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  December 31, 2003
                                -----------------

                                       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)

                                 (631) 434-1600
                                 --------------
              (Registrant's telephone number, including area code )

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
                                        ---       ---

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act)

                                    Yes        No  X
                                       ---        ---

As of January 30,  2004,  8,881,682  shares of .01 par value Common Stock of the
registrant were outstanding, not including treasury shares.

                                       1

<PAGE>

                    HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
                    ----------------------------------------

                                      INDEX
                                      -----


PART I. FINANCIAL INFORMATION
-----------------------------
<TABLE>
<CAPTION>

                                                                                                       Page No.
                                                                                                       --------
Item 1.Financial Statements
<S>                                                                                                       <C>
Condensed Consolidated Balance Sheets-
  December 31, 2003 (unaudited) and September 30, 2003 (audited)                                           3


Condensed Consolidated Statements of Income-
  Three Months ended December 31, 2003 (unaudited) and 2002 (unaudited)                                    4

Condensed Consolidated Statements of Other Comprehensive Income -
  Three Months ended December 31, 2003 (unaudited) and 2002 (unaudited)                                    5

Condensed Consolidated Statements of Cash Flow-
  Three Months ended December 31, 2003 (unaudited) and 2002 (unaudited)                                    6

Notes to Condensed Consolidated Financial Statements                                                    7-11

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations          12-19

Item 3. Quantitative and Qualitative Disclosures about Market Risks                                       20

Item  4. Controls and Procedures                                                                       20-21

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

Item 1.  Legal Proceedings                                                                                21

Item 5.  Other information                                                                                21

Item 6.  Exhibits and Reports on form 8-K                                                                 22

SIGNATURES                                                                                                23
</TABLE>



                                       2




<PAGE>

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

Item 1. Financial Statements



                    HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>




                                                                                December 31,         September 30,
                                                                                   2003                  2003
                                                                               (Unaudited)
                                                                               -------------------------------------
Assets:

 Current Assets:
<S>                                                                                <C>              <C>
     Cash and cash equivalents                                                     $   5,203,858    $  5,838,160
     Receivables, net of various allowances                                           13,799,977       9,182,758
     Inventories                                                                       9,949,148       5,474,374
     Prepaid expenses and other current assets                                           699,383         546,328
                                                                                -------------------------------------
                Total current assets                                                  29,652,366      21,041,620

     Property, plant and equipment, net                                                  492,203         532,516
     Security deposits and other non current assets                                       76,216          76,216
                                                                                -------------------------------------
                                                                                   $  30,220,785    $ 21,650,352
                                                                                =====================================


 Liabilities and Stockholders' Equity:

 Current Liabilities:
    Accounts payable                                                               $  13,019,337    $  7,452,867
    Accrued expenses                                                                   3,506,988       2,539,678
    Income taxes payable                                                                 161,997         189,122
                                                                                -------------------------------------
              Total current liabilities                                               16,688,322      10,181,667

 Stockholders' Equity
    Common stock $.01 par value; 25,000,000 shares authorized, 9,423,749
          and 9,420,315 issued, respectively                                              94,237           94,203
    Additional paid-in capital                                                        12,318,573       12,302,119
    Retained earnings                                                                  1,092,847           99,987
    Accumulated other comprehensive income                                             1,524,022          469,592
    Treasury Stock, at cost, 542,067 shares                                           (1,497,216)      (1,497,216)
                                                                                -------------------------------------
             Total stockholders' equity                                               13,532,463       11,468,685
                                                                                -------------------------------------
                                                                                   $  30,220,785     $ 21,650,352
                                                                                =====================================
</TABLE>

See accompanying notes to condensed consolidated financial statements


                                       3

<PAGE>


                    HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
                                               Three months ended December 31,
                                               ---------------------------------
                                                       2003            2002
                                               ---------------------------------

Net Sales                                           $18,230,298     $15,520,486
Cost of Sales                                        13,648,675      11,599,524
                                               ---------------------------------
    Gross Profit                                      4,581,623       3,920,962

Selling, General and Administrative Expenses          3,120,616       2,706,302
Research & Development Expenses                         410,274         493,073
                                               ---------------------------------
    Income from operations                            1,050,733         721,587

Other Income (expense):
  Interest income                                         1,739           5,971
  Foreign currency                                      (11,333)        (44,603)
                                               ---------------------------------
Other income (expense)                                   (9,594)        (38,632)
                                               ---------------------------------
    Income before taxes on income                     1,041,139         682,955
Tax  provision                                           48,279          26,483
                                               ---------------------------------
      Net income                                       $992,860        $656,472
                                               =================================

Net income  per share:
    Basic and Diluted                                     $0.11           $0.07
                                               =================================

See accompanying notes to condensed consolidated financial statements


                                       4

<PAGE>


                     HAUPPAUGE DIGITAL, INC AND SUBSIDIARIES
         CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
                                   (UNAUDITED)



                                              Three months ended December 31,
                                              -------------------------------
                                                 2003                 2002
                                                 ----                 ----
Net income                                    $ 992,860          $  656,472
Forward exchange contracts marked to market     204,461            (518,974)
Foreign currency translation gain               849,969             150,728
                                              ----------------------------------

Other  comprehensive income                   $ 2,047,290        $  288,226
                                              ==================================





See accompanying notes to condensed consolidated financial statements



                                       5


<PAGE>

                    HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                       Three  months ended December 31,
                                                                              2003              2002
                                                                    -------------------------------------

<S>                                                                         <C>                 <C>
  Net income                                                                $992,860            $656,472
                                                                    -------------------------------------
   Adjustments to reconcile net income to net cash
     provided by (used in) operating activities:
     Depreciation and amortization                                            60,309             248,067
     Other non cash items                                                     10,079               6,334
  Changes in current assets and liabilities:
      Accounts receivable                                                 (3,562,789)         (3,420,021)
      Inventories                                                         (4,474,774)         (2,999,976)
      Prepaid expenses and other current assets                             (153,055)           (176,019)
      Accounts payable and other current liabilities                       6,506,655           6,274,254
                                                                    -------------------------------------
       Total adjustments                                                  (1,613,575)           (242,313)
                                                                    -------------------------------------
   Net cash (used in) provided by operating activities                      (620,715)            414,159
                                                                    -------------------------------------

Cash Flows From Investing Activities:
    Purchases of property, plant and equipment                               (20,574)            (51,370)
                                                                    -------------------------------------
       Net cash used in investing activities                                 (20,574)            (51,370)
                                                                    -------------------------------------

Cash Flows From Financing Activities:
    Proceeds from employee stock purchases                                     6,987               6,108
    Purchase of treasury stock                                                     -             (35,642)
                                                                    -------------------------------------
       Net cash provided by (used in) financing activities                     6,987             (29,534)
                                                                    -------------------------------------
       Net (decrease) increase in cash and cash equivalents                 (634,302)            333,255

Cash and cash equivalents, beginning of period                             5,838,160           4,964,522
                                                                    -------------------------------------
Cash and cash equivalents, end of period                               $   5,203,858       $   5,297,777
                                                                    =====================================

Supplemental disclosures:
   Income taxes paid                                                     $    67,802        $      4,945
                                                                    =====================================
</TABLE>

See accompanying notes to condensed consolidated financial statements



                                       6


<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 month
period ended  December 31, 2003 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, 2003 Form 10-K.

