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, 1999

                                                                             OR

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

For the transition period from _______ to ________

                         Commission file number 1-13550

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

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

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

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

Indicate by check mark  whether the issuer (1) filed all reports  required to be
filed by Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or
for such shorter  period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
                        Yes  X              No


As of August 6 , 1999,  4,332,302  shares of $.01 par value  Common Stock of the
registrant were outstanding, not including treasury shares


<PAGE>


                    HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES


                                      INDEX


PART I. FINANCIAL INFORMATION


Item 1.Financial Statements                                         Page No.

Condensed Consolidated Balance Sheets-                                  3
   June 30, 1999 and September 30, 1998

Condensed Consolidated Statements of Income-
  Nine Months ended June 30, 1999 and 1998                              4

Condensed Consolidated Statements of Income-
  Three Months ended June 30, 1999 and 1998                             5

Condensed Consolidated Statements of Cash Flows-
  Nine Months ended June  30, 1999 and 1998                             6

Notes to Condensed Consolidated Financial Statements                  7-9

Item    2.     Management's     Discussion    and    Analysis       10-16
               of Financial Condition and  Results of Operations


PART II. OTHER INFORMATION

Item 1.  Legal Proceedings                                             17


Item 6.  Exhibits and Reports on Form 8-K                              17


SIGNATURES                                                             18


<PAGE>

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

                    HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
ASSETS
                                                                                          June 30,

                                                                                            1999           September 30,
                                                                                         (Unaudited)           1998
                                                                                      ------------------  ----------------
 CURRENT ASSETS:
<S>                                                                                      <C>                 <C>
     Cash and cash  equivalents                                                          $  6,349,019        $6,281,852
     Accounts receivable, net of allowance for doubtful accounts                            5,290,755         6,497,163
     Inventories (Note 2)                                                                  12,728,940         8,552,097
     Prepaid expenses and other current assets                                                488,022           468,763
     Deferred tax assets                                                                      749,161           597,131
                                                                                              -------           -------

                Total current assets                                                       25,605,897        22,397,006

     Property, plant and equipment-at cost                                                  1,146,623           805,953
     Less: Accumulated depreciation and amortization                                          484,039           362,343
                                                                                              -------           -------
                                                                                              662,584           443,610
     Security deposits and other non-current assets                                            54,865            56,838
                                                                                               ------            ------
                                                                                          $26,323,346       $22,897,454
                                                                                          ===========       ===========



 LIABILITIES AND SHAREHOLDERS' EQUITY:

 CURRENT LIABILITIES:
    Accounts payable                                                                     $ 9,724,299         $9,497,003
    Accrued expenses                                                                       2,591,015          2,342,380
    Income taxes payable                                                                   1,407,729          1,021,173
                                                                                           ---------          ---------
              Total current liabilities                                                   13,723,043         12,860,556
                                                                                          ----------         ----------



 SHAREHOLDERS' EQUITY
    Common stock $.01 par value; 10,000,000 shares authorized, 4,544,802 and
        4,501,402  issued as of  June 30, 1999  and September 30, 1998                       45,448             45,014
    Additional paid-in capital                                                           10,608,411         10,465,707
    Retained earnings                                                                     3,213,573            729,781
    Treasury Stock, at cost, 214,300 and 207,200 shares, respectively  (Note 5)          (1,267,129)        (1,203,604)
                                                                                         ----------         ----------
              Total shareholders' equity                                                 12,600,303         10,036,898
                                                                                         ----------         ----------
                                                                                      $  26,323,346        $22,897,454
                                                                                      =============        ===========
</TABLE>


 See accompanying notes to consolidated financial statements





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

<TABLE>
<CAPTION>

                                                                  Nine Months Ended June 30,
                                                                   1999               1998

                                                                (Unaudited)        (Unaudited)
                                                             ----------------------------------

<S>                                                            <C>                 <C>
Net Sales                                                      $42,923,460         $26,443,939

Cost  of  Sales                                                 31,124,402          19,820,546
                                                                ----------          ----------
 Gross Profit                                                   11,799,058           6,623,393

Selling, General and  Administrative Expenses                    7,029,837           4,649,857
Research  and  Development Expenses                                879,685             576,670
                                                                   -------             -------
 Income from operations                                          3,889,536           1,396,866

