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

                                    FORM 10-Q

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



For the quarterly period ended:        December  31, 2000
                                       --------------------

                                       OR



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



For the transition period from _______ to ________



                       Commission file number          1-13550
                                                       -------


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

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

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



                                 (631) 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 January 22, 2001  8,885,152  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
   December 31, 2000 (unaudited)  and September 30, 2000

Condensed Consolidated Statements of Income-                            4
  Three Months ended December 31, 2000 and 1999 (unaudited)

Condensed Consolidated Statements of Cash Flows-                        5
  Three Months ended December 31, 2000 and 1999 (unaudited)

Notes to Condensed Consolidated Financial Statements                    6-10

Item 2. Management's Discussion and Analysis of  Financial Condition
        and Results of Operations                                       10-13

Item 3.  Quantitative and Qualitative Disclosures about Market Risks    13

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

Item 1.  Legal proceedings                                              14

Item 6.  Exhibits and Reports on form 8-K                               15


SIGNATURES                                                              16
----------

<PAGE>
PART I.  FINANCIAL INFORMATION
------------------------------

Item 1. Financial Statements

                    HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>


                                                                                        December 31,
                                          ASSETS                                            2000            September 30,
                                                                                         (Unaudited)             2000
                                                                                      =================    ================
<S>                                                                                             <C>               <C>
 CURRENT ASSETS:
     Cash and cash  equivalents                                                          $ 4,351,121          $2,744,855
     Accounts receivable, net of allowance for doubtful accounts
       of   $175,000 and $165,000                                                          6,522,977           6,172,993
     Inventories                                                                          12,308,879          12,289,975
     Prepaid expenses and other current assets                                               537,156             456,431
     Income taxes receivable                                                               1,496,045           1,496,045
     Deferred tax assets                                                                   1,267,797           1,267,797
     Forward foreign currency contracts receivable                                         6,539,431                   -
                                                                                           ---------          ----------
                Total current assets                                                      33,023,406          24,428,096

    Property, plant and equipment-net                                                        943,597             977,030
    Goodwill and intangible assets-net                                                       797,969             824,519
    Security deposits and other non current assets                                            85,228              85,228
                                                                                              ------              ------
                                                                                         $34,850,200         $26,314,873
                                                                                         ===========         ===========


 LIABILITIES AND STOCKHOLDERS' EQUITY :

 CURRENT LIABILITIES:
    Accounts payable                                                                     $11,991,353         $10,481,714
    Forward foreign currency contracts payable                                             6,600,777                   -
    Accrued expenses                                                                       1,003,144             952,482
    Loan payable                                                                             360,000           1,000,000
    Income taxes payable                                                                     255,408             227,000
                                                                                             -------             -------
              Total current liabilities                                                   20,210,682          12,661,196
                                                                                          ----------          ----------


 STOCKHOLDERS' EQUITY:
    Common stock $.01 par value; 25,000,000 shares authorized,  9,314,754
       and 9,312,578  issued as of  December 31 , 2000  and September 30, 2000                93,148              93,126
    Additional paid-in capital                                                            12,067,460          12,046,421
    Retained earnings                                                                      3,812,974           2,848,194
    Treasury Stock, at cost, 429,602 shares                                               (1,334,064)         (1,334,064)
                                                                                          ----------          ----------
              Total stockholders' equity                                                  14,639,518          13,653,677
                                                                                          ----------          ----------
                                                                                       $  34,850,200         $26,314,873
                                                                                       =============         ===========
</TABLE>


      See accompanying notes to condensed consolidated financial statements

<PAGE>

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

<TABLE>
<CAPTION>

                                                                                          Three Months Ended December 31,

                                                                                                2000              1999
                                                                                             (Unaudited)       (Unaudited)
                                                                                         ================== =================

<S>                                                                                          <C>                 <C>
Net Sales                                                                                   $17,895,774         $ 22,043,649
Cost  of  Sales                                                                              13,925,603           16,948,408
                                                                                             ----------           ----------
    Gross Profit                                                                              3,970,171            5,095,241