The operating results for the three month period ended December 31, 2003 are not
necessarily  indicative of the results to be expected for the September 30, 2004
year end.

Note 2. Receivables

Accounts and other  receivables  consisted  of the  following as of December 31,
2003:

                                             December 31,          September 30,
                                               2003                    2003
                                           --------------        ---------------
Trade receivables                          $  10,858,832           $ 7,435,539
Receivable from contract manufacturers         5,517,599             4,134,456
GST and VAT taxes receivables                    407,353               289,700
Allowances and reserves                       (3,232,184)           (2,887,184)
Income tax receivable                            175,000               175,000
Other                                             73,377                35,247
                                           --------------        ---------------
                                           $  13,799,977           $ 9,182,758
                                           ==============        ===============

Note 3. Derivative Financial Instruments

Product is invoiced to our European  customers in local  currencies and payments
from our  customers  are received in local  currencies  (primarily  the Euro and
Great British Pound). On the supply side, since we predominantly deal with North
American and Asian suppliers,  approximately 70% of our inventory supporting our
Euro and Great  British  Pound  sales are  purchased  and paid in U.S.  Dollars.
Consequently, changes in exchange rates expose our U.S. denominated inventory on
the  books  of our  European  subsidiary  to  market  risks  resulting  from the
fluctuations  in the foreign  currency  exchange  rates to the U.S.  Dollar.  We
attempt  to  reduce  these  risks by  entering  into  foreign  exchange  forward
contracts with financial institutions. The purpose of these forward contracts is
to hedge the foreign  currency market  exposures  underlying the forecasted U.S.
Dollar denominated inventory purchases required to support our European sales.

As of December  31,  2003,  we had foreign  currency  contracts  outstanding  of
approximately  $851,600  against the delivery of the Euro. The contracts  expire
through January 2004. Our accounting  policies for these  instruments  designate
such  instruments as cash flow hedging  transactions.  We do not enter into such
contracts for speculative purposes. We record all derivative gains and losses on
the  balance  sheet as a component  of  stockholders'  equity  under the caption
"Accumulated other comprehensive income (loss)". The Company recorded a deferred
gain of $204,461 for the three months  ended  December 31, 2003.  As of December
31, 2003, a deferred loss of $30,130,  reflecting the cumulative  mark to market
loss of our  derivatives,  was  recorded as a  component  of  accumulated  other
comprehensive income on the balance sheet.

For the three  months  December  31,  2003,  we  recorded a decrease in sales of
$805,553 and $549,600, respectively, related to our contracts that closed during
these periods and the changes in the fair value of our derivative contracts.

                                       7
<PAGE>

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

Note 4. Inventories

Inventories  have been valued at the lower of average  cost or market on a first
in first out basis. The components of inventory consist of:


                                 December 31,          September 30,
                                    2003                   2003
                                    ----                   ----

     Component Parts             $3,907,231             $1,446,670
     Finished Goods               6,041,917              4,027,670
                                  ---------              ---------
                                 $9,949,148             $5,474,374
                                  =========              =========

Note 5. Net Income Per Share

Basic net income per share  includes no dilution and is computed by dividing net
income by the weighted average number of shares of common stock  outstanding for
the period.  Diluted net income per share reflects, 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 net income per share is as follows:

<TABLE>
<CAPTION>
                                                                          Three Months Ended
                                                                              December 31,
                                                                          2003           2002
                                                                          ----           ----
<S>                                                                     <C>            <C>
 Weighted average shares outstanding-basic                              8,880,651      8,858,431
 Number of shares issued on the assumed exercise of stock options         489,430         19,750
 Weighted average shares outstanding-diluted                            9,370,081      8,878,181
                                                                        =========      =========
</TABLE>

Options to  purchase  485,337  and  1,462,826  shares of common  stock at prices
ranging $2.81 to $ 10.06 and $1.35 and $10.06,  respectively,  were  outstanding
for the three month periods ending December 31, 2003 and 2002, respectively, but
were not included in the computation of diluted  earnings per share because they
were anti-dilutive.

Note 6. Accumulated other comprehensive income

The  Euro is the  functional  currency  of the  Company's  European  subsidiary,
Hauppauge  Digital Europe Sarl.  Assets and  liabilities of this  subsidiary are
translated  to U.S.  Dollars at the spot  exchange rate in effect at end of each
reporting  period,  while equity accounts are translated to U.S.  Dollars at the
historical rate in effect at the date of the contribution. Operating results are
translated  to U.S.  Dollars at the  average  prevailing  exchange  rate for the
period,  with the exception of sales which are translated to U.S. Dollars at the
average monthly forward exchange contract rate. The use of translating  accounts
at the spot,  historical and average  exchange rates results in foreign currency
translation  gains or losses.  These translation gains or losses are recorded on
the balance sheet under accumulated other comprehensive income.

The  Company  uses  forward  exchange   contracts  to  reduce  our  exposure  to
fluctuations  in foreign  currencies.  Mark to market  gains and losses on these
open  contracts  result  from the  difference  between the USD value of our open
foreign  currency  forward  contracts at the average contract rate as opposed to
the same contracts  translated at the month end spot rate. The Company qualifies
for cash flow hedge  accounting  as prescribed  under FAS 133,  which allows the
Company to record the mark to market  gains and losses in the equity  section of
our balance sheet under accumulated other comprehensive income.


                                       8
<PAGE>


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

As of December 31,  2003,  appearing in the equity  section  under  "Accumulated
other comprehensive  income" was a deferred gain of $1,524,022,  which consisted
of a deferred  translation gain of $1,554,152 and a deferred loss of $30,130 due
to the mark to market  losses on the  difference  between  the value of our open
forward  exchange  contracts  at the contract  rates  versus the same  contracts
valued at the period ending forward rate.

The Company's  Asian  subsidiary  reports its financial  position and results of
operations in the reporting currency of the Company.

Note 7. Revenue Recognition

We sell through a sales channel which  consist of retailers ,  distributors  and
original equipment manufacturers (OEM's). Our prices are fixed consistently over
the entire sales channel. The majority of our customers are granted open payment
terms.  Those  customers  deemed as large  credit risks either pay in advance or
issue us a letter of credit.

The Company requires the customer to submit a purchase order to the Company. The
price of the product and payment  terms are fixed per the terms of the  purchase
order.  Upon  shipment of the order to the  customer,  the title to the goods is
passed to the customer.  The customer is legally  obligated to pay for the order
within the payment terms stated on the customer's purchase order. The obligation
to insure the products  and the cost of any  pilferage  while in the  customer's
possession  is the  responsibility  of the  customer.  Our retail  products  are
typically  stocked  on the  shelves of  retailers,  and is subject to the normal
consumer traffic that retail stores attract.  Aside from normal store promotions
such as end-caps and advertisements in the store's circular,  the Company has no
further obligation to assist in the resale of the product.

