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

                                    FORM 10-Q

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

For the quarterly period ended:        March 31, 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 May 7, 2001, 8,896,152 shares of .01 par value Common Stock of the
registrant were outstanding, not including treasury shares.

<PAGE>

                    HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
                    ----------------------------------------

                                      INDEX
                                      -----


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

Item 1.Financial Statements                                            Page No.
                                                                       --------

Condensed Consolidated Balance Sheets-
   March 31, 2001 (unaudited) and September 30, 2000                       3

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

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

Condensed Consolidated Statements of Cash Flows-
  Six Months ended March  31, 2001 (unaudited) and 2000 (unaudited)        6

Notes to Condensed Consolidated Financial Statements                       7-10

Item 2. Management's Discussion and Analysis of Financial Condition       11-17
and Results of Operations

Item 3. Quantitative and Qualitative Disclosures about Market Risks        18

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

Item 1.  Legal Proceedings                                                 18

Item 6.  Exhibits and Reports on form 8-K                                  19


SIGNATURES                                                                 20
----------

                                       2
<PAGE>

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

Item 1. Financial Statements

                    HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>

                                                                                March 31,
                                          ASSETS                                   2001           September 30,
                                                                               (Unaudited)             2000
<S>                                                                             <C>                    <C>
                                                                               ---------------   -------------------
 CURRENT ASSETS:
     Cash and cash  equivalents                                                $ 2,988,016        $  2,744,855
     Accounts receivable, net of allowance for doubtful accounts
       of   $215,000 and $165,000                                                5,438,096           6,172,993
     Inventories                                                                13,112,653          12,289,975
     Prepaid expenses and other current assets                                   1,439,002             456,431
     Income taxes receivable                                                     1,496,045           1,496,045
     Deferred tax assets                                                         1,267,797           1,267,797
                                                                                 ---------           ---------
                Total current assets                                            25,741,609          24,428,096


    Property, plant and equipment-net                                              952,416             977,030
    Goodwill and intangible assets-net                                             771,419             824,519
    Security deposits and other non current assets                                  85,228              85,228
                                                                                    ------              ------
                                                                               $27,550,672         $26,314,873
                                                                               ===========         ===========


 LIABILITIES AND STOCKHOLDERS' EQUITY :

 CURRENT LIABILITIES:
    Accounts payable                                                           $10,646,019         $10,481,714
    Accrued expenses                                                             1,428,224             952,482
    Loan payable                                                                   360,000           1,000,000
    Income taxes payable                                                           114,687             227,000
                                                                                   -------             -------
              Total current liabilities                                         12,548,930          12,661,196
                                                                                ==========          ==========

 STOCKHOLDERS' EQUITY:
    Common stock $.01 par value; 25,000,000 shares authorized,  9,325,754
       and 9,312,578  issued as of  March 31 , 2001  and September 30, 2000         93,258              93,126
    Additional paid-in capital                                                  12,092,673          12,046,421
    Retained earnings                                                            4,112,690           2,848,194
    Accumulated other comprehensive income                                          37,185                -
   Treasury Stock, at cost, 429,602 shares                                      (1,334,064)         (1,334,064)
                                                                                ----------          ----------
              Total stockholders' equity                                        15,001,742          13,653,677
                                                                                ----------          ----------
                                                                               $27,550,672         $26,314,873
                                                                               ===========         ===========
</TABLE>

     See accompanying notes to condensed consolidated financial statements

                                       3

<PAGE>

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


<TABLE>
<CAPTION>
                                                                                      Six Months Ended March 31,
                                                                                       2001              2000

                                                                                     (Unaudited)     (Unaudited)
                                                                                     -----------     -----------
<S>                                                                                     <C>                <C>

Net Sales                                                                           $ 32,390,983    $ 41,568,846
Cost  of  Sales                                                                       25,216,671      32,667,695
                                                                                      ----------      ----------
    Gross Profit                                                                       7,174,312       8,901,151
                                                                                       ---------       ---------
Selling, General and  Administrative Expenses                                          5,463,890       5,866,136
Research  and  Development Expenses                                                      741,028         762,825
                                                                                         -------         -------
    Income from operations                                                               969,394       2,272,190

Other Income (expense):

