| **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, 2007**                                                           |
|   **OR**                                                                                                                          |
|                                                                                                                                        |
| **o                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.                                                                                                                                                                                                     |
| **x YESo                NO**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Indicate                by check mark whether the registrant is a large accelerated filer,                an                accelerated filer or a non-accelerated filer (See definition of                “accelerated filer and large accelerated filer” in Rule 12b-2 of the                Exchange Act). **o LARGE                ACCELERATED FILER o ACCELERATED                FILER                x                NON-ACCELERATED FILER** Indicate                by check mark whether the registrant is a shell company (as defined                in                Rule12b-2 of the Exchange Act). **o                YES x NO**  |

----

|  ** **                                                                                                                                 |
|--------------------------------------------------------------------------------------------------------------------------------------------------|
| As                of July 23, 2007, 9,979,455 shares of .01 par value Common Stock                of the                issuer were outstanding. |

----

**HAUPPAUGE      DIGITAL, INC. AND SUBSIDIARIES**

**INDEX**

| **PART                  I. FINANCIAL INFORMATION**                                                                                     |   |                          |                        |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|-----------------------------|
|                                                                                                                                   |   |                          |                        |
| **Item                  1. Financial Statements**                                                                                      |   | **Page                  no.** |                        |
|                                                                                                                                   |   |                          |                        |
| **Condensed                  Consolidated Balance Sheets -**                                                                           |   |                          | **5**                       |   |
| **June                  30, 2007 (unaudited) and September 30, 2006**                                                                  |   |                          |                        |   |
|                                                                                                                                   |   |                          |                        |   |
| **Condensed                  Consolidated Statements of Income -**                                                                     |   |                          | **6**                       |   |
| **Three                  Months ended June 30, 2007 (unaudited) and 2006                  (unaudited)**                                |   |                          |                        |   |
|                                                                                                                                   |   |                          |                        |   |
| **Condensed                  Consolidated Statements of Income -**                                                                     |   |                          | **7**                       |   |
| **Nine                  Months ended June 30, 2007 (unaudited) and 2006                  (unaudited)**                                 |   |                          |                        |   |
|                                                                                                                                   |   |                          | **8**                       |   |
| **Condensed                  Consolidated Statements of Other Comprehensive Income-Three                  and**                        |
| **Nine                  months ended June, 2007 (unaudited) and 2006                  (unaudited)**                                    |   |                          |                        |   |
|                                                                                                                                   |   |                          |                        |   |
| **Condensed                  Consolidated Statements of Cash Flows-Nine months ended June                  30,**                       |   |                          |                        |   |
| **2007                  (unaudited) and 2006 (unaudited)**                                                                             |   |                          |                        |   |
|                                                                                                                                   |   |                          |                        |   |
| **Notes                  to Condensed Consolidated Financial Statements**                                                              |   |                          | **10                  -14** |   |
|                                                                                                                                   |   |                          |                        |   |
| **Item                  2. Management's Discussion and Analysis of Financial Condition                  and                  Results** |   |                          | **15                  -23** |   |
| **of                  Operations**                                                                                                     |   |                          |                        |   |
|                                                                                                                                   |   |                          |                        |   |
| **Item                  3. Quantitative and Qualitative Disclosures about Market                  Risks**                              |   |                          | **23-24**                   |   |
|                                                                                                                                   |   |                          |                        |   |
| **Item                  4. Controls and Procedures**                                                                                   |   |                          | **24**                      |   |

----

| **PART                  II. OTHER INFORMATION**                                                           |   |   |   |
|-----------------------------------------------------------------------------------------------------------|--------|--------|--------|
|                                                                                                      |   |   |   |
| **Item                  1A. Risk Factors**                                                                |   |   | **25** |   |
|                                                                                                      |   |   |   |   |
| **Item                  2. Unregistered Sales of Equity Securities and Use of                  Proceeds** |   |   | **25** |   |
|                                                                                                      |   |   |   |   |
| **Item                  6. Exhibits**                                                                     |   |   | **25** |   |
|                                                                                                      |   |   |   |   |
| **Signatures**                                                                                            |   |   | **26** |   |

----

**PART      I. FINANCIAL INFORMATION**

**Item      1.Financial Statements**

| **HAUPPAUGE                DIGITAL, INC. AND SUBSIDIARIES**             |
|-------------------------------------------------------------------------|
| **CONDENSED                CONSOLIDATED BALANCE                SHEETS** |

