UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934



For the quarterly period ended:       June 30, 2000

                                       OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from _______ to ________

            Commission file number          1-13550

                             HAUPPAUGE DIGITAL, INC.
                             -----------------------
             (Exact Name of registrant as specified in its charter)

               Delaware                                   11-3227864
              ----------                                -------------
    (State or other jurisdiction of                   (I.R.S. Employer
     Incorporation or organization)                   Identification No.)

                    91 Cabot Court, Hauppauge, New York 11788
                    -----------------------------------------
                    (Address of principal executive offices)


                                 (516) 434-1600
                                 --------------
                           (Issuer's telephone number)

Indicate by check mark  whether the issuer (1) filed all reports  required to be
filed by Section 13 or 15(d) of the  Exchange  Act during the past 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 August  7, 2000  8,881,978  shares  of .01 par value  Common  Stock of the
registrant were outstanding, not  including  treasury  shares

<PAGE>

                    HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES

                                      INDEX
                                      -----
<TABLE>
<CAPTION>

PART I. FINANCIAL INFORMATION
-----------------------------
<S>                                                                             <C>

Item 1.Financial Statements                                                  Page No.
---------------------------                                                  --------

Condensed Consolidated Balance Sheets-

   June 30, 2000 (unaudited)  and September 30, 1999                             3

Condensed Consolidated Statements of Income-
  Nine Months ended June 30, 2000 and 1999 (unaudited)                           4

Condensed Consolidated Statements of Income-
  Three Months ended June 30, 2000 and 1999 (unaudited)                          5

Condensed Consolidated Statements of Cash Flows-
  Nine  Months ended June 30, 2000 and 1999 (unaudited)                          6

Notes to Condensed Consolidated Financial Statements                           7-9

Item 2. Management's Discussion and Analysis of  Financial Condition           9-17
           and Results of Operations

Item 3. Quantitative and Qualitative Disclosure about Market Risks               17


PART II. OTHER INFORMATION
--------------------------

Item 1.  Legal proceedings                                                    18-19

Item 6.  Exhibits and Reports on form 8-K                                        19


SIGNATURES                                                                       20
----------
</TABLE>


<PAGE>

PART I.  FINANCIAL INFORMATION
-------  ---------------------

                    HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                                          June 30,
                                          ASSETS                                            2000             September 30,
                                                                                         (Unaudited)             1999
<S>                                                                                             <C>              <C>
                                                                                         -----------             ----
 CURRENT ASSETS:
     Cash and cash  equivalents                                                          $ 2,585,127       $   6,122,922
     Accounts receivable, net of allowance for doubtful accounts
        Of  $165,000  and $135,000, respectively                                           5,451,047           6,973,452
     Inventories                                                                          11,936,164          12,957,439
     Prepaid expenses and other current assets                                               691,476             407,916
     Deferred tax assets                                                                   1,166,879             477,074
                                                                                           ---------             -------
                Total current assets                                                      21,830,693          26,938,803

     Property, plant and equipment-net                                                       935,720             718,562
     Other non-current assets                                                                840,111              70,219
                                                                                             -------              ------
                                                                                         $23,606,524        $ 27,727,584
                                                                                         ===========        ============

 LIABILITIES AND STOCKHOLDERS' EQUITY :

 CURRENT LIABILITIES:

    Accounts payable                                                                     $ 8,292,035        $ 11,208,777
    Accrued expenses                                                                       1,215,825           2,698,161
    Income taxes payable                                                                     300,274             498,555
                                                                                             -------             -------
                Total current liabilities                                                  9,808,134          14,405,493
                                                                                           ---------          ----------


 STOCKHOLDERS' EQUITY:

    Common stock $.01 par value; 10,000,000 shares authorized,  9,310,578
       And 9,089,604  issued as of  June 30 , 2000  and September 30, 1999                    93,106              91,206
    Additional paid-in capital                                                            11,146,065          10,650,605
    Retained earnings                                                                      3,826,348           3,847,409
    Treasury Stock, at cost, 428,600 shares                                               (1,267,129)         (1,267,129)
                             -------                                                      ----------          ----------
                Total stockholders' equity                                                13,798,390          13,322,091
                                                                                          ----------          ----------
                                                                                        $ 23,606,524        $ 27,727,584
                                                                                        ============        ============


</TABLE>


      See accompanying notes to condensed consolidated financial statements


<PAGE>

                    HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                     Nine Months Ended June 30,
<S>                                                                                     <C>               <C>

                                                                                      2000              1999
                                                                                   (Unaudited)       (Unaudited)
                                                                                   -----------       -----------
Net Sales                                                                          $53,291,070      $ 42,923,460

Cost  of  Sales                                                                     43,020,074        31,124,402
                                                                                    ----------        ----------
    Gross Profit                                                                    10,270,996        11,799,058

Selling, General and  Administrative Expenses                                       9,464,076          7,029,837
Research  and  Development Expenses                                                 1,177,749            879,685
                                                                                    ---------            -------
    Income from operations                                                           (370,829)         3,889,536

Other Income (expense):

Interest income                                                                        96,541            153,937
Other, net                                                                           (163,773)           (89,681)
                                                                                     --------            -------

     Income(loss) before  income tax expense (benefit)                               (438,061)         3,953,792