  Interest income                                                                         18,546          72,703
  Interest expense                                                                       (19,720)           -
  Other, net                                                                            (120,024)        (96,274)
                                                                                        --------         -------
      Income before income tax (benefit)  expense                                        848,196       2,248,619

Income tax (benefit)  expense                                                           (212,300)        515,000
                                                                                        --------         -------
      Income before cumulative effect of a change in accounting principle              1,060,496       1,733,619
  Cumulative effect of a change in accounting principle, net of taxes of  $115,000       204,000            -
                                                                                         -------       ---------
       Net income                                                                     $1,264,496     $ 1,733,619
                                                                                      ==========     ===========
Per share results-basic:
Income before cumulative effect of a change in accounting principle                        $0.12           $0.20
Cumulative effect of a change in accounting principle                                      $0.02               -
                                                                                      ----------     -----------
      Net income per share-basic                                                           $0.14           $0.20
                                                                                      ==========     ===========

Per share results-diluted:
Income before cumulative effect of a change in accounting principle                        $0.11           $0.18
Cumulative effect of a change in accounting principle                                      $0.02               -
                                                                                      ----------     -----------
     Net income per share-diluted                                                          $0.13           $0.18
                                                                                      ==========     ===========

</TABLE>

      See accompanying notes to condensed consolidated financial statements

                                       4
<PAGE>

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

<TABLE>
<CAPTION>

                                                                  Three Months Ended March 31,
                                                                    2001               2000

                                                                  (Unaudited)       (Unaudited)
                                                                  -----------       -----------
<S>                                                                     <C>            <C>
Net Sales                                                        $ 14,495,209       $ 19,525,197
Cost  of  Sales                                                    11,291,068         15,719,289
                                                                   ----------         ----------
    Gross Profit                                                    3,204,141          3,805,908

Selling, General and  Administrative Expenses                       2,618,042          2,995,618
Research  and  Development Expenses                                   347,768            359,855
                                                                      -------            -------
    Income from operations                                            238,331            450,435

Other Income (expense):
  Interest income                                                       9,715             26,203
  Interest expense                                                     (7,870)                 -
  Other, net                                                          (70,674)          (134,174)
                                                                      -------           --------
      Income before income tax (benefit)  expense                     169,502            342,464

Income tax (benefit)  expense                                        (130,214)            85,000
                                                                     --------             ------
     Net income                                                   $   299,716       $    257,464
                                                                  ===========       ============

Per share results:
Basic                                                                   $0.03              $0.03
Diluted                                                                 $0.03              $0.03
                                                                  ===========       ============

</TABLE>

      See accompanying notes to condensed consolidated financial statements

                                       5

<PAGE>

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


                                                                        Six Months Ended March , 31
                                                                            2001             2000
                                                                        (Unaudited)      (Unaudited)
                                                                        -----------      -----------
<S>                                                                         <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                          $  1,264,496      $  1,733,619
                                                                      ------------      ------------
   Adjustments to reconcile net income to net cash
   provided by (used in)  operating activities:
     Depreciation and amortization                                         198,052           115,459
     Provision for uncollectible accounts receivable                        10,000            30,000
     Deferred tax benefits                                                    -               11,195
     Other non cash items                                                   19,002            41,008
  Changes in current assets and liabilities:
      Accounts receivable                                                  724,897        (2,373,205)
      Inventories                                                         (822,678)         (631,191)
      Prepaid expenses and other  current assets                          (767,683)         (287,410)
      Other assets                                                            -             (414,358)
      Accounts payable and other current liabilities                       350,031          (899,068)
                                                                           -------          --------
                                                                          (288,379)       (4,407,570)
                                                                          --------        ----------
 Net cash provided by (used in) operating activities                       976,117        (2,673,951)
                                                                           -------        ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
        Purchases of property, plant and equipment                        (120,338)         (289,350)
                                                                          --------          --------
 Net cash used in investing activities                                    (120,338)         (289,350)
                                                                          --------          --------
CASH FLOWS FROM FINANCING ACTIVITIES:
        Proceeds from employee stock purchases                              27,382           383,999
        Loan repayments                                                   (640,000)             -
                                                                          ---------         --------
 Net cash (used in) provided by  financing activities                     (612,618)          383,999
                                                                          ---------         --------
 Net  increase (decrease)  in cash and cash equivalents                    243,161        (2,579,302)
Cash and Cash Equivalents, beginning of period                           2,744,855         6,122,922
                                                                         ---------         ---------
Cash and Cash Equivalents, end of period                               $ 2,988,016       $ 3,543,620
                                                                       ===========       ===========
SUPPLEMENTAL DISCLOSURES:

   Interest paid                                                       $    13,681              -
   Income taxes paid                                                         4,506          $414,677
                                                                             =====          ========

</TABLE>

      See accompanying notes to condensed 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 and six  month  period  ended  March 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,
2000 Form 10-K.

