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



                                       FORM 10-QSB

(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, 1998

                               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 SMALL BUSINESS ISSUER 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)



Check  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 4,  1998,  4,416,202  shares  of .01 par  value  Common  Stock  of the
registrant were outstanding, not

including  treasury  shares


Index schedule found on Page No. 15



Page 1 of 16 pages.
                                       -1-
     

<PAGE>

                    HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES


                                      INDEX


PART I. FINANCIAL INFORMATION



                                                                        Page No.
Item 1.Financial Statements

Condensed Consolidated Balance Sheets-
   March 31, 1998 and September 30, 1997                                   3

Condensed Consolidated Statements of Income-
   Six Months ended March 31, 1998 and 1997                                4

Condensed Consolidated Statements of Income-
  Three Months ended March 31, 1998 and 1997                               5

Condensed Consolidated Statements of Cash Flows-
  Six Months ended March 31, 1998 and 1997                                 6

Notes to Condensed Consolidated Financial Statements                      7-9

Item 2. Management's Discussion and Analysis of  Financial Condition     10-14
           and Results of Operations


PART II. OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders              15

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


SIGNATURES                                                                16





                                       -2-


<PAGE>

                    HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS



                                     ASSETS
<TABLE>

                                                                                        March 31,
                                                                                           1998           September 30,
                                                                                       (Unaudited)             1997
                                                                                     ----------------    ----------------
 CURRENT ASSETS:
<S>                                                                                        <C>                 <C>       
     Cash and cash  equivalents                                                            $6,055,666          $5,602,412
     Accounts receivable, net of allowance for doubtful accounts                            2,846,932           3,194,128
     Inventories (Note 2)                                                                   4,368,965           4,844,366
     Prepaid expenses and other current assets                                                475,203             553,540
                                                                                     ----------------    ----------------
                Total current assets                                                       13,746,766          14,194,446

     Property, plant and equipment-at cost                                                    638,614             494,220
     Less: Accumulated depreciation and amortization                                          307,412             276,832
                                                                                     ----------------    ----------------
                                                                                              331,202             217,388
                                                                                     ----------------    ----------------
     Security deposits and other non current assets                                            58,373              59,470
                                                                                     ----------------    ----------------
                                                                                          $14,136,341         $14,471,304
                                                                                     ================    ================

                                                                                     

 LIABILITIES AND SHAREHOLDERS' EQUITY :

 CURRENT LIABILITIES:
    Accounts payable                                                                       $2,911,809          $4,403,787
    Accrued expenses                                                                        1,489,565           1,100,745
                                                                                     ----------------    ----------------
              Total current liabilities                                                     4,401,374           5,504,532
                                                                                     ----------------    ----------------


 SHAREHOLDERS' EQUITY
    Common stock $.01 par value; 10,000,000 shares authorized, 4,485,802 and
       4,465,302  issued as of March  31, 1998  and September 30, 1997                         44,858              44,653
respectively
    Additional paid-in capital                                                             10,418,175          10,344,844
    Accumulated deficit                                                                     (429,067)         (1,228,772)
    Treasury Stock, at cost, 81,200 and  59,200 shares  respectively (Note 5)               (298,999)           (193,953)
                                                                                     ----------------    ----------------
                                                                                            9,734,967           8,966,772
                                                                                     ----------------    ----------------
                                                                                          $14,136,341         $14,471,304
                                                                                     ================    ================ 

</TABLE>

 See accompanying notes to consolidated financial statements



                                       -3-


<PAGE>




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



                                                                                    Six months           Six months
                                                                                       ended               ended
                                                                                     March 31,            March 31,
                                                                                       1998                  1997
                                                                                   (Unaudited)           (Unaudited)
                                                                                -----------------     ------------------

<S>                                                                                   <C>                    <C>        
NET SALES                                                                             $17,401,235            $12,852,113

COST OF SALES                                                                          13,192,004              9,895,261
                                                                                -----------------     ------------------
    Gross Profit                                                                        4,209,231              2,956,852

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                            2,849,464              2,014,286
RESEARCH & DEVELOPMENT EXPENSES                                                           348,281                239,399
                                                                                -----------------     ------------------
    Income from operations                                                              1,011,486                703,167

OTHER INCOME (EXPENSE):
  Interest income                                                                         120,395                127,773
  Other, net                                                                               60,639               (11,503)
                                                                                -----------------     ------------------
      Income before income tax provision                                                1,192,520                819,437


