    9,663,321    $   9,926,686
                                                             ==============    =============

                       LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable and production fee advances              $    1,694,284    $   1,434,947
  Accrued expenses                                                 144,183          138,899
  Deferred revenue                                                 893,453        1,106,957
  Current portion of capital lease obligations                     902,132          696,558
  Provision for discontinued operations                          1,880,956                -
                                                             --------------    -------------
        TOTAL CURRENT LIABILITIES                                5,515,008        3,377,361

CAPITAL LEASE OBLIGATIONS                                        1,274,773        1,337,186

MINORITY INTEREST                                                      500              500
                                                             --------------    -------------

STOCKHOLDERS' EQUITY :
  Preferred stock, $.001 par value, 2,000,000 shares
    authorized; 54,550 shares issued and outstanding               328,585          304,366
  Common stock, $.01 par value, 20,000,000 shares
    authorized; 3,334,405 shares issued and outstanding             33,344           33,344
  Additional paid-in capital                                     4,726,171        4,726,171
  Retained (Deficit) Earnings                                   (2,215,060)         147,758
                                                             --------------    -------------
          TOTAL STOCKHOLDERS EQUITY                              2,873,040        5,211,639
                                                             --------------    -------------
                                                            $    9,663,321    $   9,926,686
                                                             ==============    =============

<FN>
<FN1>

The accompanying notes are an integral part of the consolidated financial 
                               statements.
</FN>
</TABLE>

                              Page 3 of 14

              NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>


                                          Three Months Ended Dec. 31,      Six Months Ended Dec. 31,
                                          ---------------------------     --------------------------
                                              1998          1997               1998        1997
                                          ---------------------------     ---------------------------
                                           (Unaudited)   (Unaudited)       (Unaudited)   (Unaudited)
<S>                                       <C>            <C>             <C>            <C>


REVENUES:                                 $  6,614,148   $  7,672,044    $ 13,501,769   $ 13,516,381

EXPENSES:
   Production                                5,806,899      6,939,861      11,796,353     12,054,250
   General and administrative                  680,541        590,979       1,328,510      1,129,919
                                           ------------   ------------    ------------   ------------
        TOTAL EXPENSES                       6,487,440      7,530,840      13,124,863     13,184,169
                                           ------------   ------------    ------------   ------------

OPERATING INCOME                               126,708        141,204         376,906        332,212
                                           ------------   ------------    ------------   ------------

OTHER INCOME (EXPENSE):
   Interest income                               2,987          4,580           6,007         14,466
   Other income/(expense)                            -              -               -          9,243
   Interest (expense)                          (47,939)       (18,480)        (87,596)       (29,270)
                                           ------------   ------------    ------------   ------------
        TOTAL OTHER (EXPENSE)                  (44,952)       (13,900)        (81,589)        (5,561)
                                           ------------   ------------    ------------   ------------

INCOME FROM CONTINUING OPERATIONS
  BEFORE INCOME TAXES                           81,756        127,304         295,317        326,651

PROVISION FOR INCOME TAXES                       4,400         46,000          80,000        121,500
                                           ------------   ------------    ------------   ------------
INCOME FROM CONTINUING OPERATIONS         $     77,356   $     81,304    $    215,317   $    205,151

DISCONTINUED OPERATIONS
  Loss from operation of Videssence, Inc.
   (net of income tax benefit)                (610,417)       (65,084)       (670,806)      (175,380)
  Loss on the divestiture of Videssence     (1,880,956)             -      (1,880,956)             -   
                                           ------------   ------------    ------------   ------------
NET INCOME (LOSS)                         $ (2,414,017)  $     16,220    $ (2,336,445)  $     29,771

Cumulative preferred stock dividend             12,276         10,608          26,373         21,219
                                           ------------   ------------    ------------   ------------

Net Income (Loss) to common shareholders  $ (2,426,293)  $      5,612    $ (2,362,818)   $     8,552
                                           ============   ============    ============   ============

Basic and diluted earnings (loss) per share:
  Continuing operations, including
    preferred dividends                           0.02           0.02            0.06           0.05
  Discontinued operations                 $      (0.75)  $      (0.02)    $     (0.77)   $     (0.05)
                                           ------------   ------------    ------------   ------------
   Net earnings (loss), per share         $      (0.73)          0.00           (0.71)          0.00
                                           ============   ============    ============   ============