     On October 1, 2001, the Company has adopted the classification requirements
for  shipping  and  handling  fees and costs as required  under EITF No.  00-10,
"Accounting for Shipping and Handling Fees and Costs." Accordingly, shipping and
handling fees and costs,  which  historically were included in Selling,  General
and Administrative  expenses,  are recorded in Cost of Sales. Prior periods have
been restated to conform with this presentation.

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

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
certain  forecasted  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 enter into such  contracts  for
speculative  purposes.  The Company records all derivatives on the balance sheet
at fair value.

     For derivative  instruments that are designated and qualify as a fair value
hedge (i.e.,  hedging the exposure to changes in the fair value of an asset or a
liability or an identified  portion thereof that is attributable to a particular
risk),  the gain or loss on the derivative  instrument as well as the offsetting
gain or loss on the hedged item  attributable  to the hedged risk are recognized
in  earnings  in  the  current  period.  For  derivative  instruments  that  are
designated  and  qualify as a cash flow hedge  (i.e.,  hedging  the  exposure of
variability in expected  future cash flows that is  attributable to a particular
risk), the effective portion of the gain or loss on the derivative instrument is
reported as a component  of  Accumulated  Comprehensive  Income (a  component of
stockholders'  equity)  and  reclassified  into  earnings  in the same period or
periods during which the hedged transaction affects earnings. The remaining gain
or loss on the derivative  instrument,  if any (i.e the ineffective  portion and
any portion of the derivative  excluded from the assessment of effectiveness) is
recognized in earnings in the current  period.  For derivative  instruments  not
designated as hedging  instruments,  changes in their fair values are recognized
in earnings in the current period.

                                       7

<PAGE>

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

FOREIGN CURRENCY TRANSLATION TRANSACTIONS

     An Asian  subsidiary  of the Company  reports its  financial  position  and
results of operations in the reporting currency of the Company.

     The financial  position and results of operations of the Company's European
subsidiaries  are determined  using local  currency as the functional  currency.
Assets and liabilities of these subsidiaries are translated at the exchange rate
in effect at each  year-end.  Income  statement  accounts are  translated at the
average rate of exchange  prevailing  during the year.  Translation  adjustments
arising  from the use of  differing  exchange  rates  from  period to period are
included in the accumulated other comprehensive  income account in stockholders'
equity.  Gains and losses  resulting  from  foreign  currency  transactions  are
included in earnings.

ACCUMULATED OTHER  COMPREHENSIVE INCOME

     Other comprehensive income refers to revenues,  expenses,  gains and losses
that under generally accepted accounting principles are excluded from net income
as these amounts are recorded directly as an adjustment to shareholders' equity.
Accumulated other comprehensive income is comprised of the cumulative effects of
foreign currency translation.

NOTE 2.  INVENTORIES

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

                                         March  31,           September 30,
                                           2001                   2000
                                           ----                   ----

     Component Parts                   $ 5,536,654           $  6,059,247
     Work in Progress                       50,530                111,446
     Finished Goods                      7,525,469              6,119,282
                                       -----------           ------------
                                       $13,112,653           $ 12,289,975
                                       ===========           ============

NOTE 3.  NET INCOME PER SHARE

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

                                                       Three Months Ended
                                                           March  31,
                                                      2001            2000
                                                      ----            ----

Weighted average shares outstanding-basic          8,887,719       8,819,900
Number of shares issued on the assumed
   Exercise of stock options                         353,100       1,112,433
                                                   ---------       ---------
Weighted average shares outstanding-diluted        9,240,819       9,932,333
                                                   ---------       ---------
                                       8

<PAGE>

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

                                                       Six Months Ended
                                                          March  31,
                                                      2001          2000
                                                      ----          ----

Weighted average shares outstanding-basic          8,886,349       8,796,541
Number of shares issued on the assumed
   Exercise of stock options                         384,791       1,067,585
                                                   ---------       ---------
Weighted average shares outstanding-diluted        9,271,140       9,864,126
                                                   ---------       ---------

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

     Options to purchase 366,410 and 317,461 shares of common stock,  ranging in
prices from $3.94 to $10.06,  were outstanding for the three month and six month
period ended March 31, 2001, but were not included in the computation of diluted
earnings per share because they were anti-dilutive.