Income tax expense (benefit)                                                         (417,000)         1,470,000
                                                                                     --------          ---------
      Net income (loss)                                                              $(21,061)       $ 2,483,792
                                                                                     ========        ===========

Net income per share-basic                                                           $   0.00        $      0.29

Net income per share-diluted                                                         $   0.00        $      0.26
                                                                                     ========        ===========

</TABLE>

      See accompanying notes to condensed consolidated financial statements


<PAGE>

                    HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>

                                                                                     Three Months Ended June 30,

                                                                                       2000              1999
                                                                                   (Unaudited)       (Unaudited)
                                                                                   -----------       -----------

<S>                                                                                <C>                   <C>
Net Sales                                                                          $11,722,224      $13,353,693

Cost of  Sales                                                                      10,757,100        9,598,877
                                                                                    ----------        ---------
    Gross Profit                                                                       965,124        3,754,816

Selling, General and Administrative Expenses                                         3,193,217        2,432,138
Research and  Development  Expenses                                                    414,924          353,429
                                                                                       -------          -------
    Income (loss) from operations                                                   (2,643,017)         969,249

Other Income (expense):

  Interest income                                                                       23,838           59,790
  Other, net                                                                           (67,501)         (15,450)
                                                                                       -------          -------
     Income (loss)  before  income tax expense (benefit)                            (2,686,680)       1,013,589

Income tax expense (benefit)                                                          (932,000)         348,000
                                                                                      --------          -------
      Net  income (loss)                                                           $(1,754,680)      $  665,589
                                                                                   ===========       ==========
Net income (loss) per share-basic                                                  $     (0.20)      $     0.08

Net income (loss)  per share-diluted                                               $     (0.20)      $     0.07
                                                                                   ===========       ==========

</TABLE>

      See accompanying notes to condensed consolidated financial statements


<PAGE>
                    HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>

                                                                                         Nine Months Ended June 30,
                                                                                           2000             1999
                                                                                      (Unaudited)        (Unaudited)
                                                                                      -----------        -----------

<S>                                                                                     <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

  Net income, (loss)                                                                $    (21,061)       $  2,483,792
                                                                                    ============        ============
   Adjustments to reconcile net income to net cash
    (Used in) provided by  operating activities:
    Depreciation and amortization                                                        185,369             123,666
    Provision for uncollectible accounts receivable                                       30,000              25,000
    Deferred tax benefits                                                               (689,805)           (152,030)
    Other non cash items                                                                  50,512               2,400
       Changes in current assets and liabilities:

    Accounts receivable                                                                1,492,405           1,181,409
    Inventories                                                                        1,021,275          (4,176,843)
    Prepaid expenses and other  assets                                                  (283,560)            (19,259)
    Other assets                                                                         (15,286)               -
    Accounts payable and other current liabilities                                    (4,597,359)            862,488
                                                                                      ----------             -------
                                                                                      (2,806,449)         (2,153,169)
                                                                                      ----------          ----------
        Net cash (used in) provided by operating activities                           (2,827,510)            330,623
                                                                                      ----------             -------


CASH FLOWS FROM INVESTING ACTIVITIES:
    Business acquisition, net of cash acquired                                          (803,445)              -
    Purchases of property, plant and equipment                                          (353,698)           (340,670)
                                                                                        --------            --------
         Net cash used in investing activities                                        (1,157,143)           (340,670)
                                                                                      ----------            --------

CASH FLOWS FROM FINANCING ACTIVITIES:

Purchase of treasury stock                                                                 -                 (63,525)
Proceeds from the exercise of common  stock options                                      446,858             140,739
                                                                                         -------             -------
        Net cash  provided by  financing activities                                      446,858              77,214
                                                                                         -------              ------
        Net (decrease),  increase  in cash and cash equivalents                       (3,537,795)             67,167
Cash and Cash Equivalents, beginning of period                                         6,122,922           6,281,852
                                                                                       ---------           ---------
Cash and Cash Equivalents, end of period                                             $ 2,585,127        $  6,349,019
                                                                                     ===========        ============
SUPPLEMENTAL DISCLOSURES:

   Income taxes paid                                                                 $   414,677        $  1,328,615
                                                                                     ===========        ============
</TABLE>

     See accompanying notes to condensed consolidated financial statements


<PAGE>

                    HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 1.  BASIS OF PRESENTATION

     The accompanying  unaudited  condensed  consolidated  financial  statements
included  herein  have been  prepared  in  accordance  with  generally  accepted
accounting  principles  for interim  period  reporting in  conjunction  with the
instructions to Form 10-Q.  Accordingly,  these statements do not include all of
the information required by generally accepted accounting  principles for annual
financial  statements.  In the  opinion  of  management,  all known  adjustments
(consisting  of normal  recurring  accruals and  reserves)  necessary to present
fairly the  financial  position,  results of  operations  and cash flows for the
three and nine  month  period  ended  June 30,  2000 have been  included.  It is
suggested  that  these  interim  statements  be read  in  conjunction  with  the
financial  statements and related notes included in the Company's  September 30,
1999 Form 10-K.

     The  operating  results for the three and nine month  period ended June 30,
2000 are not  necessarily  indicative  of the  results  to be  expected  for the
September 30, 2000 year end.