Weighted average common shares outstanding   3,334,405      3,338,950        3,334,405     3,333,346
                                           ============   ============    ============   ============
<FN>
<FN1>

The accompanying notes are an integral part of the consolidated financial 
                               statements.
</FN>
</TABLE>
                              Page 4 of 14


                  NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES 

                        CONSOLIDATED STATEMENTS OF CASH FLOWS 
<TABLE>
<CAPTION>

                                                            Six Months Ended December 31,
                                                          --------------------------------
                                                                  1998           1997
                                                          --------------------------------
                                                             (Unaudited)     (Unaudited) 
<S>                                                        <C>             <C>             
CASH FLOWS FROM OPERATING ACTIVITIES: 
 Net income                                                $  (2,336,445)   $    29,771
                                                           --------------  --------------
 Adjustments to reconcile net income to net cash 
      provided by operating activities: 
            Depreciation                                         420,103        225,788 
            Amortization                                          52,156         60,441 
            Provision for loss of discontinued operations      1,880,956              -

Changes in operating assets and liabilities: 
    (Increase) in accounts receivable                           (860,529)      (178,053)
    (Increase) in other current assets                           (63,219)       (36,399) 
    (Increase) in inventory                                      (82,880)       (40,953) 
    (Increase) in production costs                               (36,564)        33,046
    (Increase) in deposits and other assets                      (37,906)          (501)
    Increase/(decrease) in accounts payable                      259,337       (422,065)
    Increase/(decrease) in accrued expenses                        5,284        (30,871)
    (Decrease) in deferred revenue                              (213,504)      (249,066)
    Decrease/(increase) in net assets from                
      discontinued operations                                    215,009       (494,465)
                                                          ---------------   ------------     
                                                               1,538,243     (1,133,098)
                                                          ---------------   ------------

    NET CASH USED IN OPERATING ACTIVITIES                       (798,202)    (1,103,327)
                                                          ---------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES: 
    Capital expenditures                                         (55,241)      (128,717)
                                                          ---------------   ------------
    NET CASH USED IN INVESTING ACTIVITIES                        (55,241)      (128,717)
                                                          ---------------   ------------

CASH FLOWS FROM FINANCING ACTIVITIES: 
    Principal payments of capital lease obligations             (357,773)      (130,156)
                                                          ---------------   -------------
NET CASH USED IN FINANCING ACTIVITIES                           (357,773)      (130,156)
                                                          ---------------   -------------

NET DECREASE IN CASH                                          (1,211,216)    (1,362,200)

Cash, beginning of period                                      1,634,809      2,574,522
                                                          ---------------   -------------

Cash, end of period                                         $    423,593     $ 1,212,322
                                                          ===============   =============    

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: 
 Cash paid during the year for:
   Cash paid for interest                                   $     92,228     $    92,989
   Cash paid for income taxes                               $     36,200     $     9,800
 Noncash activity:
   Stock issued for legal fee settlement                    $          -     $    50,000
   Stock dividend                                           $     14,097     $    21,219
   Purchase of equipment through leases payable             $    250,212     $   647,807
<FN>
<FN1>

The accompanying notes are an integral part of the consolidated financial    
                              statements. 
</FN>
</TABLE>
                              Page 5 of 14



             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-Q 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, 1998 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 December 31, 1998 and June 30, 1998, and the results of 
operations and cash flows for the three-month and six-month periods ended 
December 31, 1998 and 1997 have been included.

The results of operations for the three-month and six-month periods ended 
December 31, 1998, 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, 1998.

DISCONTINUED OPERATIONS

Effective the quarter ended December 31,1998, the Board of Directors voted to 
classify and operate the Company's Videssence subsidiary as a discontinued 
operation.  The Company's Board of Directors and financial advisors have 
determined that at this time the Company's best strategy for growth is to focus 
directly on its core entertainment business and to divest its non-entertainment 
business activities.  Accordingly, the Board has instructed management to divest
the Videssence subsidiary, which manufactures and distributes media lighting 
products, by the end of 1999.   The Company is reviewing how to best capitalize 
on its recent investment in Videssence and has initiated steps to locate a buyer
for the Videssence operation.  Of course, there can be no assurance that the 
Company will locate a buyer and consummate a sale of the Videssence operation on
terms acceptable to the Company.  In the quarter ended December 31, 1998, the 
Company accrued a provision for the estimated loss on divestiture of the
Videssence operation of approximately $1.9 million which includes $750,000 for 
pretax operating losses during the phase-out period.  Actual results could 
differ from this estimate.  The results of operations for this business have 
been reclassified to discontinued operations for all periods in the accompanying
unaudited consolidated financial statements.