Other Income (Expense):
 Interest income                                                   153,937             178,875
 Other, net                                                        (89,681)             81,940
                                                                   -------              ------
      Income before income tax provision                         3,953,792           1,657,681

Income tax Provision (Note 4)                                    1,470,000             546,815
                                                                 ---------             -------
 Net income                                                     $2,483,792          $1,110,866
                                                                ==========          ==========
Net income per share-basic (Note 3)                                  $0.58               $0.25

Net income per share-diluted (Note 3)                                $0.53               $0.24
                                                                     =====               =====
</TABLE>


           See accompanying notes to consolidated financial statements


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

<TABLE>
<CAPTION>


                                                         Three Months Ended June  30,
                                                           1999             1998

                                                        (Unaudited)     (Unaudited)
                                                      ---------------------------------

<S>                                                     <C>              <C>
Net Sales                                               $13,353,693      $9,042,704
Cost of  Sales                                            9,598,877       6,628,542
                                                          ---------       ---------
 Gross Profit                                             3,754,816       2,414,162

Selling, General and Administrative Expenses              2,432,138       1,800,393
Research and  Development  Expenses                         353,429         228,389
                                                            -------         -------
 Income from operations                                     969,249         385,380


Other Income (Expense):
 Interest income                                             59,790          58,480
 Other, net                                                 (15,450)         21,301
                                                            -------          ------
  Income before income tax provision                      1,013,589         465,161

Income tax Provision (Note 4)                               348,000         154,000
                                                            -------         -------
  Net income                                               $665,589        $311,161
                                                           ========        ========

Net income per share-basic (Note 3)                           $0.15           $0.07

Net income per share-diluted (Note 3)                         $0.14           $0.07
                                                              =====           =====
</TABLE>


           See accompanying notes to consolidated financial statements

<PAGE>

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


<TABLE>
<CAPTION>


                                                                                      Nine Months Ended June 30,
                                                                                        1999               1998
                                                                                    (Unaudited)        (Unaudited)
                                                                                  ------------------  ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                      <C>           <C>
  Net income                                                                        $2,483,792           $1,110,866
                                                                                    ----------           ----------
   Adjustments  to  reconcile  net  income  to net cash  provided  by
     operating activities:
     Depreciation and amortization                                                     123,666               49,311
     Provision for uncollectible accounts receivable                                    25,000               10,000
     Provision for system board obsolescence                                           150,000               80,000
     Compensation paid in stock                                                          2,400               29,656
     Deferred tax benefits                                                            (152,030)
         Changes in current assets and liabilities:
     Accounts receivable                                                             1,181,409           (1,913,017)
     Inventories                                                                    (4,326,843)            (505,630)
     Prepaid expenses and other current assets                                         (19,259)              46,181
     Accounts payable                                                                  227,297              199,942
     Accrued expenses                                                                  635,191              945,323
                                                                                       -------              -------
                                                                                    (2,153,169)          (1,058,234)
                                                                                    ----------           ----------
        Net cash  provided by  operating activities                                    330,623               52,632
                                                                                       -------               ------


CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchases of property, plant and equipment                                           (340,670)            (251,664)
                                                                                      --------             --------
        Net cash used in investing activities                                         (340,670)            (251,664)
                                                                                      --------             --------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Purchase of treasury stock                                                            (63,525)            (105,046)

 Proceeds from the exercise of stock options                                           140,739               80,808
                                                                                       -------               ------
        Net cash provided by (used in)  financing activities                            77,214              (24,238)
                                                                                        ------              -------
        Net  increase (decrease) in cash and cash equivalents                           67,167             (223,270)
 Cash and Cash Equivalents, beginning of period                                      6,281,852            5,602,412
                                                                                     ---------            ---------
 Cash and Cash Equivalents, end of period                                           $6,349,019           $5,379,142
                                                                                    ==========           ==========
SUPPLEMENTAL DISCLOSURES:

 Income taxes paid                                                                  $1,328,615              $42,306
                                                                                    ==========              =======
</TABLE>

           See accompanying notes to consolidated financial statements

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

NOTE 1.  BASIS OF PRESENTATION

     The accompanying  unaudited  condensed  consolidated  financial  statements
included  herein  have been  prepared  in  accordance  with  generally  accepted
accounting  principles  for interim  period  reporting in  conjunction  with the
instructions to Form 10-Q.  Accordingly,  these statements do not include all of
the information required by generally accepted accounting  principles for annual
financial statements, and are subject to year-end adjustments. 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 and nine month periods ended June
30, 1999 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, 1998 Form 10-KSB.