The  Company  offers it  customers  a right of return,  but does not offer stock
balancing. Our accounting complies with SFAS 48 as typically at the end of every
quarter,  the Company,  based on  historical  data,  evaluates its sales reserve
level based on the  previous  six months  sales.  Due to seasonal  nature of our
business coupled with the changing economic  environment,  management  exercises
some judgement with regard to the historical data to arrive at the reserve.

Note  8.  Product segment and Geographic Information

We engineer, develop, subcontract for manufacture,  market and sell products for
the personal computer ("PC") market and the Apple(R) Macintosh(R) market.

We also offer products for the home  entertainment  market.  We have two primary
product  categories:  analog TV products and digital TV  products.  Our WinTV(R)
analog TV receivers  allow PC users to watch  television on their PC screen in a
resizable  window,  and also enable  recording  of TV shows to a hard disk.  Our
WinTV(R)-PVR TV personal video recorder products include hardware MPEG encoders,
which improve the performance of TV recording and add instant replay and program
pause functions,  plus also enable the `burning' of TV recordings onto DVD or CD
media.  Our  Eskape(TM)  Labs  products  allow  users  of   Apple(R)Macintosh(R)
computers to watch television on their computer screen.

We offer three types of digital TV receivers. Our WinTV(R) digital receivers can
receive  digital  TV  transmissions  and  display  the  digital  TV  show  in  a
re-sizeable  window on a user's PC  screen.  Our  Digital  Entertainment  Center
products  ("DEC") allow users to receive  digital TV broadcasts  and display the
digital  TV on either a TV set or a PC  screen.  Our  MediaMVP(TM)  product  was
designed to allow PC users to play digital media such as digital music,  digital
pictures and digital videos on a TV set via a home network.

                                       9
<PAGE>

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

Note 8. Product segment and Geographic Information-continued

We sell  our  products  through  computer  and  electronic  retailers,  computer
products distributors and original equipment  manufacturers  ("OEMs").  Sales by
functional category are as follows:

                                Three months ended December 31,
                                -------------------------------
                                    2003               2002
                                ------------      ------------
Product line sales
------------------
Analog sales                    $ 14,429,228      $ 11,246,167
Digital sales                      3,801,070         4,274,319
                                ------------      ------------
                                $ 18,230,298      $ 15,520,486
                                ============      ============

The Company sells its products through an international  network of distributors
and retailers.  European sales  accounted for 75% and 70% of sales for the three
moths ended December 31, 2003 and 2002.  Sales percent by geographic  region are
as follows:

                                      Three months ended, December 31,
                                      --------------------------------
Sales percent by geographic region          2003           2002
----------------------------------          ----           ----

United States                                24%            29%
Europe                                       75%            70%
Asia                                          1%             1%
                                             --             --
    Total                                   100%           100%
                                            ====           ====

Note 9. Stock-Based Compensation

The Company applies Accounting  Principles Board Opinion No. 25, "Accounting for
Stock  Issued  to  Employees",   ("APB  25"),  and  related  interpretations  in
accounting for its employee stock options. Under APB 25, no compensation expense
is recorded so long as the quoted  market  price of the stock at the date of the
grant is equal to the exercise price.

Pro forma  information  regarding  net  income and  earnings  per share has been
determined as if the Company had accounted for its employee  stock options under
the fair value method of Financial  Accounting Standards Board Statement No. 123
"Accounting for Stock-Based  Compensation",  ("FAS 123").  The weighted  average
fair value of options  granted  during the three months ended  December 31, 2003
and  December,  31 2002 was $0.43 and  $0.42,  respectively.  The fair value for
these  options was estimated at the date of grant using a  Black-Scholes  option
pricing  model with the following  weighted  average  assumptions  for the three
months ended December 31, 2003 and December 31, 2002:  risk-free  interest rates
of 3.25%, volatility factor of the expected market price of the Company's Common
Stock of 40%, assumed dividend yield of 0%, and a weighted-average expected life
of the option of 5 years.

Under the  accounting  provisions  of FAS 123, the  Company's net income and net
income per share  would have been  adjusted to the pro forma  amounts  indicated
below:

                                       10
<PAGE>


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


<TABLE>
<CAPTION>

                                                                          December 31,     December 31,
                                                                              2003            2002
                                                                         ---------------- --------------
<S>                                                                        <C>              <C>
Net income  as reported..........................................          $ 992,860        $ 656,472
-----------------------

   Deduct:  Total stock-based employee compensation expense
     determined under fair value method, net of related taxes ...            (24,788)         (19,865)
                                                                           ----------       ----------
Pro forma net income.............................................          $ 968,072        $ 636,607
--------------------                                                       ==========       ==========

Net income per share - as reported:

Basic and diluted................................................          $    0.11        $    0.07
                                                                           ==========       ==========
Net income per share - pro forma:

Basic............................................................          $    0.11        $    0.07
                                                                           ==========       =========
Diluted..........................................................          $    0.10        $    0.07
                                                                           ==========       =========
</TABLE>

Note 10. Arrangements with Off-Balance Sheet Risk - Guarantees

In November 2002, the FASB issued  Interpretation  No. 45 (FIN 45),  Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of the  Indebtedness of Others,  which clarifies the  requirements of
SFAS No. 5, Accounting for Contingencies,  relating to a guarantor's  accounting
for and  disclosures  of certain  guarantees  issued.  FIN 45 requires  enhanced
disclosures for certain guarantees. It also requires certain guarantees that are
issued or modified  after  December  31,  2002,  including  certain  third-party
guarantees,  to be initially  recorded on the balance  sheet at fair value.  For
guarantees issued on or before December 31, 2002,  liabilities are recorded when
and if payments become probable and estimable.  FIN 45 has the general effect of
delaying  recognition  for a portion of the revenue  for product  sales that are
accompanied  by  certain   third-party   guarantees.   The  financial  statement
recognition provisions became effective prospectively beginning January 1, 2003.
The Company  has not entered  into any new  guarantees,  nor have they  ammended
their existing guarantee since the effective date.

We occupy a facility located in Hauppauge,  New York and use it as our executive
offices and for the testing, storage, and shipping of our products. The building
is owned by a partnership  comprised of certain of our  principal  stockholders'
and is leased to us under a lease agreement  expiring on January 31, 2006, which
may be extended,  at our option, for an additional three years. The premises are
subject  to two  mortgages  which  have  been  guaranteed  by us upon  which the
outstanding  principal amount due as of December 31, 2003 was $733,031.  The two
mortgages  guaranteed  expire on Janauary  31,  2010,  at which time the related
gurantees expire.



