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:       March 31, 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 May 7,  1999,  4,314,302  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-                            
  March 31, 1999 and September 30, 1998                                    3

Condensed Consolidated Statements of Income-                      
  Six Months ended March 31, 1999 and 1998                                 4

Condensed Consolidated Statements of Income-                      
  Three Months ended March  31, 1999 and 1998                              5

Condensed Consolidated Statements of Cash Flows-                  
  Six Months ended March  31, 1999 and 1998                                6

Notes to Condensed Consolidated Financial Statements                       7-9

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


PART II. OTHER INFORMATION

Item 1.  Legal proceedings                                                 17

Item 4.  Submission of Matters to a Vote of Security Holders               17/18

Item 6.  Exhibits and Reports on form 8-K                                  18


SIGNATURES                                                           
                                                                           19






<PAGE>












PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

                      HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
                        CONDENSED CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>

                                     ASSETS
                                                                                          March 31,
                                                                                             1999              September 30,
                                                                                         (Unaudited)               1998

                                                                                         -------------    -   -------------
                <S>                                                                        <C>                  <C>    
 CURRENT ASSETS:                                                                                          
     Cash and cash  equivalents                                                           $5,736,065            $6,281,852
     Accounts receivable, net of allowance for doubtful accounts                           7,610,783             6,497,163
     Inventories (Note 2)                                                                  9,402,186             8,552,097
     Prepaid expenses and other current assets                                               442,294               468,763
     Deferred tax assets (Note 4)                                                            720,031               597,131
                                                                                             -------               -------
           Total current assets                                                           23,911,359            22,397,006

     Property, plant and equipment-at cost                                                 1,089,212               805,953
     Less: Accumulated depreciation and amortization                                         436,399               362,343
                                                                                             -------               -------
                                                                                             652,813               443,610
     Security deposits and other non-current assets                                           55,522                56,838
                                                                                              ------                ------
                                                                                         $24,619,694           $22,897,454
                                                                                         ===========           ===========


                     LIABILITIES AND SHAREHOLDERS' EQUITY :

 CURRENT LIABILITIES:                                                                                          
     Accounts payable                                                                     $9,271,829            $9,497,003
     Accrued expenses                                                                      2,446,547             2,342,380
     Income taxes payable                                                                  1,046,458             1,021,173
                                                                                           ---------             ---------
           Total current liabilities                                                      12,764,834            12,860,556
                                                                                          ----------            ----------

 SHAREHOLDERS' EQUITY                                                                                          
     Common stock $.01 par value; 10,000,000 shares authorized, 4,521,602 and           
        4,501,402 issued, respectively                                                        45,216                45,014    
                                                                                          10,528,789            10,465,707
     Retained earnings                                                                     2,547,984               729,781
     Treasury Stock, at cost, 214,300 and 207,200 shares, respecitvely (Note 5)           (1,267,129)           (1,203,604)
                                                                                          ----------            ---------- 
           Total stockholders' equity                                                     11,854,860            10,036,898
                                                                                          ----------            ----------
                                                                                         $24,619,694           $22,897,454
                                                                                         ===========           ===========
                                                                                     
</TABLE>


           See accompanying notes to consolidated financial statements




<PAGE>








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


<TABLE>
<CAPTION>
                                                                                         Six Months Ended March 31,
                                                                                        1999                   1998
                                                                                     (Unaudited)            (Unaudited)
                                                                                ---------------------------------------

<S>                                                                                 <C>                    <C>        
Net Sales                                                                           $29,569,767            $17,401,235

Cost  of  Sales                                                                      21,525,525             13,192,004
                                                                                     ----------             ----------
  Gross Profit                                                                        8,044,242              4,209,231

Selling, General and  Administrative Expenses                                         4,597,699              2,849,464
Research  and  Development Expenses                                                     526,256                348,281
                                                                                        -------                -------
  Income from operations                                                              2,920,287              1,011,486