     The  operating  results for the three months and nine months ended June 30,
1999 are not  necessarily  indicative  of the  results  to be  expected  for the
September 30, 1999 year end.

NOTE 2.  INVENTORIES

     Inventories  have been valued at the lower of average  cost or market.  The
components of inventory at June 30, 1999 and September 30, 1998 consist of:

                                   June  30,            September 30,
                                    1999                    1998
                                    ----                    ----

     Component Parts            $  3,578,437           $  1,445,811
     Work in Progress                580,080                511,640
     Finished Goods                8,570,423              6,594,646
                                   ---------              ---------
                                $ 12,728,940           $  8,552,097
                                 ===========           ============

NOTE 3.  NET INCOME PER SHARE

     Earnings per share are computed using Financial Accounting Standards Number
128,  ("SFAS  128")  "Earnings  per  Share."  The  statement  provides  for  the
calculation  of "basic" and  "diluted"  earnings per share.  Basic  earnings per
share is computed by dividing  income  available to common  shareholders  by the
weighted  average shares  outstanding for the period,  and excludes any dilutive
effects of stock options, warrants and convertible securities.  Diluted earnings
per share reflect the dilutive effect of additional  shares of common stock that
could be issued  upon the  exercise  stock  options,  warrants  and  convertible
securities.  Net income per share  amounts for the three  months and nine months
ended June 30, 1999, and 1998 have been presented per the  requirements of "SFAS
128".

<PAGE>

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

Net income per share - continued

         The table  below shows the number of  weighted  average  shares used in
determining basic and diluted earnings per share:

                                                   Three Months Ended
                                                       June 30,
                                                 1999                1998
                                                 ----                ----

Weighted average shares outstanding-basic       4,320,717        4,406,870
Number of shares issued on the assumed
    Exercise of stock options                     447,425          343,584
                                                  -------          -------
Weighted average shares outstanding-diluted     4,768,142        4,750,454
                                                ---------        ---------

                                                   Nine Months Ended
                                                       June 30,
                                                 1999                1998
                                                 ----                ----

Weighted average shares outstanding-basic       4,309,144        4,404,545
Number of shares issued on the assumed
    Exercise of stock options                     333,630          206,625
                                                  -------          -------
Weighted average shares outstanding-diluted     4,642,774        4,611,170
                                                ---------        ---------


Shares  outstanding  for the quarter  ended and nine months  ended June 30, 1999
reflect a reduction on a weighted  average basis for  repurchased  shares.  (See
note 5).

NOTE 4.  INCOME TAXES

     Income taxes are based on annualized  statutory rates for federal and state
income taxes.  The provision for income taxes  reflects an annualized  effective
tax rate after  deductions for the  utilization of restricted net operating loss
carry  forwards,  adjustments  for items  deductible  for book  purposes but not
currently  deductible  for tax purposes and the benefit  which  results from the
utilization of a foreign sales corporation. The benefits of these operating loss
carry forwards and deferred tax benefits had  previously  been subject to a 100%
valuation allowance.  However,  based on three years of profitability up through
the end of fiscal 1998 and fiscal 1999 taxable  income,  management  reduced the
valuation  allowance  at  September  30, 1998 to  $127,000.  In  recognition  of
continued profitability,  the Company reduced the valuation allowance by $93,000
during fiscal 1999 and anticipates total elimination of the valuation by the end
of the fiscal year.

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


NOTE 5.  STOCK REPURCHASE PROGRAM

         On November 8, 1996, the Company  approved a stock  repurchase  program
for the repurchase of up to 300,000 shares of its own stock. The Company intends
to use the repurchased shares for certain employee benefit programs. On December
17, 1997, the stock repurchase program was extended by a resolution of the Board
of Directors.  As of June 30, 1999, the Company had  repurchased  214,300 shares
for $1,267,129 at an average purchase price of approximately $5.91 per share.