                                       11
<PAGE>

<TABLE>
<CAPTION>



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

Three Month Period ended December 31, 2003 Compared to December 31, 2002
------------------------------------------------------------------------

Results of operations  for the three months ended  December 31, 2003 compared to
December 31, 2002 are as follows:

                                                             Three          Three
                                                            Months          Months
                                                             Ended          Ended     Variance        Percentage of sales
                                                          12/31/03          12/31/02   $             2003    2002     Variance
                                                          --------        ----------   -             ----    ----     --------
<S>                                                     <C>             <C>             <C>             <C>             <C>    <C>

Net Sales                                             $18,230,298   $ 15,520,486  $ 2,709,812       100.0%  100.0%         0
Cost of sales                                          13,648,675     11,599,524    2,049,151       74.87%  74.74%      0.13%
                                                       -----------    -----------   ----------     ------  ------      -----
Gross Profit                                            4,581,623      3,920,962      660,661       25.13%  25.26%     -0.13%
Gross Profit %                                              25.13%         25.26%       -0.13%

Costs:
Sales & Marketing                                       2,125,709      1,863,012      262,697     11.66%  12.00%     -0.34%
Technical Support                                         108,455         98,360       10,095      0.60%   0.63%     -0.03%
General   & Administrative                                886,452        744,930      141,522      4.86%   4.80%      0.06%
                                                          --------       --------     --------     -----   -----      -----
Total Selling, General and Administrative costs         3,120,616      2,706,302      414,314     17.12%  17.43%     -0.31%
Research & Development                                    410,274        493,073      (82,799)     2.25%   3.18%     -0.93%
                                                          --------       --------     --------    -----   -----      ------
Total Costs                                             3,530,890      3,199,375      331,515     19.37%  20.61%     -1.24%
                                                        ----------     ----------     --------    ------  ------     ------
Net operating income                                    1,050,733        721,587      329,146      5.76%   4.65%      1.11%

Other income (expense)
----------------------
Interest income                                             1,739          5,971       (4,232)      0.01%   0.04%     -0.03%
Foreign currency                                          (11,333)       (44,503)      33,270      -0.06%  -0.29%      0.23%
                                                          -------        -------       ------      -----   -----      -----
  Total other income (expense)                            ( 9,594)       (38,632)      29,038      -0.05%  -0.25%      0.20%
                                                          -------        -------       ------      -----   -----      -----
Income before taxes                                     1,041,139        682,955      358,184       5.71%   4.40%      1.31%
Taxes on income                                            48,279         26,483       21,796       0.26%   0.17%      0.09%
                                                        ---------        -------      -------      -----   -----      -----
Net income                                             $  992,860     $  656,472   $  336,388       5.45%   4.23%      1.22%
                                                       ===========    ==========   ==========      =====   =====      =====


</TABLE>

Net sales for the three months  ended  December  31, 2003  increased  $2,709,812
compared  to the three  months  ended  December  31,  2002 as shown on the table
below.

<TABLE>
<CAPTION>
                                                   Increase
                                                  (decrease)       Increase       Percentage of sales by
              Three Months     Three  Months        Dollar        (decrease)         Geographic region
Location      ended 12/31/03   ended 12/31/02      Variance       Variance %         2003        2002
--------      --------------   --------------   --------------    ----------         ----        ----

<S>            <C>              <C>             <C>                   <C>             <C>         <C>
Domestic       $ 4,352,730      $  4,480,128    $    (127,398)        (3)%            24%         29%
Europe          13,626,714        10,854,699         2,772,015         26%            75%         70%
Asia               250,854           185,659            65,195         35%             1%          1%
              -------------    --------------   --------------    ----------        ------      -----
  Total       $ 18,230,298      $ 15,520,486    $   2,709,812          17%           100%        100%
              ===============  ==============   ==============    ==========        =======     =====
</TABLE>


The primary factors contributing the sales increase were:

o    Increased sales of OEM PVR-250 for media center products
o    Introduction of Media MVP product in October 2003
o    Stronger demand for retail PVR-250 products due to exposure  generated from
     sales of media center systems
o    Increased DVB sales
o    Increase  PVR-USB  sales due to  introduction  of lower cost  model  during
     fiscal 2003
o    Increased USB sales due to direct sales of a particular OEM product
o    Increase in our average Euro to USD contract  rate of  approximately  17.5%
     for the three months ended  December 31, 2003 over the same three months of
     last year , which yielded higher converted Euro to USD sales

                                       12

<PAGE>

Results of  operations-three  month period ended  December 31, 2003  compared to
--------------------------------------------------------------------------------
December 31,2002-continued
--------------------------

Net sales to domestic customers were 24% of net sales for the three months ended
December 31, 2003 compared to 29% for the three months ended  December 31, 2002.
Net sales to European  customers  were 75% of net sales  compared to 70% for the
same period of last year. Net sales to Asian customers were 1% for both periods.


Gross profit  increased  $660,661  for the three months ended  December 31, 2003
compared to the prior year's first quarter.


The increases and (decreases) in the gross profit are detailed below:

                                                          Increase
                                                         (decrease)
                                                         ----------
Due to increased   sales                                  $845,245
Higher  margins due to product mix                         878,328
Increased sales mix of lower margin OEM sales             (606,372)
Due to increases in labor related and other costs         (456,540)
                                                          ---------
      Total  increase in gross profit                     $660,661
                                                          =========

Gross profit  percentage for the three months ended December 31, 2003 was 25.13%
compared to 25.26% for the three months  ended  December 31, 2002, a decrease of
0.13%.

The increases and (decreases) in the gross profit percent are detailed below:


                                                                        Increase
                                                                      (decrease)
                                                                      ----------

Higher  gross profit percent due to product mix of non-OEM products      4.81%
Increased sales mix of lower margin OEM sales                           (3.32)%
Labor related and other costs                                           (1.62)%
                                                                        -------
Net  increase in gross profit %                                         (0.13)%
                                                                        =======

The increase in gross profit percent of 4.81% for non-OEM products was primarily
due to:

o    Cost reductions attained during fiscal 2003
o    Cost reduced versions of the PVR-250 and PVR-USB  introduced  during fiscal
     2003
o    Increase in our average  Euro to USD contract  rates,  used to convert Euro
     sales to U.S.  dollar sales,  of  approximately  17.5% for the three months
     ended  December  31, 2003 over the same month  three  month  period of last
     year.  Since  approximately  75% of our European  inventory is purchased in
     U.S.  dollars  while most of the  European  sales are  invoiced in Euros or
     Great British Pounds,  the Company benefited from the higher converted Euro
     to U.S.  dollar  sales  which  are  sold  against  U.S  dollar  denominated
     inventory
o    Sales of lower  margin DEC boards  declined as a  percentage  of sales from
     last year

Sales of our OEM PVR-250  boards for the three  months  ended  December 31, 2003
were  $2,753,250 and 15.10% of sales compared to $520,131 and 3.35% of sales for
the three months  ended  December  31,  2002.  OEM sales  require less sales and
marketing  support,  but also sell at a lower gross profit  percentage  than our
retail  products.  Our OEM sales had a gross profit  percentage of 9.55% for the
three months ended  December 31, 2003.  The  increased  product mix of OEM sales
over the month  and  three  month  period  ending  December  31,  2002  caused a
reduction of our gross profit  percentage  of 3.32%.  for the three months ended
December 31, 2003.

