UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20459
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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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
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HAUPPAUGE DIGITAL, INC.
-----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 11-3227864
-------- ----------
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
91 Cabot Court, Hauppauge, New York 11788
-----------------------------------------
(Address of principal executive offices)
(516) 434-1600
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 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 August 5, 1996, 4,465,302 shares of .01 par value Common Stock of the
registrant were outstanding.
Index Schedule found on Page No. 14
Page 1 of 16 pages.
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HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
----------------------------------------
INDEX
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Page No.
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PART I. FINANCIAL INFORMATION
- -----------------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
June 30, 1996 and September 30, 1995 3
Condensed Consolidated Statements of Operations-
Nine Months ended June 30, 1996 and 1995 4
Condensed Consolidated Statements of Operations-
Three Months ended June 30, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows-
Nine Months ended June 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial
Statements 7-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-16
PART II. OTHER INFORMATION
- --------------------------
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
As of
June 30, 1996 As of
(Unaudited) September 30, 1995
--------------- -----------------
CURRENT ASSETS:
Cash and Cash Equivalents... $1,984,195 $1,214,940
Accounts receivable, net of
allowance for doubtful accounts 1,706,532 1,146,865
Inventories (Note 2)........ 2,152,940 2,187,981
Prepaid expenses and other
current assets............. 254,117 192,689
--------- ---------
Total current assets........ 6,097,784 4,742,475
--------- ---------
Property, plant and
equipment-at cost.......... 362,415 334,443
Less: Accumulated depreciation
and amortization........... 218,856 193,188
--------- ---------
143,559 141,255
--------- ---------
SECURITY DEPOSITS AND OTHER ASSETS 60,320 62,085
--------- ---------
$6,301,663 $4,945,815
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable........... 1,636,398 2,645,268
Accrued expenses........... 846,895 625,174
--------- ---------
Total current liabilities 2,483,293 3,270,442
--------- ---------
SHAREHOLDERS' EQUITY (Notes 7 and 8)
Common stock $.01 par value;
10,000,000 shares authorized,
3,219,300 issued and outstanding
as of June 30, 1996 and 2,756,183
issued and outstanding as of
September 30, 1995......... 32,193 27,562
Additional paid-in capital.. 5,917,179 4,141,343
Accumulated deficit........ (2,131,002) (2,493,532)
---------- ----------
3,818,370 1,675,373
---------- ----------
$6,301,663 $4,945,815
========== ==========
See notes to condensed consolidated financial statements
<PAGE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine For the Nine
Months Ended Months Ended
June 30, 1996 June 30, 1995
(Unaudited) (Unaudited)
------------- -------------
NET SALES..................... $11,594,484 $8,826,491
COST OF SALES................. 8,686,416 6,958,452
---------- ---------
Gross Profit................ 2,908,068 1,868,039
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................. 2,231,867 2,115,192
RESEARCH & DEVELOPMENT EXPENSES 320,600 178,632
--------- ---------
Income, (loss) from operations 355,601 (425,785)
OTHER INCOME (EXPENSE):
Interest income, net......... 21,269 13,510
Private placement financing
costs (Note 4).............. - (572,674)
Miscellaneous income......... 15,660 28,743
-------- ---------
Income, (loss) before income
tax provision .......... 392,530 (956,206)
INCOME TAX PROVISION (Note 5). 30,000 -
------- ---------
Net income, (loss)........ $362,530 ($956,206)
======== ==========
Net income, (loss) per share.. $0.13 ($0.42)
======== ==========
Weighted average shares
outstanding (Note 3)....... 2,788,593 2,257,183
========= =========
See notes to condensed consolidated financial statements
<PAGE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three For the Three
Months Ended Months Ended
June 30, 1996 June 30, 1995