<PAGE>

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

Results of Operations

Nine Month Period ended June  30, 1999 versus June   30, 1998
--------------------------------------------------------------

     Sales for the nine months ended June 30, 1999 were $42,923,460  compared to
$26,443,939  for the  comparable  period  ending June 30, 1998,  resulting in an
increase of $16,479,521 or 62%. The primary forces driving the sales growth were
an  increase  in  the  Company's  domestic  distribution  and  retail  channels,
increased  European  sales due to the Company's  expansion  into new  geographic
markets,  increased sales to the Company's existing European  customers,  plus a
growth in sales to direct corporate customers.

     Unit sales for the nine months ended June 30, 1999  increased  about 70% to
approximately  466,000 as compared to approximately  275,000 for the prior year.
Sales to domestic  customers for the nine month period were 25% of net sales for
the  current  fiscal  year and 32% for the prior  year.  Sales to  international
customers  were 75% of net sales for the current fiscal year compared to 68% for
the comparable nine month period of the prior fiscal year.

     Gross  profit  increased to  $11,799,058  from  $6,623,393,  an increase of
$5,175,665 or 78% over the prior fiscal year.  The gross profit  percentage  was
27% for the nine months ended June 30, 1999  compared to 25% for the nine months
ended June 30, 1998.  The increase in margins was  primarily due to economies of
scale  resulting  from higher  production  volume,  the  shifting of most of the
Company's  production to subcontractors in Scotland and Malaysia,  absorption of
manufacturing  overhead over a greater number of units and hedging foreign sales
to manage currency exposure.


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

<TABLE>
<CAPTION>

                                                         Nine months ended June  30,
                                          Dollar Costs                              Percentage of Sales
                                          ------------                              -------------------
                                                                                                       Increase/
                                   1999              1998        Increase         1999       1998     (Decrease)
                                   ----              ----       -----------       ----       ----
<S>                                 <C>              <C>             <C>          <C>         <C>        <C>
Sales & Promotional            $4,367,817       $2,847,025      $1,520,792       10.2%       10.8%      ( .6%)
Customer Support                  327,303          218,717         108,586         .8%         .8%         -
Product Handling                  488,302          283,450         204,852        1.1%        1.1%         -
General & Admin                 1,846,415        1,300,665         545,750        4.3%        4.9%      ( .6%)
                                ---------        ---------         -------        ---         ---       -----
    Total                      $7,029,837       $4,649,857      $2,379,980       16.4%       17.6%      (1.2%)
</TABLE>

<PAGE>

Item 2.  Management's Discussion and Analysis -Continued

As a percentage of sales, Selling,  General and Administrative  expenses for the
nine  months  ended June 30, 1999  declined  by 1.2% when  compared to the prior
fiscal year, with Sales and Promotional and General and Administrative  expenses
each   declining  by  .6%.   Represented   in  dollars,   Selling   General  and
Administrative  expenses  increased  $2,379,980 over the comparable prior year's
nine month period. The increase in Sales and Promotional  expenses of $1,520,792
over the prior year  represents  approximately  64% of the total  increase.  The
increase  was  primarily  due to the  increase in  marketing  development  funds
required to support product  visibility at a greater number of retail locations,
higher  commissions  resulting  from the 62% net sales  increase  and  increased
worldwide sales and marketing personnel costs.

     Customer  Support,   Product  Handling,   and  General  and  Administrative
expenses,  which  represents  approximately  36% of the increase  over the prior
year,  increased  $108,586,  $204,852  and  $545,750,  respectively.  Additional
worldwide staff required to maintain a high level of customer support to support
the  Company's  expanding  domestic and  international  customer base caused the
Customer  Support  costs to increase.  Increased  Product  Handling  costs was a
function of greater  shipment  volume to customers.  The increase in General and
Administrative   costs  was  mainly  for  contractual  wage  increases,   higher
professional  fees for  consulting  work  performed for the Company,  and larger
incentive bonus accruals based on the increased profitability of the Company.

     Research and Development  expenses increased $303,015 or approximately 53%.
The increase was due to additional  funds allocated for increased  personnel and
prototype costs as the Company expands its current product line and develops its
new line of digital  products.

     The Company had net other income for the nine months ended June 30, 1999 of
$64,256  compared  to net other  income  for the  prior  year of  $260,815.  The
decrease  in net other  income  was  primarily  due to lower  returns  on monies
invested and foreign currency exchange losses due to the decline of the Euro.