|                                                                                                                                         |   | **June                30, 2007 (unaudited)** |           | **September                30, 2006** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|----------------|---------------------------------------|--------|
| **Assets:**                                                                                                                                  |   |                                         |           |                                  |   |
| **Cash                and cash equivalents**                                                                                                 |   | **$**                                        | **12,351,072** |                                  | **$**  | **9,020,941** |   |
| **Receivables,                net of various allowances**                                                                                    |   |                                         | **22,043,107** |                                  |   | **16,132,928** |   |
| **Inventories**                                                                                                                              |   |                                         | **10,097,397** |                                  |   | **9,905,746** |   |
| **Prepaid                expenses and other current assets**                                                                                 |   |                                         | **896,522**    |                                  |   | **895,223** |   |
| **Total                current assets**                                                                                                      |   |                                         | **45,388,098** |                                  |   | **35,954,838** |   |
|                                                                                                                                         |   |                                         |           |                                  |   |   |   |
| **Property,                plant and equipment, net**                                                                                        |   |                                         | **731,707**    |                                  |   | **612,311** |   |
| **Security                deposits and other non current assets**                                                                            |   |                                         | **83,825**     |                                  |   | **83,239** |   |
| **Total                assets**                                                                                                              |   | **$**                                        | **46,203,630** |                                  | **$**  | **36,650,388** |   |
|                                                                                                                                         |   |                                         |                |                                  |   |  |   |
| **Liabilities                and Stockholders’ Equity:**                                                                               |   |                                         |                |                                  |   |  |   |
|                                                                                                                                         |   |                                         |                |                                  |   |  |   |
| **Current                Liabilities:**                                                                                                      |   |                                         |                |                                  |   |  |   |
| **Accounts                payable**                                                                                                          |   | **$**                                        | **16,908,093** |                                  | **$**  | **12,011,232** |   |
| **Accrued                expenses - licensing fees**                                                                                         |   |                                         | **6,391,170**  |                                  |   | **5,481,005** |   |
| **Accrued                expenses - other**                                                                                                  |   |                                         | **967,867**    |                                  |   | **1,174,323** |   |
| **Income                taxes payable**                                                                                                      |   |                                         | **151,392**    |                                  |   | **204,103** |   |
| **Total                current liabilities**                                                                                                 |   |                                         | **24,418,522** |                                  |   | **18,870,663** |   |
|                                                                                                                                         |   |                                         |                |                                  |   |  |   |
| **Stockholders'                Equity:**                                                                                                     |   |                                         |                |                                  |   |  |   |
| **Common                stock, $.01 par value; 25,000,000 shares authorized, 10,592,813 and                10,260,464 issued, respectively** |   |                                         | **105,928**    |                                  |   | **102,605** |   |
| **Additional                paid-in capital**                                                                                                |   |                                         | **15,339,539** |                                  |   | **14,222,890** |   |
| **Retained                earnings**                                                                                                         |   |                                         | **9,382,621**  |                                  |   | **5,721,500** |   |
| **Accumulated                other comprehensive (loss)**                                                                                    |   |                                         | **(1,231,631** | **)**                                 |   | **(509,319** | **)** |
| **Treasury                Stock, at cost, 617,547 and 607,547 shares**                                                                       |   |                                         | **(1,811,349** | **)**                                 |   | **(1,757,951** | **)** |
| **Total                stockholders' equity**                                                                                                |   |                                         | **21,785,108** |                                  |   | **17,779,725** |   |
| **Total                liabilities and stockholders' equity**                                                                                |   | **$**                                        | **46,203,630** |                                  | **$**  | **36,650,388** |   |

* *
***See      accompanying notes to condensed consolidated financial      statements***

----

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

**(UNAUDITED)**

|                                                            |   | **Three                months ended June 30,** |           |
|-----------------------------------------------------------------|--------|------------------------------------------------|----------------|
|                                                            |   | **2007**                                       |           | **2006** |   |
|                                                            |   |                                           |           |   |   |
| **Net                sales**                                    |   | **$**                                          | **23,540,149** |   | **$** | **23,775,992** |   |
| **Cost                of sales**                                |   |                                           | **18,932,180** |   |   | **19,144,041** |   |
| **Gross                profit**                                 |   |                                           | **4,607,969**  |   |   | **4,631,951** |   |
|                                                            |   |                                           |                |   |   |  |   |
| **Selling,                general and administrative expenses** |   |                                           | **3,516,244**  |   |   | **3,433,560** |   |
| **Research                and development expenses**            |   |                                           | **876,697**    |   |   | **747,973** |   |
| **Income                from operations**                       |   |                                           | **215,028**    |   |   | **450,418** |   |
|                                                            |   |                                           |                |   |   |  |   |
| **Other                income (expense):**                      |   |                                           |           |   |   |  |   |
| **Interest                income**                              |   |                                           | **10,250**     |   |   | **6,440** |   |
| **Foreign                currency**                             |   |                                           | **(38**        | **)** |   | **(17,146** | **)** |
| **Other                income (expense)**                       |   |                                           | **10,212**     |   |   | **(10,706** | **)** |
| **Income                before taxes on income**                |   |                                           | **225,240**    |   |   | **439,712** |   |
| **Tax                provision**                                |   |                                           | **43,788**     |   |   | **59,371** |   |
| **Net                income**                                   |   | **$**                                          | **181,452**    |   | **$** | **380,341** |   |
|                                                            |   |                                           |                |   |   |  |   |
| **Net                income per share:**                        |   |                                           |                |   |   |  |   |
| **Basic**                                                       |   | **$**                                          | **0.02**       |   | **$** | **0.04** |   |
| **Diluted**                                                     |   | **$**                                          | **0.02**       |   | **$** | **0.04** |   |

***See      accompanying notes to condensed consolidated financial      statements***

----

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

**(UNAUDITED)**

|                                                            |   | **Nine                months ended June 30,** |           |
|-----------------------------------------------------------------|--------|-----------------------------------------------|----------------|
|                                                            |   | **2007**                                      |           | **2006** |   |
|                                                            |   |                                          |           |   |   |
| **Net                sales**                                    |   | **$**                                         | **83,351,123** |   | **$** | **75,506,375** |   |
| **Cost                of sales**                                |   |                                          | **66,282,026** |   |   | **60,461,107** |   |
| **Gross                profit**                                 |   |                                          | **17,069,097** |   |   | **15,045,268** |   |
|                                                            |   |                                          |           |   |   |  |   |
| **Selling,                general and administrative expenses** |   |                                          | **10,868,706** |   |   | **10,272,747** |   |
| **Research                and development expenses**            |   |                                          | **2,379,969**  |   |   | **2,282,545** |   |
| **Income                from operations**                       |   |                                          | **3,820,422**  |   |   | **2,489,976** |   |
|                                                            |   |                                          |                |   |   |  |   |
| **Other                income (expense):**                      |   |                                          |           |   |   |  |   |
| **Interest                income**                              |   |                                          | **31,988**     |   |   | **17,921** |   |
| **Foreign                currency**                             |   |                                          | **(6,256**     | **)** |   | **(2,695** | **)** |
| **Other                income (expense)**                       |   |                                          | **25,732**     |   |   | **15,226** |   |
| **Income                before taxes on income**                |   |                                          | **3,846,154**  |   |   | **2,505,202** |   |
| **Tax                provision**                                |   |                                          | **185,033**    |   |   | **146,510** |   |
| **Net                income**                                   |   | **$**                                         | **3,661,121**  |   | **$** | **2,358,692** |   |
|                                                            |   |                                          |                |   |   |  |   |
| **Net                income per share:**                        |   |                                          |                |   |   |  |   |
| **Basic**                                                       |   | **$**                                         | **0.37**       |   | **$** | **0.25** |   |
| **Diluted**                                                     |   | **$**                                         | **0.35**       |   | **$** | **0.24** |   |