INCOME TAX PROVISION (Note 4)                                                             392,815                185,927
                                                                                -----------------     ------------------
      Net income                                                                         $799,705               $633,510
                                                                                -----------------     ------------------

                                                                                -----------------     ------------------
Net income per share-basic (Note 3)                                                         $0.18                  $0.14

Net income per share-diluted (Note 3)                                                       $0.18                  $0.14
                                                                                =================     ==================

</TABLE>

   See accompanying notes to consolidated financial statements




                                       -4-



<PAGE>




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


                                                                                    Three months            Three months
                                                                                       ended                   ended
                                                                                     March 31,                March 31,
                                                                                         1998                  1997
 
                                                                                    (Unaudited)            (Unaudited)
                                                                               ------------------     -----------------

<S>                                                                                    <C>                   <C>       
NET SALES                                                                              $7,825,490            $6,305,925



COST OF SALES                                                                           5,956,060             4,977,971

                                                                               ------------------     -----------------
    Gross Profit                                                                        1,869,430             1,327,954



SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                            1,327,545             1,010,624

RESEARCH & DEVELOPMENT EXPENSES                                                           174,018               130,650

                                                                               ------------------     -----------------
    Income from operations                                                                367,867               186,680



OTHER INCOME (EXPENSE):

  Interest income                                                                          59,849                56,709

  Other, net                                                                               19,910               (4,818)

                                                                               ------------------     -----------------
      Income before income tax provision                                                  447,626               238,571



INCOME TAX PROVISION (Note 4)                                                             147,000                55,000

                                                                               ------------------     -----------------
      Net income                                                                         $300,626              $183,571

                                                                               ------------------     -----------------


                                                                               
Net income per share-basic (Note 3)                                                        $0.07        
                                                                                                                 $0.04


Net income per share-diluted (Note 3)                                                      $0.07      
                                                                                                                 $0.04 
                                                                                ================      ================



                                                                   

   See accompanying notes to consolidated financial statements

</TABLE>


                                       -5-


<PAGE>

<TABLE>
<CAPTION>
                    HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                                            Six months        Six months
                                                                                              ended             ended
                                                                                             March 31,         March 31,
                                                                                               1998              1997
                                                                                           (Unaudited)       (Unaudited)
                                                                                  ------------------    ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                         <C>                   <C>     
  Net income                                                                                $799,705              $633,510
                                                                                  ------------------    ------------------
   Adjustments  to  reconcile  net  income  to net cash  provided  by (used  in)
    operating activities:
     Depreciation and amortization                                                            31,674                21,264
     Provision for uncollectible accounts receivable                                          10,000                 5,500
     Provision for system board obsolescence                                                  50,000                20,000
     Compensation paid in stock                                                               29,656                     -
     Changes in curent assets and liabilities:
      Accounts receivable                                                                    337,199                98,264
      Inventories                                                                            425,401           (3,113,262)
      Prepaid expenses and other current assets                                               78,337             (170,262)
      Accounts payable                                                                   (1,491,978)             1,571,459
      Accrued expenses                                                                       388,820               169,696
                                                                                  ------------------    ------------------
                                                                                           (140,891)           (1,397,341)
                                                                                  ------------------    ------------------
        Net cash provided by (used in)  operating activities                                 658,814             (763,831)
                                                                                  ------------------    ------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of property, plant and equipment                                             (144,394)              (58,819)
                                                                                  ------------------    ------------------
               Net cash used in investing activities                                       (144,394)              (58,819)
                                                                                  ------------------    ------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock                                                                 (105,046)             (155,879)
Proceeds from the exercise of stock options                                                   43,880                     -
                                                                                  ------------------    ------------------
        Net cash used by financing activities                                               (61,166)             (155,879)
                                                                                  ------------------    ------------------
        Net  increase (decrease) in cash and cash equivalents                                453,254             (978,529)
CASH AND CASH EQUIVALENTS, beginning of period                                             5,602,412             6,559,175
                                                                                  ------------------    ------------------
CASH AND CASH EQUIVALENTS, end of period                                                  $6,055,666            $5,580,646
                                                                                  ==================    ==================
SUPPLEMENTAL DISCLOSURES:

   Income taxes paid                                                                         $36,062               $10,087
                                                                                  ==================    ==================

See accompanying notes to consolidated financial statements
</TABLE>




                                       -6-

<PAGE>

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

NOTE 1.  BASIS OF PRESENTATION

         The accompanying  unaudited condensed consolidated financial statements
included  herein  have been  prepared  in  accordance  with  generally  accepted
accounting  principles  for interim  period  reporting in  conjunction  with the
instructions to Form 10-QSB. 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 quarterly  financial  results for the
period 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, 1997 Form 10-KSB.