(Unaudited) (Unaudited)
-------------- -------------
NET SALES......................... $3,355,106 $3,706,465
COST OF SALES..................... 2,421,661 2,967,523
---------- ---------
Gross Profit.................... 933,445 738,942
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................ 738,693 798,602
RESEARCH & DEVELOPMENT EXPENSES... 119,330 89,241
--------- --------
Income, (loss) from operations. 75,422 (148,901)
OTHER INCOME (EXPENSE):
Interest income, net............. 5,411 18,843
Miscellaneous income............. 7,643 44
--------- -------
Income, (loss) before income tax
provision .................. 88,476 (130,014)
INCOME TAX PROVISION (Note 5).... 10,000 -
--------- ---------
Net income, (loss)............. $78,476 ($130,014)
========= ==========
Net income, (loss) per share ..... $0.03 ($0.05)
========= ==========
Weighted average shares
outstanding (Note 3)........... 2,853,769 2,756,183
========= ==========
See notes to condensed consolidated financial statements
<PAGE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine For the Nine
Months Ended Months Ended
June 30, 1996 June 30, 1995
(Unaudited) (Unaudited)
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income, (loss)...................... $362,530 ($956,206)
Adjustments to reconcile net income, -------- ----------
(loss) to net cash (used in)provided
by operating activities:
Depreciation and amortization.......... 27,859 22,721
Provision for uncollectible accounts
receivable.......................... 13,000 35,000
Provision for system board obsolescence 33,000 115,000
Private placement financing costs...... - 572,674
Rent expense funded by principal shareholders - -
Increase (decrease) in cash resulting from
changes in operating assets and liabilities:
Accounts receivable.................... (569,666) (475,560)
Inventories............................ 2,041 (937,298)
Prepaid expenses and other current assets (61,427) (115,704)
Accounts payable....................... (1,008,870) 276,731
Accrued expenses....................... 218,721 249,682
---------- -----------
(1,345,342) (256,754)
Net cash used in operating activities. (982,812) (1,212,960)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of machinery and equipment... (27,972) (6,222)
Purchase of software rights............ - (13,156)
Security deposits...................... (428) (483)
-------- --------
Net cash used in investing activities (28,400) (19,861)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from private placement offering 477,304
Net proceeds from Initial Public Offering - 3,267,023
Net proceeds from exercise of
Underwriter's Unit Purchase Option ..... 543,779
Net proceeds from exercise of Class A Warrants 1,236,688
Principal payment on bank loan........... - (395,000)
Principal payment on private placement
bridge loan............................. - (600,000)
--------- ----------
Net cash provided by financing activities. 1,780,467 2,749,327
--------- ----------
Net increase in cash and cash equivalents. 769,255 1,516,506
CASH AND CASH EQUIVALENTS, beginning
of period................................ 1,214,940 151,408
--------- ----------
CASH AND CASH EQUIVALENTS, end of period.. $1,984,195 $1,667,914
========== ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid........................... - $43,667
========== ===========
Income taxes paid....................... $8,615 $19,163
========== ==========
See notes to condensed consolidated financial statements
<PAGE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
included herein have been prepared in accordance with generally accepted
accounting principles for interim period reporting in conjunction with the
instructions to Form 10-QSB. Accordingly, these statements do not include all
of the information required by generally accepted accounting principles for
annual financial statements, and are subject to year-end adjustments. In the
opinion of management, all known adjustments (consisting of normal recurring
accruals and reserves) necessary to present fairly the quarterly financial
results for the period have been included. It is suggested that these interim
statements be read in conjunction with the financial statements and related
notes included in the Company's September 30, 1995 Form 10-KSB.
The operating results for the three months and nine months ended June 30,
1996 are not necessarily indicative of the results to be expected for the
September 30, 1996 year end.