NOTE 2.  INVENTORIES

     Inventories  have been valued at the lower of average  cost or market.  The
components of inventory consist of:

                                     June 30,           September 30,
                                      2000                  1999
                                      ----                  ----


     Component Parts            $   3,618,078           $  4,875,940
     Work in Progress                 389,287                494,285
     Finished Goods                 7,928,799              7,587,214
                                    ---------              ---------
                                $  11,936,164           $ 12,957,439
                                =============           ============


NOTE 3.  NET INCOME PER SHARE

Basic  earnings  per share  includes no dilution and is computed by dividing net
income by the  weighted  average  number of common  shares  outstanding  for the
period.  Diluted earnings per share reflect, in the periods in which they have a
dilutive  effect,  the  dilution  which would  occur upon the  exercise of stock
options.  A reconciliation  of the shares used in calculating  basic and diluted
earnings per share follows:


<PAGE>

                    HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Net income per share - continued
                                                       Three Months Ended
                                                            June 30,

                                                       2000            1999
                                                       ----            ----

Weighted average shares outstanding-basic           8,874,211        8,641,434
Number of shares issued on the assumed
    Exercise of stock options                           -              894,950
                                                    ---------          -------
Weighted average shares outstanding-diluted         8,874,211        9,536,384
                                                    ---------        ---------

                                                         Nine Months Ended
                                                            June 30,

                                                        2000           1999
                                                        ----           ----


Weighted average shares outstanding-basic           8,822,336        8,618,288
Number of shares issued on the assumed
    Exercise of stock options                           -              667,260
                                                    ---------          -------
Weighted average shares outstanding-diluted         8,822,336        9,285,548
                                                    ---------        ---------

On February 10, 2000 the Company's  Board of Directors  authorized a two for one
stock split effected as a 100% common stock  dividend.  The stock split has been
reflected retroactively for all issued common stock.

Options to purchase 1,462,226 shares of common stock were outstanding as of June
30, 2000, but were not included in the computation of diluted earnings per share
because they were anti-dilutive.

NOTE 4.  INCOME TAXES

     Income taxes through fiscal 1999 were based on annualized  statutory  rates
for federal and state income taxes.  The provision for income taxes  reflects an
annualized effective tax rate after deductions for the utilization of restricted
net operating loss carry  forwards,  adjustments  for items  deductible for book
purposes but not  currently  deductible  for tax purposes and the benefit  which
results from the utilization of a foreign sales corporation.

     Effective October 1, 1999, the Company restructured its foreign operations.
The result of the  restructuring  eliminated the foreign sales  corporation  and
established  a new  Luxembourg  corporation,  which will  function as the entity
which services the Company's European customers.


<PAGE>

                    HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     The Company's tax provision  reflects,  for the three and nine months ended
June 30, 2000, this new structure.

NOTE 5.  STOCK REPURCHASE PROGRAM

     On  November  8, 1996,  the Company  approved a stock  repurchase  program.
extended by a resolution of the Board of Directors.  The Company has repurchased
on a basis  adjusted for the stock split,  428,600  shares for  $1,267,129 at an
average purchase price of approximately $2.955 per share.

NOTE 6 .  BUSINESS ACQUISITION

On June 1,  2000 the  Company  acquired  certain  assets  of  EsKape  Labs  Inc.
("EsKape"),   a  California   based  company   specializing   in  designing  and
manufacturing  television and video products for Apple Macintosh computers.  The
purchased  assets expands and  complements  the Company's  product line into the
Macintosh  market.  The cash price for the acquisition,  which was accounted for
under  the  purchase  method,  was  approximately  $800,000.  The  excess of the
acquisition  cost over the fair value of  identifiable  assets  acquired will be
amortized on a straight line basis over 10 years.

In addition to the price paid for the acquired  assets,  the purchase  agreement
also call for contingent additoinal consideration as follows:

        -       For the twelve months  commencing  June 1, 2000,  the purchaser
                shall pay to the seller an earn out equal to 16.25% of net sales
                of such product, as defined in the purchase agreement, which are
                in excess of $4,000,000
        -       In no event shall an earn out be paid if the net sales for such
                period are $4,000,000 or less
        -       In no event shall the additional consideration exceed $2,600,000
        -       Any additional consideration due the seller shall be paid in
                Hauppauge Stock, valued at $11.50 and subject to customary
                adjustments for stock splits, stock dividends and the like.  If
                the issuance of shares in payment of the addiitonal consider-
                ation results in the seller or its authorized successors owning
                more than 5% of the issued and outstanding shares of Hauppauge,
                the purchaser may, at its sole discretion, substitute cash for
                any portion of the additional consideration which would result
                in the seller being the holder of more than 5% of the then out-
                standing shares of Hauppauge stock.

The  supplemental  information  below  summarizes,  on a pro  forma  basis,  the
companies  results for the nine months ended June 30, 2000 and June 30, 1999 had
the companies combined at the beginning of each period presented.

                                        Nine months ended June 30,
                                      2000                     1999
                                      ----                     ----

Net sales                          53,409,268              43,541,148
Net income (loss)                    (275,502)              1,756,694

Earnings (loss) per share
Basic                                   (0.03)                   0.20
Diluted                                 (0.03)                   0.19

     Pro  forma net  income  (loss)  may not be  indicative  of actual  results,
primarily  because the pro forma results are historical  results of the acquired
entity  and do not  reflect  any  cost  savings  that may be  obtained  from the
integration and elimination of redundant functions.

