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, 2001
                                -----------------

                                       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 30,  2002,  8,894,819  shares of .01 par value Common Stock of the
registrant were outstanding, not including treasury shares


<PAGE>

                     HAUPPAUGE DIGITAL INC. AND SUBSIDIARIES

                                      INDEX

<TABLE>
<CAPTION>

PART I. FINANCIAL INFORMATION
-----------------------------
<S>                                                                                      <C>

Item 1.  Financial Statements                                                          Page No.
                                                                                     --------
Condensed Consolidated Balance Sheets-                                               3
   December 31,  2001 (unaudited) and September 30, 2001

Condensed Consolidated Statements of Income-
  Three  Months ended December 31, 2001 (unaudited) and 2000 (unaudited)             4

Condensed Consolidated Statements of  Comprehensive Income -
  Three Months ended December 31, 2001 (unaudited)  and 2000 (unaudited)             5

Condensed Consolidated Statements of Cash Flow-
  Three Months ended December 31 , 2001 (unaudited) and 2000 (unaudited)             6

Notes to Condensed Consolidated Financial Statements                               7-8

Item 2.  Management's Discussion and Analysis of Financial Condition              9-13
         and Results of Operations

Item 3.  Quantitiative and Qualitative Disclosures about Market Risks               14

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

Item 1.  Legal Proceedings                                                       14-15

Item 4.  Submission of Matters To a Vote of Security Holders                     15-16

Item 6.  Exhibits and Reports on form 8-K                                           16


SIGNATURES                                                                          17
----------
</TABLE>

<PAGE>

PART I. FINANCIAL INFORMATION
-----------------------------

Item 1. Financial Statements

                     HAUPPAUGE DIGITAL INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                December 31,
                                                                                   2001           September 30,
                                                                              (Unaudited)            2001
                                                                              ---------------------------------
                                     ASSETS
<S>                                                                             <C>                     <C>

 Current Assets:
     Cash and cash  equivalents                                                $ 4,637,768         $ 4,422,239
     Accounts receivable, net of various allowances of
       $2,877,000 and $2,867,000                                                 5,402,078           4,243,594
     Income taxes receivable                                                       501,000             501,000
     Inventories                                                                 6,999,784           8,171,567
     Prepaid expenses and other current assets                                     412,217             518,265
                                                                                   -------             -------
                Total current assets                                            17,952,847          17,856,665

     Property, plant and equipment, net                                            770,983             825,847
     Other intangible assets-net                                                    10,100              16,400
     Security deposits and other non current assets                                 81,281              85,228
                                                                                    ------              ------
                                                                               $18,815,211         $18,784,140
                                                                               ===========         ===========

 Liabilities and  Stockholders'  Equity :

 Current Liabilities:
     Accounts payable                                                          $ 5,736,054         $ 5,732,971
     Accrued expenses                                                            1,300,933           1,585,023
     Income taxes payable                                                          332,288             280,528
                                                                                   -------             -------
                Total current liabilities                                        7,369,275           7,598,522

 Stockholders' Equity
     Common stock $.01 par value; 25,000,000 shares authorized, 9,374,368
        and 9,364,359  issued, respectively                                         93,744              93,644
     Additional paid-in capital                                                 12,182,577          12,164,243
     Retained earnings                                                             850,479             566,497
     Accumulated other comprehensive income ( loss)                               (272,221)           (267,204)
     Treasury Stock, at cost, 486,688, and 465,086 shares, respectively         (1,408,643)         (1,371,562)
                                                                                ----------          ----------
                Total stockholders' equity                                      11,445,936          11,185,618
                                                                                ----------          ----------
                                                                               $18,815,211         $18,784,140
                                                                               ===========         ===========
</TABLE>

           See accompanying notes to consolidated financial statements

                                       3
<PAGE>

                     HAUPPAUGE DIGITAL INC. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

                                                                         Three months ended December 31,
                                                                         -------------------------------

                                                                          2001                     2000
                                                                         -------------------------------
<S>                                                                          <C>                   <C>

Net Sales                                                               $12,062,800            $17,895,774
Cost  of Sales                                                            9,143,774             13,925,603
                                                                          ---------             ----------
  Gross Profit                                                            2,919,026              3,970,171