NOTE 4.  BUSINESS ACQUISITION

     On June 1, 2000 the  Company  acquired  certain  assets of EsKape Labs Inc.
("EsKape"),   a  California   based  Company   specializing   in  designing  and
manufacturing  television and video products for Apple Macintosh computers.  The
purchased  assets expands and  complements  the Company's  product line into the
Macintosh  market.  The cash price for the acquisition,  which was accounted for
under the purchase method,  was approximately  $900,000,  including $100,000 for
direct transaction costs and a restrictive covenant totaling $50,000. The excess
of the acquisition  cost over the fair value of identifiable  assets acquired is
being  amortized  on a straight  line basis over 10 years,  and the  restrictive
covenant on a straight line basis over 2 years.

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

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

                                       9

<PAGE>

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

     The supplemental  information below  summarizes,  on a pro forma basis, the
companies  results for the six months  ended  March 31,  2000 had the  companies
combined at the beginning of the period presented.

                                Three months ended         Six months ended
                                  March 31, 2000            March 31, 2000
                                  --------------            --------------

Net sales                         $ 19,632,542               $ 41,824,225
Net income                             220,595                  1,179,179

Earnings  per share
Basic                                    $0.03                      $0.13
Diluted                                  $0.02                      $0.12

     Pro  forma net  income  (loss)  may not be  indicative  of actual  results,
primarily  because the pro forma  results are  historical  results of  Hauppauge
Digital Inc. and of the acquired entity and do not reflect any cost savings that
may be obtained from the integration and elimination of redundant functions.

NOTE 5.  DERIVATIVE FINANCIAL INSTRUMENTS

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

     The Company has significant  international  sales in foreign currencies and
continues its policy of hedging  forecasted  sales with foreign currency forward
contracts  that  expire  within six months.  These  derivative  instruments  are
employed,  based on management's judgement concerning the trade off between risk
and cost,  in an attempt to  eliminate  or  minimize  certain  foreign  currency
exposures that can be identified and quantified.

     For the three and six months  ended March 31,  2001,  the Company  recorded
approximately  $66,000  and  $788,000  as an  increase  to net sales  related to
changes in the fair value of its derivative contracts.

                                       10

<PAGE>

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

NOTE 6. OTHER  COMPREHENSIVE INCOME

     Net  comprehensive  income for the three  months and six months ended March
31, 2001 and March 30, 2000 is as follows:

<TABLE>
<CAPTION>

                                                   Three months ended              Six months ended
                                                March 31,       March 31,    March 31,      March 31,
                                                  2001           2000          2001           2000
                                                  ----           ----          ----           ----
<S>                                               <C>            <C>           <C>            <C>
Net income                                     $299,716       $257,464      $1,264,496     $1,733,619
Foreign currency translation adjustments         37,185              -          37,185              -
                                               --------       --------      ----------     ----------
Net comprehensive income                       $336,901       $257,464      $1,301,681     $1,733,619
                                               ========       ========      ==========     ==========
</TABLE>


NOTE 7.  RECENT ACCOUNTING PRONOUNCEMENTS

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

     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 when 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 an 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 Company
is currently  evaluating  the impact that EITF 00-25 will have on its results of
operations and cash flows.

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

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

Six Month Period ended March 31, 2001 versus March 31, 2000
-----------------------------------------------------------

     Sales for the six months ended March 31, 2001 were $32,390,983  compared to
$41,568,846 for the prior year, a decrease of $9,177,863 or 22%,  comprised of a
47%  decrease in domestic  sales,  a 17%  decrease in European  sales and a 115%
increase in Asian sales.