***See      accompanying notes to condensed consolidated financial      statements***

----

| **HAUPPAUGE                DIGITAL, INC. AND SUBSIDIARIES**                                       |
|---------------------------------------------------------------------------------------------------|
| **CONDENSED                CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE                INCOME** |

**(UNAUDITED)**

|                                                           |   | **Three                months ended June 30,** |         |
|----------------------------------------------------------------|--------|------------------------------------------------|--------------|
|                                                           |   | **2007**                                       |         | **2006** |   |
| **Net                income**                                  |   | **$**                                          | **181,452**  |   | **$** | **380,341** |   |
| **Foreign                currency translation (loss) gain**    |   |                                           | **(103,215** | **)** |   | **120,891** |   |
| **Forward                exchange contracts marked to market** |   |                                           | **22,147**   |   |   | **(48,792** | **)** |
| **Other                comprehensive income**                  |   | **$**                                          | **100,384**  |   | **$** | **452,440** |   |

|                                                           |   | **Nine                months ended June 30,** |          |
|----------------------------------------------------------------|--------|-----------------------------------------------|---------------|
|                                                           |   | **2007**                                      |          | **2006** |   |
| **Net                income**                                  |   | **$**                                         | **3,661,121** |   | **$** | **2,358,692** |   |
| **Foreign                currency translation loss**           |   |                                          | **(691,165**  | **)** |   | **(798,031** | **)** |
| **Forward                exchange contracts marked to market** |   |                                          | **(31,147**   | **)** |   | **(192,458** | **)** |
| **Other                comprehensive income**                  |   | **$**                                         | **2,938,809** |   | **$** | **1,368,203** |   |

***See      accompanying notes to condensed consolidated financial      statements***

----

| **HAUPPAUGE                DIGITAL, INC. AND SUBSIDIARIES**                       |
|-----------------------------------------------------------------------------------|
| **CONDENSED                CONSOLIDATED STATEMENTS OF CASH                FLOWS** |

**(UNAUDITED)**

|  ** **** **                                                                                             |   | **Nine                months ended June 30,** |           |
|------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|----------------|
|                                                                                                                   |   | **2007**                                      |           | **2006** |   |
| **Net                income**                                                                                          |   | **$**                                         | **3,661,121**  |   | **$** | **2,358,692** |   |
| **Adjustments                to reconcile net income to net cash provided****by                operating activities:** |   |                                          |           |   |   |   |   |
| **Depreciation                and amortization**                                                                       |   |                                          | **157,990**    |   |   | **136,780** |   |
| **Stock                compensation expense**                                                                          |   |                                          | **361,216**    |   |   | **274,770** |   |
| **Other                non cash items**                                                                                |   |                                          | **(586**       | **)** |   | **(1,710** | **)** |
| **Changes                in current assets and liabilities:**                                                          |   |                                          |                |   |   |  |   |
| **Accounts                receivable**                                                                                 |   |                                          | **(5,910,179** | **)** |   | **(6,114,468** | **)** |
| **Inventories**                                                                                                        |   |                                          | **(191,651**   | **)** |   | **(2,854,329** | **)** |
| **Prepaid                expenses and other current assets**                                                           |   |                                          | **(1,299**     | **)** |   | **166,945** |   |
| **Accounts                payable**                                                                                    |   |                                          | **4,896,861**  |   |   | **5,931,112** |   |
| **Accrued                expenses and other current liabilities**                                                      |   |                                          | **650,998**    |   |   | **811,502** |   |
| **Total                adjustments**                                                                                   |   |                                          | **(36,650**    | **)** |   | **(1,649,398** | **)** |
| **Net                cash provided by operating activities**                                                           |   |                                          | **3,624,471**  |   |   | **709,294** |   |
|                                                                                                                   |   |                                          |                |   |   |  |   |
| **Cash                Flows From Investing Activities:**                                                               |   |                                          |           |   |   |  |   |
| **Purchases                of property, plant and equipment**                                                          |   |                                          | **(277,386**   | **)** |   | **(176,469** | **)** |
| **Net                cash used in investing activities**                                                               |   |                                          | **(277,386**   | **)** |   | **(176,469** | **)** |
|                                                                                                                   |   |                                          |                |   |   |  |   |
| **Cash                Flows From Financing Activities:**                                                               |   |                                          |                |   |   |   |   |
| **Purchase                of treasury stock**                                                                          |   |                                          | **(53,398**    | **)** |   | **-** |   |
| **Proceeds                from the exercise of stock options and employee****stock                purchases**          |   |                                          | **758,756**    |   |   | **230,046** |   |
| **Net                cash provided by financing activities**                                                           |   |                                          | **705,358**    |   |   | **230,046** |   |
| **Effect                of exchange rates on cash**                                                                    |   |                                          | **(722,312**   | **)** |   | **(990,489** | **)** |
| **Net                increase (decrease) in cash and cash equivalents**                                                |   |                                          | **3,330,131**  |   |   | **(227,618** | **)** |
| **Cash                and cash equivalents, beginning of period**                                                      |   |                                          | **9,020,941**  |   |   | **7,567,393** |   |
| **Cash                and cash equivalents, end of period**                                                            |   | **$**                                         | **12,351,072** |   | **$** | **7,339,775** |   |
| **Supplemental                disclosures:**                                                                           |   |                                          |           |   |   |   |   |
| **Income                taxes paid**                                                                                   |   | **$**                                         | **168,915**    |   | **$** | **94,421** |   |

***See      accompanying notes to condensed consolidated financial      statements***
*** ***

----

** HAUPPAUGE      DIGITAL, INC. AND SUBSIDIARIES**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**Note      1. Basis of presentation**