Selling, General and  Administrative Expenses                                                 2,845,848            2,870,518
Research  and  Development Expenses                                                             393,260              402,970
                                                                                                =======              =======
    Income from operations                                                                      731,063            1,821,753

Other Income (expense):
  Interest income                                                                                 8,831               46,500
  Interest expense                                                                              (11,850)                   -
  Other, net                                                                                    (49,350)              37,902
                                                                                                -------               ------
      Income before income tax (benefit)  expense                                               678,694            1,906,155

Income tax (benefit)  expense                                                                   (82,086)             430,000
                                                                                                -------              -------
      Income before cumulative effect of a change in accounting principle                       760,780            1,476,155
  Cumulative effect of a change in accounting principle, net of taxes of  $115,000              204,000                    -
                                                                                                -------            ---------
       Net income                                                                              $964,780           $1,476,155
                                                                                               ========           ==========
Per share results-basic:
Income before cumulative effect of a change in accounting principle                               $0.09               $0.17
Cumulative effect of a change in accounting principle                                             $0.02                   -
                                                                                                  -----               -----
      Net income per share-basic                                                                  $0.11               $0.17
                                                                                                  =====               =====
Per share results-diluted:
Income before cumulative effect of a change in accounting principle                               $0.08               $0.15
Cumulative effect of a change in accounting principle                                             $0.02                   -
                                                                                                  -----               -----
     Net income per share-diluted                                                                 $0.10               $0.15
                                                                                                  =====               =====

</TABLE>

      See accompanying notes to condensed consolidated financial statements


<PAGE>

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

<TABLE>
<CAPTION>

                                                                                         Three Months Ended December, 31

                                                                                              2000               1999
                                                                                        (Unaudited)        (Unaudited)
                                                                                  ==================   ================
<S>                                                                                     <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                          $964,780              $1,476,155
                                                                                      --------              ----------
   Adjustments to reconcile net income to net cash
   provided by (used in)  operating activities:
       Depreciation and amortization                                                    97,032                  58,676
       Provision for uncollectible accounts receivable                                  10,000                  15,000
       Deferred tax benefits                                                               -                    19,321
       Unrealized gain on forward foreign currency contracts                           (44,049)                      -
       Other non cash items                                                              9,501                   9,504
  Changes in current assets and liabilities:
      Accounts receivable                                                             (254,589)             (2,898,387)
      Inventories                                                                      (18,904)                179,629
      Prepaid expenses and other  current assets                                       (80,725)               (153,765)
      Accounts payable and other current liabilities                                 1,588,709                 562,720
                                                                                     ---------                 -------
                                                                                     1,306,975              (2,207,302)
                                                                                     ---------              ----------
  Net cash provided by (used in) operating activities                                2,271,755                (731,147)
                                                                                     ---------                --------

CASH FLOWS FROM INVESTING ACTIVITIES:
        Purchases of property, plant and equipment                                     (37,049)               (174,724)
        Other                                                                                -                 (14,780)
                                                                                     ---------                 -------
 Net cash used in investing activities                                                 (37,049)               (189,504)
                                                                                       -------                --------

CASH FLOWS FROM FINANCING ACTIVITIES:

        Proceeds from employee stock purchase plan                                      11,560                  22,500
        Loan repayments                                                               (640,000)                      -
                                                                                      --------                 -------
 Net cash (used in) provided by  financing activities                                 (628,440)                 22,500
                                                                                      --------                  ------
 Net  increase (decrease)  in cash and cash equivalents                              1,606,266                (898,151)
Cash and Cash Equivalents, beginning of period                                       2,744,855               6,122,922
                                                                                     ---------               ---------
Cash and Cash Equivalents, end of period                                           $ 4,351,121              $5,224,771
                                                                                   ===========              ==========
SUPPLEMENTAL DISCLOSURES:

   Interest paid                                                                       $13,681                       -
   Income taxes paid                                                                     4,506                $414,677
                                                                                         =====                ========
Supplemental disclosure of non cash financing activities:
 Forward foreign currency contracts                                                  6,539,431                       _
                                                                                     =========                ========