                                 Page 6 of 14


The assets of the discontinued operation are as follows:

                                         		December 31,	    June 30,
                                             		1998	          1998
                                               ----           ----
	Accounts Receivable, net	                $   539,864	    $ 1,503,637
	Inventory	                                 2,035,322	      1,477,496
	Other Current Assets	                         58,574	         53,357
                                          ------------    ------------
		Total Current Assets	                     2,633,760	      3,034,490
	Property, Plant and Equipment,
		net of accumulated depreciation	            176,915	        202,793
	Other Assets	                                217,228	        149,094
 Intangibles                                1,886,279       1,938,434
                                          ------------    ------------
 		Total Assets	                          $ 4,914,182    	$ 5,324,811
	  Total Liabilities	                       1,478,226	      1,595,813
                                          ------------    ------------
 		Total Net Assets	                      $ 3,435,956	    $ 3,728,998
                                          ============    ============

Summarized results of the discontinued operation are as follows:

                            		Three Months Ended	         Six Months Ended
                               		December 31,	               December 31,
                             		1998		      1997	        1998		       1997
                               ----        ----         ----         ----
	Net Sales	                 $ 400,512	  $ 963,306	  $ 1,400,018	  $ 1,892,839
	Cost and expenses	         1,015,329	  1,062,390	    2,127,824	    2,159,219
                            ----------  ----------   -----------   -----------
	(Loss) before inc. taxes	  ($614,817)	  ($99,084)	   ($727,806)	   ($266,380)
	Income tax (benefit)	         (4,400)	   (34,000)     	(57,000)	     (91,000)
                            ----------  ----------   -----------   -----------
	(Loss) from discontinued				
	 	operations	              ($610,417)	  ($65,084)	   ($670,806)	   ($175,380)
                            ==========  ===========  ===========   ===========

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 of which $38,979 was repaid.  Subsequent to the quarter ended 
December 31, 1998, Mr. Netter repaid an additional $50,000 of outstanding 
principal.  The remaining unpaid principal balance of $105,897 and accrued 
interest of $5,651 is due on May 20, 1999.  The Board of Directors has agreed to
allow the note to be repaid in shares of the Company's Common stock.  The stock 
repayment required is 110% of the outstanding loan amount which will be priced 
at the fair market value on the date of repayment.


                               Page 7 of 14


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

General

The Company is engaged in two primary business activities:

-Entertainment Production.  The Company is engaged in the acquisition, 
development and production of television series, made-for-television movies, 
documentaries, theatrical motion pictures and multimedia products (collectively 
and individually referred to as the "Productions" or "Projects").  The Company 
specializes in combining live action film production with computer graphics and 
other digital imaging in the creation of dramatic series, documentaries, and 
children's programming utilizing state-of-the-art entertainment production 
technology.  The Company has produced the award winning series "Babylon 5" and 
is currently producing a follow-on series entitled "Crusade."  With its recent 
work on the children's series, "Voltron: The Third Dimension" ("Voltron"), the 
Company is at the forefront of the fully animated or animation intensive 
production market for television.  The Company's general practice has been to 
sell or license its Productions under a production contract with a major 
entertainment studio or distributor who is responsible for the production costs 
of the Production.  The Company has also established an objective to retain 
greater equity participation in the projects it produces by increasing its 
overhead and equity commitments for future projects (see "Liquidity and Capital 
Resources" below).