NOTE 7.  PROSPECTIVE ACCOUNTING CHANGES

Investment Derivatives and Hedging Activities Income
----------------------------------------------------

     In June 1998, the Financial  Accounting Standards Board issued SFAS No. 133
("SFAS 133"),  Accounting  for  Derivative  Investments  and Hedging  Activities
Income. SFAS

<PAGE>

                    HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 7 .  PROSPECTIVE ACCOUNTING CHANGES-CONTINUED

133 is effective for  transactions  entered into after October 1, 2000. SFAS 133
requires  that all  derivative  instruments  be recorded on the balance sheet at
fair  value.  Changes in the fair value of the  derivatives  are  recorded  each
period in current earnings or other comprehensive income, depending on whether a
derivative  is designed as part of the hedge  transaction  and the type of hedge
transaction.  The  ineffective  portion  of all  hedges  will be  recognized  in
earnings.  The  Company is in the  process of  determining  the impact  that the
adoption  of SFAS 133 will  have on its  results  of  operations  and  financial
position.

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

Results of Operations
---------------------

Nine Month Period ended June 30, 2000 versus June 30, 1999
----------------------------------------------------------

     Sales for the nine months ended June 30, 2000 were $ 53,291,070 compared to
$42,923,460  for nine months ended June 30, 1999, an increase of  $10,367,610 or
24%,  comprised  of a 40%  increase  in  domestic  sales and a 14%  increase  in
European sales. The forces driving the sales growth were:

        -       Sales of  new products introduced during the latter part of
                fiscal 1999
        -       The opening of new geographic markets
        -       Sales contribution from the Company's Singapore office, which
                was opened during the fourth quarter of fiscal 1999.

     Unit sales of digital  video and  conferencing  boards for the nine  months
ended June 30,  2000  increased  61% to  approximately  752,000 as  compared  to
approximately  466,000 for the prior year.  Sales to domestic  customers for the
nine month  period were 28% of net sales for the current  period and 25% for the
prior comparable period. Sales to international  customers were 72% of net sales
for the current period compared to 75% for the comparable prior period .

     Gross  profit  for the  nine  month  period  was  $10,270,996  compared  to
$11,799,058  for the prior fiscal year,  resulting in a decrease of  $1,528,062.
The gross profit  percentage was 19% for the current period  compared to 27% for
the prior comparable period. Factors in the decrease in margins include:

        -       A $1,000,000 reserve for certain excess inventory related to the
                Company's digital television receiver products
        -       Larger sales mix of lower margin product
        -       Decline in the Euro exchange rate.

<PAGE>

Item 2. Management's Discussion and Analysis-continued

     The  chart  below  illustrates  the  components  of  selling,  general  and
administrative expenses:

<TABLE>
<CAPTION>

                                                           Nine months ended June 30,
                                                           --------------------------
                                       Dollar Costs                                      Percentage of Sales
                                       ------------                                      -------------------
                                                                                                            Increase/
                                  2000              1999          Increase          2000          1999     (Decrease)
                                  ----              ----         -----------        ----          ----     ----------
<S>                              <C>                 <C>             <C>             <C>           <C>         <C>

Sales & Promotional           $5,934,385       $4,367,817        $1,566,568        11.1%         10.2%        .9%
Customer Support                 370,186          327,303            42,883          .7%           .8%       (.1%)
Product Handling                 662,711          488,302           174,409         1.3%          1.1%        .2%
General & Admin                2,496,794        1,846,415           650,379         4.7%          4.3%        .4%
                               ---------        ---------           -------         ---           ---         --
    Total                     $9,464,076       $7,029,837        $2,434,239        17.8%         16.4%       1.4%

</TABLE>

As a percentage of sales, Selling,  General and Administrative  expenses for the
nine months  ended June 30, 2000  increased  by 1.4% when  compared to the prior
comparable  period.  Represented in dollars,  Selling General and Administrative
expenses  increased  $2,434,239  over the  comparable  prior  year's  nine month
period.

The increase in sales and promotional expense of $1,566,568 was mainly due to :

        -       Higher commission attributable to increased sales
        -       Increased European marketing activities
        -       Compensation costs for Singapore office and EsKape Labs
                personnel and increased personnel in the marketing department
        -       Increased  cost of  European sales offices
        -       Higher trade show costs.

     Customer  Support  and  Product  Handling  expenses  increased  $42,883 and
$174,409 respectively.  Customer Support costs increased due to additional staff
required to maintain a high level of customer  service in light of the Company's
expanding  worldwide  customer  base.  Increased  Product  handling  costs was a
function of greater shipment volume to customers.

The increase in General and  Administrative  expenses of $ 650,379 was primarily
due to :

        -       Hiring of Corporate in house counsel
        -       Increased rent due to opening of  distribution center in Ireland
        -       Contractual salary increases for senior executives
        -       Administrative costs of  the Singapore office and EsKape Labs
        -       Higher professional fees for investment, tax and litigation
                advice.

     Research and development  expenses increased $298,064 or approximately 34%.
The increase  was due to  engineering  and  development  costs of our  Singapore
office and additional  engineering personnel required to support the development
of existing and future EsKape Labs product.

<PAGE>

Item 2. Management's Discussion and Analysis-continued
------------------------------------------------------

     The Company had net other  expenses for the nine months ended June 30, 2000
of $67,232  compared  to net other  income for the prior  year of  $64,256.  The
decrease  in net other  income  was  primarily  due to lower  returns  on monies
invested and foreign currency losses due to the decline of the Euro.