The decrease in the gross margin percent of for the three months ending December
31, 2003 of 1.62%  attributable  to labor related and other costs was due to the
percentage  increase in labor  related and other costs of 49.61%  exceeding  the
percentage increase in sales of 17.46%.


                                       13
<PAGE>

Results of  operations-three  month period ended  December 31, 2003  compared to
--------------------------------------------------------------------------------
December 31,2002-continued
--------------------------


The  chart  below   illustrates   the   components   of  Selling,   General  and
Administrative costs:

<TABLE>
<CAPTION>
                                     Three months ended December  31,
                                     --------------------------------
                                              Dollar Costs                                          Percentage of Sales
                                     -------------------------------------------------------------------------------------
                                                                              Increase                               Increase
                                          2003             2002              (Decrease)        2003      2002      (Decrease)
                                          ----             ----              ----------        ----      ----      ----------

<S>                                   <C>              <C>                 <C>                 <C>        <C>           <C>
Sales and Marketing                   $2,125,709       $ 1,863,012         $  262,697          11.66%     12.00%       -0.34%
Technical  Support                       108,455            98,360             10,095           0.60%      0.63%       -0.03%
General and Administrative               886,452           744,930            141,522           4.86%      4.80%        0.06%
                                      ----------       -----------         ----------          -----      ------       ------
     Total                            $3,120,616       $ 2,706,302         $  414,314          17.12%     17.43%       -0.31%
     -----                            ==========       ===========         ==========          =====      ======       ======
</TABLE>

Selling,  General and Administrative  expenses increased $414,314 from the prior
year's  first  quarter.  As  a  percentage  of  sales,   Selling,   General  and
Administrative  expenses  decreased  by 0.31% when  compared to the three months
ended December 31, 2002.

The increase in Sales and  Marketing  expense of $262,697,  which  accounted for
approximately 63% of the total increase in Selling,  General and  Administrative
expenses, was mainly due to:

     o    Higher  advertising  costs  of  $14,697  due  to  higher  sales  based
          co-operative  advertising,  higher  customer  rebate  realization  and
          increased special promotions
     o    Higher  advertising  costs of $86,692 due to higher translated Euro to
          U.S dollar  amounts due to the  strengthening  of the Euro against the
          USD
     o    Increased  commission expense of $22,172 due to higher translated Euro
          to U.S dollar amounts due to the strengthening of the Euro against the
          USD
     o    Increased  European  sales  office  costs  of  $81,140  due to  higher
          translated Euro to U.S dollar amounts due to the  strengthening of the
          Euro against the USD
     o    Increased  third  party  European  merchandising  program of $69,349
     o    Increased UK in store promotions of $70,326
     o    Lower sales  office  expenses of $96,967  due to  personnel  shift and
          stricter budget controls


The increase in General and  Administrative  expenses of $141,522 was  primarily
due to:

     o    Higher legal and legal related costs of $41,495
     o    Directors fees of $29,750
     o    Banking fees, credit card fees and cash discounts of $21,602
     o    European accounting service fees $17,482
     o    Increment to account receivables  reserves of $25,000 in reflection of
          higher sales

Research and Development  expenses  decreased  $82,799 . The decrease was mainly
due to lower  compensation costs attributable to less staff and less third party
software development services used in the first quarter of fiscal 2004.

Other income (expense)

Net other  expense  for the three  months  ended  December  31,  2003 was $9,594
compared to net other expense of $38,632 for the three months ended December 31,
2002 as detailed below:


                                                 Three months ended December 31,
                                                 -------------------------------
                                                      2003               2002
                                                      ----               ----

  Interest income                                  $  1,739          $   5,971
  Foreign currency transaction gains (losses)       (11,333)           (44,903)
                                                  ----------         ----------
  Total other income  (expense)                    $ (9,594)         $ (38,932)
                                                  ==========         ==========

                                       14
<PAGE>

Results of  operations-three  month period ended  December 31, 2003  compared to
--------------------------------------------------------------------------------
December 31,2002-continued
--------------------------

Re-measurement of accounts denominated in currencies other than the Euro

We follow the rules  prescribed  in  paragraph  16 of SFAS 52 "Foreign  Currency
Translation", which states that accounts denominated in a currency other than an
entities functional currency,  excluding  inter-company  accounts which are long
term in nature,  need to be re-measured into the entities  functional  currency,
and any gain or loss from this  re-measurement are included in the determination
of net income.

Since the functional  currency of Hauppauge  Digital Europe Sarl ("HDE Sarl") is
the Euro,  any asset,  liability  or equity  accounts  which are  invested in or
purchased  using U.S.  Dollars or Great British  Pounds by HDE Sarl are revalued
into Euros at the end of each  period.  The gains or losses on HDE Sarl's  books
resulting from the  revaluation of U.S.  Dollar and Great British Pound accounts
into Euros are booked in the  Company's  profit and loss  statement in the other
income (loss) section under the description  foreign currency  transaction gains
(losses).

Accumulated other comprehensive income (loss)

The Euro is the functional  currency of the Company's European  subsidiary,  HDE
Sarl.  Assets and liabilities of this subsidiary are translated to U.S.  Dollars
at the exchange rate in effect at the end of each reporting period, while equity
accounts are translated to U.S.  Dollars at the historical rate in effect at the
date of the  contribution.  Operating  results are translated to U.S. Dollars at
the average prevailing exchange rate for the period, with the exception of sales
which are translated to U.S.  Dollars at the average  monthly  forward  exchange
contract rate. The use of differing  exchange rates results in foreign  currency
translation gains or losses.  Since the Euro denominated  accounts on HDE Sarl's
books  result in a net asset  position  (total Euro assets are in excess of Euro
liabilities),  an increase in the Euro value  results in a deferred gain for the
translation of Euro accounts to U.S. Dollars. The Company had a translation gain
of $704,183  recorded on the balance  sheet as of September  30,  2003.  For the
three months ended December 31 2003,  the Company  recorded on the balance sheet
deferred   translation  gains  $849,969  resulting  in  a  translation  gain  of
$1,554,152 recorded as a component of accumulated other comprehensive  income as
of December 31, 2003.

The  Company  uses  forward  exchange   contracts  to  reduce  our  exposure  to
fluctuations  in foreign  currencies.  Mark to market  gains and losses on these
open  contracts  result  from the  difference  between the USD value of our open
foreign  currency  forward  contracts at the average contract rate as opposed to
the same  contracts  translated  at the  month end  forward  rate.  The  Company
qualifies for cash flow hedge  accounting as  prescribed  under SFAS 133,  which
allows the  Company to record the mark to market  gains and losses in the equity
section of our balance sheet under accumulated other  comprehensive  income. The
Company had mark to market  losses of $234,591  recorded on the balance sheet as
of September 30, 2003. For the three months ended December 31, 2003, the Company
recorded,  as component of other comprehensive  income, a mark to market gain of
$204,461, resulting in a mark to market loss of $30,130 for contracts open as of
December 31, 2003.