     Provision for income taxes was $1,470,000,  or an effective tax rate of 37%
for the nine months ended June 30, 1999 compared to $546,815 or an effective tax
rate of 33% for the nine months  ended June 30,  1998.  The  increase in the net
effective  rate is  primarily  due to the timing of certain  reserves  which are
deductible  for book  purposes but not  currently  deductible  for tax purposes,
which resulted in an addition to the deferred tax asset account of $152,900.

     As a result of the above,  the Company  recorded net income after taxes for
the nine months ended June 30, 1999 of  $2,483,792,  which resulted in basic and
diluted earnings per share of $0.58 and $0.53, respectively, on weighted average
basic and diluted shares  outstanding of 4,309,144 and 4,642,774,  respectively,
compared to net income after taxes of $1,110,866  for the nine months ended June
30, 1998,  which  resulted in basic and diluted  earnings per share of $0.25 and
$0.24,  respectively,  on weighted average basic and diluted shares of 4,404,545
and 4,611,170, respectively.


<PAGE>

Item 2.  Management's Discussion and Analysis -Continued

Three Month Period ended June  30, 1999 versus June  30, 1998
--------------------------------------------------------------

     Sales for the three months ended June 30, 1999 were $13,353,693 compared to
$9,042,704 for the fiscal quarter ending June 30, 1998, resulting in an increase
of  $4,310,989  or 48%.  The primary  forces  driving  the sales  growth were an
increase in the Company's domestic  distribution and retail channels,  increased
European  sales due to the  Company's  expansion  into new  geographic  markets,
increased sales to the Company's existing European  customers,  plus a growth in
sales to direct corporate customers.

     Unit sales for the three months ended June 30, 1999 increased  about 32% to
approximately  140,000 as compared to approximately  106,000 for the prior year.
Sales to domestic customers for this year's third fiscal quarter were 30% of net
sales  compared  to 43% for the prior  year's  third  fiscal  quarter.  Sales to
international  customers  were 70% of net  sales for the  third  fiscal  quarter
compared to 57% for the comparable third quarter of the prior fiscal year.

     Gross  profit  increased  to  $3,754,816  from  $2,414,162,  an increase of
$1,340,654 or 56% over the prior fiscal year's third  quarter.  The gross profit
percentage  was 28% for the three months ended June 30, 1999 compared to 27% for
the three months ended June 30, 1998.  The increase in margins was primarily due
to economies of scale resulting from higher production  volume,  the shifting of
most of the  Company's  production to  subcontractors  in Scotland and Malaysia,
absorption of manufacturing  overhead over a greater number of units and hedging
foreign sales to manage currency exposure.

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

<TABLE>
<CAPTION>

                                                         Three months ended June  30,
                                                         -----------------------  ---
                                          Dollar Costs                                Percentage of Sales
                                          ------------                                -------------------
                                                                                                       Increase/
                                    1999             1998        Increase         1999       1998     (Decrease)
                                    ----             ----       -----------       ----       ----
<S>                                 <C>              <C>            <C>           <C>         <C>        <C>
Sales & Promotional             $1,519,556       $1,170,791      $348,765         11.4%      13.0%      (1.6%)
Customer Support                   113,854           76,479        37,375           .8%        .8%         -
Product Handling                   207,398          112,245        95,153          1.6%       1.2%        .4%
General & Admin                    591,330          440,878       150,452          4.4%       4.9%      ( .5%)
                                   -------          -------       -------          ---        ---       - --
    Total                       $2,432,138       $1,800,393      $631,745         18.2%      19.9%      (1.7%)
</TABLE>

As a percentage of sales, Selling,  General and Administrative  expenses for the
three  months  ended June 30, 1999  declined by 1.7% when  compared to the third
quarter of the prior fiscal year.  Aggregate  declines in Sales and  Promotional
and General and Administrative expenses of 2.1% were offset by a .4% increase in
Product  Handling  expenses.   Represented  in  dollars,  Selling,  General  and
Administrative  expenses  increased  $631,745 over the  comparable  prior year's
three

<PAGE>

month period.  The increase in Sales and Promotional  expenses of $348,765
over the prior year's third fiscal quarter  represents  approximately 55% of the
total increase. The increase in Sales and Promotional expenses was primarily due
to the  increase in  marketing  development  funds  required to support  product
visibility at a greater number of retail locations, higher commissions resulting
from the 48% net sales increase and higher personnel costs.