Selling, General and  Administrative Expenses                             2,166,759              2,845,848
Research & Development Expenses                                             359,024                393,260
                                                                            -------                -------
  Income  from operations                                                   393,243                731,063

Other  Income (expense):
  Interest income                                                             9,290                  8,831
  Interest expense                                                                -                (11,850)                     -
  Foreign currency                                                            7,581                (49,350)
  Non operational USD to Euro currency re-measurement                      (103,632)                     -
                                                                           --------                -------
Other  Income (expense)                                                     (86,761)               (52,369)
                                                                            -------                -------
  Income  before taxes on income                                            306,482                678,694
Taxes provision (benefit)                                                    22,500                (82,086)
                                                                             ------                -------
  Income  before cumulative effect of a change in accounting principle      283,982                760,780
  Cumulative effect of a change in accounting principle,
    net of taxes of $115,000                                                     -                 204,000
                                                                            -------                -------
     Net income                                                          $  283,982             $  964,780
                                                                         ==========             ==========
Per share results-basic:
  Income  before cumulative effect of a change in accounting principle        $0.03                  $0.09
  Cumulative effect of a change in accounting principle                       $0.00                  $0.02
                                                                              -----                  -----
Net income  per share-basic                                                   $0.03                  $0.11
                                                                              =====                  =====

Per share results-diluted
  Income  before cumulative effect of a change in accounting principle        $0.03                  $0.08
  Cumulative effect of a change in accounting principle                       $0.00                  $0.02
                                                                              -----                  -----
Net income  per share-basic                                                   $0.03                  $0.10
                                                                              =====                  =====
</TABLE>

           See accompanying notes to consolidated financial statements

                                       4

<PAGE>

                     HAUPPAUGE DIGITAL INC AND SUBSIDIARIES
         CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME


<TABLE>
<CAPTION>



                                                                       Three months  ended December 31,
                                                                          2001                2000
                                                                          ----                ----
<S>                                                                     <C>                    <C>
Other comprehensive income:

Net income                                                             $ 283,982           $ 964,780
Change in accumulated other comprehensive income (loss)                   (5,017)                  -
                                                                          ------             -------
Other  comprehensive income                                            $ 278,965           $ 964,780
                                                                       =========           =========

</TABLE>


          See accompanying notes to consolidated financial statements

                                       5
<PAGE>

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

                                                                                Three months ended December 31,
                                                                                2001                       2000
                                                                                -------------------------------

<S>                                                                                 <C>                 <C>
Cash Flows From Operating Activities:
  Net income                                                                    $  283,982          $  964,780
                                                                                ----------          ----------
   Adjustments to reconcile net income to net cash
     Provided by (used in) operating activities:
   Depreciation and amortization                                                    83,614              97,032
     Provision for uncollectible  accounts receivable                               10,000              10,000
   Other non cash items                                                             13,451             (34,548)
  Changes in current assets and liabilities:
   Accounts receivable                                                         (1,168,484)           (254,589)
   Inventories                                                                  1,171,783             (18,904)
   Prepaid expenses and other current assets                                      106,048             (80,725)
   Accounts payable and other current liabilities                                (229,247)          1,588,709
                                                                                  --------           ---------
        Total adjustments                                                          (12,835)          1,306,975
                                                                                   -------           ---------
   Net cash  provided by  operating activities                                     271,147           2,271,755
                                                                                   -------           ---------

Cash Flows From Investing Activities:
   Purchases of property, plant and equipment                                      (22,453)            (37,049)
                                                                                   -------             -------
        Net cash used in investing activities                                      (22,453)            (37,049)
                                                                                   -------             -------
Cash Flows From Financing Activities:
   Loan repayments                                                                       -            (640,000)
   Proceeds from employee stock purchases                                            8,933              11,560
   Purchase of treasury stock                                                      (37,081)                  -
                                                                                   -------             -------
        Net cash used in  financing activities                                     (28,148)           (628,440)
                                                                                   -------            --------
        Net increase in cash and cash equivalents                                  220,546           1,606,266

Change in accumulated other comprehensive income (loss)                             (5,017)                  -
                                                                                    ------           ---------
Cash and cash equivalents, beginning of period                                   4,422,239           2,744,855
                                                                                 ---------           ---------
Cash and cash equivalents, end of period                                        $4,637,768          $4,351,121
                                                                                ==========          ==========
Supplemental disclosures:
   Interest paid                                                                $        -          $   13,681
   Income taxes paid                                                            $   14,660          $    4,506
                                                                                ==========          ==========
</TABLE>

           See accompanying notes to consolidated financial statements

                                       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-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, 2001 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, 2001 Form 10-K.