</TABLE>

      See accompanying notes to condensed consolidated financial statements

<PAGE>

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

NOTE 1.  BASIS OF PRESENTATION

     The accompanying  unaudited  condensed  consolidated  financial  statements
included  herein  have been  prepared  in  accordance  with  generally  accepted
accounting  principles  for interim  period  reporting in  conjunction  with the
instructions to Form 10-Q.  Accordingly,  these statements do not include all of
the information required by generally accepted accounting  principles for annual
financial  statements.  In the  opinion  of  management,  all known  adjustments
(consisting  of normal  recurring  accruals and  reserves)  necessary to present
fairly the  financial  position,  results of  operations  and cash flows for the
three month period ended December 31, 2000 have been  included.  It is suggested
that  these  interim  statements  be  read in  conjunction  with  the  financial
statements and related notes  included in the Company's  September 30, 2000 Form
10-K.

     The Company has adopted the  classification  requirements  for shipping and
handling  fees and costs as  required  under  EITF No.  00-10,  "Accounting  for
Shipping and Handling Fees and Costs."  Accordingly,  shipping and handling fees
and  costs,   which   historically   were  included  in  Selling,   General  and
Administrative  expenses, are recorded in Cost of Sales. Prior periods have been
restated to conform with this presentation.

     The  operating  results for the three month period ended  December 31, 2000
are not  necessarily  indicative of the results to be expected for the September
30, 2001 year end.

DERIVATIVE FINANCIAL INSTRUMENTS

     On October 1, 2000, the Company adopted  Statement of Financial  Accounting
Standards No. 133 (SFAS 133), "Accounting for Derivative instruments and Hedging
Activities",  which  requires  that all  derivatives  be recorded on the balance
sheet at fair value. Changes in the fair value of the derivatives are recognized
currently in earnings. The Company has reflected the impact from the adoption of
SFAS 133 as a cumulative effect of a change in accounting principle,  net of the
related tax expense.

     The Company uses  derivatives to moderate the financial market risks of its
foreign  business  operations.  Derivative  products,  such as forward  exchange
contracts,  are used to hedge the foreign currency market  exposures  underlying
certain forecasted transactions with customers. An instrument is designated as a
hedge  based in part on its  effectiveness  in risk  reduction  and  matching of
derivative instruments to forecasted foreign sales.

     For derivative  instruments  that are designated and qualify as a cash flow
hedge  (i.e.,  hedging the  exposure to changes in the fair value of the forward
contract attributable to changes in the U.S. dollar to Euro spot rate), the gain
or loss on the derivative  instrument as well as the offsetting  gain or loss on
the hedged item  attributable  to the hedged risk are  recognized in earnings in
the  current  period.  For  derivative   instruments  not  designed  as  hedging
instruments,

<PAGE>

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

changes in their fair values are recognized in earnings in the current period.

NOTE 2.  INVENTORIES

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

                                           December 31,        September 30,
                                              2000                 2000
                                              ----                 ----


     Component Parts                     $  6,156,527         $ 6,059,247
     Work in Progress                          80,530             111,446
     Finished Goods                         6,071,822           6,119,282
                                            ---------           ---------
                                         $ 12,308,879         $12,289,975
                                         ============         ===========


NOTE 3.  NET INCOME PER SHARE

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

                                               Three Months Ended December 31,
                                                     2000            1999
                                                     ----            ----


Weighted average shares outstanding-basic          8,885,010       8,693,178
Number of shares issued on the assumed
   exercise of stock options                         420,748       1,090,662
                                                     -------       ---------
Weighted average shares outstanding-diluted        9,305,758       9,783,840
                                                   ---------       ---------

     On February 10, 2000 the Company's Board of Directors  authorized a two for
one stock split effected as a 100% common stock dividend, which was effective as
of March 27, 2000. All prior periods have retroactively  restated to reflect the
stock split.

     Options to purchase 271,444 shares of common stock,  ranging in prices from
$3.94 to $10.00, were outstanding as of December 31, 2000, but were not included
in  the   computation   of  diluted   earnings  per  share   because  they  were
anti-dilutive.