NOTE 2. INVENTORIES
Inventories have been valued at the lower of average cost or market. The
components of inventory at June 30, 1996 and September 30, 1995 consist of:
June 30, September 30,
1996 1995
---- ----
Component Parts $ 727,013 $ 738,846
Work in Progress 959,096 974,706
Finished Goods 466,831 474,429
-------- ---------
$2,152,940 $2,187,981
========== ==========
NOTE 3. NET INCOME (LOSS) PER SHARE
Net income and loss per share have been computed on the basis of weighted
average common shares outstanding for each period presented.
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HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Net income (loss) per share - continued
Weighted average shares outstanding listed below were used in the per share
computation:
Three Months Ended Nine Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
2,853,769 2,756,183 2,788,593 2,257,183
During the quarter ended June 30, 1996, the Company's stock traded at an average
price that was in excess of the exercise price for the Company's Class A
Warrants (the warrants). The warrants, which in certain circumstances are
considered as a component of weighted average shares outstanding, resulted in
an immaterial dilution to earnings per share and were not included in the
calculation of weighted average shares. The warrants were called for redemption
by the Company on June 3, 1996. As of June 30, 1996, 329,784 warrants were
exercised. The Company had 1,279,732 Class A Warrants outstanding at June 30,
1996. (See note 8, "Warrant Redemption").
NOTE 4. PRIVATE PLACEMENT FINANCING COSTS
Through a private placement offering consummated on October 12, 1994, for
gross proceeds of $600,000, the Company issued $600,000 in principal amount of
promissory notes bearing interest at 5% per annum and such number of units
comprised of the Company's common stock and class A redeemable common stock
purchase warrants as shall equal $18,750 divided by the IPO unit price of $3.15.
The resulting 142,850 units of common stock is determined by dividing $18,750
by the offering price of $3.15 per unit and multiplying that result by 24
private placement units ($600,000 divided by $25,000 per unit), rounded to
exclude fractional shares. These units were issued in conjunction with the
Company's January 10, 1995 initial public offering (IPO). The promissory notes
were subject to mandatory repayments. On January 17, 1995, the $600,000 plus
accrued interest of $7,910 was repaid. All the units issued to the former
noteholders were registered with the Securities and Exchange Commission
concurrently with the IPO.
It was the opinion of management, based on certain factors such as: 1) the
nature of the borrowing, 2) the Company's financial position and 3) the economic
environment, that the 5% interest rate on the promissory notes did not reflect
the effective financing costs when considering the value of the units of common
stock and warrants issued. Accordingly, $449,978 (the value of 142,850 units
at the IPO price of $3.15) was charged to operations under the
-8-
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HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
caption "Private Placement Financing Costs" in the quarter ended December 31,
1994. Additionally, $122,696 of fees and costs relating to the private placement
were charged to operations within the same caption in the quarter ended December
31, 1994.
NOTE 5. INCOME TAXES
Income taxes are based on annualized statutory rates for federal and state
income taxes. The provision for income taxes reflects the effect of restricted
and unrestricted net operating loss carryforwards adjusted for the applicable
federal and state alternative minimum tax provisions.
NOTE 6. LINE OF CREDIT
On March 28, 1996, Hauppauge Computer Works, Inc, a wholly owned subsidiary
of Hauppauge Digital, Inc., entered into a Credit Agreement with the MTB Bank.
The Credit Agreement provides for, among other things, a two year asset based
line of credit, whereby the Company may borrow up to $1,100,000, which increases
to $1,600,000 upon receipt of the Company's audited September 30, 1996
consolidated financial statements. Advances shall be made on a revolving basis
based on 70% of eligible domestic and foreign receivables not older than 90
days. The Agreement provides that foreign receivables must be credit insured,
except for Reuters, which the MTB Bank has verbally agreed to exclude from the
credit insurance provision. Upon satisfactory review of the Company's September
30, 1996 financial and accounts receivable performance, the advance rate for
eligible credit insured foreign receivables will increase to 80%. An interest
rate of 2 1/2 % above MTB's prime commercial lending rate on a floating basis
will be charged on all advances. The credit line is secured by the assets of the
Company. In addition, the Company, HCW Distributing Corp., Hauppauge Computer
Works GmbH, Hauppauge Computer Works Ltd., Kenneth R. Aupperle and Kenneth
Plotkin, have guaranteed the obligations of Hauppauge Computer Works, Inc.. The
quarantees of Messrs. Aupperle and Plotkin are each limited to of 20% of the
borrowings outstanding with a cap of $150,000 each and a minimum of $50,000. The
loan requires the Company to maintain a consolidated net worth of $1,750,000
until September 30, 1996 and $2,000,000 thereafter. If the Company does not meet
the requirements of these and other existing covenants, the Company will be in
default per the Credit Agreement. The Company is prohibited from paying cash
dividends during the term of the Credit Agreement. As of June 30, 1996, the
Company has not utilized this loan facility.