         The  operating  results for the three  months and six months  March 31,
1998 are not  necessarily  indicative  of the  results  to be  expected  for the
September 30, 1998 year end.

NOTE 2.  INVENTORIES

         Inventories  have been  valued at the lower of average  cost or market.
The components of inventory at March 31, 1998 and September 30, 1997 consist of:

                                                   March 31,       September 30,
                                                    1998                1997
                                                    ----                ----


     Component    Parts                       $  1,231,460          $  1,545,790
     Work in Progress                              954,794             2,181,249
     Finished Goods                              2,182,711             1,117,327
                                               -----------           -----------
                                              $  4,368,965          $  4,844,366
                                               ===========           ===========

    NOTE 3.  NET INCOME PER SHARE

          In 1997, The Financial  Accounting Standards Board issued Statement of
     Financial  Accounting Standards Number 128, "Earnings per Share." Statement
     128 replaced the previously reported primary and fully diluted earnings per
     share. Unlike primary earnings per share, basic earnings per share excludes
     any  dilutive  effects of options,  warrants  and  convertible  securities.
     Diluted earnings per share is very similar to the previously reported fully
     diluted  earnings  per share.  Net income per share  amounts  for the three
     months and six months ended March 31, 1998 and 1997 have been presented or,
     as in the case of the prior  year,  restated  to conform to  Statement  128
     requirements. Conformity to Statement 128 did not have a material affect on
     the previous  year's  reported second quarter and year to date earnings per
     share.


                                       -7-
<PAGE>

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

Net income (loss) per share - continued

         Weighted average shares outstanding listed below were used in the basic
and diluted per share computation:

                                                            Three Months Ended
                                                                March 31,
                                                          1998            1997
                                                          ----            ----


Weighted average shares outstanding-basic              4,400,524      4,435,580
Common stock equivalents                                 148,965          7,521
                                                      ----------      ----------
Weighted average shares outstanding-diluted            4,549,489      4,443,101
                                                      ----------      ---------

                         
                                                           Six Months Ended
                                                               March 31,
                                                         1998             1997
                                                         ----             ----


Weighted average shares outstanding-basic             4,403,382       4,445,999
Common stock equivalents                                115,809           6,880
                                                    -----------      -----------
Weighted average shares outstanding-diluted           4,518,991       4,452,879
                                                    -----------      -----------

On  November  8, 1996,  the  Company  approved a stock  repurchase  program.  On
December 17, 1997,  the buyback plan was extended  until  December 31, 1998 (See
note 5). Shares  outstanding for the quarter and six months ended March 31, 1998
reflect a reduction  on a weighted  average  basis for the  repurchased  shares.
Weighted average shares for the quarter and six months ended March 31, 1997 have
been restated to reflect the provisions of SFAS Number 128.

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  carry  forwards,
adjusted for applicable  federal and state  alternative  minimum tax provisions.
The benefits of these  operating loss carry forwards had previously been subject
to a 100%  valuation  allowance.  However,  based on actual  fiscal 1997 taxable
income and  projected  fiscal 1998 taxable  income,  management  has reduced the
valuation  allowance  accordingly.  The  amount  of  future  reductions  in  the
valuation allowance will be predicated on projected results for future years.



                                       -8-
<PAGE>

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


NOTE 5.  STOCK REPURCHASE PROGRAM

         On November 8, 1996, the Company  approved a stock  repurchase  program
for the  repurchase of up to 300,000  shares of its own stock.  The Company 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  until  December 31, 1998.  Through March 31, 1998, the Company had
repurchased  81,200  shares  for  $298,999  at  an  average  purchase  price  of
approximately $3.68 per share.