**Note      2. Receivables**

|                                                  |   |   | June                30,  |   |   | September                30,  |   |
|-------------------------------------------------------|--------|--------|-------------------------------|--------|--------|------------------------------------|--------|
|                                                  |   |   | 2007                     |   |   |  2006                    |   |
| Trade                receivables                      |   | $      | 15,413,993                    |   | $      | 13,910,101                         |   |
| Receivable                from contract manufacturers |   |   | 8,127,277                     |   |   | 4,916,402                          |   |
| GST                and VAT taxes receivables          |   |   | 2,146,475                     |   |   | 616,119                            |   |
| Allowances                and reserves                |   |   | (3,729,524                    | )      |   | (3,377,000                         | )      |
| Other                                                 |   |   | 84,886                        |   |   | 67,306                             |   |
|                                                  |   | $      | 22,043,107                    |   | $      | 16,132,928                         |   |

**Note      3. Foreign currency translations and transactions**

----

**HAUPPAUGE      DIGITAL, INC. AND SUBSIDIARIES**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**Note      4. Inventories**

|                           |   |   | June                30,  |   |   | September                30,  |   |
|--------------------------------|--------|--------|-------------------------------|--------|--------|------------------------------------|--------|
|                           |   |   | 2007                     |   |   |                  2006    |   |
| Component                parts |   | $      | 4,304,257                     |   | $      | 4,868,483                          |   |
| Finished                goods  |   |   | 5,793,140                     |   |   | 5,037,263                          |   |
|                           |   | $      | 10,097,397                    |   | $      | 9,905,746                          |   |

**Note      5. Net income per share **

|                                                                              |   | Three                  months ended |       | Nine                  months ended |   |
|-----------------------------------------------------------------------------------|--------|-------------------------------------|------------|------------------------------------|--------|
|                                                                              |   | June                  30,           |       | June                               |   | 30, |   |
|                                                                              |   | 2007                                |       | 2006                               |   | 2007 |   | 2006 |   |
| Weighted                  average shares outstanding-basic                        |   |                                | 9,968,686  |                               |   | 9,636,912 |   |   | 9,843,568 |   |   | 9,573,594 |   |
| Number                  of shares issued on the assumed exercise of stock options |   |                                | 479,094    |                               |   | 420,567 |   |   | 557,893 |   |   | 430,385 |   |
| Weighted                  average shares outstanding-diluted                      |   |                                | 10,447,780 |                               |   | 10,057,479 |   |   | 10,401,461 |   |   | 10,003,979 |   |

----

**HAUPPAUGE      DIGITAL, INC. AND SUBSIDIARIES**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**Note      6. Accumulated other comprehensive income (loss) **

| Accumulated                  other comprehensive income (loss) |   |  Balance                  as of  |     |  Oct                  06 to June |   |  Balance                  as of  |   |
|----------------------------------------------------------------|--------|--------------------------------------------|----------|---------------------------------------|--------|--------------------------------------------|--------|
| Fiscal                  2007 activity                          |   |  Sept                  30, 2006  |     |  07  losses       |   |  June                  30, 2007  |   |
| Translation                  gains and losses                  |   | $                                          | (531,289 | )                                     | $      | (691,165                                   | )      | $ | (1,222,454 | ) |
| FAS                  133 mark to market adjustment             |   |                                       | 21,970   |                                  |   | (31,147                                    | )      |   | (9,177 | ) |
|                                                           |   | $                                          | (509,319 | )                                     | $      | (722,312                                   | )      | $ | (1,231,631 | ) |

**Note      7. Revenue recognition**

** **

----

**HAUPPAUGE      DIGITAL, INC. AND SUBSIDIARIES**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**Note      8. Product segment and geographic information **

|                                        |   |   | Three                months ended June                30,  |   |   |  Nine                months ended June                30,  |   |
|---------------------------------------------|--------|--------|-----------------------------------------------------------------|--------|--------|----------------------------------------------------------------------|--------|
|                                        |   |   | 2007                                                       |   |   | 2006                                                            |   |   | 2007  |   |   |                  2006  |   |
| Product                line sales           |   |   |                                                            |   |   |                                                                 |   |   |   |   |   |   |   |
| Analog                sales                 |   | $      | 7,974,677                                                       |   | $      | 15,862,344                                                           |   | $ | 33,318,167 |   | $ | 50,233,007 |   |
| Digital                sales                |   |   | 15,174,370                                                      |   |   | 7,209,149                                                            |   |   | 49,215,324 |   |   | 23,638,912 |   |
| Other                non-TV tuners products |   |   | 391,102                                                         |   |   | 704,499                                                              |   |   | 817,631 |   |   | 1,634,456 |   |
| Total                sales                  |   | $      | 23,540,149                                                      |   | $      | 23,775,992                                                           |   | $ | 83,351,122 |   | $ | 75,506,375 |   |

|                             |   |   | Three                months ended June 30,   |   |   | Nine                months ended June 30,   |   |
|----------------------------------|--------|--------|--------------------------------------------------------|--------|--------|-------------------------------------------------------|--------|
| Geographic                region |   |   | 2007                                              |   |   | 2006                                             |   |   | 2007  |   |   | 2006  |   |
| The                Americas      |   |   | 67                                                     | %      |   | 50                                                    | %      |   | 55 | % |   | 47 | % |
| Europe                           |   |   | 30                                                     | %      |   | 48                                                    | %      |   | 43 | % |   | 51 | % |
| Asia                             |   |   | 3                                                      | %      |   | 2                                                     | %      |   | 2 | % |   | 2 | % |
| Total                            |   |   | 100                                                    | %      |   | 100                                                   | %      |   | 100 | % |   | 100 | % |

----

**HAUPPAUGE      DIGITAL, INC. AND SUBSIDIARIES**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**Note      9. Stock-based compensation**