     The Company  recorded an income tax benefit of $417,000 for the nine months
ended June 30,  2000  compared to a tax  provision  of  $1,470,000  for the nine
months ended June 30, 1999.  Effective October 1, 1999, the Company restructured
its foreign operations.  The result of the restructuring  eliminated the foreign
sales  corporation  and  established a new  Luxembourg  corporation,  which will
function as the entity which  services the  Company's  European  customers.  The
company's  tax  provision  for the nine months  ended June 30, 2000 was based on
this new structure. As a result of losses attributed to domestic operations, the
tax benefit  derived from domestic  losses taxed at a 38% effective  rate offset
the taxes due on income  attributable to the European operation which were taxed
at an effective tax rate of 17%.

     As a result of the above,  the Company  incurred a net loss after taxes for
the nine  months  ended June 30, 2000 of  $21,061,  which  resulted in basic and
diluted per share  results of $0.00,  on weighted  average  basic and diluted of
shares of 8,822,336,  compared to net income after taxes of  $2,483,792  for the
nine months ended June 30, 1999,  which  resulted in basic and diluted  earnings
per share of $0.29 and $0.27 on weighted average shares,  adjusted for the stock
split, of 8,618,288 and 9,285,548,  respectively.  Options to purchase 1,462,226
shares  of common  stock  were  outstanding  as of June 30,  2000,  but were not
included in the  computation  of diluted  earnings  per share  because they were
anti-dilutive

On February 10, 2000 the Company's  Board of Directors  authorized a two for one
stock split effected as a 100% common stock  dividend.  The stock split has been
reflected retroactively for all issued common stock.

Three Month Period ended June 30, 2000 versus June 30, 1999
-----------------------------------------------------------

     Sales for the three months ended June 30,2000 were $11,722,224  compared to
$13,353,693 for the prior year's second fiscal quarter, a decrease of $1,631,469
or 12%,  comprised  of a 17%  decrease in domestic  sales and a 16%  decrease in
European sales offset partially by an increase in Asian sales.

The primary forces causing the decrease were:

        -       Continued strength of the United States dollar in relation to
                the Euro
        -       Seasonal slowdown  of analog boards in the European market
        -       Slower than expected  acceptance of digital TV tuner products.

<PAGE>

Item 2. Management's Discussion and Analysis-continued
------------------------------------------------------

     Unit sales of digital  video and  conferencing  boards for the three months
ended June 30, 2000 increased about 19% to approximately  166,000 as compared to
approximately  139,000 for the prior year. Sales to domestic  customers for this
year's third fiscal  quarter were 28% of net sales compared to 30% for the prior
year's second fiscal quarter.  Sales to international  customers were 72% of net
sales for the second fiscal quarter  compared to 70% for the comparable  quarter
of the prior fiscal year.

     Gross profit for the quarter was $965,124 as compared to $3,754,816 for the
prior fiscal year's third  quarter.  The gross profit  percentage was 8% for the
three months ended June 30, 2000 compared to 28% for the three months ended June
30, 1999. Factors in the decrease in margins include:

        -       A $1,000,000 reserve for certain excess inventory related to the
                Company's digital television receiver products
        -       Larger sales mix of lower margin product
        -       Decline in the Euro exchange rate
        -       Fixed overhead  absorbed over lower sales volume.

     The  chart  below  illustrates  the  components  of  selling,  general  and
administrative expenses:

<TABLE>
<CAPTION>

                                                         Three months ended June 30,
                                        Dollar Costs                                      Percentage of Sales
                                        ------------                                      -------------------
                                                                                                             Increase/
                                    2000             1999          Increase          2000          1999     (Decrease)
                                    ----             ----         -----------        ----          ----     ----------
<S>                                  <C>               <C>              <C>           <C>           <C>         <C>
Sales & Promotional             $1,815,109        1,519,556        $295,553          15.4%         11.3%       4.1%
Customer Support                   117,622          113,854           3,768           1.0%           .9%        .1%
Product Handling                   257,988          207,398          50,590           2.2%          1.6%        .6%
General & Admin                  1,002,498          591,330         411,168           8.6%          4.4%       4.2%
                               -----------          -------        --------          -----         -----       ----
    Total                       $3,193,217       $2,432,138        $761,079          27.2%         18.2%       9.0%

</TABLE>

As a percentage of sales, Selling,  General and Administrative  expenses for the
three  months ended June 30, 2000  increased by 9.0% when  compared to the third
quarter  of the prior  fiscal  year,  which was the  result  of  increased  SG&A
absorbed  over  lower  sales.   Represented  in  dollars,  Selling  General  and
Administrative  expenses  increased  $761,079 over the comparable  period of the
last fiscal year.

The increase in sales and promotional expense of $295,553 was mainly due to :

        -       Compensation costs for Singapore office and EsKape Lab personnel
                and increased personnel in marketing department
        -       Increased  cost of German and UK sales offices
        -       Higher trade show costs.

     Customer  Support  and  Product  Handling   increased  $3,768  and  $50,590
respectively.  Increased  Product  handling  costs  was a  function  of  greater
shipment volume to customers

<PAGE>

Item 2. Management's Discussion and Analysis-continued
------------------------------------------------------

The increase in General and  Administrative  expenses of $ 411,168 was primarily
due to :

        -       Contractual salary increases for senior executives
        -       Hiring of Corporate in house counsel
        -       Increased rent due to opening of  distribution center in Ireland
        -       Contractual salary increases for senior executives
        -       Administrative costs of  the Singapore office and EsKape Lab
        -       Higher professional fees for investment, tax and litigation
                advice.