                                       -9-



<PAGE>



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

Results of Operations

Six Month Period ended March  31, 1998 versus March  31, 1997
-------------------------------------------------------------

         Net sales for the six  months  ended  March 31,  1998 were  $17,401,235
compared to  $12,852,113  for the  comparable  period in the prior  fiscal year,
resulting  in an  increase  of  $4,549,122  or 35%.  The  increase  in sales was
primarily due the expansion of the Company's  domestic  distribution  and retail
channels,  continued  sales  growth  in  Europe,  plus  strong  sales to  direct
corporate customers.

         Net sales of the Company's products are summarized as follows:

<TABLE>
<CAPTION>
                                                     Six Months Ended March 31,           Increase
                                                   1998                     1997         (Decrease)%
                                                  -----                     ----        -----------

                                                                      $
<S>                                                <C>                <C>                  <C> 
System Sales                                       196,426            $     259,323        (24)
Video & Conferencing Boards                     17,204,809               12,592,790         37
                                                 ----------               ----------       ---
Total Company Sales                         $   17,401,235            $  12,852,113         35
                                                ===========              ===========       ===
</TABLE>

Unit sales of digital video and  conferencing  boards increased to approximately
169,000 as  compared  to  approximately  154,000  for the prior  year.  Sales to
domestic  customers  for the six  month  period  were 26% of net  sales  for the
current fiscal year and 35% for the prior year. Sales to international customers
were 74% of net sales for the current year and 65% for the  comparable six month
period of last year.

         Gross profit  increased to $4,209,231 from  $2,856,852,  an increase of
$1,252,379 or 42% over the comparable prior fiscal year period. The gross profit
percentage  was 24% for the  current  six month  period  ended  March  31,  1998
compared  to 23% for the prior  fiscal  year.  For the prior  fiscal  year ended
September 30, 1997,  margins finished at 22%. The increase in margins during the
current  fiscal year was  primarily due to a program of hedging  foreign  sales,
primarily  for German Marks and British  Sterling,  started in August 1997 which
has stabilized the effect of foreign currency fluctuations,  lower custom duties
and the absorption of manufacturing overhead over a greater number of units.

          Selling,  general and administrative  expenses increased $835,178 over
the prior year,  but as a percentage of revenue  remained  relatively  stable at
approximately  16% for the six month periods ended March 31, 1998 and 1997.  The
increase in expenses was primarily due to increased sales and marketing expenses
of $687,046, which is a result of the Company's commitment to


                                      - 10-


<PAGE>






Item 2.     Management's Discussion and Analysis -Continued

 increasing  its domestic  market  presence  and is mainly for higher  personnel
costs due to an increased outside sales staff,  increased  commissions resulting
from the 35% sales  increase  plus higher  marketing  and  promotional  costs in
support of increased distribution and retail locations; higher technical support
costs of $25,936 for additional  staff required to consistently  maintain a high
level of customer support in light of the Company's  expanding customer base and
higher general and administrative costs of $130,761, mainly for contractual wage
increases,  higher rent,  utilities and building  costs for the Company's  sales
office in California,  which opened in June 1997 and higher  communication costs
due to increased voice and internet usage.

         Research and development  expenses  increased $108,882 or approximately
45%.  The increase was due to the  strategic  addition of personnel  which is in
line with the  Company's  commitment  to expand  its  engineering  research  and
development  resources  to  continually  enhance  current  products  and further
develop future product lines.

          The  Company had net other  income of  $181,034  compared to net other
income of $116,270  for the  corresponding  six months of the  preceding  fiscal
year. The increase in net other income was primarily  foreign currency  exchange
rate gains as a result of favorable  foreign  rates.  Provision for income taxes
increased  to $392,815 or an effective  tax rate of 33% in fiscal 1998  compared
to$185,927  or an effective  tax rate of 22.5% for fiscal 1997.  The increase in
the effective tax rate is due to the  utilization  of all the  unrestricted  net
operating  loss carry  forwards in fiscal  1997,  leaving  only  restricted  net
operating  loss carry  forwards  which can be  utilized to offset  current  year
taxable income. 

         As a result of all of the  above,  the  Company  recorded  a net profit
after taxes for the six months ended March 31, 1998 of $799,705,  which resulted
in basic and diluted  earnings per share of $0.18 on weighed  average  basic and
diluted  shares  outstanding  of 4,403,382  and  4,518,991,  as opposed to a net
income after taxes of $633,610, which resulted in basic and diluted earnings per
share of $0.14 on weighted  average  basic and diluted  shares of 4,445,999  and
4,452,879 for the corresponding prior fiscal year.