                                       11
<PAGE>

Item 2. Management's Discussion and Analysis-continued
------------------------------------------------------

The primary forces causing the decrease were:

o        Reduction in analog  board sales
o        Slower rollout of  the personal video recorder product
o        Lower average Euro to dollar  exchange rates

     Unit sales for the six months ended March 31, 2001  decreased  about 18% to
approximately  495,000 as compared to approximately  604,000 for the prior year.
Sales to domestic  customers were 19% of net sales compared to 28% for the prior
year. Sales to European  customers were 73% of net sales compared to 69% for the
same period of the prior year.  Sales to Asian  customers were 8% compared to 3%
for the prior year.

     Gross profit for the six month  period ended March 31, 2001 was  $7,174,312
as compared to $8,901,149, a decrease of $1,726,837,  comprised of a $1,964,980
decrease due to lower sales and a $238,143 increase due an increase in the gross
profit  percentage.  The gross profit  percentage  was 22.15% for the six months
ended March 31, 2001 compared to 21.41 % for the prior year. The increase in the
gross margin percentage was mainly due to:

o    Cost savings obtained from the shifting of product pack out from an outside
     third party to the Company's distribution center in Ireland
o    Larger sales  mix of  higher gross  margin product

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

<TABLE>
<CAPTION>

                                             Six months ended March  31,
                                             ----------------------  ---
                                  Dollar Costs                        Percentage of Sales
                                  ------------                        -------------------
                                                       Increase                      Increase/
                               2001         2000      (Decrease)     2001     2000   (Decrease)
                               ----         ----      -----------    ----     ----   ---------
<S>                            <C>           <C>          <C>         <C>      <C>      <C>
Sales and Promotional      $ 3,581,356   4,119,276    $ (537,920)    11.1%    9.9%     1.2%
Customer Support               194,327     252,564       (58,237)      .6%     .6%       -%
General and Admin            1,688,207   1,494,296       193,911      5.2%    3.6%     1.6%
                           -----------   ----------   -----------    ----    -----     ----
    Total                  $ 5,463,890  $5,866,136    $ (402,246)    16.9%   14.1%     2.8%

</TABLE>


Selling  General  and  Administrative   expenses  decreased  $402,246  from  the
comparable quarter of the prior year. As a percentage of sales, Selling, General
and Administrative expenses for the six months ended March 31, 2001 increased by
2.8% when compared to the comparable period in the prior year.

The decrease in sales and promotional expense of $537,920 was mainly due to :

o Lower advertising costs of $238,245 due to lower co-operative advertising
o Reduced European sales office costs of $228,313
o Lower commission payments of $178,426 due to lower sales
o Increased compensation costs of $ 77,882 due to the addition of Eskape
  personnel

                                       12

<PAGE>

Item 2. Management's Discussion and Analysis-continued
------------------------------------------------------

Customer  Support  costs  decreased  $58,237  mainly  due to lower  compensation
expense of $44,642

The increase in General and  Administrative  expenses of $193,911 was primarily
due to :

o    Increase in compensation costs of $ 184,252 related to the hiring of an MIS
     Director and an in house attorney, compensation costs related to the
     addition of Eskape Labs administrative personnel and contractual increases
o    Increased  amortization  costs of $82,593  mainly due to the  amortization
     of goodwill and  intangible  assets related to the Eskape acquisition
o    Decreased professional fees of $115,025 related to termination of outside
     consulting agreements and lower legal costs relating to legal fees incurred
     for the start up of the Company's Luxembourg operation during fiscal 2000.
o    Increased communication costs of $15,300 for additional phone lines
     required for Eskape personnel
o    Increased rent costs of $17,400 due to expanded office space for Eskape
     operations

     Research and development expenses decreased $21,797 or approximately 2.9`%.
The  decrease was due to lower  compensation  costs at the  Company's  Singapore
office.

     The Company had net other  expense for the six months  ended March 31, 2001
of  $121,198  compared to net other  expense for the prior year of $23,569.  The
increase in net other expense was primarily due to foreign currency  transaction
losses  plus  interest  expense on  borrowings  outstanding  and lower  interest
income.