     Research and development  expenses  increased $61,495 or approximately 17%.
The increase  was due to  engineering  and  development  costs of our  Singapore
office and additional  engineering personnel required to support the development
of existing and future EsKape Labs product.

     The Company had net other expenses for the three months ended June 30, 2000
of  $43,663  compared  to net other  income for the prior  comparable  period of
$44,340. The increase in net other expense was primarily due to lower returns on
monies invested and foreign currency losses due to the decline of the Euro.

     The Company  recorded  an income tax  benefit of  $932,000  for the quarter
ended June 30, 2000 compared to a tax provision of $348,000 for the three months
ended June 30, 1999.  Effective  October 1, 1999, the Company  restructured  its
foreign operations. The result of the restructuring eliminated the foreign sales
corporation and established a new Luxembourg corporation, which will function as
the entity which services the Company's  European  customers.  The company's tax
provision  for the  three  months  ended  June 30,  2000  was  based on this new
structure.

     As a result of the above,  the Company  incurred a net loss after taxes for
the three months ended June 30, 2000 of $1,754,680,  which resulted in basic and
diluted loss per share of $0.20 on weighted  average basic and diluted shares of
8,874,211,  compared to net income  after taxes of $665,589 for the three months
ended June 30, 1999,  which resulted in basic and diluted  earnings per share of
$0.08 and $0.07, on weighted  average  shares,  adjusted for the stock split, of
8,641,434 and 9,536,284,  respectively.  Options to purchase 1,462,226 shares of
common stock were  outstanding as of June 30, 2000, but were not included in the
computation of diluted earnings per share because they were anti-dilutive.

     On February 10, 2000, the Company's Board of Directors authorized a two for
one stock split  effected as a 100% common stock  dividend.  The stock split has
been reflected retroactively for all outstanding common stock.

        Since the Company sells primarily to the consumer  market,  the Company
has experienced  certain revenue trends.  The Company has historically  recorded
stronger  sales results during the Company's  first fiscal  quarter  (October to
December),  which due to the holiday  season,  is a strong  quarter for computer
equipment sales. The Company  experienced this trend in each of the fiscal years
ended  September 30, 1999 and  September  30, 1998.  In addition,  the Company's
international  sales,  mostly in the European  market,  were 73%, 72% and 66% of
sales for the

<PAGE>

Item 2. Management's Discussion and Analysis-continued
------------------------------------------------------

years ended 1999, 1998 and 1997, respectively.  Due to this, the Company's sales
for its fourth fiscal quarter (July to September) can be potentially impacted by
the  reduction of activity  experienced  with Europe  during the July and August
summer holiday period.

     To offset the above cycles,  the Company continues to target a wide a range
of customer types in order to moderate the seasonality of retail sales.

Liquidity and Capital Resources
-------------------------------

The  Company's  cash,  working  capital  and  stockholders'  equity  position is
disclosed below:

                                  June 30, 2000               September 30, 1999
                                  -------------               ------------------

Cash                           $     2,585,127                $       6,122,922
Working capital                     12,022,559                       12,533,310
Stockholders' equity                13,798,390                       13,322,091

 The  significant  items of cash  provided by and cash  (consumed ) for the nine
month period ended June 30, 2000 are detailed below:

<TABLE>
<CAPTION>

<S>                                                                                    <C>
Net income (adjusted for non cash items), excluding deferred tax benefits        $    244,820
Change in deferred tax assets                                                        (689,805)
Decrease in investment for current assets                                           2,230,120
Increase in other assets                                                              (15,286)
Cash expended for reduction in current  liabilities-net                            (4,597,359)
Acquisition of EsKape                                                                (803,445)
Purchase of Property, Plant & Equipment                                              (353,698)
Proceeds from the exercise of options                                                 446,858

</TABLE>

     Net cash of $ 2,827,510 consumed by operating  activities was primarily due
to cash  disbursed for the payment of current  liabilities of $ 4,597,359 and an
increase in deferred  taxes of $689,805,  partially  offset by cash generated by
the reduction in current  assets of $2,230,120  and net income  adjusted for non
cash items of $244,820.  Other items of cash consumption  included  $803,445 for
the EsKape  acquisition and $353,698 used to purchase fixed assets. The exercise
of stock options provided a cash source of $446,858.

     The Company's credit facility with a bank expired on February 28, 1998. The
Company  has chosen not to renew the loan  facility.  The  Company has signed an
agreement  on July 12,  2000 with Chase  Manhattan  Bank,  who will  provide the
Company with a $6,500,000 credit facility.  The facility allows the Company,  at
its  option,  to borrow at the prime rate or 1.25%  above the  London  Interbank
Offered Rate "LIBOR".  The facility is secured by the assets of the company, and
expires on March 31, 2001.

     On November 8, 1996, the Company approved a stock repurchase  program.  The
Company has repurchased on a basis adjusted for the stock split,  428,600 shares
for $1,267,129 at an average purchase price of approximately $2.955 per share.

     The  Company  believes  that its  current  cash  position,  its  internally
generated  cash flow and its line of credit  will be  sufficient  to satisfy the
Company's anticipated operating needs for at least the ensuing twelve months.