Three Month Period ended March  31, 1998 versus March 31, 1997
--------------------------------------------------------------

         Net sales for the three  months  ended March 31,  1998 were  $7,825,490
compared to  $6,305,925  for the  comparable  quarter of the prior  fiscal year,
resulting  in an  increase  of  $1,519,565  or 24%.  The  increase  in sales was
primarily due the expansion of the Company's  domestic  distribution  and retail
channels,  continued  sales  growth  in  Europe,  plus  strong  sales to  direct
corporate customers.





                                     -11-
<PAGE>

Item 2.     Management's Discussion and Analysis -Continued

         Net sales of the Company's products are summarized as follows:

<TABLE>
                                                  Three Months Ended  March  31,               Increase
                                                  1998                       1997             (Decrease)%
                                                ------                       ----             -----------
                                                                      $
<S>                                               <C>                 <C>                          <C>
System Sales                                      106,802             $      79,981                34
Video & Conferencing Boards                     7,718,688                 6,225,944                24
                                                ---------                 ---------               ---
Total Company Sales                         $  7,825,490              $   6,305,925                24
                                               -========                 ==========              ====
</TABLE>

Unit sales of digital video and  conferencing  boards increased to approximately
74,000 as compared to approximately 72,000 for the prior year. Sales to domestic
customers  for the three  month  period  were 29% of net  sales for the  current
quarter and 32% for the prior year's quarter.  Sales to international  customers
were 71% of net sales for the current quarter and 68% for the comparable quarter
of last year.

     Gross  profit  increased  to  $1,869,430  from  $1,327,954,  an increase of
$541,476 or 41% over the prior comparable  fiscal year period.  The gross profit
percentage  was 24% for the current  quarter and 21% the quarter ended March 31,
1997.  The increase in margins  during the current fiscal year was primarily due
to a program of hedging  foreign  sales,  primarily for German Marks and British
Sterling,  started  in August  1997 which has  stabilized  the effect of foreign
currency  fluctuations,  lower custom duties and the absorption of manufacturing
overhead over a greater number of units.

     Selling,  general and  administrative  expenses increased $316,921 over the
prior year's second quarter,  but as a percentage of revenue remained relatively
stable at  approximately  17% when  compared to 16% for the three  months  ended
March 31, 1997.  The increase in expenses was primarily  due to increased  sales
and  marketing  expenses  of  $321,593,  which  is a  result  of  the  Company's
commitment to increasing its domestic  market  presence and is mainly for higher
personnel  costs due to an increased  outside sales staff plus higher  marketing
and promotional costs in support of increased distribution and retail locations;
higher  technical  support  costs of $6,532 for  additional  staff  required  to
consistently maintain a high level of customer support in light of the Company's
expanding customer base; and higher general and administrative costs of $45,355,
mainly for contractual  wage  increases,  higher rent,  utilities,  and building
costs for the Company's  sales office in  California,  which opened in June 1997
and higher communication costs due to increased voice and internet usage.

     Research and development  expenses  increased $43,368 or approximately 33%.
The increase  was due to the  strategic  addition of personnel  which is in line
with the Company's commitment to expand its engineering research and development
resources to continually  enhance  current  products and further  develop future
product lines.

                                      -12-
<PAGE>



Item 2.     Management's Discussion and Analysis -Continued

          The  Company  had net other  income of $79,759  for the March 31, 1998
three month period compared to net other income of $51,891 for the corresponding
quarter of the  preceding  fiscal  year.  The  increase in net other  income was
primarily  foreign currency exchange rate gains as a result of favorable foreign
rates. Provision for income taxes increased to $147,000 or an effective tax rate
of 33% in fiscal 1998  compared to $55,000 or an effective tax rate of 22.5% for
fiscal 1997. The increase in the effective tax rate is due to the utilization of
all the unrestricted  net operating loss carry forwards in fiscal 1997,  leaving
only  restricted  net  operating  loss carry  forwards  which can be utilized to
offset current year taxable income. .

         As a result of all of the  above,  the  Company  recorded  a net profit
after  taxes for the  three  months  ended  March 31,  1998 of  $300,626,  which
resulted in basic and  diluted  earnings  per share of $0.07 on weighed  average
basic and diluted shares  outstanding of 4,400,524 and 4,549,489 as opposed to a
net income after taxes of $183,571, which resulted in basic and diluted earnings
per share of $0.04 on weighted average basic and diluted shares of 4,435,580 and
4,443,101 for the corresponding quarter of the prior fiscal year.