As stated above,  accumulated other comprehensive  income (loss) consists of two
components:
o Translations gains and losses
o FAS 133 mark to market gains and losses on our open foreign exchange contracts

The table below details the gains and losses  recorded for the  components  that
make up accumulated other comprehensive income (loss):

<TABLE>
<CAPTION>
                                                   Balance       October to        Balance
                                                    as of       December 2003       As of
                                                September 30,     Gains          December 31,
Accumulated other comprehensive income              2003          (loss)            2002
--------------------------------------              ----          ------            ----

<S>                                             <C>            <C>             <C>
Translation  gains                              $  704,183      $  849,969      $ 1,554,152
FAS 133 mark to market adjustments                (234,591)        204,461          (30,130)
                                               -----------      ----------      ------------
                                                $  469,592      $1,054,430      $ 1,524,022
                                               ===========      ==========      ============
</TABLE>


                                       15
<PAGE>


Results of  operations-three  month period ended  December 31, 2003  compared to
--------------------------------------------------------------------------------
December 31,2002-continued
--------------------------

Tax provision

Our net tax provision  for the three months ended  December 31, 2003 and 2002 is
as follows:

                                                 Three months ended December 31,
                                                 -------------------------------
                                                     2003              2002
                                                    ------            ------
Tax (benefit) attributable to U.S operations     $ (73,300)           $(63,700)
Tax  expense  European operations                   40,779              26,483
State taxes                                          7,500               7,000
Deferred tax asset valuation allowance              73,300              56,700
                                                 ----------           ---------
Net tax provision                                $  48,279            $ 26,483
                                                 ==========           =========


For the last four fiscal years, our domestic  operation has incurred losses.  We
analyzed  the future  realization  of our deferred tax assets as of December 31,
2003  and we  concluded  that  under  the  present  circumstances,  it  would be
appropriate for us to record a valuation  allowance  against the increase in the
deferred tax asset  attributable  to the loss  incurred in the first  quarter of
fiscal 2004 from domestic operations.

As a result of all of the above items mentioned in the  Management's  Discussion
and Analysis of Financial  Condition and Results of Operations,  we recorded net
income of $992,860, for the three months ended December 31, 2003, which resulted
in basic and diluted net income per share of $0.11 on weighted average basic and
diluted  shares of  8,880,651  and  9,370,081,  respectively,  compared to a net
income of $656,172 for the three months ended December 31, 2002,  which resulted
in basic and diluted net income per share of $0.07 on weighted average basic and
diluted shares of 8,858,431 and 8,878,181, respectively.

Options to  purchase  485,337  and  1,462,826  shares of common  stock at prices
ranging $2.81 to $ 10.06 and $1.35 and $10.06,  respectively,  were  outstanding
for the three month periods ended December 31, 2003 and 2002, respectively,  but
were not included in the computation of diluted  earnings per share because they
were anti-dilutive.

Seasonality

As our sales are primarily to the consumer market,  we have experienced  certain
seasonal revenue trends. Our peak sales quarter,  due to holiday season sales of
computer equipment, is our first fiscal quarter (October to December),  followed
by our fourth fiscal quarter (July to September). In addition, our international
sales,  mostly in the European,  market, were 68%, 73% and 77 % of sales for the
years ended September 30, 2003, 2002 and 2003,  respectively.  Our fiscal fourth
quarter sales (July to September) can be  potentially  impacted by the reduction
of activity  experienced  in Europe  during the July and August  summer  holiday
period.

To offset the above cycles, we target a wide range of customer types in order to
moderate the seasonal nature of our retail sales.

Liquidity and Capital Resources

Our cash, working capital and stockholders' equity position is disclosed below:

                                  December 31,      September 30,
                                     2003              2003
                                  ------------      -------------

Cash                           $   5,203,858    $   5,838,160
Working Capital                   12,964,044       10,859,953
Stockholders' Equity              13,532,463       11,468,685

                                       16
<PAGE>

Results of  operations-three  month period ended  December 31, 2003  compared to
--------------------------------------------------------------------------------
December 31, 2002-continued
---------------------------

We had cash and cash  equivalents  as of  December  31,  2003 of  $5,203,858,  a
decrease of $634,302 from September 30, 2003.

The decrease was due to:

Net income adjusted for non cash items                            $ 1,063,248
Increase in accounts payable other current liabilities              6,506,655
Proceeds from employee stock purchases                                  6,987
Less cash used for:
Increase in accounts receivable                                   (3,562,789)
Increase in inventories                                           (4,474,774)
Increase in prepaid expenses and other current assets               (153,055)
Capital equipment purchases                                          (20,574)
                                                                     -------
 Net cash  decrease                                               $ (634,302)
                                                                  ==========

Net  cash of  $620,715  used in  operating  activities  was  primarily  due to a
increases  in accounts  receivable,  inventory  and prepaid  expenses  and other
current assets of $3,562,789 and $4,474,774 and $153,055 respectively, offset by
and net  income  adjusted  for non cash items of  $1,063,248  and  increases  in
accounts  payable and other current  liabilities of $6,506,655.  The increase in
accounts receivable was the result of an increase in sales of approximately $6.7
million  between  the quarter  ended  September  30, 2003 and the quarter  ended
December 31, 2003, in addition to an increase of  approximately  $1.4 million in
increased component parts that our contract manufacturer purchased from us to in
support of increased production volume.

Cash of $20,574  was used to  purchase  fixed  assets.  Proceeds  from the stock
purchased  by  employees  through the  employee  stock  purchase  plan  provided
additional cash of $6,987.

On November 8, 1996, we approved a stock  repurchase  program.  The program,  as
amended,  authorizes  the Company to repurchase up to 850,000  shares of our own
stock.  We intend to use the  repurchased  shares for certain  employee  benefit
programs.  On December 17, 1997, the stock repurchase  program was extended by a
resolution of our Board of  Directors.  As of December 31, 2003, we held 542,067
treasury  shares  purchased  for  $1,497,216  at an  average  purchase  price of
approximately $2.76 per share.

We believe  that our cash and cash  equivalents  as of December 31, 2003 and our
internally generated cash flow will provide us with sufficient liquidity to meet
our currently foreseeable short-term and long-term capital needs.

Future Contractual  Obligations

The following table shows the Company's contractual obligations related to lease
obligations as of December 31 , 2003:

                                                         Payments due by period
Contractual obligations                Total             1 year       1-3 years
-----------------------              --------          ---------       ---------

Operating lease obligations       $ 1,422,930         $ 679,272       $ 743,658
                                  ===========         ===========     =========

Critical Accounting Policies and Estimates

Financial  Reporting  Release  No.  60,  requires  all  companies  to  include a
discussion of critical accounting policies or methods used in the preparation of
financial statements.