     The Company recorded an income tax benefit of $212,300,  for the six months
ended March 31, 2001  compared to a tax  provision  of $515,000  for prior year.
Effective October 1, 1999, the Company restructured its foreign operations.  The
result  of the  restructuring  eliminated  the  foreign  sales  corporation  and
established a new  Luxembourg  corporation,  which  functions as the entity that
services the Company's European customers. The Company's net tax benefit for the
six months ended March 31, 2001 is as follows:

Tax (benefit) attributable to U.S operations                    $ (369,000)
Tax expense to European operations                                 156,700
                                                                   -------
         Net tax (benefit)                                      $ (212,300)

Due to the  higher  U.S.  effective  tax  rate,  the  tax  benefit  on the  loss
attributable  to the  Company's  U.S.  operations  of  $369,000  offset  the tax
liability of $ 156,700 attributable to the Company's European operations.

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

     As a result of the  above,  the  Company  recorded  net  income for the six
months ended March 31, 2001 of  $1,264,496,  which resulted in basic and diluted
income per share of $0.14 and $0.13 on weighted average basic and diluted shares
of 8,886,349 and 9,271,140,  respectively,  compared to net income of $1,733,619
for the six months  ended March 31,  2000,  which  resulted in basic and diluted
earnings per share of $0.20 and $0.18,  on weighted  average shares of 8,796,541
and 9,864,126, respectively. Options to purchase 317,461 shares of common stock,
ranging in prices from $3.94 to $10.06,  were  outstanding as of March 31, 2001,
but were not included in the  computation of diluted  earnings per share because
they were anti-dilutive.

                                       13

<PAGE>

Item 2. Management's Discussion and Analysis-continued
------------------------------------------------------

Three Month Period ended March  31, 2001 versus  March  31, 2000
------------------------------  ---------------  -----  --------

     Sales for the three months ended March 31, 2001 were  $14,495,209  compared
to $19,525,197 for the prior year's second quarter,  a decrease of $5,029,988 or
26%,  comprised of a 53% decrease in domestic  sales, a 21% decrease in European
sales and a 58% increase in Asian sales.

The primary forces causing the decrease were:

o        Reduction in analog  board sales
o        Slower rollout of  the  personal video recorder product
o        Lower average Euro to dollar  exchange rates

     Unit sales for the three months ended March 31, 2001 decreased about 29% to
approximately  209,000 as compared to approximately  295,000 for the prior year.
Sales to domestic customers for second quarter were 15% of net sales compared to
24% for the prior year's second quarter. Sales to European customers were 77% of
net sales for the second quarter  compared to 72% for the comparable  quarter of
the prior year. Sales to Asian customers were 8% for the quarter ended March 31,
2001 compared to 4% for the prior year's second quarter.

     Gross profit for the three month period ended March 31, 2001 was $3,204,141
as  compared to  $3,805,908  a decrease  of $ 601,767,  comprised  of a $980,345
decrease due to lower sales and a $378,578 increase due an increase in the gross
profit  percentage.  The gross profit percentage was 22.10% for the three months
ended March 31, 2001  compared to 19.49 % for the prior year's  second  quarter.
The increase in the gross margin percentage was mainly due to :

o    Cost savings obtained from the shifting of product pack out from an outside
     third party to the Company's distribution center in Ireland
o    Larger sales  mix of  higher gross  margin product

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

<TABLE>
<CAPTION>

                                                                     Three months ended March 31,
                                                                     ----------------------------
                                    Dollar Costs                         Percentage of Sales
                                    ------------                          -------------------
                                                         Increase                          Increase/
                                2001         2000       (Decrease)       2001     2000    (Decrease)
                                ----         ----        ---------       ----     ----    ----------
<S>                            <C>            <C>          <C>            <C>      <C>        <C>
Sales and Promotional       $1,684,562     2,087,662    $(403,100)       11.6%    10.6%      1.0%
Customer Support                94,895       126,031      (31,136)         .7%      .7%        -%
General and Admin              838,585       781,925       56,660         5.8%     3.9%      1.9%
                            ----------     ---------    ----------       -----    ----       ----
    Total                   $2,618,042    $2,995,618    $(377,576)       18.1%    15.2%      2.9%

</TABLE>

Selling  General  and  Administrative   expenses  decreased  $377,576  from  the
comparable quarter of the prior fiscal year. As a percentage of sales,  Selling,
General and  Administrative  expenses  for the three months ended March 31, 2001
increased by 2.9% from the comparable quarter of the prior year.