Other Income :                                                                
  Interest income                                                                        94,147                120,395
  Other, net                                                                            (74,231)                60,639
                                                                                        -------                 ------
    Income before income tax provision                                                2,940,203              1,192,520


Income Tax Provision (Note 4)                                                         1,122,000                392,815
                                                                                      ---------                -------
  Net income                                                                         $1,818,203               $799,705
                                                                                     ==========               ========

Net income per share-basic (Note 3)                                                       $0.42                  $0.18

Net income per share-diluted (Note 3)                                                     $0.39                  $0.18
                                                                                          =====                  =====
</TABLE>


           See accompanying notes to consolidated financial statements
















<PAGE>





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

<TABLE>
<CAPTION>

                                                                                       Three Months Ended March 31,
                                                                                        1999                   1998
                                                                                     (Unaudited)           (Unaudited)
                                                                                ---------------------------------------

<S>                                                                                  <C>                    <C>       
Net Sales                                                                           $14,512,768           $7,825,490

Cost of  Sales                                                                       10,477,415            5,956,060
                                                                                     ----------            ---------
  Gross Profit                                                                        4,035,353            1,869,430

Selling, General and Administrative Expenses                                          2,288,385            1,327,545
Research and  Development  Expenses                                                     285,164              174,018
                                                                                        -------              -------
  Income from operations                                                              1,461,804              367,867

Other Income, (expense)                                                               
  Interest income                                                                        44,742               59,849
  Other, net                                                                           (115,994)              19,910
                                                                                       ---------              ------
     Income before income tax provision                                               1,390,552              447,626

Income Tax Provision (Note 4)                                                           525,000              147,000
                                                                                        -------              -------
  Net income                                                                           $865,552             $300,626
                                                                                       ========             ========

Net income per share-basic (Note 3)                                                       $0.20                $0.07

Net income per share-diluted (Note 3)                                                     $0.19                $0.07
                                                                                          =====                =====
                                                                                
</TABLE>


           See accompanying notes to consolidated financial statements














<PAGE>



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




<TABLE>
<CAPTION>

                                                                                          Six Months Ended March 31,
                                                                                          1999               1998
                                                                                      (Unaudited)         (Unaudited)
                                                                                      -------------------------------
<S>                                                                                       <C>                <C>  
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                         $1,818,203              $799,705
                                                                                     ----------              --------
   Adjustments  to  reconcile  net  income  to net cash  provided  by (used  in)
    operating activities:
     Depreciation and amortization                                                       75,369               15,037
     Provision for uncollectible accounts receivable                                     20,000               10,000
     Provision for system board obsolescence                                            100,000               50,000
     Compensation paid in stock                                                           2,400                  -
     Deferred tax benefits                                                             (122,900)                 -
   Changes in current assets and liabilities:
     Accounts receivable                                                             (1,133,618)            (191,847)
     Inventories                                                                       (950,089)            (168,321)
     Prepaid expenses and other current assets                                           26,469               83,824
     Accounts payable                                                                  (225,173)             119,511

     Accrued expenses                                                                   129,452              609,517
                                                                                        -------              -------
                                                                                     (2,078,090)             527,721
                                                                                     ----------              -------
        Net cash (used in) provided by  operating activities                           (259,887)           1,327,426
                                                                                       --------            ---------
                                                                                  
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of property, plant and equipment                                         (283,259)            (103,347)
                                                                                       --------             -------- 
        Net cash used in investing activities                                          (283,259)            (103,347)
                                                                                       --------             -------- 
CASH FLOWS FROM FINANCING ACTIVITIES:                                               
Purchase of treasury stock                                                              (63,525)             (41,894)
Proceeds from the exercise of stock options                                              60,884               20,950
                                                                                         ------               ------
        Net cash used in  financing activities                                           (2,641)             (20,944)
                                                                                         ------              ------- 
        Net (decrease) increase in cash and cash equivalents                           (545,787)           1,203,135
Cash and Cash Equivalents, beginning of period                                        6,281,852            5,602,412
                                                                                      ---------            ---------
Cash and Cash Equivalents, end of period                                             $5,736,065           $6,805,547
                                                                                     ==========           ==========
SUPPLEMENTAL DISCLOSURES:                                                                                 
   Income taxes paid                                                                 $1,313,615              $29,392
                                                                                     ==========              =======
                                                                                  