**Note      10.  **
**Recently      Issued Accounting Pronouncements**

*.*

----

**ITEM      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS      OF      OPERATIONS**

**THREE      MONTH PERIOD ENDED JUNE 30, 2007 COMPARED TO THREE MONTH PERIOD ENDED JUNE      30,      2006**

|                                                                 |   |   | Three    |   |   | Three    |   |   |           |   |   |                                     |   |   |       |   |   |           |   |
|----------------------------------------------------------------------|--------|--------|---------------|--------|--------|---------------|--------|--------|----------------|--------|--------|------------------------------------------|--------|--------|------------|--------|--------|----------------|--------|
|                                                                 |   |   | Months   |   |   | Months   |   |   |           |   |   |                                     |   |   |       |   |   |           |   |
|                                                                 |   |   | Ended    |   |   | Ended    |   |   | Variance  |   |   | Percentage                of sales  |   |
|                                                                 |   |   | 6/30/07  |   |   | 6/30/06  |   |   | $         |   |   | 2007                                |   |   | 2006  |   |   | Variance  |   |
| Net                sales                                             |   | $      | 23,540,149    |   | $      | 23,775,992    |   | $      | (235,843       | )      |   | 100.00                                   | %      |   | 100.00     | %      |   | -              |   |
| Cost                of sales                                         |   |   | 18,932,180    |   |   | 19,144,041    |   |   | (211,861       | )      |   | 80.43                                    | %      |   | 80.52      | %      |   | -0.09          | %      |
| Gross                profit                                          |   |   | 4,607,969     |   |   | 4,631,951     |   |   | (23,982        | )      |   | 19.57                                    | %      |   | 19.48      | %      |   | 0.09           | %      |
| Gross                profit %                                        |   |   | 19.57         | %      |   | 19.48         | %      |   | 0.09           | %      |   |                                     |   |   |       |   |   |           |   |
| Selling                , general and administrative expenses:        |   |   |          |   |   |          |   |   |           |   |   |                                          |   |   |            |   |   |                |   |
| Sales                and marketing                                   |   |   | 2,419,401     |   |   | 2,320,786     |   |   | 98,615         |   |   | 10.28                                    | %      |   | 9.76       | %      |   | 0.52           | %      |
| Technical                support                                     |   |   | 156,137       |   |   | 143,989       |   |   | 12,148         |   |   | 0.66                                     | %      |   | 0.61       | %      |   | 0.05           | %      |
| General                and administrative                            |   |   | 861,782       |   |   | 910,966       |   |   | (49,184        | )      |   | 3.66                                     | %      |   | 3.83       | %      |   | -0.17          | %      |
| Stock                compensation expense                            |   |   | 78,924        |   |   | 57,819        |   |   | 21,105         |   |   | 0.34                                     | %      |   | 0.24       | %      |   | 0.10           | %      |
| Total                selling, general and administrative expense     |   |   | 3,516,244     |   |   | 3,433,560     |   |   | 82,684         |   |   | 14.94                                    | %      |   | 14.44      | %      |   | 0.50           | %      |
| Research                and development expenses                     |   |   | 830,989       |   |   | 718,846       |   |   | 112,143        |   |   | 3.53                                     | %      |   | 3.02       | %      |   | 0.51           | %      |
| Research                & development stock compensation expense |   |   | 45,708        |   |   | 29,127        |   |   | 16,581         |   |   | 0.19                                     | %      |   | 0.12       | %      |   | 0.07           | %      |
| Total                expenses                                        |   |   | 4,392,941     |   |   | 4,181,533     |   |   | 211,408        |   |   | 18.66                                    | %      |   | 17.58      | %      |   | 1.08           | %      |
| Net                operating income                                  |   |   | 215,028       |   |   | 450,418       |   |   | (235,390       | )      |   | 0.91                                     | %      |   | 1.90       | %      |   | -0.99          | %      |
|                                                                 |   |   |          |   |   |          |   |   |           |   |   |                                     |   |   |       |   |   |           |   |
| Other                income (expense) :                              |   |   |          |   |   |          |   |   |           |   |   |                                     |   |   |       |   |   |           |   |
| Interest                income                                       |   |   | 10,250        |   |   | 6,440         |   |   | 3,810          |   |   | 0.04                                     | %      |   | 0.03       | %      |   | 0.01           | %      |
| Foreign                currency                                      |   |   | (38           | )      |   | (17,146       | )      |   | 17,108         |   |   | 0.00                                     | %      |   | -0.07      | %      |   | 0.07           | %      |
| Total                other income (expense)                          |   |   | 10,212        |   |   | (10,706       | )      |   | 20,918         |   |   | 0.04                                     | %      |   | -0.04      | %      |   | 0.08           | %      |
| Income                before taxes on income                         |   |   | 225,240       |   |   | 439,712       |   |   | (214,472       | )      |   | 0.95                                     | %      |   | 1.86       | %      |   | -0.91          | %      |
| Taxes                on income                                       |   |   | 43,788        |   |   | 59,371        |   |   | (15,583        | )      |   | 0.19                                     | %      |   | 0.25       | %      |   | -0.06          | %      |
| Net                income                                            |   | $      | 181,452       |   | $      | 380,341       |   | $      | (198,889       | )      |   | 0.76                                     | %      |   | 1.61       | %      |   | -0.85          | %      |

|                          |   | Three                          |       |  Three                     |   | (decrease) |   | Increase                    |       | Percentage                  of sales bygeographic |   |
|-------------------------------|--------|--------------------------------|------------|--------------------------------------|--------|------------|--------|-----------------------------|------------|---------------------------------------------------|--------|
|                          |   | Months                         |       |                    Months       |   | dollar     |   | (decrease)                  |       | region                                            |   |
| Location                      |   | ended                  6/30/07 |       |  ended                  6/30/06 |   | variance   |   | variance                  % |       | 2007                                              |   | 2006 |   |
| The                  Americas |   | $                              | 15,626,282 |                                 | $      | 11,795,292 |   | $                           | 3,830,990  |                                              |   | 32 | % |   | 67 | % |   | 50 | % |
| Europe                        |   |                           | 7,253,426  |                                 |   | 11,344,867 |   |                        | (4,091,441 | )                                                 |   | -36 | % |   | 30 | % |   | 48 | % |
| Asia                          |   |                           | 660,441    |                                 |   | 635,833    |   |                        | 24,608     |                                              |   | 4 | % |   | 3 | % |   | 2 | % |
| Total                         |   | $                              | 23,540,149 |                                 | $      | 23,775,992 |   | $                           | (235,843   | )                                                 |   | -1 | % |   | 100 | % |   | 100 | % |