<PAGE>

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


NOTE 4 .  BUSINESS ACQUISITION

     On June 1, 2000 the  Company  acquired  certain  assets of EsKape Labs Inc.
("EsKape"),   a  California   based  company   specializing   in  designing  and
manufacturing  television and video products for Apple Macintosh computers.  The
purchased  assets expands and  complements  the Company's  product line into the
Macintosh  market.  The cash price for the acquisition,  which was accounted for
under the purchase  method,  was  approximately  $900,000,  including  legal and
accounting  acquisition costs and a restrictive  covenant totaling $50,000 . The
excess  of the  acquisition  cost  over the fair  value of  identifiable  assets
acquired  is being  amortized  on a straight  line basis over 10 years,  and the
restrictive covenant on a straight line basis over 2 years.

     In  addition  to the  price  paid for the  acquired  assets,  the  purchase
agreement also calls for contingent  additional  consideration,  which if earned
will be treated as additional purchase price, as follows:

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

     The supplemental  information below  summarizes,  on a pro forma basis, the
companies results for the three months ended December 31, 1999 had the companies
combined at the beginning of the period presented.

                                      Three months ended
                                       December 31, 1999

Net sales                                  $22,191,683
Net income                                     958,584

Earnings  per share
Basic                                            $0.11
Diluted                                          $0.10

     Pro  forma net  income  (loss)  may not be  indicative  of actual  results,
primarily  because the

<PAGE>

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

pro forma  results  are  historical  results of the  acquired  entity and do not
reflect  any  cost  savings  that  may be  obtained  from  the  integration  and
elimination of redundant functions.

NOTE 5.  DERIVATIVE FINANCIAL INSTRUMENTS

     The Company has significant  international  sales in foreign currencies and
continues its policy of hedging forecasted and actual foreign currency risk with
forward  contracts that expire within six months.  These derivative  instruments
are employed to eliminate or minimize  certain foreign  currency  exposures that
can be  confidently  identified  and  quantified.  In accordance  with SFAS 133,
hedges related to anticipated  transactions are designated and documented at the
inception  of the  respective  hedge  as cash  flow  hedges  and  evaluated  for
effectiveness  quarterly.  The Company assesses hedge effectiveness by comparing
the value of the forward  contracts at contracted  rates at the inception of the
contract and during the term of the hedge to the value of the forward  contracts
calculated by using the applicable  exchange rate at the measurement  date, with
the respective gain or loss on the derivative instrument reported in earnings.

     During the quarter ended December 31, 2000, the company  recorded a loss of
$ 61,346 which is included in Other,  net, relating to the changes in fair value
of its Euro contracts based on the U.S. dollar to Euro spot rate at December 31,
2000.

NOTE 6.  RECENT ACCOUNTING PRONOUNCEMENTS

     In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting   Bulletin  No.101  (SAB101),   "Revenue   Recognition  in  financial
Statements". SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting  principles to revenue recognition in financial  statements.
In  October  2000,  the  SEC  issued  additional  written  guidance  to  further
supplement SAB 101. Based on the SEC's latest timeline for implementing SAB 101,
the  Company  would be  required  to comply  with the  guidelines  in the fourth
quarter of fiscal 2001. The adoption of this bulletin is not expected to have an
effect on the consolidated financial statements.

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

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

Three Month Period ended December 31, 2000 versus December 31, 1999
-------------------------------------------------------------------

     Sales  for the three  months  ended  December  31,  2000  were  $17,895,774
compared to $22,043,649 for the prior year's first fiscal quarter, a decrease of
$4,147,875 or 19%, comprised of a 43% decrease in domestic sales, a 14% decrease
in European sales and a 203% increase in Asian sales.

<PAGE>

ITEM 2.   Management's Discussion and Analysis (continued)
-------   ------------------------------------------------

The primary forces causing the decrease were:

-       Lower  domestic and European  seasonal sales volume
-       Lower average Euro to dollar exchange rate compared to the first quarter
        fiscal  2000

     Unit sales for the three months ended December 31, 2000 decreased  about 7%
to  approximately  286,000 as  compared to  approximately  309,000 for the prior
year. Sales to domestic  customers for this year's first fiscal quarter were 21%
of net sales compared to 31% for the prior year's first fiscal quarter. Sales to
European  customers were 71% of net sales for the first fiscal quarter  compared
to 67% for the  comparable  quarter  of the prior  fiscal  year.  Sales to Asian
customers were 8% for the quarter ended December 31, 2000 compared to 2% for the
prior years first fiscal quarter.