Item 2.  Management's Discussion and Analysis -Continued

     Customer  Support,   Product  Handling,   and  General  and  Administrative
expenses,  which  represents  approximately  45% of the increase  over the prior
year's  fiscal  third  quarter,   increased   $37,375,   $95,153  and  $150,452,
respectively.  Additional  worldwide  staff required to maintain a high level of
customer   service  in  support  of  the   Company's   expanding   domestic  and
international  customer  base caused the  Customer  Support  costs to  increase.
Increased  Product  Handling costs was a function of greater  shipment volume to
customers.  The  increase  in General  and  Administrative  costs was mainly for
contractual  wage  increases,  higher  professional  fees  for  consulting  work
performed for the Company,  and larger  incentive  bonus  accruals  based on the
increased profitability of the Company.

     Research and Development  expenses increased $125,040 or approximately 55%.
The increase was due to the added funds  allocated for  increased  personnel and
prototypes  costs as the Company  expands its current  product line and develops
its new line of digital products.

     The Company had net other  income for the three  months ended June 30, 1999
of $44,340  compared  to net other  income for the prior  year of  $79,781.  The
decrease  in net other  income  was  primarily  due to lower  returns  on monies
invested and foreign currency exchange losses due to the decline of the Euro.

     Provision  for income taxes was  $348,000,  or an effective tax rate of 34%
for the three  months  ended June 30, 1999  compared to $154,000 or an effective
tax rate of 33% for the three months  ended June 30,  1998.  The increase in the
net effective rate is primarily due to the timing of certain  reserves which are
deductible for book purposes but not currently deductible for tax purposes.

     At the end of  fiscal  1998,  the  Company  had a  deferred  tax  valuation
allowance of $127,000. In recognition of the continued  profitability during the
first nine  months of fiscal  1999,  the  valuation  allowance  during the third
fiscal quarter was reduced by $33,000. For the nine month period ending June 30,
1999, the valuation allowance has been reduced by $93,000.


<PAGE>


Item 2.  Management's Discussion and Analysis -Continued

     As a result of the above,  the Company  recorded net income after taxes for
the three  months  ended June 30, 1999 of $665,589  which  resulted in basic and
diluted earnings per share of $0.15 and $0.14, respectively, on weighted average
basic and diluted shares  outstanding of 4,320,717 and 4,768,142,  respectively,
compared to net income  after taxes of $311,161  for the three months ended June
30, 1998,  which  resulted in basic and diluted  earnings per share of $0.07 and
$0.07,  respectively,  on weighted average basic and diluted shares of 4,406,870
and 4,750,454, respectively.

     In two of the  previous  four fiscal  years,  the  Company has  experienced
certain revenue trends.  Since the Company's products are primarily sold through
distributors and retailers, the Company has historically recorded stronger sales
results during the Company's first fiscal quarter (October to December),  which,
due to the holiday season, is a strong quarter for computer equipment sales. The
Company  experienced  this trend in each of the fiscal years ended September 30,
1998 and  September 30, 1997. In addition,  the Company's  international  sales,
mostly in the  European  market,  were 72% and 66% of sales for fiscal 1998 and
1997,  respectively,  and 75% for the first nine months of fiscal  1999.  Due to
this, the Company's  sales for its fourth fiscal quarter (July to September) can
be  potentially  impacted by the reduction of activity  experienced  with Europe
during the July and August summer  holiday  period.  To offset the above cycles,
the Company is targeting as wide a range of customer  types in order to moderate
the seasonality of retail sales.