----

**Gross      profit**

|                                                      |   |   | Increase   |   |
|-----------------------------------------------------------|--------|--------|----------------------|--------|
|                                                      |   |   | (decrease)      |   |
| Decreased                sales                            |   | $      | (63,638              | )      |
| Lower                gross profit on sales mix            |   |   | (22,150              | )      |
| Production                and production related expenses |   |   | 61,806               |   |
| Total                decrease in gross profit             |   | $      | (23,982              | )      |

|                                                        |   | (decrease) |   |
|-------------------------------------------------------------|--------|------------|--------|
| Lower                  gross profit on sales mix            |   |       | (0.10  | %) |
| Production                  and production related expenses |   |       | 0.19   | % |
| Net                  increase in gross profit percent       |   |       | 0.09   | % |

| ·   | A                higher sales percentage of lower gross profit margin products contributed                to a 0.10% decrease in gross profit |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Production                and shipping expenses declined as a percentage of sales which contributed                to a 0.19% increase in the gross profit percent. The decline of 3.47%                in                production and shipping expenses exceeded the decline in net sales                of                0.99%. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Selling,      general and administrative expenses**

|                                        |   | Three                    months ended June 30,Dollar                      Costs |      | Percentage                  of Sales  |   |
|---------------------------------------------|--------|---------------------------------------------------------------------------------|-----------|--------------------------------------------|--------|
|                                        |   |                                                                            |      |                                       |   | Increase  |   |   |   |   |   | Increase  |   |
|                                        |   |  2007                                                                 |      |  2006                            |   |  (decrease)  |   |  2007  |   |  2006  |   |  (decrease)  |   |
| Sales                  and marketing        |   | $                                                                               | 2,419,401 |                                       | $      | 2,320,786 |   | $ | 98,615 |   |   | 10.28 | % |   | 9.76 | % |   | 0.52 | % |
| Technical                  support          |   |                                                                            | 156,137   |                                       |   | 143,989 |   |   | 12,148 |   |   | 0.66 | % |   | 0.61 | % |   | 0.05 | % |
| General                  and administrative |   |                                                                            | 861,782   |                                       |   | 910,966 |   |   | (49,184 | ) |   | 3.66 | % |   | 3.83 | % |   | -0.17 | % |
| Stock                  compensation expense |   |                                                                            | 78,924    |                                       |   | 57,819 |   |   | 21,105 |   |   | 0.34 | % |   | 0.24 | % |   | 0.10 | % |
| Total                                       |   | $                                                                               | 3,516,244 |                                       | $      | 3,433,560 |   | $ | 82,684 |   |   | 14.94 | % |   | 14.44 | % |   | 0.50 | % |

----

**Research      and development expenses**

**Other      income (expense)**

**Tax      provision**

|                                                  |   |  Three                months ended June 30,  |   |
|-------------------------------------------------------|--------|--------------------------------------------------------|--------|
|                                                  |   | 2007                                                   |   |                  2006 |   |
| AMT                Tax attributable to U.S operations |   | $                                                      | 20,000 |   | $ | 25,000 |   |
| Tax                expense European operations        |   |                                                   | 18,788 |   |   | 29,371 |   |
| State                taxes                            |   |                                                   | 5,000  |   |   | 5,000 |   |
| Net                tax provision                      |   | $                                                      | 43,788 |   | $ | 59,371 |   |

| ·   | the                tax losses incurred by our domestic operations in three out of the                last                five years |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------|
|   |   |
|--------|--------|
| ·   | the                seasonal nature and cyclical nature of the business, which makes                it                difficult to predict the future realization of the deferred tax                asset |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |
|--------|--------|
| ·   | the                dynamic market and technological changes that occur in our                industry |
|--------------------|-------------------------------------------------------------------------------------------------------|