</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 six month periods ended March
31, 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 six months ended March
31, 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 March 31, 1999 and September 30, 1998 consist of:

                                         March 31,        September 30,
                                           1999               1998
                                           ----               ----


     Component Parts                  $  2,324,550        $  1,445,811
     Work in Progress                      481,080             511,640
     Finished Goods                      6,596,556           6,594,646
                                         ---------           ---------

                                      $  9,402,186        $  8,552,097
                                      ============        ============






<PAGE>




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 reflects the dilutive effect of additional shares of common stock that
could be issued upon the exercise of stock  options,  warrants  and  convertible
securities.  Net income per share  amounts  for the three  months and six months
ended March 31, 1999, and 1998 have been presented per the requirements of "SFAS
128".

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


                                                        Three Months Ended
                                                             March 31,
                                                     1999                1998
                                                     ----                ----

Weighted average shares outstanding-basic        4,309,201            4,400,524
Number of shares issued on the assumed
    exercise of stock options                      325,985              148,965
                                               -----------           ----------
Weighted average shares outstanding-diluted      4,635,186            4,549,489
                                               -----------           ----------


                                                         Six Months Ended
                                                             March 31,
                                                     1999                1998
                                                     ----                ----

Weighted average shares outstanding-basic        4,303,357            4,403,382
Number of shares issued on the assumed
    exercise of stock options                      311,754              115,809
                                                ----------           ----------
Weighted average shares outstanding-diluted      4,615,111            4,518,991
                                                ----------           ----------


Shares  outstanding  for the quarter  ended and six months  ended March 31, 1999
reflect a reduction on a weighted  average basis for  repurchased  shares.  (See
note 5).




<PAGE>



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  projected  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 $60,000 during the first six months of 1999 and  anticipates  total
elimination of the valuation by the end of the fiscal year.



                    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. Through March 31, 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

Six Month Period ended March  31, 1999 versus March  31, 1998 
--------------------------------------------------------------

         Sales for the six months ended March 31, 1999 were $29,569,767 compared
to $17,401,235 for the comparable period ending March 31, 1998,  resulting in an
increase of  $12,168,532 or 70%. The primary forces driving the sales growth was
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 our existing European  customers,  plus a growth in
sales to direct corporate customers.

         Unit sales of digital video and conferencing  boards for the six months
ended March 31, 1999 increased about 93% to approximately 327,000 as compared to
approximately  169,000 for the prior year.  Sales to domestic  customers for the
six month  period were 23% of net sales for the current  fiscal year and 26% for
the prior year. Sales to  international  customers were 77% of net sales for the
current  fiscal year compared to 74% for the  comparable six month period of the
prior fiscal year.

         Gross profit  increased to $8,044,242 from  $4,209,231,  an increase of
$3,835,011 or 91% over the prior fiscal year.  The gross profit  percentage  was
27% for the six months  ended March 31, 1999  compared to 24% for the six months
ended March 31, 1998.  The increase in margins was primarily due to the shifting
of  production  and  shipping  for  most of the  Company's  European  sales to a
subcontractor  in Scotland which reduced unit  production  costs,  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>

                                                                 Six months ended March  31,
                                                                 ----------------------  ---
                                                   Dollar Costs                                Percentage of Sales
                                                   ------------                                -------------------
                                                                                                                   Increase/
                                    1999               1998           Increase            1999          1998      (Decrease)
                                    ----               ----           --------            ----          ----      ----------