The operating results for the three month period ended December 31, 2001 are not
necessarily  indicative of the results to be expected for the September 30, 2002
year end.

Note 2. Derivative Financial Instruments

The Company uses  derivatives to reduce its exposure to  fluctuations in foreign
currencies. Derivative products, such as foreign currency forward contracts, are
used to hedge the foreign currency market exposures  underlying  forecasted Euro
sales transactions with customers.  The Company's  accounting policies for these
instruments  are  based  on its  designation  of  such  instruments  as  hedging
transactions. The Company does not use derivative instruments for purposes other
than hedging.  The Company  records all derivatives on the balance sheet at fair
value.  As of December 31, 2001, a current  liability of $40,240  reflecting the
fair value of the Company's  outstanding  foreign currency forward contracts was
recorded  on the  balance  sheet.  The  Company  recognizes  gains and losses on
derivative  contracts as an adjustment to net sales.  For the three months ended
December 31, 2001 and 2000, the Company  recorded as an increase to net sales of
approximately $ 34,700 and $723,000, respectively.

To date, none of the Company's derivatives qualify for hedge accounting.

The effect of implementing SFAS No.133,  "Accounting for Derivative  Instruments
and Hedging  Activities",  which was adopted on October 1, 2000, is presented in
this form 10-Q as a cumulative  effect of a change in  accounting  principle for
the three months ended December 31, 2000.

Note 3. Inventories

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

                                December 31,         September 30,
                                  2001                    2001
                                  ----                    ----

     Component Parts         $   2,260,483           $  2,421,420
     Work in Progress               27,501                 92,070
     Finished Goods              4,711,800              5,658,077
                                 ---------              ---------
                             $   6,999,784           $  8,171,567
                             =============           ============

                                       7

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

Note 4. 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
net income per share is as follows:

<TABLE>
<CAPTION>

                                                                                Three  Months Ended
                                                                                  December   31,
                                                                              2001                  2000
                                                                              ----                  ----
<S>                                                                           <C>                   <C>
 Weighted average shares outstanding-basic                                 8,886,472             8,885,010
 Number of shares issued on the assumed exercise of stock options            218,987               420,748
                                                                             -------               -------
 Weighted average shares outstanding-diluted                               9,105,459             9,305,758
                                                                           ---------             ---------
</TABLE>

Options to purchase 820,681 and 271,444 shares of common stock at prices ranging
$2.31 to $ 10.06 and $3.94 and  $10.06,  respectively,  were  outstanding  as of
December  31,  2001  and  2000,  respectively  but  were  not  included  in  the
computation of diluted earnings per share because they were anti-dilutive.

Note 5. Recent Accounting Pronouncements

In April 2001, the Emerging  Issues Task Force  ("EITF")  issued EITF No. 00-25,
"Vendor Income Statement Characterization of Consideration Paid to a Reseller of
the Vendor's Products," which addresses whether consideration from a vendor to a
reseller of the vendor's  products is (a) an adjustment of the selling prices of
the vendor's products and, therefore, should be deducted from revenue recognized
in the vendor's income statement or (b) a cost incurred by the vendor for assets
or services received from the reseller and,  therefore,  should be included as a
cost or expense when  recognized in the vendor's  income  statement.  EITF 00-25
should be applied no later than in annual or interim  financial  statements  for
periods beginning after December 15, 2001.

The  majority of vendor  consideration  granted by the Company  relates to co-op
advertising  agreements  with  the  Company's  retail  customers.  Based  on the
requirements of EITF 00-25,  the Company has properly  included these costs as a
component  of  selling,  general  and  administrative  expenses  for all periods
presented. In the opinion of management, it appears that the effect of all other
vendor  consideration  arrangements  would  not have a  material  effect  on the
statement of operations based on the requirements of the pronouncement.