We believe the following  critical  accounting  policies  affect the significant
judgments and estimates used in the preparation of the our financial statements:

o    Revenue Recognition
o    Management's estimates
o    Hedging program for European subsidiary inventory purchases  denominated in
     U.S. dollars


                                       17
<PAGE>

Results of  operations-three  month period ended  December 31, 2003  compared to
--------------------------------------------------------------------------------
December 31,2002-continued
--------------------------

Critical Accounting Policies and Estimates-continued

o    Translation  of  assets  and  liabilities  denominated  in  non  functional
     currencies on our European financial statements

Revenue Recognition

Our revenues are primarily derived from the sale of computer boards which enable
you to view  television  programs on your personal  computer.  Sales of computer
boards are commonly classified as computer hardware.  Our sales are primarily to
retailers,  distributors  and  original  equipment  manufacturers.  Sales to our
customers are documented by a purchase  order which  describes the conditions of
sale. Sales are recorded when products are shipped to our customers, the product
price is fixed and  determinable,  collection  of the  resulting  receivable  is
probable  and product  returns are  reasonably  estimable.  Revenue from freight
charged to customers is  recognized  when products are shipped.  Provisions  for
customer  returns  and other  adjustments  are  provided  for in the  period the
related sales are recorded based upon historical data.

Management's Estimates

The discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements which have been prepared in
accordance with accounting  principles  generally accepted in the United States.
The  preparation  of these  financial  statements  requires  management  to make
estimates and judgments that affect the reported amounts of assets,  liabilities
and related  disclosure of contingent  assets and liabilities at the date of the
consolidated  financial  statements  and the  reported  amounts for revenues and
expenses during the reporting period. On an ongoing basis,  management evaluates
estimates,  including  those related to sales  provisions,  as described  above,
income  taxes,  bad debts,  inventory  reserves and  contingencies.  We base our
estimates on historical data, when available,  experience,  and on various other
assumptions  that are believed to be  reasonable  under the  circumstances,  the
combined results of which form the basis for making judgments  approximately the
carrying  values of assets and  liabilities  that are not readily  apparent from
other sources. Actual results may differ from these estimates.

Our European subsidiary accounted for approximately 67% and 71% of our net sales
for fiscal 2003 and fiscal 2002,  respectively.  All of our  European  sales are
denominated in local currencies,  primarily the Euro and Great British Pound. On
the supply  side,  since we  predominantly  deal with North  American  and Asian
suppliers,  approximately  70% of our  inventory  supporting  our Euro and Great
British  Pound  sales  are  purchased  and paid in U.S.  Dollars.  Consequently,
changes in exchange rates expose our U.S. denominated  inventory on the books of
our European  subsidiary to market risks resulting from the  fluctuations in the
foreign currency  exchange rates to the U.S.  Dollar.  In an attempt to minimize
these  risks,   we  enter  into  forward   exchange   contracts  with  financial
institutions.

We do not enter into contracts for speculative  purposes.  We enter into monthly
window contracts covering an average period of three months based on existing or
anticipated future inventory  purchases.  Although we enter into these contracts
to reduce the short term impact of currency  rate changes,  the following  risks
are still inherent in hedging the Euro.

o    Actual inventory  purchases may fluctuate from our estimates,  resulting in
     contracts in an excess of contracts
o    Short term  volatility of currency  markets has the potential to reduce the
     effectiveness of our hedging program
o    Historical  volatility  of the Euro has the  potential  to impact our gross
     margins and operating income
o    The  magnitude  of the success of our  hedging  program is  dependent  upon
     movements in the Euro  exchange  rates.  These  movements  are difficult to
     predict over an extended period of time.

                                       18

<PAGE>

Results of  operations-three  month period ended  December 31, 2003  compared to
--------------------------------------------------------------------------------
December 31,2002-continued
--------------------------

Critical Accounting Policies and Estimates-continued
----------------------------------------------------

Translation of assets and liabilities  denominated in non functional  currencies
--------------------------------------------------------------------------------
on our European financial statements
------------------------------------

The functional currency of our European subsidiary is the Euro. In preparing our
consolidated  financial  statements,  we are  required to  translate  assets and
liabilities  denominated in a non functional  currency,  mainly U.S. Dollars, to
Euros on the books of our European subsidiary.  This process results in exchange
gains and losses  depending on the changes in the Euro to U.S.  Dollar  exchange
rate. Under the relevant  accounting  guidance,  with the exception of gains and
losses that are  attributable to  inter-company  accounts which are long term in
nature,  we are  obligated to include these gains and losses on our statement of
operations,  which we report in other  income or expense  under the  description
foreign currency transaction gains (losses).

The extent of these gains and losses can  fluctuate  greatly from month to month
depending on the change in the exchange  rate,  causing  results to vary widely.
Due to the past  volatility  of the Euro,  it is  difficult to forecast the long
term trend of these gains and losses.

Inflation

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

Euro

On January 1, 1999,  the Euro was adopted in Europe as the common legal currency
among 11 of the 15 member countries of the European Community. On that date, the
participating  countries  established  fixed Euro  conversion  rates  (i.e.  the
conversion  exchange rate between their existing  currencies and the Euro).  The
Euro  now  trades  on  currency   exchanges   and  is  available   for  non-cash
transactions.  A new European  Central Bank was  established to direct  monetary
policy for the participating countries.

Prior to the adoption of the Euro,  we billed our  European  customers in German
Marks or British Pounds, depending upon which currency the customer preferred to
be billed in.  Effective  January 1, 1999, we began  invoicing our customers who
are  located  in the eleven  member  countries  in Euros.  We  continue  to bill
customers  located in the United  Kingdom in British  Pounds.  The  benefits  to
billing customers in Euros were twofold:

o    Our foreign  currency  hedging  program was streamlined to the Euro and the
     British Pound
o    The pricing  from  country to country  was  harmonized,  eliminating  price
     differences between countries due to the fluctuating local currencies

We handled the  conversion to the Euro without any material  disruptions  to our
operations.

Recent Accounting Pronouncements
--------------------------------

In January 2003,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Interpretation  Number 46,  "Consolidation of Variable Interest  Entities" ("FIN
46").  This  interpretation  of  Accounting  Research  Bulletin  ("ARB") No. 51,
"Consolidated   Financial  Statements,"  provides  guidance  for  identifying  a
controlling  interest in a variable interest entity ("VIE") established by means
other than voting interests.  FIN 46 also requires  consolidation of a VIE by an
enterprise  that holds such a controlling  interest.  In December 2003, the FASB
completed its  deliberations  regarding the proposed  modification to FIN 46 and
issued Interpretation Number 46R, "Consolidation of Variable Interest Entities -
an Interpretation of ARB No. 51" ("FIN 46R"). The

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<PAGE>

Recent Accounting Pronouncement-continued
-----------------------------------------

decisions  reached  included a deferral of the effective date and provisions for
additional scope exceptions for certain types of variable interests. Application
of FIN 46R is required in  financial  statements  of public  entities  that have
interests  in VIEs or potential  VIEs  commonly  referred to as  special-purpose
entities for periods  ending after  December  15,  2003.  Application  by public
entities (other than small business  issuers) for all other types of entities is
required in financial  statements  for periods  ending after March 15, 2004. The
Company does not expect the adoption of FIN 46R to have a material impact on our
financial position, results of operations or cash flows.