<S>                                  <C>               <C>                <C>              <C>           <C>          <C> 
Sales & Promotional              $2,848,261        $1,676,234        $1,172,027           9.5%           9.6%       (  .1%)
Customer Support                    213,449           142,238            71,211            .7%            .8%       (  .1%)
Product Handling                    280,904           171,205           109,699            .9%           1.0%       (  .1%)
General & Admin                   1,255,085           859,787           395,298           4.2%           4.9%       (  .7%)
                                -----------          --------         ---------          -----        --------      ----------
    Total                        $4,597,699        $2,849,464        $1,748,235          15.3%          16.3%       ( 1.0%)

</TABLE>




<PAGE>





Item 2.  Management's Discussion and Analysis -Continued 

     As a percentage of sales, Selling,  General and Administrative expenses for
the six months ended March 31, 1999  declined by 1.0% when compared to the prior
fiscal year. Sales & Promotional, Customer Support and Product Handling declined
by an aggregate total of .3%, and General and  Administrative  expenses declined
by .7%.  Represented in dollars,  Selling,  General and Administrative  expenses
increased  $1,748,235  over the  comparable  prior year's six month period.  The
largest  component of this  increase was Sales and  Promotional  expenses  whose
increase of $1,172,027 over the prior year represents  approximately  67% of the
total increase. The increase in Sales and Promotional expenses was primarily due
to the expansion of marketing funds required to support product  visibility at a
higher number of retail locations, higher commissions resulting from the 70% net
sales increase and increased personnel costs.

     Customer  Support,   Product  Handling,   and  General  and  Administrative
expenses,  which  represents  approximately  33% of the increase  over the prior
year,  increased  $71,211,   $109,699  and  $395,298  respectively.   Additional
worldwide  staff  required  to  consistently  maintain a high level of  customer
support in light 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
increased  incentive  compensation  due to the  increased  profitability  of the
Company.


     Research and development  expenses increased $177,975 or approximately 51%.
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 six months ended March 31, 1999 of
$19,196  compared  to net other  income  for the  prior  year of  $181,034.  The
decrease  in net other  income  was  primarily  due to lower  returns  on monies
invested and foreign currency losses due to the decline of the Euro.

     Provision for income taxes was $1,122,000,  or an effective tax rate of 38%
for the six months ended March 31, 1999 compared to $392,815 or an effective tax
rate of 33% for the six months  ended March 31,  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 $62,900.

     As a result of the above,  the Company  recorded net income after taxes for
the six months ended March 31, 1999 of  $1,818,203,  which resulted in basic and
diluted earnings per share of $0.42 and $0.39, respectively, on weighted average
basic and diluted shares  outstanding of 4,303,357 and 4,615,111,  respectively,
compared to net income after taxes of $799,705 for the six months



<PAGE>



ended March 31, 1998,  which resulted in basic and diluted earnings per share of
$0.18 on weighted  average basic and diluted  shares of 4,403,382 and 4,518,991,
respectively.


Three Month Period ended March  31, 1999 versus March  31, 1998 
----------------------------------------------------------------

     Sales for the three months ended March 31, 1999 were  $14,512,768  compared
to $7,825,490 for the prior fiscal  quarter ending March 31, 1998,  resulting in
an increase of  $6,687,278 or 85%. The primary  forces  driving the sales growth
was 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 our existing European  customers,  plus a growth in
sales to direct corporate customers.

     Unit sales of digital  video and  conferencing  boards for the three months
ended March 31, 1999 increased about 117% to  approximately  161,000 as compared
to approximately 74,000 for the prior year. Sales to domestic customers for this
year's second fiscal quarter were 20% of net sales compared to 29% for the prior
year's second fiscal quarter.  Sales to international  customers were 80% of net
sales for the second fiscal quarter  compared to 71% for the  comparable  second
quarter of the prior fiscal year.