-Computer Animation and Visual Effects Production Services.  As an outgrowth of 
its traditional core business of developing and producing media Productions, the
Company has entered the business of providing digital media production services 
to outside clients.  In support of its own Productions, especially "Babylon 5" 
and "Crusade," the Company has developed significant expertise in computer 
graphics production, digital post-production and various other digital imaging 
techniques.  The quality and popularity of the Company's productions has created
industry-wide recognition of its creative and technical skills in these areas.  
The Company believes that an active market exists for projects requiring 
creative, high quality, cost effective digital graphics and effects.  In order 
to more fully exploit its strengths in these areas, the Company formed the 
Netter Digital Technologies Division (or "production services") to market 
computer graphics and digital post-production services to outside clients.  The 
Company is increasing its efforts in this area and will continue to bid on 
numerous outside projects on a larger scale, including feature films, television
mini-series and commercials.


Results of Operations

Revenues.  The Company's revenues for the second quarter and six-month periods 
ended December 31, 1998 were approximately $6.6 million and $13.5 million, 
respectively, for a decrease of 13.8% as compared to the second quarter ended 
December 31, 1997 and no change in the respective six-month periods.  The 
decrease in the second quarter resulted primarily from a shortfall of 
approximately $2.4 million in revenues generated from the "Babylon5"/"Crusade" 
productions this year as compared to last year.  This difference is timing 
related, as total production budgets are similar, and was caused by delays in 
the production schedule beyond our control.  This decrease was partially offset 
by a $1.2 million increase in revenues from the Company's Netter Digital 
Technologies Division and a $100,000 increase in revenues from the Company's 
"Babylon 5" Fan Club as compared to the same period of the prior year resulting 
primarily from the Company's work on "Voltron" and other contracts as well as 
the Division's growth over the last year.


                                Page 8 of 14


Gross Margin.  The Company's gross margin for the quarter ended December 31, 
1998 increased from 9.5% to 12.2% of revenues, as compared to the prior year.  
For the six-month period ended December 31, 1998, gross margin increased from 
10.8% to 12.6% of revenues, as compared to the prior year. These increases in 
gross margin resulted primarily from the larger percentage of total revenue 
coming from the Company's Netter Digital Technologies Division which realizes 
higher gross margins than the entertainment production business.

General and Administrative Expenses.  General and administrative expenses were 
approximately 10.3% and 9.8% as a percentage of net revenues for the three-month
and six-month periods ended December 31, 1998, respectively, as compared to 7.7%
and 8.4% for the same prior year periods.  This increase resulted primarily from
the increase in overhead to accommodate the additional work from its Netter 
Digital Technologies Division as well as a decrease in revenues for the second 
quarter ended December 31, 1998 as compared to the comparable prior period.

Other Income and Expenses.  Interest income decreased to $2,987 and $6,007 for 
the quarter and six-month period ended December 31, 1998, respectively, compared
to $4,580 and $14,466 for the same prior year periods, as proceeds from the 
Company's November 1995 initial public offering were fully drawn from short term
investments and used for working capital for Videssence by the end of the 
Company's fiscal year ended June 30, 1998.  Interest expense increased to 
$47,939 and $87,596 for the quarter and six-month period ended December 31, 
1998, respectively, from $18,480 and $29,270 in the same period of the previous 
year due to the Company's further utilization of capital lease lines for 
continued expansion of its computer animation and visual effects facilities.

Discontinued Operations.  Effective the quarter ended December 31,1998, the 
Board of Directors voted to classify and operate the Company's Videssence 
subsidiary as a discontinued operation. The Company's Board of Directors and 
financial advisors have determined that at this time the Company's best strategy
for growth is to focus directly on its core entertainment business and to 
divest its non-entertainment business activities.  Accordingly, the Board has 
instructed management to divest the Videssence subsidiary, which manufactures 
and distributes media lighting products, by the end of 1999.  The Company is
reviewing how to best capitalize on its recent investment in Videssence and 
has initiated steps to locate a buyer for the Videssence operation.  Of course, 
there can be no assurance that the Company will locate a buyer and consummate a 
sale of the Videssence operation on terms acceptable to the Company.  In the 
quarter ended December 31, 1998, the Company accrued a provision for an 
estimated anticipated loss on the divestiture of the Videssence operation of 
approximately $1.9 million which includes $750,000 for pretax operating losses 
during the phase-out period.  Actual results could differ from this estimate. 
The results of operations for this business have been reclassified to 
discontinued operations for all periods in the accompanying unaudited 
consolidated financial statements.