                                       14

<PAGE>

Item 2. Management's Discussion and Analysis-continued
------------------------------------------------------

The decrease in sales and promotional expense of $403,100 was mainly due to :

o Lower advertising cost of $271,608 due to lower co-op advertising
o Reduced European sales office costs of $151,142
o Lower commission payments of $40,900 due to lower sales
o Increased  compensation costs of $43,492 due to the addition of Eskape Lab
  personnel  and  higher  European sales rep compensation

Customer Support costs decreased $31,136 mainly due to lower compensation costs
of $23,230.

     The  increase  in  General  and  Administrative  expenses  of $ 56,660  was
primarily due to :

o    Increase in compensation costs of $ 72,145 related to the hiring of an MIS
     Director and an in house attorney, compensation costs related to the Eskape
     Labs administrative personnel and contractual increases
o    Increased  amortization  costs of $44,237  mainly due to the  amortization
     of goodwill and  intangible  assets related to the Eskape acquisition
o    Decreased professional fees cost of $80,446 related to termination of
     outside consulting agreements and lower legal costs relating to legal fees
     incurred for the start up of the Company's Luxembourg operation during
     fiscal 2000
o    Increased rent costs of $8,700 due to expanded office space for Eskape
     operations
o    Increased communications costs of $ 5,994 for additional phone lines
     required for Eskape personnel

     Research and development  expenses decreased $12,087 or approximately 3.4%.
The  decrease was due to lower  compensation  costs at the  Company's  Singapore
office and less parts consumed for development stage products.

     The Company had net other expense for the three months ended March 31, 2001
of $68,829  compared to net other expense for the prior year's second quarter of
$107,971.  The decrease in net other  expense was primarily due to lower foreign
currency transactions losses plus interest expense on borrowings outstanding and
lower interest income.

     The Company  recorded  an income tax  benefit of  $130,214  for the quarter
ended March 31, 2001 compared to a tax provision of $85,000 for the three months
ended March 31,2000.  Effective  October 1, 1999, the Company  restructured  its
foreign operations. The result of the restructuring eliminated the foreign sales
corporation and established a new Luxembourg corporation, which functions as the
entity that services the  Company's  European  customers.  The Company's net tax
benefit for the three months ended March 31, 2001 is as follows:

Tax (benefit) attributable to U.S operations                    $   (190,214)
Tax expense to European operations                                    60,000
                                                                      ------
         Net tax (benefit)                                      $   (130,214)

Due to the  higher  U.S.  effective  tax  rate,  the  tax  benefit  on the  loss
attributable  to the  Company's  U.S.  operations  of  $190,214  offset  the tax
liability of $ 60,000 attributable to the Company's European operations.

                                       15

<PAGE>

Item 2. Management's Discussion and Analysis-continued
------------------------------------------------------

     As a result of the above,  the  Company  recorded  net income for the three
months  ended March 31, 2001 of  $299,716,  which  resulted in basic and diluted
income  per  share of $0.03 on  weighted  average  basic and  diluted  shares of
8,887,719 and  9,240,819,  respectively,  compared to net income of $257,464 for
the three  months  ended  March 31,  2000,  which  resulted in basic and diluted
earnings  per  share  of $0.03 on  weighted  average  shares  of  8,796,541  and
9,864,126,  respectively.  Options to purchase  366,210  shares of common stock,
ranging in prices from $3.94 to $10.06,  were  outstanding as of March 31, 2001,
but were not included in the  computation of diluted  earnings per share because
they were anti-dilutive.

     Since the Company sells primarily to the consumer  market,  the Company has
experienced  certain  revenue  trends.  The  Company has  historically  recorded
stronger  sales results during the Company's  first fiscal  quarter  (October to
December),  which due to the holiday  season,  is a strong  quarter for computer
equipment sales. The Company  experienced this trend in each of the fiscal years
ended  September 30, 2000 and  September  30, 1999.  In addition,  the Company's
international  sales,  mostly in the European  market,  were 71%, 73% and 72% of
sales for the years ended 2000,  1999 and 1998,  respectively.  Due to this, the
Company's  sales  for its  fourth  fiscal  quarter  (July to  September)  can be
potentially impacted by the reduction of activity experienced with Europe during
the July and August summer holiday period.