                                       8

<PAGE>

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

Three Month Period ended December 31, 2001 compared to  December 31, 2000
-------------------------------------------------------------------------

Sales  decreased  $5,832,974  for the three  months  ended  December  31, 2001
compared to the same quarter of the prior fiscal year as detailed geographically
in the table below:

                 Three months ended December 31,                     Percent
                     2001                  2000       (Decrease)     (Decrease)
                 --------------------------------------------------------------


Domestic       $  2,558,572           $ 4,357,092    $(1,798,520)      (41)%
Europe            9,211,685            12,175,473     (2,963,788)      (24)%
Asia                292,543             1,363,209     (1,070,666)      (79)%
                    -------             ---------     ----------       ---
  Total        $ 12,062,800           $17,895,774    $(5,832,974)      (33)%
               ============           ===========    ===========       ===

The primary forces causing the decrease were:

         o    Sluggish worldwide economic conditions
         o    Reduction in analog  board sales
         o    Lower OEM sales activity
         o    Lower Asian sales

Unit sales for the three months ended December 31, 2001  decreased  about 36% to
approximately  184,000 as compared to approximately 286,000 for the prior year's
first fiscal quarter. Sales to domestic customers were 21% of net sales compared
to 24% for the same period last year.  Sales to European  customers  were 76% of
net  sales  compared  to 68% for the same  period of last  year.  Sales to Asian
customers were 3% compared to 8% for the same period last year.

Gross  margins  decreased $ 1,051,145  for the three months  ended  December 31,
2001.  Gross margin  percentage for the three months ended December 31, 2001 was
24.20%  compared to 22.18% for the three  months ended  December  31, 2000.  The
components of the margin decrease are detailed below:

                                                                    Increase
                                                                   (decrease)
                                                                   ----------
Decrease due to lower sales                                       $ (1,662,507)
Increase  due to higher margins on assembled boards                    340,204
Increase due to decrease in labor related and other costs              271,158
                                                                       -------
      Total  (decrease) in margins                                $ (1,051,145)

The  increase in gross  margin  percentage  of 2.02% for the three  months ended
December 31, 2001 compared to the first quarter of fiscal 2001 is as follows


                                                                    Increase
                                                                   (decrease)
                                                                   ----------
Increase in margin on assembled boards                               2.82%
Labor related and other costs as a larger percent of sales          (0.80%)
                                                                     -----
              Net increase                                           2.02%
                                                                     =====

                                       9

<PAGE>

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

The improved margin  percentage on assembled  boards was primarily  derived from
unit price  reductions from our  subcontractors  and larger  sales mix of higher
gross margin  product.  The reduction in the margin  percentage  attributable to
labor and  related  costs was due to the  percentage  decrease  in sales for the
first  quarter of fiscal 2002 compared to the first quarter of fiscal 2001 being
greater than the  percentage  decrease in labor and other  related costs for the
same time periods.

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

<TABLE>
<CAPTION>

                                           Three months ended December  31,
                                   Dollar Costs                            Percentage of Sales
                         ------------------------------------------------------------------------
                              2001          2000      (Decrease)       2001     2000   Increase
                              ----          ----                       ----     ----   --------
<S>                           <C>            <C>           <C>          <C>      <C>      <C>
Sales and Promotional      $1,378,019   $ 1,896,794   $ (518,775)      11.4%    10.6%    0.8%
Customer Support               97,235        99,432       (2,197)       0.8%     0.6%    0.2%
General and Administrative    691,505       849,622     (158,117)       5.8%     4.7%    1.1%
                              -------       -------      --------       ---      ---     ---
    Total                  $2,166,759    $2,845,848   $ (679,089)      18.0%    15.9%    2.1%
                           ==========    ==========    ==========      ====     ====     ===
</TABLE>

Selling General and  Administrative  expenses  decreased $679,089 from the prior
year's first fiscal  quarter.  As a percentage  of sales,  Selling,  General and
Administrative  expenses for the three months ended  December 31, 2001 increased
by 2.1% when compared to three months ended December 31, 2000.