<PAGE>

Inflation
---------

     While inflation has not had a material  effect on the Company's  operations
in the past, there can be no assurance that the Company will be able to continue
to offset the  effects of  inflation  on the costs of its  products  or services
through price increases to its customers without experiencing a reduction in the
demand for its products;  or that  inflation  will not have an overall effect on
the computer equipment market that would have a material affect on the Company.

Effect of New Accounting Pronouncements
---------------------------------------

 Investment Derivatives and Hedging Activities  Income
 ---------------------------------------------  ------

     In June 1998, the Financial  Accounting Standards Board issued SFAS No. 133
("SFAS 133"),  Accounting  for  Derivative  Investments  and Hedging  Activities
Income.  SFAS 133 is effective  for  transactions  entered into after October 1,
2000.  SFAS 133  requires  that all  derivative  instruments  be recorded on the
balance sheet at fair value.  Changes in the fair value of the  derivatives  are
recorded  each  period  in  current  earnings  or  other  comprehensive  income,
depending on whether a derivative  is designed as part of the hedge  transaction
and the type of hedge transaction. The ineffective portion of all hedges will be
recognized in earnings.  The Company is in the process of determining the impact
that the  adoption  of SFAS 133  will  have on its  results  of  operations  and
financial position.

Year 2000
---------

     Many  computer  systems  were not  designed to handle dates beyond the year
1999.  The  Company  evaluated  the effect of Year 2000  issues  relating to its
internal  computer  systems and has concluded  that its system was not Year 2000
compliant.  In  recognition  of this,  the Company  purchased  and installed new
software  and upgraded its computer  hardware  during  fiscal 1999.  Testing was
performed  in  house by  Company  personnel,  with  assistance  from an  outside
consultant.  The hardware upgrades and the  implementation of new software began
in January 1999.  The new system was fully  operational  on October 1, 1999. The
cost to the Company to become Year 2000  compliant was  approximately  $150,000,
which was funded through  internally  generated cash flow,  capitalized to fixed
assets and will be amortized  over a period as prescribed by generally  accepted
accounting principles.

     The Company has been advised by its vendor that the Company's phone system,
installed  during fiscal 1998, is Year 2000  compliant.  The Company's  facility
security system was upgraded during fiscal 1999 and the Company has been advised
by its vendor that such system is Year 2000 compliant.

     During  fiscal  1999,  the company sent Year 2000  questionnaires  to third
parties the Company does  business with in order to identify,  if possible,  the
status of the third  parties'  Year  2000  readiness.  The  Company  received  a
majority of responses  back by the close of the 1999 fiscal  year.  Although the
responses  showed that these third  parties  were either Year 2000  compliant or
working to resolve their Year 2000 compliance issues, the Company has limited or
no control over the actions taken by these third parties. Accordingly, there can
be no assurance  that all the third  parties the Company does business with will
successfully  resolve all of their Year 2000 issues.  The failure of these third
parties  to resolve  their Year 2000  issues  could have a  potentially  adverse
affect on the Company.  The Company  continues to monitor the readiness of third
parties we currently due business with and look to procure new third parties who
are year 2000 compliant in an effort minimize the risk to the Company.

<PAGE>

Year 2000-continued
-------------------

     The Company has a contingency  plan to respond to the possible  effects the
Year 2000  problem has on third  parties  that are  important  to the  Company's
operations.  The Company has communicated with its critical suppliers,  vendors,
customers,  utilities,  financial  institutions and telecommunication  providers
with whom it does  significant  business to identify any Year 2000  issues.  The
Company will continue to communicate with and review the progress of these third
party enterprises in resolving their Year 2000 issues. The ability to accurately
assess the Company's  third  parties'  readiness is dependent in large part upon
the reliability and completeness of their representations.

     To date, the company has not experienced any Year 2000 issues.

Item 3. Quantitative and Qualitative Disclosures about Market Risks Market Risks
--------------------------------------------------------------------------------

     Since the Company has extensive sales to European customers, the Company is
exposed to market risks resulting from the  fluctuations in the foreign currency
exchange  rates to the  dollar.  The Company  attempts to reduce  these risks by
utilizing foreign exchange hedging contracts.

     The value of the Euro and British  Pound  against the dollar can affect the
Company's  financial  results.  Changes  in  exchange  rates may  positively  or
negatively affect the Company's revenues (as expressed in U.S.  dollars),  gross
margins,  operating income and retained  earnings.  Where it deems prudent,  the
Company  engages in hedging  programs aimed at limiting,  in part, the impact of
currency  fluctuations.  Primarily  selling  foreign  currencies  through window
contracts,  the Company  attempts to hedge its foreign  sales  against  currency
fluctuations.

     These hedging  activities  provide only limited protection against currency
exchange  risks.  Factors that could impact the  effectiveness  of the Company's
programs include  volatility of the currency markets and availability of hedging
instruments. The contracts the Company procures are specifically entered into to
as a hedge against existing or anticipated exposure.  The Company does not enter
into contracts for speculative  purposes.  Although the Company  maintains these
programs to reduce the impact of changes in currency  exchange  rates,  when the
U.S. dollar sustains a  strengthening  position  against the currencies in which
the Company sells it products, the Company's revenues can be adversely affected.