----

----

**NINE      MONTH PERIOD ENDED JUNE 30, 2007 COMPARED TO**

**NINE      MONTH PERIOD ENDED JUNE 30, 2006**

|                                                                   |   |                   |       |                   |   |       |   | Percentage                  of sales  |      |   |   |
|------------------------------------------------------------------------|--------|------------------------|------------|------------------------|--------|------------|--------|--------------------------------------------|-----------|--------|--------|
|                                                                   |   | NineMonthsEnded6/30/07 |       | NineMonthsEnded6/30/06 |   | Variance$  |   | 2007                                       |      | 2006   |   | Variance |   |
| Net                  sales                                             |   | $                      | 83,351,123 |                   | $      | 75,506,375 |   | $                                          | 7,844,748 |   |   | 100.00 | % |   | 100.00 | % |   | - |   |
| Cost                  of sales                                         |   |                   | 66,282,026 |                   |   | 60,461,107 |   |                                       | 5,820,919 |   |   | 79.52 | % |   | 80.07 | % |   | -0.55 | % |
| Gross                  profit                                          |   |                   | 17,069,097 |                   |   | 15,045,268 |   |                                       | 2,023,829 |   |   | 20.48 | % |   | 19.93 | % |   | 0.55 | % |
| Gross                  profit %                                        |   |                   | 20.48      | %                      |   | 19.93      | %      |                                       | 0.55      | %      |   |   |   |   |   |   |   |   |   |
| Selling                  , general and administrative expenses:        |   |                   |       |                   |   |       |   |                                       |      |   |   |  |   |   |  |   |   |  |   |
| Sales                  and marketing                                   |   |                   | 7,555,426  |                   |   | 6,992,771  |   |                                       | 562,655   |   |   | 9.06 | % |   | 9.26 | % |   | -0.20 | % |
| Technical                  support                                     |   |                   | 439,112    |                   |   | 430,839    |   |                                       | 8,273     |   |   | 0.53 | % |   | 0.57 | % |   | -0.04 | % |
| General                  and administrative                            |   |                   | 2,646,944  |                   |   | 2,637,202  |   |                                       | 9,742     |   |   | 3.18 | % |   | 3.49 | % |   | -0.31 | % |
| Stock                  compensation expense                            |   |                   | 227,224    |                   |   | 211,935    |   |                                       | 15,289    |   |   | 0.27 | % |   | 0.28 | % |   | -0.01 | % |
| Total                  selling, general and administrative expense     |   |                   | 10,868,706 |                   |   | 10,272,747 |   |                                       | 595,959   |   |   | 13.04 | % |   | 13.60 | % |   | -0.56 | % |
| Research                  and development                              |   |                   | 2,245,977  |                   |   | 2,219,710  |   |                                       | 26,267    |   |   | 2.69 | % |   | 2.94 | % |   | -0.25 | % |
| Research                  & development stock compensation expense |   |                   | 133,992    |                   |   | 62,835     |   |                                       | 71,157    |   |   | 0.16 | % |   | 0.08 | % |   | 0.08 | % |
| Total                  expenses                                        |   |                   | 13,248,675 |                   |   | 12,555,292 |   |                                       | 693,383   |   |   | 15.89 | % |   | 16.62 | % |   | -0.73 | % |
| Net                  operating income                                  |   |                   | 3,820,422  |                   |   | 2,489,976  |   |                                       | 1,330,446 |   |   | 4.59 | % |   | 3.31 | % |   | 1.28 | % |
|                                                                   |   |                   |       |                   |   |       |   |                                       |      |   |   |   |   |   |   |   |   |   |   |
| Other                  income :                                        |   |                   |       |                   |   |       |   |                                       |      |   |   |   |   |   |   |   |   |   |   |
| Interest                  income                                       |   |                   | 31,988     |                   |   | 17,921     |   |                                       | 14,067    |   |   | 0.04 | % |   | 0.02 | % |   | 0.02 | % |
| Foreign                  currency                                      |   |                   | (6,256     | )                      |   | (2,695     | )      |                                       | (3,561    | )      |   | -0.01 | % |   | 0.00 | % |   | -0.01 | % |
| Total                  other income                                    |   |                   | 25,732     |                   |   | 15,226     |   |                                       | 10,506    |   |   | 0.03 | % |   | 0.02 | % |   | 0.01 | % |
| Income                  before taxes on income                         |   |                   | 3,846,154  |                   |   | 2,505,202  |   |                                       | 1,340,952 |   |   | 4.62 | % |   | 3.33 | % |   | 1.29 | % |
| Taxes                  on income                                       |   |                   | 185,033    |                   |   | 146,510    |   |                                       | 38,523    |   |   | 0.22 | % |   | 0.19 | % |   | 0.03 | % |
| Net                  income                                            |   | $                      | 3,661,121  |                   | $      | 2,358,692  |   | $                                          | 1,302,429 |   |   | 4.40 | % |   | 3.14 | % |   | 1.26 | % |

|                          |   |                           |       |                           |   | Increase   |   |                        |       |  Percentage                  of sales by |   |
|-------------------------------|--------|--------------------------------|------------|--------------------------------|--------|------------|--------|-----------------------------|------------|-----------------------------------------------|--------|
|                          |   |                           |       |                           |   | (decrease) |   | Increase                    |       | geographic                                    |   |
|                          |   | Nine                  Months   |       | Nine                  Months   |   | Dollar     |   | (decrease)                  |       | region                                        |   |
| Location                      |   | ended                  6/30/07 |       | ended                  6/30/06 |   | variance   |   | variance                  % |       | 2007                                          |   | 2006 |   |
| The                  Americas |   |                           | 46,026,127 |                           |   | 35,477,958 |   |                        | 10,548,169 |                                          |   | 30 | % |   | 55 | % |   | 47 | % |
| Europe                        |   |                           | 35,752,969 |                           |   | 38,204,680 |   |                        | (2,451,711 | )                                             |   | (6 | %) |   | 43 | % |   | 51 | % |
| Asia                          |   |                           | 1,572,027  |                           |   | 1,823,737  |   |                        | (251,710   | )                                             |   | (14 | %) |   | 2 | % |   | 2 | % |
| Total                         |   | $                              | 83,351,123 |                           | $      | 75,506,375 |   | $                           | 7,844,748  |                                          |   | 10 | % |   | 100 | % |   | 100 | % |

----

**Gross      profit**

|                                                   |   | Increase (decrease) |      |
|--------------------------------------------------------|--------|--------------------------|-----------|
| Increased                sales                         |   | $                        | 2,175,862 |   |
| Lower                gross profit on sales mix         |   |                     | (47,883   | ) |
| Production                and production related costs |   |                     | (104,150  | ) |
| Total                increase in gross profit          |   | $                        | 2,023,829 |   |

|                                                        |   | Increase(decrease) |   |
|-------------------------------------------------------------|--------|--------------------|--------|
| Lower                  gross profit on sales mix            |   |               | (0.06  | %) |
| Production                  and production related expenses |   |               | 0.61   | % |
| Net                  increase in gross profit percent       |   |               | 0.55   | % |

|  | · | A                higher sales percentage of lower gross profit margin products contributed                to a 0.06% decrease in gross profit |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Production                and shipping expenses declined as a percentage of sales which contributed                to a 0.61% increase in gross profit percent. The increase in net                sales was                about 10% while the increase in production and shipping expenses                was about                2% |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Selling,      general and administrative expenses**

|                                        |   | Nine                  months ended June 30, |       |                                 |   |       |   |   |    |
|---------------------------------------------|--------|---------------------------------------------|------------|--------------------------------------|--------|------------|--------|--------|---------|
|                                        |   | Dollar                  Costs               |       | Percentage                  of Sales |   |
|                                        |   |                                        |       |                                 |   | Increase   |   |   |    |   |   | Increase |   |
|                                        |   | 2007                                        |       | 2006                                 |   | (decrease) |   | 2007   |    | 2006 |   | (decrease) |   |
| Sales                  and marketing        |   |                                        | 7,555,426  |                                 |   | 6,992,771  |   |   | 562,655 |   |   | 9.06 | % |   | 9.26 | % |   | -0.20 | % |
| Technical                  support          |   |                                        | 439,112    |                                 |   | 430,839    |   |   | 8,273   |   |   | 0.53 | % |   | 0.57 | % |   | -0.04 | % |
| General                  and administrative |   |                                        | 2,646,944  |                                 |   | 2,637,202  |   |   | 9,742   |   |   | 3.18 | % |   | 3.49 | % |   | -0.31 | % |
| Stock                  compensation expense |   |                                        | 227,224    |                                 |   | 211,935    |   |   | 15,289  |   |   | 0.27 | % |   | 0.28 | % |   | -0.01 | % |
| Total                                       |   |                                        | 10,868,706 |                                 |   | 10,272,747 |   |   | 595,959 |   |   | 13.04 | % |   | 13.60 | % |   | -0.56 | % |