     Gross  profit  increased  to  $4,035,353  from  $1,869,430,  an increase of
$2,165,923 or 116% over the prior fiscal year's second quarter. The gross profit
percentage was 27% for the three months ended March 31, 1999 compared to 24% for
the three months ended March 31, 1998. The increase in margins was primarily due
to the shifting of production  and shipping for most of the  Company's  European
sales to a  subcontractor  in Scotland  which  reduced  unit  production  costs,
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 March  31,
                                                              ------------------------  ---
                                                   Dollar Costs                                  Percentage of Sales
                                                   ------------                                  -------------------
                                                                                                                   Increase
                                     1999              1998           Increase            1999          1998      (Decrease)
                                     ----              ----           --------            ----          ----      ----------
<S>                                   <C>                <C>               <C>             <C>           <C>        <C>    
Sales & Promotional              $1,387,423         $794,528          $592,895            9.6%          10.1%      (  .5%)
Customer Support                    116,687           67,644            49,043             .8%            .9%      (  .1%)
Product Handling                    154,675           51,635           103,040            1.0%            .7%         .3%
General & Admin                     629,600          413,738           215,862            4.4%           5.3%      (  .9%)
                                 ------------       --------          ---------           -----       --------     ----------
    Total                        $2,288,385       $1,327,545          $960,840           15.8%          17.0%      ( 1.2%)

</TABLE>



<PAGE>



     As a percentage of sales, Selling,  General and Administrative expenses for
the three  months  ended  March 31, 1999  declined by 1.2% when  compared to the
second  quarter  of the  prior  fiscal  year.  Aggregate  declines  in Sales and
Marketing,  Customer Support,  and General and  Administrative  expenses of 1.5%
were  offset by a .3%  increase  in Product  Handling  expense.  Represented  in
dollars, Selling General and Administrative expenses increased $960,840 over the
comparable  prior  year's  three month  period.  The largest  component  of this
increase was Sales and Promotional  expenses whose increase of $592,895 over the
prior year's second fiscal  quarter  represents  approximately  62% of the total
increase.  The increase in sales and  promotional  expenses was primarily due to
the expansion of marketing and  advertising  funds  required to support  product
visibility at a higher number of retail locations,  higher commissions resulting
from the 85% net sales increase and higher personnel costs.

     Customer  Support,   Product  Handling,   and  General  and  Administrative
expenses,  which  represents  approximately  38% of the increase  over the prior
year,  increased  $49,043,   $103,040  and  $215,862  respectively.   Additional
worldwide  staff  required  to  consistently  maintain a high level of  customer
support in light 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
increased  incentive  compensation  due to the  increased  profitability  of the
Company.


     Research and development  expenses increased $111,146 or approximately 64%.
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  expenses  for the three  months  ended March 31,
1999 of  $(71,252)  compared to net other  income for the prior year of $79,759.
The decrease in net other income was  primarily  due to lower  returns on monies
invested and foreign currency losses due to the decline of the Euro.

     Provision  for income taxes was  $525,000,  or an effective tax rate of 38%
for the three months  ended March 31, 1999  compared to $147,000 or an effective
tax rate of 33% for the three months  ended March 31, 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.




<PAGE>



     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 six  months of fiscal  1999,  the  valuation  allowance  during the second
fiscal quarter was reduced by $30,000. For the six month period ending March 31,
1999, the valuation allowance has been reduced by $60,000.