The decrease in sales and promotional expense of $518,775 was mainly due to :

         o  Lower advertising costs of $383,431 due to lower co-operative
            advertising and reduced special promotions
         o  Reduced European sales office costs of $14,724
         o  Lower commission payments of $51,628 due to lower sales
         o  Decreased compensation costs of $50,636 due to personnel reductions

Customer Support costs decreased $2,197 mainly due to lower compensation costs.

The decrease in General and  Administrative  expenses of $ 158,117 was primarily
due to:

         o  Decrease in compensation costs of $ 96,189 due to personnel
            reductions for Eskape Labs administrative personnel coupled with
            corporate personnel reductions
         o  Decreased  amortization  costs of $13,418  mainly  due to the write
            off of goodwill during the fourth quarter of fiscal 2001
         o  Lower rent costs of $ 13,530 due to the consolidation  of the Eskape
            Labs office in  California  into the  Hauppauge office
         o  Lower communication costs of $ 7,698 due to the consolidation of the
            Eskape Labs office in California into the Hauppauge office

Research and development  expenses decreased $34,236 or approximately  9.0%. The
decrease was due to lower  worldwide  compensation  costs and less  material and
contract services consumed.

                                       10
<PAGE>

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

Other income (expense)

We had net other  expense for the three  months  ended  December  31,  2001,  of
$86,761  compared  to net other  expense of $52,369 for the prior  year's  first
fiscal quarter as detailed below:

<TABLE>
<CAPTION>

                                               Three months  ended  December 31,
                                                       2001             2000
                                                       ----             ----
<S>                                                     <C>              <C>
Interest income                                      $   9,290        $   8,831
Interest expense                                             -          (11,850)
Foreign currency transaction gains (losses)              7,581          (49,350)
Non operational USD to Euro currency re-measurement   (103,632)               -
                                                      --------           -------
  Total other (expense)                              $ (86,761)       $ (52,369)
                                                     =========        =========
</TABLE>

The increase in "Total other  (expense)"  was  primarily due to a loss from "Non
operational USD to Euro currency re-measurement".

"Non operational USD to Euro currency re-measurement" results from the revaluing
from U.S. dollars to Euros any U.S. dollar denominated assets and liabilities on
the books of our Luxembourg  based  subsidiary,  Hauppauge  Digital Europe SARL.
Since the  functional  currency of  Hauppauge  Digital  Europe SARL is the Euro,
assets,  liabilities  and equity  accounts which are invested in or purchased by
Hauppauge  Digital Europe SARL using U.S. dollars need to be revalued into Euros
at the end of each quarter. This revaluation of U.S. dollar denominated accounts
into Euros results in a non transactional  re-measurement gain or loss, which we
have classified as " Non operational USD to Euro currency re-measurement."

Tax provision (benefit)

Our net tax provision (benefit) for the three months ended December 31, 2001 and
2000 is as follows:

                                                Three months ended December 31,
                                                     2001           2000
                                                     ----           ----

Tax (benefit) attributable to U.S operations    $ (229,000)      $(178,786)
Tax expense Asian operations                             -          44,200
Tax  expense  European operations                   22,500          52,500
Deferred tax asset valuation allowance             229,000               -
                                                   -------       ---------
Net tax provision  (benefit)                    $   22,500       $ (82,086)
                                                ==========       =========

Effective October 1, 1999, we restructured our foreign operations. The result of
the restructuring eliminated the foreign sales corporation and established a new
Luxembourg  corporation,  which  functions  as the  entity  which  services  our
European customers.  The new structure created separate domestic and foreign tax
entities, with the new Luxembourg entity paying a 7% license fee to our domestic
operation for use of the  Hauppauge  name.  For the last two fiscal  years,  our
domestic  operation has incurred losses.  We analyzed the future  realization of
our deferred tax assets as of December 31, 2001 and we concluded  that under the
present  circumstances,  it would be  appropriate  for us to record a  valuation
allowance  against the increase in the deferred  tax asset  attributable  to the
current quarter's loss from domestic operations.

The adoption of Financial Accounting  Standards No. 133 (SFAS 133),  "Accounting
for Derivative Instruments and Hedging Activities",  on October 1, 2000 resulted
in a $204,000 gain, net of taxes of $115,000,  due to the cumulative effect of a
change in accounting principle.