-9-
<PAGE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7. EXERCISE OF UNDERWRITER'S UNIT PURCHASE OPTION
In connection with the Company's January 10, 1995 Initial
Public Offering (IPO), the Company sold to Lew Lieberbaum & Co.,
Inc. (the Underwriter) 133,333 Underwriters Unit Purchase Options
(Purchase Options), each exercisable at $4.41. Each unit consisted
of one share of the Company's Common Stock and one Underwriter
Warrant. The Underwriter's Warrant entitled the holder to purchase
one share of Common Stock at an exercise price of $3.75 and are
identical to the Class A Warrants offered in the IPO.
On May 7, 1996, in light of the market conditions that existed
at the time, the Company allowed the Underwriter to exercise 67,000
Purchase Options at 3.75 per share, which they exercised on May 24,
1996. On June 7, 1996, the remaining 66,333 Purchase Options were
exercised by the Underwriter for $4.41. The net proceeds of
$543,779 will be used for working capital and general corporate
purchases.
NOTE 8. CALL FOR REDEMPTION OF CLASS A WARRANTS
On June 3, 1996, the Company, in accordance with Article VI of
a Warrant Agreement dated January 10, 1995 between the Company and
North American Transfer, called for the redemption of all the
outstanding warrants at a price of $.10 per share. Each Warrant
entitled the holder to purchase one share of the Company's $.01 par
value Common Stock at $3.75 per share. The expiration date,
originally July 5, 1996, was extended at the discretion of the
Company until July 17, 1996.
At the July 17, 1996 expiration date, 1,575,786 warrants,
which included 133,333 Warrants obtained by the Underwriter in the
exercise of their Purchase Option, were exercised and 33,730
warrants were redeemed. The redemption resulted in gross proceeds
to the Company of $5,909,197. After deducting expenses of the
redemption, which include a 5% solicitation fee payable to the
Underwriter for a portion of the warrants, Accounting, Legal,
printing costs and $3,373 payable to the warrant holders who did
not exercise their Warrants, the net proceeds from the Warrant
redemption will be approximately $5,650,000. As of June 30, 1996,
329,784 warrants amounting to $1,236,688 had been exercised. As a
result of the Warrant redemption and exercise of the Underwriters
Unit Purchase Option, total shares issued and outstanding will be
4,465,302. The net proceeds will be used for working capital and
general corporate purchases.
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<PAGE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Detailed below are selected Consolidated Balance Sheet data
adjusted to reflect the approximate net proceeds of $5,650,000
obtained from the Warrant redemption, net of the $1,236,688
received as of June 30, 1996:
As of June 30, 1996
-------------------
Actual As Adjusted
------ -----------
Working Capital $ 3,614,491 $ 8,027,803
Current Assets 6,097,784 10,511,096
Total Assets 6,301,663 10,714,975
Current Liabilities 2,483,293 2,483,533
Shareholders' Equity 3,818,370 8,231,682
-11-
<PAGE>
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
Results of Operations
- ---------------------
Nine Month Period ended June 30, 1996 versus June 30, 1995
- ----------------------------------------------------------
Sales for the nine months ended June 30, 1996 were $11,594,484,
compared to $8,826,491 for the comparable period in the prior
fiscal year, resulting in an increase of $2,767,993 or 31%. The
increase in sales was primarily due to the investment of the IPO
proceeds during the prior fiscal year in increased marketing and
production capabilities. The ability of the Company to procure
additional inventory and expand production sources enabled the
Company to gain market share and meet the increased sales demand.