Liquidity and Capital Resources

     The  Company  had a net cash  position of  $6,349,019,  working  capital of
$11,882,854  and  shareholders'  equity  of  $12,600,303  as of June  30,  1999,
compared  to cash,  working  capital  and  shareholders'  equity of  $6,281,852,
$9,536,450  and  $10,036,898,  respectively,  as of  September  30,  1998  . The
significant items of cash provided by and cash (consumed) are detailed below:

<TABLE>
<CAPTION>

<S>                                                                              <C>
Net income (adjusted for non-cash items), excluding deferred tax benefits        $  2,784,858
Additions to deferred tax assets                                                  (   152,030)
Increase in investment for current assets                                         ( 3,164,693)
Operations funded by current  liabilities-net                                         862,488
Purchase of Property, Plant & Equipment                                           (   340,670)
Other                                                                                  77,214
</TABLE>

     Net cash of $330,623 provided by operating  activities was primarily due to
cash generated from net income  (adjusted for non-cash  items) of $2,784,858 and
operations  funded by the increase in current  liabilities  of $862,488,  offset
partially by cash invested in current  assets of  $3,164,693  and an increase in
deferred tax benefits of $152,030.

<PAGE>

Liquidity and Capital Resources-continued

     Cash of $340,670 was used to purchase  fixed  assets.  Additional  cash was
provided by the  exercise of employee  options and  consumed by the  purchase of
additional treasury shares.

     The Company's asset-based credit facility expired on February 28, 1998. The
Company has chosen not to renew the loan facility.  The Company feels it is in a
position to obtain new  financing at more  competitive  rates,  and is currently
negotiating with new institutions to replace the expired loan facility.

     On November 8, 1996, the Company  approved a stock  repurchase  program for
the  repurchase of up to 300,000  shares of its own stock.  The Company will use
the repurchased  shares for certain employee benefit  programs.  On December 17,
1997, the stock repurchase  program was extended by a resolution of the Board of
Directors. Through June 30, 1999, the Company had repurchased 214,300 shares for
$1,267,129 at an average purchase price of approximately $5.91 per share.

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

Year 2000

     An  issue  affecting  most  companies  is  whether   computer  systems  and
applications will recognize and process the year 2000 and beyond.  Many computer
systems were not designed to handle dates beyond the year 1999.  The Company has
evaluated  the effect of year 2000  issues  relating  to its  internal  computer
systems (primarily used for accounting,  inventory control,  word processing and
certain other  administrative  functions) and has concluded that certain aspects
of its system are not year 2000  compliant.  In recognition of this, the Company
during 1998 studied the feasibility of upgrading its existing  computer software
or  purchasing  new  software.  The Company  concluded  that the purchase of new
software and the  upgrading of computer  hardware was the best course of action.
During the first fiscal quarter of 1999, the Company selected new software.  The
hardware  upgrades and the  implementation  of new software began during January
1999. Testing is currently being performed in house by Company  personnel,  with
assistance  from an outside  consultant.  The Company expects to have the system
operational by the fourth  calendar  quarter of 1999. The Company  estimates the
cost to the Company to remedy the year 2000 issue with regard to their  internal
computer system will be approximately $150,000. The Company expects to fund this
project through internally generated cash flow, and will account for the project
as prescribed by the rules under generally accepted accounting principles.

     The Company  initiated  communications  in February 1999 with third parties
with whom the Company  does  business in order to  identify,  if  possible,  the
status of the third  parties'  year 2000  readiness.  The  Company is  currently
receiving these third party  questionnaires  and is quantifying these responses.
The Company will attempt to have this completed by the fourth

<PAGE>

calendar  quarter of 1999.  However,  the Company has limited or no control over
the actions taken by these third parties.

Year 2000-continued

Accordingly,  there can be no assurance that all the third parties with whom the
Company does business will  successfully  resolve all of their year 2000 issues.
The failure of these third  parties to resolve their year 2000 issues could have
a  potentially  adverse  affect on the Company.  During  1999,  the Company will
attempt to monitor the  readiness of third  parties with whom it currently  does
business  and look to  transact  business  with third  parties who are year 2000
compliant in an effort minimize the risk to the Company.

     It is the  Company's  intention  to address its year 2000  issues  prior to
being affected by them. If the Company  identifies  significant risks associated
with year 2000  compliance,  or if the Company's year 2000 project deviates from
its expected  completion  date, the Company will devise a contingency plan which
the Company intends to develop  concurrently with the  implementation of the new
computer system.  Management  believes that current plans and monitoring actions
will  provide  ample  response  time to avoid  material  adverse  effects on the
Company's business and financial results.