Pretax losses at the Videssence operation for the quarter and six months periods
ended December 31, 1998 were $614,817 and $727,806, respectively,  as compared 
to $99,084 and $266,380 for same respective periods of the prior year. The 
primary factors leading to the degradation compared to last year were a sales 
shortfall comprised of lower than anticipated demand for new products, higher 
than anticipated sales returns, and delays in production which led to a larger 
backlog than usual at December 31, 1998.  For a further summary of the assets, 
liabilities and operating results of Videssence, see the section entitled 
"Discontinued Operations" in the "Notes to Consolidated Financial Statements."


                                Page 9 of 14


Liquidity and Capital Resources

The Company has funded its operations to date primarily through cash flows 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
a February 1997 preferred stock placement which raised $424,000 in gross 
proceeds.  With respect to production costs for particular entertainment 
Projects, the Company has customarily entered into 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 of 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 overhead and equity commitments for these new projects.  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 quarter and six-month period ended December 31, 1998, the Company 
derived approximately 77% and 77% of its entertainment production revenues, 
respectively, from its agreements with Warner Bros. relating to the production 
of the "Babylon 5" series, the follow-on "Crusade" series, and the associated 
made for television movies.  If the "Crusade" series is not renewed through an 
additional agreement extension after the first season 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 $798,000 for the six-months 
ended December 31, 1998.  The biggest contributors to this usage was the loss at
the Company's Videssence subsidiary as sales were lower than expected.  An 
increase in accounts receivable outpaced an increase in accounts payable as 
additional billings were made by the entertainment production business.   
Also, deferred revenues decreased as prepaid production costs were used for the 
production services business.

The operating needs at the Company's Videssence subsidiary have required more of
the Company's cash flow over the last 12 months than originally anticipated.  As
of December 31, 1998, the Company's sources of liquidity included cash and cash 
equivalents totaling approximately $420,000.  Currently, the Company is engaged 
in advanced discussions to secure additional equity capital to fund the intended
growth in its core entertainment business and to maintain adequate levels of 
working capital.  Of course, there can be no assurance that these discussions 
will be successfully consummated.

The Company has approximately $2,177,000 of outstanding capital leases as of 
December 31, 1998.  The Company uses capital leases primarily for equipment 
additions to its in-house post-production and graphics/animation facilities.


                               Page 10 of 14


Year 2000 

The Year 2000 issue results from the development of computer programs and 
computer chips using two digits rather than four digits to define the applicable
year.  Computer programs and/or equipment with time-sensitive software or 
computer chips may recognize the date using "00" as the year 1900 rather than 
the year 2000. This could result in system failure or miscalculations and cause 
disruptions to business operations.

The Company's entertainment production and computer animation and visual effects
production operations rely heavily on computers in the development and 
production of projects and in the provision of digital media production 
services, but do not rely heavily on computers for operating activities such as 
the processing of payroll.  In contrast, the Company's Videssence subsidiary 
relies heavily on computers for the processing of payroll, accounts receivable 
and accounts payable, but does not rely heavily on computers in manufacturing 
and distributing its products.  The Company also makes use of computers for 
efficient communications with employees and customers, including extensive use 
of e-mail systems and the Internet.  Finally, embedded technology such as 
microcontrollers are commonly found in computers used throughout the Company's 
operations. The complete failure of these systems could have a material negative
impact on the operations of the Company.  In addition, most of the Company's 
major suppliers and customers rely heavily on computer systems and failures in 
such systems could disrupt their operations.

The Company has substantially completed the process of identifying and 
addressing potential Year 2000 difficulties in its technological operations, 
including information technology ("IT") applications, IT technology and support,
desktop hardware and software, non-IT systems and important third party 
operations.  Based on its assessment of these efforts, the Company believes 
that Year 2000 issues will not have a material adverse effect on the Company's 
business, operations or financial condition.  Further, management expects that 
costs which have been or will be incurred to assure Year 2000 capability will 
not have a material adverse effect on the Company's financial position or 
results of operations.  The Company has undertaken continuing efforts to update,
modify or replace, and test systems in the ordinary course of business.  Based 
on such efforts, the Company does not believe that it will be required to 
otherwise modify or replace significant portions of its software so that its 
computer systems will function properly with respect to dates in the year 2000 
and thereafter.