Net sales of the Company's products are summarized as follows:
Nine Months Ended June 30, Increase
1996 1995 (Decrease)%
------ ------ -----------
P.C. System Sales $ 1,273,405 $ 720,360 77
Win/TV Boards 10,321,079 8,106,131 27
---------- --------- ---
Total Company Sales $11,594,484 $8,826,491 31
=========== ==========
Unit sales of Win/TV boards, the Company's digital video TV board,
increased to approximately 45,100 as compared to approximately
29,600 for the prior year, resulting in an increase of 52%. Sales
to domestic customers for the nine month period were 43% of net
sales for the current year and 33% for the prior year. Sales to
international customers, which were primarily in U.S. Dollars, were
57% of net sales for the current year and 67% for the comparable
period of last year. The increase in domestic sales as a percentage
of sales reflects an effort by the Company to expand its domestic
sales base.
Gross profit increased to $2,908,068 from $1,868,039, an
increase of $1,040,029 or 56% over the prior comparable fiscal year
period. The gross profit percentage increased to 25% from 21%.
The increase in the margin percentage was due to lower component
costs resulting from the economies gained by purchasing larger
volumes of inventory plus fixed production costs absorbed over a
greater number of units, which lowered the labor costs per unit.
Though selling, general and administrative expenses increased
$116,675 over the prior year, they declined to 19% of revenue in
the current year compared to 24% of revenue for the nine months
ended June 30, 1995. The increase in expenses was primarily due to
increased sales and marketing expenses of $155,761, mainly due to
intensified marketing programs for advertising and trade shows plus
increased commissions because of higher sales offset by $69,416 in
lower support and freight costs.
-12-
<PAGE>
ITEM 2. Management's Discussion and Analysis-Continued
- ---------------------------------------------------------
Research and development expenses increased $141,968 or
approximately 79%. The increase was due to the infusion of new
capital from the Company's January 1995 IPO, which was used to
expand the Company's engineering research and development resources
to enhance current products and further develop future product
lines.
The Company had net other income of $36,929 for the June 30,
1996 nine month period as opposed to net other expense of $530,421
for the corresponding nine months of the preceding fiscal year. The
increase in net other income was primarily due to the non recurring
private placement financing costs of $572,674 charged to operations
in the first fiscal quarter of 1995 plus higher current year net
interest income.
As a result of all of the above, the Company recorded a net
profit after taxes for the nine months ended June 30, 1996 of
$362,530 or $0.13 per share as opposed to a net loss after taxes
(which taxes for the prior year were nominal) of ($956,206) or
($0.42) per share.
Three Month Period ended June 30, 1996 versus June 30, 1995
- -----------------------------------------------------------
Net sales for the three months ended June 30, 1996 were
$3,355,106, compared to $3,706,465 for the comparable period in the
prior fiscal year, resulting in a decrease of $351,359 or 9%. The
sales decrease was primarily due to sluggish international sales
and the loss of a certain foreign customer, who accounted for sales
of approximately $310,000 for the quarter ended June 30, 1995, due
to this customer's deteriorating financial condition. Domestic
sales were slightly impacted toward the end of the quarter by the
transition to several technologically enhanced new products which
the Company began shipping in July 1996. Sales for the fiscal
fourth quarter may be impacted by the European summer holiday
season, which in the prior year's fourth quarter resulted in a
seasonal reduction of European operations.