                                       11
<PAGE>

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

As a result of the above,  we recorded  net income of  $283,982  for the quarter
ended  December  31 , 2001,  which  resulted in basic and diluted net income per
share of $0.03 on weighted  average  basic and diluted  shares of 8,886,472  and
9,105,459,  respectively,  compared  to a net income of  $964,780  for the three
months ended  December 31, 2000,  which resulted in basic and diluted net 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.  Options to purchase  820,681 and 271,444
shares of common stock at prices  ranging $2.31 to $ 10.06 and $3.94 and $10.06,
respectively,  were  outstanding as of December 31, 2001 and 2000,  respectively
but were not included in the  computation of diluted  earnings per share because
they were anti-dilutive.

Seasonality
-----------

As our sales are primarily to the consumer market,  we have experienced  certain
seasonal revenue trends. Our peak sales quarter,  due to holiday season sales of
computer equipment, is our first fiscal quarter (October to December),  followed
by our fourth fiscal quarter (July to September). In addition, our international
sales,  mostly in the European  market,  were 77%, 71% and 73 % of sales for the
years ended September 30, 2001, 2000 and 1999,  respectively.  Our fiscal fourth
quarter sales (July to September) can be  potentially  impacted by the reduction
of activity  experienced  in Europe  during the July and August  summer  holiday
period.

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

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

Our cash, working capital and stockholders' equity position is disclosed below:

                               December 31,      September 30,
                                  2001               2001
                                  ----               ----


Cash                         $  4,637,768       $  4.422,239
Working Capital                10,583,572         10,258,143
Stockholders' Equity           11,445,936         11,185,618

The significant items of cash provided by and cash (used in) business activities
for the three months ended December 31, 2001 are detailed below:
<TABLE>
<CAPTION>

<S>                                                                           <C>
Net  income (adjusted for non cash items)                                     $  391,047
Decrease in accounts receivable,  inventory and other prepaid assets             109,347
Decrease in  accounts payable and accrued expenses                              (229,247)
Change in accumulated other comprehensive income (loss)                           (5,017)
Purchase of  property, plant & equipment                                         (22,453)
Proceeds from option exercises and employee stock purchase plan                    8,933
Purchase of  treasury stock                                                      (37,081)
                                                                                  ------
  Net increase in cash                                                        $  215,529
                                                                                 =======
</TABLE>

Net cash of $ 271,147  provided by operating  activities  was primarily due to a
decrease in accounts  receivable,  inventory and prepaid  assets of $109,347 and
net income  adjusted  for non cash items of $391,047,  offset  partially by cash
used to fund the net  decrease in accounts  payable and accrued  liabilities  of
$229,247.

                                       12
<PAGE>

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

Cash of $22,453  and  $37,081 was used to  purchase  fixed  assets and  purchase
treasury stock.  Proceeds from the exercise of stock options and stock purchased
by employees from the employee stock purchase plan provided  additional  cash of
$8,933.  The change in accumulated  other  comprehensive  loss decreased cash by
$5,017.

On April 5, 2001 we extended our agreement with Chase Manhattan Bank, to provide
us with a $6,500,000 credit facility.  The facility allows us, at our option, to
borrow at prime rate, which was 4.75% as of December 31, 2001 or 1.25% above the
London  Interbank  Offered  Rate.  The  facility is secured by our  assets,  and
expires  on March 31,  2002.  As of  December  31,  2001,  we had no  borrowings
outstanding under this line of credit.

On  January  25,  2002,  Chase  Manhattan  Bank,  citing  the  current  economic
conditions  in  the  technology  sector  coupled  with  our  two  years  of  non
profitability, verbally informed us that our line of credit has been terminated.
It is our intention to replace the terminated line with a new credit facility.

On November 8, 1996, we approved a stock  repurchase  program for the repurchase
of up to  600,000  shares of our own  stock.  We  intend to use the  repurchased
shares for certain  employee benefit  programs.  On December 17, 1997, the stock
repurchase program was extended by a resolution of our Board of Directors. As of
December 31, 2001, we held 486,688  treasury shares  purchased for $1,408,643 at
an average purchase price of approximately $2.89 per share.