         Over the prior two 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 quarter  (October to December),  which due to
the  holiday  season  is a strong  quarter  for  computer  equipment  sales.  In
addition,  the Company's  international  sales, mostly into the European market,
have  been 66% and 54% of  sales  for  fiscal  1997 and 1996 and are 74% for the
first six months of fiscal 1998. Due to this, the Company's sales for its fourth
fiscal quarter (July to September) can  potentially be impacted by the reduction
of activity in Europe during the July and August summer holiday period.

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

Liquidity and Capital Resources

         The Company had a net cash position of $6,055,666,  working  capital of
$9,345,392  and  shareholders'  equity of $9,734,967  as of March 31, 1998.  The
significant items of cash provided by and cash (used ) are detailed below:


Net income(adjusted for non cash items)                     $      891,379
Reduction in investments of current assets                         840,937
Decrease in current liabilities-net                           (  1,103,158)
Purchase of Property, Plant & Equipment                       (    144,394)
Purchase of treasury stock                                    (    105,046)
Other                                                               73,536

                                      -13-
<PAGE>

Liquidity and Capital Resources-continued

         Net cash of $629,158 provided by operating activities was primarily due
to cash  generated  from the  company's  net  income  and cash  provided  by the
reduction of current assets, mainly receivables and inventory,  offset partially
by cash used in the reduction of current  liabilities,  which were mainly vendor
accounts payable. Additional cash was used to purchase fixed assets and treasury
stock.

         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
seeking 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 stock  repurchase  program was extended by a resolution of the Board of
Directors  until  December  31,  1998.  As of March 31,  1998,  the  Company had
repurchased  81,200  shares  for  $298,999  at  an  average  purchase  price  of
approximately $3.68 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 a least the ensuing twelve months.

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-QSB,  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" and similar  expressions are
intended to identify forward looking statements. Such forward looking statements
involve  and are  subject to known and unknown  risks,  uncertainties  and other
factors which could cause the actual results,  performance  and  achievements of
the Company to be materially  different from any future  results,  performance (
financial or operating),  or  achievements  expressed or implied by such forward
looking  statements.  Such factors include,  among others, the following:  rapid
changes  in  technology;  lack  of  funds  for  future  research;   competition,
proprietary  patents  and rights of  others;  loss of major  customers;  loss of
sources  of supply for  digital  video  processing  chips;  non-availability  of
management;  government regulation;  currency fluctuations; and the inability of
the Company to profitably  sell its products.  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.

                                      -14-



<PAGE>


PART II.  OTHER INFORMATION

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  12,1998 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                      4,275,507              21,900
Kenneth Plotkin                          4,275,507              21,900
Leonard Neuhaus                          3,914,460             382,515
Bernard Herman                           4,285,475              11,500

No. 2:   Adoption of the 1998 Incentive Plan

         The 1998 Incentive  Stock Option Plan for 350,000 shares which had been
adopted by the board of directors on December 17, 1997 was approved by a vote of
the shareholders as indicated:

                                     For             Against         Abstain

                                    2,304,469        107,225          15,950

There were 1,802,444 broker non votes.

No: 3:   Appointment of BDO Seidman LLP as independent auditors

         The  appointment  of BDO Seidman LLP as  independent  auditors  for the
fiscal year ended September 30, 1998 was approved by the vote as indicated:

                                    For             Against         Abstain

                                 4,272,275          10,400         12,800

Item 6  Exhibits and Reports on Form 8-K

(a) Exhibits

         (b) 4.5.1 Form of 1998 Incentive  Stock Option Plan is  incorporated by
reference to Exhibit 1 to the Company's proxy statement for its meeting of March
12, 1998. 

(b) Reports on form 8-K

         None
                                      -15-


<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 7, 1998                   By: /s/ Kenneth Plotkin
                                       KENNETH  PLOTKIN
                                       Vice President and
                                       Chief Executive Officer






Date: May 7, 1998                   By: /S/ Gerald Tucciarone
                                       GERALD TUCCIARONE
                                       Treasurer and Chief
                                       Financial Officer











                                      -16-







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