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

Derivatives and Hedging Activities
----------------------------------

Product is invoiced to our European  customers in local  currencies and payments
from our  customers  are received in local  currencies  (primarily  the Euro and
Great British Pound). On the supply side, since we predominantly deal with North
American and Asian suppliers,  approximately 70% of our inventory supporting our
Euro and Great  British  Pound  sales are  purchased  and paid in U.S.  Dollars.
Consequently, changes in exchange rates expose our U.S. denominated inventory on
the  books  of our  European  subsidiary  to  market  risks  resulting  from the
fluctuations  in the foreign  currency  exchange  rates to the U.S.  Dollar.  We
attempt  to  reduce  these  risks by  entering  into  foreign  exchange  forward
contracts with financial institutions. The purpose of these forward contracts is
to hedge the foreign  currency market  exposures  underlying the forecasted U.S.
Dollar denominated inventory purchases required to support our European sales.

Although we do not try to hedge against all possible foreign currency  exposures
because we can not fully  estimate the size of our  exposure,  the  contracts we
procure  are  specifically  entered  into  to as a  hedge  against  existing  or
anticipated  foreign  currency  exposure.  We do not enter  into  contracts  for
speculative  purposes.  Although we maintain  these programs to reduce the short
term impact of changes in currency exchange rates, when the U.S. Dollar sustains
a long term  strengthening  position against the foreign currencies in countries
where we sell our products,  our gross  margins,  operating  income and retained
earnings can be adversely affected.  Factors that could impact the effectiveness
of  our  hedging  program  include   volatility  of  the  currency  markets  and
availability of hedging instruments.

As of December 31, 2003, 2003, we had foreign currency contracts  outstanding of
approximately  $851,700  against the delivery of the Euro. The contracts  expire
through January 2004. Our accounting policies for these instruments are based on
its designation of such instruments as cash flow hedging transactions. We do not
enter into such  contracts for  speculative  purposes.  We record all derivative
gains and losses on the balance  sheet as a component  of  stockholders'  equity
under  the  caption  "Accumulated  other  comprehensive  income  (loss)".  As of
December 31, 2003, a deferred loss of $30,130  reflecting the net mark to market
loss of our  derivatives  was  recorded  as a  component  of  accumulated  other
comprehensive income on our balance sheet.

For the three  months  December  31,  2003,  we  recorded a decrease in sales of
$805,553 and $549,600, respectively, related to our contracts that closed during
these periods and the changes in the fair value of our derivative contracts.

Item 4. Controls and Procedures
-------------------------------

Our Chief Executive  Officer and Chief Financial Officer conducted an evaluation
of the  effectiveness of our disclosure  controls and procedures.  Based on this
evaluation,  our Chief Executive  Officer and Chief Financial  Officer concluded
that our disclosure  controls and  procedures  were effective as of December 31,
2003 in alerting them in a timely manner to material  information required to be
included in our SEC reports. In addition,


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Item 4. Controls and Procedures-continued
-----------------------------------------

no change in our internal control over financial  reporting  occurred during the
fiscal  quarter  ended  December 31, 2003 that has  materially  affected,  or is
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.

Special Note Regarding Forward Looking Statements

This  Quarterly  Report  contains  forward-looking  statements  as that  term is
defined in the federal  securities laws. The events described in forward-looking
statements  contained in this Quarterly  Report may not occur.  Generally  these
statements  relate to business  plans or  strategies,  projected or  anticipated
benefits  or  other  consequences  of our  plans  or  strategies,  projected  or
anticipated  benefits  from  acquisitions  to be  made  by  us,  or  projections
involving  anticipated  revenues,  earnings  or other  aspects of our  operating
results. The words "may," "will," "expect," "believe,"  "anticipate," "project,"
"plan,"  "intend,"  "estimate,"  and "continue," and their opposites and similar
expressions are intended to identify forward-looking  statements. We caution you
that these statements are not guarantees of future performance or events and are
subject to a number of uncertainties, risks and other influences (including, but
not limited to,  those set forth in our Annual  Report on Form 10-K for the year
ended  September  30,  2003),  many of which are  beyond our  control,  that may
influence  the accuracy of the  statements  and the  projections  upon which the
statements are based.  Our actual results,  performance and  achievements  could
differ  materially  from those  expressed  or  implied in these  forward-looking
statements.  We  undertake  no  obligation  to  publicly  update or  revise  any
forward-looking  statements,  whether  from new  information,  future  events or
otherwise.

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

Item 1.  Legal Proceedings

We are  presently  involved  in  arbitration  proceedings  before  the  American
Arbitration  Association,  which had been  brought  against  the  Company by the
estate of the late Mr.  Kenneth  Aupperle  ("Estate").  The  Estate is  claiming
property  rights and interest in the Company,  certain  amounts due and owing to
the Estate based on various  corporate  agreements with Mr. Aupperle and certain
insurance  policies,  such  amount to be no less than  $2,500,000.  Based on the
preliminary  information presented to us, management believes that the claim and
the basis for proceeding with  arbitrating  such claim is without merit and will
vigorously defend it.

Item 5.  Other information

This  information  shall not be deemed "filed" for purposes of Section 18 of the
Securities   Exchange  Act  of  1934,  as  amended  (the  "Exchange   Act"),  or
incorporated  by reference in any filing under the  Securities  Act of 1933,  as
amended or the Exchange  Act except as shall be expressly  set forth by specific
reference in such a filing.

On February 11, 2004, HAUPPAUGE DIGITAL,  INC. issued a press release announcing
its financial  results for the fiscal quarter ended December 31, 2003. A copy of
this press release is furnished as Exhibit 99.1 to this Report.

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits

31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule
     15d-14(a) as adopted pursuant to Section 302 of the  Sarbanes-Oxley  Act of
     2002

31.2 Certification of the Chief Financial  Officer pursuant to Rule 13a-14(a) or
     Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
     of 2002

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<PAGE>

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

32   Certification  of Chief  Executive  Officer  and  Chief  Financial  Officer
     pursuant to 18 U.S.C.  Section 1350, as adopted  pursuant to Section 906 of
     the Sarbanes-Oxley Act of 2002

99.1 Press Release, dated February 11, 2004 issued by HAUPPAUGE DIGITAL, INC.

(b)  Reports on form 8-K

None

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<PAGE>

                                   SIGNATURES
                                   ----------

Pursuant  to the  requirements  of the  Securities  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: February 13,  2004                 By /s/ Kenneth Plotkin
      ------------------                   -------------------------------------
                                           KENNETH  PLOTKIN
                                           Chief Executive Officer and Director



Date: February 13, 2004                  By /s/ Gerald Tucciarone
      -----------------                    -------------------------------------
                                           GERALD TUCCIARONE
                                           Treasurer and Chief
                                           Financial Officer

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