Special Note Regarding Forward Looking Statements
-------------------------------------------------

     Certain statements in this Report constitute  "forward-looking  statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking  statements  involve known and unknown risks,  uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company,  or industry  results,  to be materially  different from any future
results,   performance   or   achievements   expressed   or   implied   by  such
forward-looking  statements.  Such  factors  include,  among other  things,  the
following:  the Company's  ability to manage growth;  the risks  associated with
successfully   integrating  acquired  businesses;   the  risks  associated  with
dependence  on  resellers,   contract   manufacturers   and  other   third-party
relationships;  the uncertainty of continued market acceptance of PC-based video
products; the Company's highly competitive industry and rapid

<PAGE>

Special Note Regarding Forward Looking  Statements-continued
--------------------------------------  --------------------

technological  change within the Company's  industry;  the risks associated with
development  and  introduction  of new  products;  the  need to  manage  product
transitions; the risks associated with product defects and reliability problems;
the risks associated with single source suppliers; the uncertainty of patent and
proprietary technology protection and reliance on technology licensed from third
parties;  the  risks  of third  party  claims  of  infringement;  the  Company's
dependence on retention and  attraction of key employees;  the risks  associated
with future acquisitions;  the risks associated with international licensing and
operations;   general  economic  and  business  conditions;  and  other  factors
referenced in this Report.

PART II.  OTHER INFORMATION
--------  -----------------

Item 1  Legal Proceedings
------  -----------------

In January 1998, Advanced  Interactive  Incorporated ("AII") contacted the
Company and  attempted  to induce the Company to enter into a patent  license or
joint venture agreement with AII relative to certain of the Company's  products.
AII alleged that such  products  infringe  U.S.  Patent  No.4,426,698  (the "AII
Patent").  At such time, the Company's engineering staff analyzed the AII Patent
and  determined  that the  Company's  products did not infringe any such patent.
Accordingly, the Company rejected AII's offer.

On October 6, 1998, the Company received notice that AII had commenced an action
against it and multiple other defendants in the United States District Court for
the Northern  District of Illinois  (the  "District  Court"),  alleging that the
certain of the Company's  products  infringed on certain patent rights allegedly
owned by the  plaintiff  (the  "Complaint").  The Complaint  sought  unspecified
compensatory  and  statutory  damages  with  interest.  The Company  denied such
allegations  and  vigorously  defended  this action.  On December 22, 1998,  the
Company filed its answer (the  "Answer").  Among other  things,  pursuant to the
Answer,  the Company denied that its products  infringed AII's patent rights and
asserted  certain  affirmative  defenses.  In  addition,  the Answer  included a
counterclaim  challenging the validity of AII's alleged patent rights.  On March
5,  1999,  the  Company  joined  a  Motion  for  Partial  Adjudication  of Claim
Construction  Issues,  filed  by one  of the  multiple  defendants.  The  Motion
provided the defendants'  interpretation of certain limitations of the claims at
issue. On February 17, 2000, the District Court granted the Motion en toto.

On June 20, 2000, AII and the Company, inter alia, entered into an Agreed Motion
to Entry of Judgment,  where AII stipulated  that based on the District  Court's
claim  construction,  certain  claim  elements  in the  claims at issue were not
present in the Company's accused products.  On June 26, 2000, the District Court
granted the Agreed Motion and directed a Final Judgment of  Non-infringement  as
to the Company.

On July 25,  2000,  AII filed a Notice of Appeal with the U.S.  Court of Appeals
for the Federal  Circuit,  appealing  the District  Court's  Order  granting the
Motion for Partial  Adjudication of Claim Construction Issues and Order entering
Final Judgment of Noninfringement.

<PAGE>

Item 1  Legal Proceedings-continued
------  ---------------------------

Notwithstanding  the foregoing,  because of the uncertainties of litigation,  no
assurances  can be given as to the outcome of AII's appeal.  It is possible that
the U.S.  Court of Appeals  for the Federal  Circuit may reverse the  District's
Court's  rulings  and remand  the case back to the  District  Court.  In such an
event,  and if the Company were not to prevail in the remanded  litigation,  the
Company  could  be  required  to pay  significant  damages  to AII and  could be
enjoined from further use of such technology as it presently exists.  Although a
negative  outcome in the AII litigation  would have a material adverse affect on
the  Company,  including,  but not  limited  to, its  operations  and  financial
condition,  the Company believes that, if it is held that the Company's products
infringe AII's patent rights,  the Company would attempt to design components to
replace the  infringing  components  or would  attempt to negotiate  with AII to
utilize its system,  although no assurances  can be given that the Company would
be successful in these attempts. At the present time, the Company can not assess
the possible cost of designing and implementing a new system or obtaining rights
from AII.

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

(a) Exhibits
------------

        27. Financial Data Schedule

(b) Reports on form 8-K
-----------------------

            None


<PAGE>



                                   SIGNATURES

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

                             HAUPPAUGE DIGITAL, INC.
                             -----------------------
                                  Registrant

Date: August 10, 2000                  By: /s/ Kenneth Plotkin
                                          ------------------------------
                                          KENNETH  PLOTKIN
                                          Vice President and
                                          Chief Executive Officer


Date: August 10, 2000                  By:/s/ Gerald Tucciarone
                                          ------------------------------
                                          GERALD TUCCIARONE
                                          Treasurer and Chief
                                          Financial Officer


<PAGE>