Net sales of the Company's products are summarized as follows:
Three Months Ended June 30, Increase
1996 1995 (Decrease)%
---- ---- ------------
P.C. System Sales $ 427,817 $ 139,025 207
Win/TV Boards 2,927,289 3,567,440 (18)
---------- --------- ----
Total Company Sales $3,355,106 $3,706,465 ( 9)
========== ==========
Unit sales of Win/TV boards, the Company's digital video TV card,
were approximately 11,900 as compared to approximately 13,160 for
the same quarter in the prior year, resulting in an decrease of
10%. Sales to domestic customers for the three month period were
57% or $1,929,304 of net sales for the current year and 31% or
-13-
<PAGE>
ITEM 2. Management's Discussion and Analysis-Continued
- ---------------------------------------------------------
$1,154,436 for the prior year. Sales to international customers,
which were primarily in U.S. Dollars, were $1,425,802 or 43% of net
sales for the current quarter and $2,552,029 or 69% for the
comparable period of last year. The increase in domestic sales as
a percentage of sales reflects an effort by the Company to expand
its domestic sales base.
In spite of lower sales in the current quarter compared to the
same quarter in the previous year, gross profit increased to
$933,445 from $738,942, an increase of $194,503 or 26% over the
prior comparable fiscal year period. The gross profit percentage
increased to 28% from 20%. The increase in the margin percentage
was due to less additions to the reserves for inventory
obsolescence and sales returns in the current quarter compared to
the previous year's quarter, lower unit costs due to improved
operating efficiencies and a larger percentage of higher margin
Win/TV boards sold in the current quarter ended June 30, 1996.
Selling, general and administrative expenses decreased
$59,909 compared to the prior year. Expenses as a percentage of
revenue remained stable at 22% for the current quarter and for the
three months ended June 30, 1995. The decrease in expenses was
primarily due to decreased sales and marketing expenses of $51,555.
Sales and Marketing spending was accelerated for the third fiscal
quarter of 1995 due to the implementation of an intensive marketing
program made possible by the proceeds of the Company's January 10,
1995 IPO.
Research and development expenses increased $30,089 or
approximately 34%. The increase was due to the infusion of new
capital from the Company's January 1995 IPO, which was used to
expand the Company's 1996 engineering research and development
resources to enhance current products and further develop future
product lines.
The Company had net other income of $13,054 for the June 30,
1996 three month period compared to net other income of $18,887 for
the corresponding three months of the preceding fiscal year. The
decrease in net other income from the same quarter in the prior
year was due to higher foreign currency gains offset by lower net
interest income.
As a result of all of the above, the Company recorded a net
profit after taxes for the three months ended June 30, 1996 of
$78,476 or $0.03 per share as opposed to a net loss after taxes
(which taxes for the prior year were nominal) of ($130,014) or
($0.05) per share.
-14-
<PAGE>
ITEM 2. Management's Discussion and Analysis-Continued
- ---------------------------------------------------------
Liquidity and Capital Resources
- -------------------------------
The Company had a net cash position of $1,984,195 working
capital of $3,614,491 and shareholders' equity of $3,818,370 as of
June 30, 1996. For the nine months ended June 30, 1996, the
Company's cash position increased by $769,255. The detail of
significant cash sources and (uses) were:
Net income adjusted for non cash items: $ 436,389
Investments in current assets (629,052)
Decrease in current liabilities, net (790,149)
Net proceeds from the exercise of Underwriter's
Unit Purchase Option 543,779
Net proceeds from the exercise of Class
A Warrants 1,236,688
In connection with the Company's January 10, 1995 Initial
Public Offering (IPO), the Company sold to Lew Lieberbaum & Co.,
Inc. (the Underwriter) 133,333 Underwriters Unit Purchase Options
(Purchase Options), each exercisable at $4.41. Each unit consisted
of one share of the Company's Common Stock and one Underwriter
Warrant. The Underwriter's Warrant entitled the holder to purchase
one share of Common Stock at an exercise price of $3.75 and are
identical to the Class A Warrants offered in the IPO.