     Gross profit for the quarter was  $3,970,171 as compared to $5,095,241  for
the prior fiscal year's first quarter. The gross profit percentage was 22.2% for
the three months ended  December 31, 2000 compared to 23.1% for the three months
ended  December 31, 1999.  Factors in the  decrease in margins  include:

-       Larger sales mix of lower margin product
-       Decline in the Euro exchange rate compared to the first  quarter of
        fiscal  2000.
-       Fixed  overhead  absorbed  over lower sales volume

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

<TABLE>
<CAPTION>

                                                        Three months ended December 31,
                                     Dollar Costs                                Percentage of Sales

                                                               Increase                                   Increase/
                                 2000             1999        (Decrease)          2000          1999     (Decrease)
                                 ----             ----         -----------        ----          ----      --------
<S>                              <C>                <C>             <C>           <C>            <C>         <C>
Sales & Promotional          $1,896,794        2,031,614       $(134,820)         10.6%          9.2%       1.4%
Customer Support                 99,432          126,533         (27,101)           .6%           .6%         -%
General & Admin                 849,622          712,371         137,251           4.7%          3.2%       1.5%
                                -------          -------         -------           ---           ---        ---
    Total                    $2,845,848       $2,870,518       $ (24,670)         15.9%         13.0%       2.9%
</TABLE>

Represented in dollars,  Selling General and  Administrative  expenses decreased
$24,670 from the comparable quarter of the prior fiscal year. As a percentage of
sales, Selling,  General and Administrative  expenses for the three months ended
December 31, 2000  increased by 2.9% when  compared to the first  quarter of the
prior fiscal year

The decrease in sales and promotional expense of $134,820 was mainly due to:

-       Lower commission payments
-       Lower marketing costs in the UK and France sales offices

Customer Support costs decreased $27,101 due to lower compensation expense.

The increase in General and  Administrative  expenses of $ 137,251 was primarily
due to :

<PAGE>

ITEM 2.   Management's Discussion and Analysis (continued)
-------   ------------------------------------------------

-       The hiring of Corporate in house counsel and a  Director of MIS
        operations during the second half of fiscal 2000
-       Compensation costs related  Eskape Labs administrative personnel
-       Amortization of goodwill and intangible assets related to the Eskape
        acquisition
-       Contractual salary increases for senior executives
-       Increased rent costs due to expanded office space for Eskape operations

     Research and development  expenses decreased $9,710 or approximately  2.4%.
The  decrease was due to lower  compensation  costs at the  Company's  Singapore
office.

     The Company had net other  expense for the three months ended  December 31,
2000 of $52,369  compared to net other  income for the prior years first  fiscal
quarter of $84,402.  The decrease in net other income was  primarily due to less
interest  earned,  lower foreign  currency gains due to the decline of the Euro,
which  included  a loss of  $61,346  relating  to  changes  in the fair value of
outstanding Euro contracts and interest expense on borrowings outstanding during
the first quarter of fiscal 2001.

     The Company recorded an income tax benefit of $82,086 for the quarter ended
December 31, 2000  compared to a tax  provision of $430,000 for the three months
ended December, 31 1999. Effective October 1, 1999, the Company restructured its
foreign operations. The result of the restructuring eliminated the foreign sales
corporation and established a new Luxembourg corporation, which functions as the
entity that services the Company's European customers. The company's tax benefit
for the three months ended  December 31, 2000  resulted  from the tax  liability
attributed to the Company's  European  operation offset by the higher income tax
benefit  attributed to the Company's United States  operations due to the higher
U.S. effective tax rate.