We believe  that our current cash  position  will be  sufficient  to satisfy our
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 April 2001,  the  Emerging  Issues Task Force (EITF)  issued EITF No.  00-25,
Vendor Income Statement  Characterization of Consideration Paid to a Reseller of
the Vendors Products,  which addresses whether  consideration from a vendor to a
reseller of the vendors  products is (a) an adjustment of the selling  prices of
the vendors products and, therefore,  should be deducted from revenue recognized
in the vendors income  statement or (b) a cost incurred by the vendor for assets
or services received from the reseller and,  therefore,  should be included as a
cost or expense when  recognized  in the vendors  income  statement.  EITF 00-25
should be applied no later than in annual or interim  financial  statements  for
periods beginning after December 15, 2001.

The  majority of vendor  consideration  granted by the Company  relates to co-op
advertising  agreements  with  the  Company's  retail  customers.  Based  on the
requirements of EITF 00-25,  the Company has properly  included these costs as a
component  of  selling,  general  and  administrative  expenses  for all periods
presented. In the opinion of management, it appears that the effect of all other
vendor  consideration  arrangements  would  not have a  material  effect  on the
statement of operations based on the requirements of the pronouncement.

                                       13
<PAGE>

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

Due to extensive  sales to European  customers  with payment made to us in those
local  currencies and limited  expenses paid in local  currencies,  we are a net
receiver of currencies  other than the U.S.  dollar.  As such, we benefit from a
weak dollar and are negatively affected by a strong dollar relative to the major
worldwide   currencies,   especially  the  Euro  and  British  Pound   Sterling.
Consequently, changes in exchange rates expose us to market risks resulting from
the fluctuations in the foreign currency  exchange rates to the U.S. dollar.  We
attempt  to  reduce  these  risks by  entering  into  foreign  exchange  forward
contracts with financial institutions to protect against currency exchange risks
associated with our foreign denominated sales.

The strength or weakness of the U.S.  dollar  against the Euro and British Pound
Sterling impacts our financial results. Changes in exchange rates may positively
or negatively affect our revenues, gross margins,  operating income and retained
earnings  (which  are all  expressed  in U.S.  dollars).  We engage  in  hedging
programs  aimed at limiting,  in part, the impact of currency  fluctuations.  By
selling  foreign  currency  forward,  we fix the rate of exchange at the time we
enter  into  the  contract.   We  deliver  these  currencies  to  the  financial
institutions at a later date when we actually receive the foreign currency.

As of December 31, 2001, we had foreign currency forward  contracts  outstanding
of approximately  $4,154,700  against delivery of the Euro. The contracts expire
through March 2002.

Although we do not try to hedge against all possible foreign currency  exposures
because we can not fully  estimate the size of our  exposure,  the  contracts we
procure  are  specifically  entered  into  to as a  hedge  against  existing  or
anticipated  foreign  currency  exposure.  We do not enter  into  contracts  for
speculative  purposes.  Although we maintain  these programs to reduce the short
term impact of changes in currency exchange rates, when the U.S. dollar sustains
a long term  strengthening  position against the foreign currencies in countries
where we sell our products,  our revenues,  gross margins,  operating income and
retained  earnings  can be  adversely  affected.  Factors  that could impact the
effectiveness of our hedging program include  volatility of the currency markets
and availability of hedging instruments.

For the three months ended December 31, 2001 and 2000, we recorded approximately
$34,700 and $723,000,  respectively,  as an increase to net sales related to the
changes in the fair value of our derivative contracts.

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, 2001.

                                       14
<PAGE>

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

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

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

On October 6, 1998, we received  notice that AII had commenced an action against
us and multiple  other  defendants in the United States  District  Court for the
Northern District of Illinois (the "District  Court"),  alleging that certain of
our products infringed on certain patent rights allegedly owned by the plaintiff
(the "Complaint").  The Complaint sought unspecified  compensatory and statutory
damages with interest.  We denied such allegations and vigorously  defended this
action.

On December 22,  1998,  we filed our answer (the  "Answer").  We denied that our
products  infringed  AII's  patent  rights  and  asserted  certain   affirmative
defenses.