     As a result of the above,  the Company  recorded net income after taxes for
the three months ended March 31, 1999 of $865,552,  which  resulted in basic and
diluted earnings per share of $0.20 and $0.19, respectively, on weighted average
basic and diluted shares  outstanding of 4,309,201 and 4,635,186,  respectively,
compared to net income  after taxes of $300,626 for the three months ended March
31,  1998,  which  resulted in basic and diluted  earnings per share of $0.07 on
weighted   average  basic  and  diluted   shares  of  4,400,524  and  4,549,489,
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 77% for the first six  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  $5,736,065,  working  capital of
$11,146,525  and  shareholders'  equity of  $11,854,860  as of March  31,  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     $ 2,015,972
Additions to deferred tax assets                                              (   122,900)
Increase in investment for current assets                                     ( 2,057,238)
Cash expended for reduction in current  liabilities-net                       (    95,721)
Purchase of Property, Plant & Equipment                                       (   283,259)
Other                                                                         (     2,641)

</TABLE>

     Net cash of $ 259,887 consumed by operating activities was primarily due to
cash invested



<PAGE>



in current assets of  $2,057,238,  increase in deferred tax benefits of $122,900
and cash  consumed  attributable  to the  reduction  of current  liabilities  of
$95,721,  offset  partially by the Company's  net income,  adjusted for non cash
items, of $2,015,972.

     Additional  cash  was  used to  purchase  fixed  assets.  Minimal  cash was
provided by and consumed by the exercise of employee options and the purchase of
additional treasury shares, respectively.

     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 March 31, 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 has selected new software.
The  hardware  upgrades  and the  implementation  of new  software  began during
January  1999.  Testing will be performed  in house by Company  personnel,  with
assistance  from an outside  consultant.  The Company expects to have the system
operational by the middle of 1999. The Company estimates the cost to the Company
to remedy the Year 2000 issue with regard to their



<PAGE>



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
the Company does business with 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 middle of 1999.  However,  the Company has
limited  or  no  control  over  the  actions  taken  by  these  third   parties.
Accordingly,  there can be no assurance  that all the third  parties the Company
does business with will successfully  resolve all of their Year 2000 issues. The
failure of these third  parties to resolve  their Year 2000 issues  could have a
potentially adverse affect on the Company. During 1999, the Company will attempt
to monitor the  readiness of third  parties it currently  does business with and
look to transact  business with third parties who are Year 2000  compliant in an
effort to 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  affects 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  affect  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



<PAGE>

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
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.

PART II.  OTHER INFORMATION

Item 1  Legal Proceedings

     In  January  1998,  Advanced  Interactive  Incorporated  ("AII")  contacted
Hauppauge Computer Works, Inc. ("HCW") 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  affect 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



<PAGE>



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 March 31, 1999,  the Company  estimated that legal fees incurred
were approximately $50,000.

Item 4  Submission of Matters to a Vote of Security Holders

     The following  propositions were submitted to the shareholders for approval
at the annual  meeting of  shareholders  held on March 25,1999 at the offices of
the Company and were approved by the votes as indicated:

No. 1:   Election of Directors

     The  following  directors  were  elected by the votes as indicated to serve
until the election and qualification of their respective successors:

                                              For              Withheld 
                                              ---              -------- 
Kenneth A. Aupperle                       3,987,639              8,004
Kenneth Plotkin                           3,987,639              7,804
Steven J. Kuperschmid                     3,987,639             11,404
Bernard Herman                            3,984,239              7,904


No. 2:    Appointment of BDO Seidman LLP as independent auditors

     The  appointment of BDO Seidman LLP as independent  auditors for the fiscal
year ended September 30, 1999 was approved by the vote as indicated:

                                     For             Against         Abstain
                                     ---             -------         -------
                                 3,982,169            7,509           5,975

 .

Item 6  Exhibits and Reports on Form 8-K

(a) Exhibits

        27. Financial Data Schedule

(b) Reports on form 8-K
           None







<PAGE>


                                   SIGNATURES


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


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




Date: May 9,  1999                                By /s/ Kenneth Plotkin       
      -------------                               ----------------------------
                                                     KENNETH  PLOTKIN
                                                     Vice President and
                                                     Chief Executive Officer



Date: May  9, 1999                                By /s/ Gerald Tucciarone     
      -------------                               -----------------------------
                                                     GERALD TUCCIARONE
                                                     Treasurer and Chief
                                                     Financial Officer