On May 7, 1996, in light of the market conditions that existed
at the time, the Company allowed the Underwriter to exercise 67,000
Purchase Options at $3.75 per Purchase Option, which they exercised
on May 24, 1996. On June 7, 1996, the remaining 66,333 Purchase
Options were exercised by the Underwriter for $4.41. The net
proceeds of $543,779 will be used for working capital and general
corporate purchases.
On June 3, 1996, the Company, in accordance with Article VI of
a Warrant Agreement dated January 10, 1995 between the Company and
North American Transfer, called for the redemption of all the
outstanding warrants at a price of $.10 per share. Each Warrant
entitled the holder to purchase one share of the Company's $.01 par
value Common Stock at $3.75 per share. The expiration date,
originally July 5, 1996, was extended at the discretion of the
Company until July 17, 1996.
At the July 17, 1996 expiration date, 1,575,786 warrants,
which included 133,333 Warrants obtained by the Underwriter in the
exercise of their Purchase Option, were exercised and 33,730
warrants were redeemed. The redemption resulted in gross proceeds
to the Company of $5,909,197. After deducting expenses of the
-15-
<PAGE>
ITEM 2. Management's Discussion and Analysis-Continued
- ---------------------------------------------------------
Liquidity and Capital Resources
- --------------------------------
redemption, which include a 5% solicitation fee payable to the
Underwriter for a portion of the warrants, Accounting, Legal,
printing costs and $3,373 payable to the warrant holders who did
not exercise their Warrants, the net proceeds from the Warrant
redemption will be approximately $5,650,000. As of June 30, 1996,
329,784 warrants amounting to $1,236,688 had been exercised. As a
result of the Warrant redemption and exercise of the Underwriters
Unit Purchase Option, total shares issued and outstanding will be
4,465,302. The net proceeds will be used for working capital and
general corporate purchases.
On March 28, 1996, Hauppauge Computer Works, Inc, a wholly
owned subsidiary of Hauppauge Digital, Inc., entered into a Credit
Agreement with the MTB Bank. The Credit Agreement provides for,
among other things, a two year asset based line of credit, whereby
the Company may borrow up to $1,100,000, which increases to
$1,600,000 upon receipt of the Company's audited September 30, 1996
consolidated financial statements (See note 6).
The Company believes that the proceeds received from the
exercise of the Class A Warrants and the Underwriter's Unit
Purchase Option, its internally generated cash flow and its asset
based line of credit, will be sufficient to satisfy the Company's
anticipated operating needs for a least the ensuing twelve months.
Risk Factors
- ------------
From time to time, information provided by the company,
statements made by its employees or information provided in its
Securities and Exchange Commission filings, may contain forward
looking information. Due to the dynamic and rapidly changing
business environment plus various risks and uncertainties
encountered in the computer hardware business, the Company's actual
future results may differ materially from those projections. The
Company products are sold worldwide through distributors, retailers
and original equipment manufacturers. The revenues of the Company
are subject to fluctuation due to such things as technological
changes, competition, loss of major customers, seasonality,
declining prices and the worldwide economic climate.
The market price of the Company's common stock may be volatile
at times in response to fluctuation in the Company's quarterly
operating results, changes in analysts' earnings estimates, market
conditions in the computer hardware industry, as well as general
conditions and other factors external to the Company.
-16-
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
Item 5 Other Information
- -------------------------
On May 24, 1996, Lew Lieberbaum & Co Inc. (The Underwriter)
exercised 67,000 Purchase Options at $3.75 per Purchase Option. On
June 7, 1996, the remaining 66,333 Purchase Options were exercised
by the Underwriter for $4.41 per Purchase Option. The net proceeds
of $543,779 will be used for working capital and general corporate
purchases (See Note 7 of the foregoing financial statements and
accompanying notes).