The Company estimates its cost to assess and achieve Year 2000 compliance will 
be less than $10,000, of which less than $5,000 has been incurred through 
December 31, 1998.  These amounts do not include costs incurred in the Company's
replacement or upgrading of existing computer systems in the ordinary course of 
business.  No system replacements were made or accelerated to comply with Year 
2000 issues.  These estimates are subject to revisions based on future 
assessments and responses from vendors and customers.  The Company expects to 
continue to fund its Year 2000 costs through its cash flows from operations and 
to expense modification costs as incurred.  


                               Page 11 of 14


Management believes the primary Year 2000 risks to the Company's business are 
external to the Company and relate to the Year 2000 readiness of the Company's 
third party suppliers and customers.  Consequently, the Company's Year 2000 
effort also includes communication with significant third party suppliers and 
customers to determine the extent to which the Company's systems are vulnerable 
to those parties' failures to reach Year 2000 compliance.  The Company is 
currently contacting significant suppliers of products and services to determine
that the suppliers' operations and the products and services they provide are 
Year 2000 capable.  Based on responses it has received to date, the Company does
not believe that the impact of Year 2000 issues on such suppliers will be 
material to the Company's business, operations or financial condition.  However,
there can be no assurance that another company's failure to ensure Year 2000 
capability will not have an adverse effect on the Company.

Overall, the Company believes that it will complete its Year 2000 effort and 
that there will not be a significant disruption to its business caused by the
failure of its own computer systems.  In addition, the Company believes that, 
to the extent that its entertainment production and computer animation and 
visual effects production operations rely on suppliers for specialty services, 
there are a variety of alternative suppliers available in the event the 
Company's existing suppliers face Year 2000 problems.  The Company's Videssence 
subsidiary relies heavily on suppliers of parts for its lighting products.  
Although there are alternative sources for these items, the Videssence 
subsidiary may experience a disruption in its receipt of these parts if it is 
forced to replace existing suppliers who experience Year 2000 problems.  
Consequently, the Company's Videssence subsidiary could experience disruptions 
in its operations as a result of failures in the computer systems of its major 
vendors.  Accordingly, the Company will develop contingency plans to help 
mitigate the effects of such failures, if any.

Forward-Looking Statements

The foregoing discussion contains "forward-looking statements" within the 
meaning of Section 27A of the Securities Act of 1933, as amended, and Section 
21E of the Securities Act of 1934, as amended.  There are risks and 
uncertainties that could cause future events and results to differ materially 
from those anticipated by management in the forward-looking statements included 
in this report.  Among these risks and uncertainties are the effect of the Year 
2000 computer problem on the Company's internal systems and the effect on the 
Company's business of any failures in the computer systems of the Company's 
major vendors or customers.


                                Page 12 of 14


PART  II.     OTHER INFORMATION

Item 4.	Submission of Matters to a Vote of Security Holders

The Company's 1998 Annual Meeting of Shareholders was held on November 16, 1998.
The purpose of the meeting was to elect the Board of Directors.  The meeting was
adjourned and reconvened on November 30, 1998 with the final tally of votes 
being as follows:

                                             				Abstain or	      Broker
	Directors	               For	       Against	     Withheld	      Non-votes
 ---------                ---        -------     ----------      ---------
	Douglas Netter	       3,246,027       	0          	7,750	           0
	John Copeland	        3,246,027	       0	          7,750	           0
	Kate Netter Forte	    3,246,027	       0	          7,750	           0
	Leonard Silverman	    3,246,027	       0	          7,750	           0
	Paul Costa           	3,246,027	       0	          7,750	           0
	Lennart Ringquist	    3,246,027	       0	          7,750	           0


Item 6.	Exhibits and Reports on Form 8-K

(a.)	Exhibits

  	Exhibit	     Description
   -------      -----------
  		27	         Financial Data Schedule. (1)
   ----------------------
   (1) Filed herewith.

(b.)	Reports on Form 8-K

    	None.

















                                 Page 13 of 14




                                   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: February 12, 1999	                By: /s/Chad Kalebic
                                             -------------------------
                                         Chad Kalebic
                                         Chief Financial Officer
















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