     The  adoption  of  Financial  Accounting  Standards  No.  133  (SFAS  133),
"Accounting for Derivative  instruments and Hedging  Activities",  resulted in a
$204,000  gain,  net of taxes of  $115,000,  due to the  cumulative  effect of a
change in accounting principle.

     As a result of the above,  the  Company  recorded  net income for the three
months ended December 31, 2000 of $964,780,  which resulted in basic and diluted
income per share of $0.11 and $0.10 on weighted average basic and diluted shares
of 8,885,010 and 9,305,758,  respectively,  compared to net income of $1,476,155
for the three  months  ended  December  31,  1999,  which  resulted in basic and
diluted  earnings per share of $0.17 and $0.15,  on weighted  average  shares of
8,693,178 and  9,783,840,  respectively.  Options to purchase  264,748 shares of
common stock,  ranging in prices from $5.25 to $10.06,  were  outstanding  as of
December 31, 2000, but were not included in the computation of diluted  earnings
per share because they were anti-dilutive.

     On February 10, 2000 the Company's Board of Directors  authorized a two for
one stock split  effected as a 100% common stock  dividend.  The stock split was
effective  as of March 27,  2000.  All  prior  periods  have been  retroactively
restated to reflect the stock split.

     Since the company sells primarily to the consumer  market,  the Company has
experienced  certain  revenue  trends.  The  Company has  historically  recorded
stronger  sales results during the

<PAGE>

ITEM 2.   Management's Discussion and Analysis (continued)
-------   ------------------------------------------------

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, 2000 and
September 30, 1999. In addition,  the Company's  international  sales, mostly in
the  European  market,  were 71%, 73% and 72% of sales for the years ended 2000,
1999 and 1999,  respectively.  Due to this,  the Company's  sales for its fourth
fiscal quarter (July to September) can be potentially  impacted by the reduction
of activity  experienced  with Europe during the July and August summer  holiday
period.

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

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

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

                                December 31, 2000       September 30, 2000
                                -----------------       ------------------
Cash                              $  4,351,121              $   2,744,855
Working capital                     12,812,724                 11,766,900
Stockholders' equity                14,639,518                 13,653,677

The  significant  items of cash  provided by and cash  (consumed)  for the three
month period ended December 31, 2000 are detailed below:

<TABLE>
<CAPTION>

<S>                                                                            <C>
Net income (adjusted for non cash items), excluding deferred tax benefits      $ 1,037,264
Loan repayments                                                                   (640,000)
Increase in current  liabilities-net                                             1,588,709
Increase in investment for current assets                                         (354,218)
Purchase of Property, Plant & Equipment                                            (37,049)
Other                                                                               11,560
</TABLE>

     Net cash of $ 2,271,755 provided by operating  activities was primarily due
to net income  adjusted for non cash items of $1,037,264 and the increase in net
current  liabilities  of $1,588,709  offset by an increase in current  assets of
$354,218.  Other items of cash consumption  included $640,000 in loan repayments
and $37,049 used to purchase fixed assets.

     On July 12, 2000 the Company has signed an agreement  with Chase  Manhattan
Bank,  providing  the Company with a $6,500,000  credit  facility.  The facility
allows the  Company,  at its option,  to borrow at the prime rate or 1.25% above
the London Interbank Offered Rate "LIBOR". The facility is secured by the assets
of the company and expires on March 31, 2001. As of December 31, 2000,  $360,000
was outstanding under this line of credit.

     On November 8, 1996, the Company  approved a stock  repurchase  program for
the repurchase of up to 600,000 shares of its own Common Stock.  The repurchased
shares will be used by the Company for certain employee benefit programs.  As of
December 31 2000,  429,602  treasury  shares  valued at $1,334,064 at an average
price of $ 3.11 were held by the Company as treasury shares.

<PAGE>

ITEM 2.   Management's Discussion and Analysis (continued)
-------   ------------------------------------------------

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

Inflation
---------

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

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

     In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting   Bulletin  No.101  (SAB101),   "Revenue   Recognition  in  financial
Statements". SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting  principles to revenue recognition in financial  statements.
In  October  2000,  the  SEC  issued  additional  written  guidance  to  further
supplement SAB 101. Based on the SEC's latest timeline for implementing SAB 101,
the  Company  would be  required  to comply  with the  guidelines  in the fourth
quarter of fiscal 2001. The adoption of this bulletin is not expected to have an
effect on the consolidated financial statements.