On June 3, 1996, the Company, in accordance with Article VI of
a Warrant Agreement dated January 10, 1995 between the Company and
North American Transfer, called for the redemption of all the
outstanding warrants at a price of $.10 per share. Each Warrant
entitled the holder to purchase one share of the Company's $.01 par
value Common Stock at $3.75 per share. The expiration date,
originally July 5, 1996, was extended at the discretion of the
Company until July 17, 1996. (See Note 8 of the foregoing financial
statements and accompanying notes).
At the July 17, 1996 expiration date, 1,575,786 warrants,
which included 133,333 Warrants obtained by the Underwriter in the
exercise of their Purchase Option, were exercised and 33,730
warrants were redeemed. The redemption resulted in gross proceeds
to the Company of $5,909,197. After deducting expenses of the
redemption, which include a 5% solicitation fee payable to the
Underwriter for a portion of the warrants, Accounting, Legal,
printing costs and $3,373 payable to the warrant holders who did
not exercise their Warrants, the net proceeds from the Warrant
redemption will be approximately $5,650,000. As a result of the
Warrant redemption and exercise of the Underwriters Unit Purchase
Option, total shares issued and outstanding will be 4,465,302. The
net proceeds will be used for working capital and general corporate
purchases. (See Note 8 of the foregoing financial statements and
accompanying notes).
Item 6 Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
- ------------
None
(b) Reports on Form 8-K
- -----------------------
On June 3 the Company filed Form 8K under Other Events,
stating that the Company, in accordance with Article VI of a
Warrant Agreement between the Company and its transfer agent, North
American Transfer, was calling for redemption by July 5, 1996 all
of its outstanding Class A Warrants at $.10 per share.
-17-
<PAGE>
PART II. OTHER INFORMATION-Continued
- -------------------------------------
On June 27, 1996 the Company filed a Form 8K under Other
Events, stating that the Company on June 13, 1996 had extended the
redemption date to July 17, 1996.
On July 31, 1996 the Company filed a Form 8K under Other
Events, setting forth the exercise by the Underwriter of its
Purchase Options and the exercise and redemption of the Class A
Warrants as more fully described in Notes 7 and 8 of the foregoing
financial statements and accompanying notes and under Management's
Discussion and Analysis-Liquidity and Capital Resources described
in Part I item 2 herein.
-18-
<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: August 12, 1996 By: /s/ KENNETH PLOTKIN
--------------- --------------------
KENNETH PLOTKIN
Vice President and
Chief Executive Officer
Date: August 12, 1996 By: /s/ GERALD TUCCIARONE
--------------- ----------------------
GERALD TUCCIARONE
Treasurer and Chief
Financial Officer
-19-
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<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1995
<PERIOD-END> JUN-30-1996 JUN-30-1995
<CASH> 1,984,195 1,214,940
<SECURITIES> 0 0
<RECEIVABLES> 1,706,532 1,146,865
<ALLOWANCES> 72,492 62,000
<INVENTORY> 2,152,940 2,187,981
<CURRENT-ASSETS> 6,097,784 4,742,475
<PP&E> 362,415 334,443
<DEPRECIATION> 218,856 193,188
<TOTAL-ASSETS> 6,301,663 4,945,815
<CURRENT-LIABILITIES> 2,483,293 3,270,442
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0 0
0 0
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<TOTAL-LIABILITY-AND-EQUITY> 6,301,663 4,945,815
<SALES> 11,594,484 8,826,491
<TOTAL-REVENUES> 11,594,484 8,826,491
<CGS> 8,686,416 6,958,452
<TOTAL-COSTS> 2,552,467 2,293,824
<OTHER-EXPENSES> 36,929 (530,421)
<LOSS-PROVISION> 13,000 35,000
<INTEREST-EXPENSE> 0 17,694
<INCOME-PRETAX> 392,530 (956,206)
<INCOME-TAX> 30,000 0
<INCOME-CONTINUING> 362,530 (956,206)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 362,530 (956,206)
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