----

**Research      and development expenses**

**Other      income **

**Tax      provision**

|                                                  |   |  Nine                months ended June 30, |    |
|-------------------------------------------------------|--------|-------------------------------------------------|---------|
|                                                  |   | 2007                                            |    | 2006 |   |
| AMT                Tax attributable to U.S operations |   | $                                               | 72,000  |   | $ | 55,000 |   |
| Tax                expense European operations        |   |                                            | 98,033  |   |   | 76,510 |   |
| State                taxes                            |   |                                            | 15,000  |   |   | 15,000 |   |
| Net                tax provision                      |   | $                                               | 185,033 |   | $ | 146,510 |   |

|   | · | the                tax losses incurred by our domestic operations in three out of the                last                five years |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |
|--------|--------|--------|

|   | · | the                seasonal nature and cyclical nature of the business, which makes                it                difficult to predict the future realization of the deferred tax                asset |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |
|--------|--------|--------|

|   | · | the                dynamic market and technological changes that occur in our                industry |
|--------|--------|-------------------------------------------------------------------------------------------------------|

----

**Seasonality**

**Liquidity      and capital resources**

|                                      |   | June                30, 2007 |       | September                30, 2006 |   |
|-------------------------------------------|--------|------------------------------|------------|-----------------------------------|--------|
| Cash                                      |   | $                            | 12,351,072 |                              | $      | 9,020,941 |   |
| Working                Capital            |   |                         | 20,969,576 |                              |   | 17,084,175 |   |
| Stockholders’                Equity |   |                         | 21,785,108 |                              |   | 17,779,725 |   |

| Sources                of cash:                                      |   |   |       |   |
|----------------------------------------------------------------------|--------|--------|------------|--------|
| Net                income adjusted for non cash items                |   | $      | 4,179,741  |   |
| Increase                in accounts payable and accrued expenses     |   |   | 5,547,859  |   |
| Proceeds                from employee stock purchases                |   |   | 758,756    |   |
| Less                cash used for:                                   |   |   |       |   |
| Increase                in account receivables                       |   |   | (5,910,179 | )      |
| Increase                in inventories                               |   |   | (191,651   | )      |
| Increase                in prepaid expenses and other current assets |   |   | (1,299     | )      |
| Effect                of exchange rates on cash                      |   |   | (722,312   | )      |
| Capital                equipment purchases                           |   |   | (277,386   | )      |
| Purchase                of treasury stock                            |   |   | (53,398    | )      |
| Net                cash increase                                     |   | $      | 3,330,131  |   |

----

**Future      contractual obligations**

|                                       |   | Payments                due by period  |      |
|--------------------------------------------|--------|---------------------------------------------|-----------|
|                                       |   | Total                                       |      | Less                than 1 year |   | 1-3                years |   |                  3                to 5 years |   |
| Operating                lease obligations |   | $                                           | 2,059,114 |   | $ | 541,236 |   | $ | 1,404,714 |   | $ | 113,164 |   |

**Inflation**

**Item      3. Quantitative and qualitative disclosures about market      risks**

|   | · | volatility                of the currency markets |
|--------|--------|---------------------------------------------------|

----

|   | · | availability                of hedging instruments |
|--------|--------|----------------------------------------------------|
|   |   |   |
|--------|--------|--------|

|   | · | accuracy                of our inventory forecasts |
|--------|--------|----------------------------------------------------|

**Item      4. Controls and procedures**

**Special      note regarding forward looking statements**

----

**PART      II. OTHER INFORMATION**

**Item      1A. Risk factors**

**Item      2. Unregistered sales of equity securities and use of      proceeds**
** **

|                                                |   |                       |    |                      |   |                              |   | Maximum                         |    |
|-----------------------------------------------------|--------|----------------------------|---------|---------------------------|--------|-----------------------------------|--------|---------------------------------|---------|
|                                                |   |                       |    |                      |   | Total                  Number     |   | Number                          |    |
|                                                |   | Total                      |    | Average                   |   | of                  Shares        |   | of                  Shares      |    |
|                                                |   | Number                     |    | Price                     |   | Purchased                  as     |   | that                  May Yet   |    |
|                                                |   | of                  Shares |    | Paid                  per |   | Part                  of Publicly |   | Be                  Purchased   |    |
| Period                                              |   | Purchased                  |    | Share                     |   | Announced                  Plan   |   | Under                  the Plan |    |
| Purchases                  as of September 30, 2006 |   |                       | 607,547 |                      |   | 2.89                              |   |                            | 607,547 |   |   | 592,453 |   |
| June                  1 to June 30, 2007            |   |                       | 10,000  |                      |   | 5.34                              |   |                            | 10,000  |   |   | 582,453 |   |
| Purchases                  as of June 30, 2007      |   |                       | 617,547 |                      |   | 2.93                              |   |                            | 617,547 |   |   | 582,453 |   |

**Item      6. Exhibits **

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**SIGNATURES**

|                              |                                                                                                                                                                            |                             |
|-----------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|
|                              | HAUPPAUGE                DIGITAL INC.Registrant                                                                                                                                 |
|                         |                                                                                                                                                                       |                        |
| Date: August              9, 2007 | By                                                                                                                                                                    | /s/              Kenneth Plotkin |
|                              | KENNETH                PLOTKINChief                Executive Officer, Chairman of the Board, President                (Principal Executive Officer) and                Director |
|                              |                                                                                                                                                        |                  |
|-----------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------|
|                         |                                                                                                                                                   |             |
| Date: August              9, 2007 | By                                                                                                                                                | /s/ Gerald Tucciarone |
|                              | GERALD              TUCCIARONETreasurer,                Chief Financial Officer, (Principal                Accounting officer) and                Secretary |

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