On June 26, 2000, the District Court granted the Defendant's  Motion for Partial
Adjudication  of Claim  Constructions  Issues and  entered a Final  Judgment  of
Non-infringement to us.

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.

On July 16,  2001,  the Federal  Circuit  entered a Circuit  Rule 36 Judgment of
Affirmance  Without  Opinion.  Accordingly,  the Federal  Circuit  affirmed  the
District Court's finding of non-infringement.  As of December 13, 2001, the time
limit  permitting AII to file a petition with the U.S.  Supreme Court for a Writ
of Certiorari to review the Federal Circuit judgment has lapsed. This litigation
is now over without the possibility of further appeals.

We have been informed by counsel for the estate of the late Mr. Kenneth Aupperle
("Estate")  that they have  filed a Demand  for  Arbitration  with the  American
Arbitration  Association  claiming  property rights and interest in the Company,
certain  amounts  due  and  owing  to the  Estate  based  on  various  corporate
agreements with Mr. Aupperle and certain insurance  policies,  such amount to be
no less than $2,500,000. As of the date of filing, we have not received a formal
acknowledgement from the American Arbitration Association of the said Demand for
Arbitration.  Management is unable to comment on the merits of the claim without
more  information  from the Estate  and/or its  counsel.  However,  based on the
preliminary  information  presented to us, management believes that the claim is
without merit and will vigorously defend it.

Item 4.  Submission of Matters To a  Vote of Security Holders
         ----------------------------------------------------

The following  proposals were submitted to the  stockholders for approval at the
Annual Meeting of stockholders held on November 2, 2001 at our offices:

Proposal No. 1:   Election of Directors

The following directors were elected by the votes indicated

                                       15

<PAGE>

Item 4.  Submission of Matters To a  Vote of Security Holders-continued
         --------------------------------------------------------------

Proposal No. 1:   Election of Directors

The following directors were elected by the votes indicated:

                                            For           Withheld
                                            ---           --------
Kenneth Plotkin                          8,379,484        315,137
Bernard Herman                           8,379,344        315,277
Clive R. Holmes                          8,379,744        314,877
Steven J. Kuperschmid                    8,374,194        320,427

Proposal No. 2: Amendment of the Certificate of  Incorporation  to authorize the
classification of the Board of Directors into three classes with staggered terms
and to provide for a supermajority  voting requirement to amend any provision in
the Certificate of Incorporation relating to such classified Board of Directors.

The proposed  amendment to the  Certificate  of  Incorporation  to authorize the
classification of the Board of Directors into three classes with staggered terms
and to provide for a supermajority  voting requirement to amend any provision in
the Certificate of Incorporation  relating to such classified Board of Directors
was not approved because there were insufficient votes cast:

                          For             Against            Abstain
                          ---             -------            -------
                       3,204,409          422,021             21,268


Proposal No. 3:  Amendment of the  Certificate of  Incorporation  to authorize a
class of preferred stock.

The proposed  amendment to the Certificate of Incorporation to authorize a class
of preferred stock was not approved because there were insufficient votes cast:

                         For             Against            Abstain
                          ---             -------            -------
                        3,179,709         450,919             16,710

Proposal  No. 4:  Amendment  of the  Certificate  of  Incorporation  to  require
unanimous,  rather than majority,  written  consent of  stockholders  in lieu of
meeting under certain circumstances.

The proposed amendment to the Certificate of Incorporation to require unanimous,
rather than majority, written consent of stockholders in lieu of a meeting under
certain  circumstances  was not approved because there were  insufficient  votes
cast:

                          For             Against            Abstain
                          ---             -------            -------
                        3,169,685         455,538             22,115


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

(a)  Exhibits

     None

(b)  Reports on form 8-K

     None

                                       16

<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 13, 2002                      By: /s/ Kenneth Plotkin
       -----------------                         ----------------------------
                                                 KENNETH PLOTKIN
                                                 President and
                                                 Chief Executive Officer


Date:  February 13, 2002                      By: /s/ Gerald Tucciarone
       -----------------                         ----------------------------
                                                 GERALD TUCCIARONE
                                                 Treasurer and Chief
                                                 Financial Officer







                                       17