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

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

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

                            March  31, 2001          September 30, 2000
                            ---------------          ------------------
Cash                        $  2,988,016             $  2,744,855
Working capital               13,192,679               11,766,900
Stockholders' equity          15,001,742               13,653,677

The  significant  items of cash provided by and cash (used by) for the six month
period ended March 31, 2001 are detailed below:

<TABLE>
<CAPTION>

<S>                                                                                <C>
Net income (adjusted for non cash items), excluding deferred tax benefits      $ 1,491,550
Loan repayments                                                                   (640,000)
Increase in current  liabilities-net                                               350,031
Increase in investment for current assets                                         (865,464)
Purchase of Property, Plant & Equipment                                           (120,338)
Other                                                                               27,382

</TABLE>

     Net cash of $976,117 provided by operating activities was primarily due to
net income  adjusted  for non cash items of  $1,491,550  and the increase in net
current  liabilities  of $350,031  offset by an  increase  in current  assets of
$865,464.  Other items of cash consumption  included $640,000 in loan repayments
and $120,338 used to purchase fixed assets.

     On July 12,  2000,  the Company  signed an agreement  with Chase  Manhattan
Bank,  providing  the Company with a $6,500,000  credit  facility.  The facility
allows the  Company,  at its option,  to borrow at the prime rate or 1.25% above
the London Interbank Offered Rate "LIBOR". The facility is secured by the assets
of the Company and on April 5, 2001, the line of credit was renewed by Chase for
another  year,  expiring on March 31, 2002.  As of March 31, 2001,  $360,000 was
outstanding under this line of credit.

                                       16
<PAGE>

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

     On November 8, 1996, the Company  approved a stock  repurchase  program for
the repurchase of up to 600,000 shares of its own Common Stock.  The repurchased
shares will be used by the Company for certain employee benefit programs.  As of
March 31, 2001, 429,602 treasury shares valued at $1,334,064 at an average price
of $ 3.11 were held by the Company as treasury shares.

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

     In January, Ken Aupperle, the Company's President passed away unexpectedly.
The Company had previously  obtained life  insurance  policies on its two senior
executives.  The policies relating to Mr. Aupperle, for which the Company is the
beneficiary,  total  $2,000,000.  The  Company is  currently  in the  process of
obtaining the required  information  necessary to file the claims.  At such time
that the Company is  reasonably  assured  that the  insurance  proceeds  will be
received,  the Company will record a one-time  non-operating income item for the
insurance proceeds.

Inflation
---------

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

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

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

     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 when 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 an 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
Company is  currently  evaluating  the  impact  that EITF 00-25 will have on its
results of operations and cash flows.

                                       17

<PAGE>

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

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

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

     These hedging  activities  provide only limited protection against currency
exchange  risks.  Factors that could impact the  effectiveness  of the Company's
programs include  volatility of the currency markets and availability of hedging
instruments. The contracts the Company procures are specifically entered into as
a hedge against existing or anticipated  exposure based on forecasted sales. The
Company does not enter into  contracts for  speculative  purposes.  Although the
Company  maintains  these  programs  to reduce the impact of changes in currency
exchange rates,  when the U.S. dollar sustains a strengthening  position against
the  currencies in which the Company sells it products,  the Company's  revenues
can be adversely affected.

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

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

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

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

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

     On October 6, 1998, the Company  received  notice that AII had commenced an
action  against it and multiple other  defendants in the United States  District
Court for the Northern  District of Illinois (the  "District  Court"),  alleging
that the certain of the Company's  products  infringed on certain  patent rights
allegedly    owned   by   the   plaintiff   (the    "Complaint").

                                       18

<PAGE>

Legal Proceedings-continued
---------------------------

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

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

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

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

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

           None

(b) Reports on form 8-K
-----------------------

           None

                                       19

<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 15, 2001                     By:/s/ Kenneth Plotkin
       ------------                        --------------------
                                           KENNETH  PLOTKIN
                                           President and
                                           Chief Executive Officer

Date: May 15, 2001                      By:/s/ Gerald Tucciarone
      ------------                         ----------------------
                                           GERALD TUCCIARONE
                                           Treasurer and Chief
                                           Financial Officer



                                       20


<PAGE>