     The Company has  evaluated its  currently  available  products and believes
that they are year 2000 compliant.  The Company's  currently  available products
are  generally  not  date  sensitive,  although  the PCs in  which  they  may be
installed may have year 2000 issues not associated with the Company's  products.
The inability of any of the Company's  products to operate  properly in the year
2000 could result in increased  warranty costs,  customer  satisfaction  issues,
litigation, or other material costs and liabilities, which could have a material
adverse  effect  on  the  Company,  its  results  of  operations  and  financial
condition.

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS AND RISK FACTORS

     From time to time, information provided by the Company,  statements made by
its employees or information  provided in its Securities and Exchange Commission
filings,  such as  information  contained in this Form 10-Q,  including  certain
statements under  "Management's  Discussion and Analysis of Financial  Condition
and Results of Operations" may contain forward  looking  information.  The words
"estimate, "plan", "intend" "believes, "expect",  "anticipates",  "projects" and
similar  words  or  expressions   are  intended  to  identify   forward  looking
statements.  These  statements  speak only as of the date of this  report.  Such
forward looking  statements  involve and are subject to known and unknown risks,
uncertainties   and  other  factors  which  could  cause  the  actual   results,
performance and achievements of the Company to be materially  different from any
future results,  performance (financial or operating), or achievements expressed
or implied by such  forward  looking  statements.  Such factors  include,  among
others,  the following:  rapid changes in  technology;  lack of funds for future
research;  competition,  proprietary patents and rights of others; loss of major
customers;  loss of  sources  of supply  for  digital  video  processing  chips;
non-availability  of  management;  government  regulation;  domestic and foreign
economic  conditions;  currency  fluctuations;  the  inability of the Company to
profitably  sell its products and the impact of  complications  due to year 2000
compliance.  The market price of the  Company's

<PAGE>

common  stock  may be  volatile  at  times in  response  to  fluctuation  in the
Company's quarterly operating results,  changes in analysts' earnings estimates,
market conditions in the computer hardware industry, seasonality of the business
cycle, as well as general conditions and other factors external to the Company.



<PAGE>


PART II.  OTHER INFORMATION

Item 1  Legal Proceedings

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

     On October 6, 1998,  HCW received  notice that AII had  commenced an action
against it and multiple other defendants in the United States District Court for
the Northern  District of Illinois,  alleging that the certain of HCW's products
infringe  on  certain  patent  rights  allegedly  owned  by the  plaintiff.  The
complaint seeks  unspecified  compensatory and statutory  damages with interest.
HCW denies such  allegations  and intends to vigorously  defend this action.  On
December  22, 1998,  HCW filed its Answer (the  "Answer").  Among other  things,
pursuant  to the Answer,  HCW denies that its  products  infringe  AII's  patent
rights and asserts  certain  affirmative  defenses,  including  challenging  the
validity of the Patent.

     Notwithstanding the foregoing,  because of the uncertainties of litigation,
no assurances can be given as to the outcome of the AII litigation. In the event
that HCW were not to prevail in this  litigation,  HCW could be  required to pay
significant  damages  to AII and  could be  enjoined  from  further  use of such
technology  as it  presently  exists.  Although  a  negative  outcome in the AII
litigation  would  have a material  adverse  effect on HCW,  including,  but not
limited to, its operations and financial condition,  HCW believes that, if it is
held that HCW's  products  infringe  AII's patent  rights,  HCW would attempt to
design  components  to replace the  infringing  components  or would  attempt to
negotiate  with AII to utilize its system,  although no assurances  can be given
that HCW would be successful in these attempts. At the present time, HCW can not
assess the possible cost of designing and implementing a new system or obtaining
rights from AII. As of June 30,  1999,  the  Company  estimated  that legal fees
incurred were approximately $60,000.

Item 6  Exhibits and Reports on Form 8-K

(a) Exhibits

        27. Financial Data Schedule

(b) Reports on Form 8-K
           None

<PAGE>

                                   SIGNATURES


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


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




Date: August 12, 1999                      By /s/ Kenneth Plotkin
---------------------                         ----------------------
                                              KENNETH PLOTKIN
                                              Vice President and
                                              Chief Executive Officer



Date: August 12, 1999                      By /s/ Gerald Tucciarone
---------------------                         ------------------------
                                              GERALD TUCCIARONE
                                              Treasurer and Chief
                                              Financial Officer
<PAGE>