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

     Due  to  extensive  sales  to  European  customers   denominated  in  local
currencies,  the  Company is a net  receiver of  currencies  other than the U.S.
dollar and as such  benefits  from a weak dollar and is adversely  affected by a
strong dollar  relative to the major worldwide  currencies,  especially the Euro
and British Pound Sterling.  Consequently,  changes in exchange rates expose the
Company to market risks resulting from the  fluctuations in the foreign currency
exchange rates to the U.S. dollar. The Company attempts to reduce these risks by
entering into foreign exchange forward contracts with financial  institutions to
protect against currency exchange risks associated with its foreign  denominated
accounts receivable.

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

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

<PAGE>

Item 3.  Quantitative and Qualitative Disclosures about Market Risks (continued)
-------  ----------------------------------------------------------------------

sustains a  strengthening  position  against the currencies in which the Company
sells it products, the Company's revenues can be adversely affected.

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

     Certain statements in this Release constitute "forward-looking  statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking  statements  involve known and unknown risks,  uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company,  or industry  results,  to be materially  different from any future
results,   performance   or   achievements   expressed   or   implied   by  such
forward-looking  statements.  Such factors  include,  among other things,  those
described in the Company's filings with the Securities and Exchange  Commission,
including  but not limited to the  Company's  Annual Report in Form 10-K for the
fiscal year ended September 30, 2000.

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

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

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

     On October 6, 1998, the Company  received  notice that AII had commenced an
action  against it and multiple other  defendants in the United States  District
Court for the Northern  District of Illinois (the  "District  Court"),  alleging
that the certain of the Company's  products  infringed on certain  patent rights
allegedly  owned  by the  plaintiff  (the  "Complaint").  The  Complaint  sought
unspecified compensatory and statutory damages with interest. The Company denied
such allegations and vigorously  defended this action. On December 22, 1998, the
Company filed its answer (the  "Answer").  Among other  things,  pursuant to the
Answer,  the Company denied that its products  infringed AII's patent rights and
asserted  certain  affirmative  defenses.  In  addition,  the Answer  included a
counterclaim  challenging the validity of AII's alleged patent rights.  On March
5,  1999,  the  Company  joined  a  Motion  for  Partial  Adjudication  of Claim
Construction  Issues,  filed  by one  of the  multiple  defendants.  The  Motion
provided the defendants'  interpretation of certain limitations of the claims at
issue.  On February 17, 2000,  the District Court granted the Motion en toto. On
June 20, 2000, AII and the Company, inter alia, entered into an Agreed Motion to
Entry of Judgment, where AII stipulated that based on the District Court's claim
construction,  certain claim elements in the claims at issue were not present in
the Company's accused products. On June 26, 2000, the District Court granted the
Agreed  Motion and  directed a Final  Judgment  of Non-  infringement  as to the
Company.

     On July 25,  2000,  AII  filed a Notice of  Appeal  with the U.S.  Court of
Appeals for the Federal  Circuit,  appealing the District Court's Order granting
the Motion  for  Partial  Adjudication  of Claim  Construction  Issues and Order
entering  Final  Judgment  of  Non   infringement.   AII  filed  its  Brief  for
Plaintiff-Appellant  on October 13, 2000, while the Company joined the Brief for
Defendents-Appellees,  filed on December 22,  2000.  As with the prior action in
the District Court, the Company intends to defend this action vigorously.

<PAGE>

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


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

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

           None

(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: February, 12  2001                           By /s/ Kenneth Plotkin
      -------------------                             --------------------
                                                      KENNETH PLOTKIN
                                                      Vice President and
                                                      Chief Executive Officer



Date: February 12,  2001                           By  /s/ Gerald Tucciarone
     -------------------                               ---------------------
                                                       GERALD TUCCIARONE
                                                       Treasurer and Chief
                                                       Financial Officer



<PAGE>