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 December 31, 1995 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)
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 January 22, 1996, 2,756,183 shares of .01 par value Common Stock of
the registrant were outstanding.
Index Schedule found on Page No. 11
Page 1 of 12 pages.
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HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
December 31, 1995 and September 30, 1995 3
Condensed Consolidated Statements of Operations-
Three Months ended December 31, 1995 and 1994 4
Condensed Consolidated Statements of Cash Flows-
Three Months ended December 31, 1995 and 1994 5
Notes to Condensed Consolidated Financial
Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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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
December 31, 1995 As of
(Unaudited) September 30, 1995
CURRENT ASSETS: ----------- ------------------
Cash $ 657,840 $1,214,940
Accounts receivable, net of allowance
for doubtful accounts 1,498,136 1,146,865
Inventories (Note 2) 2,912,242 2,187,981
Prepaid expenses and other
current assets 144,057 192,689
--------- ---------
Total current assets 5,212,275 4,742,475
--------- ---------
Property, plant and equipment-at cost 337,893 334,443
Less: Accumulated depreciation
and amortization 201,744 193,188
-------- ---------
136,149 141,255
--------- ---------
SECURITY DEPOSITS AND OTHER ASSETS 61,208 62,085
--------- ---------
$5,409,632 $4,945,815
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 2,828,338 2,645,268
Accrued expenses 703,294 625,174
---------- ----------
Total current liabilities 3,531,632 3,270,442
---------- ----------
SHAREHOLDERS' EQUITY
Common stock $.01 par value;
10,000,000 shares authorized,
2,756,183 issued and outstanding
as of December 31, 1995
and September 30, 1995 27,562 27,562
Additional paid-in capital 4,141,343 4,141,343
Accumulated deficit (2,290,905) (2,493,532)
--------- ---------
1,878,000 1,675,373
--------- ---------
$5,409,632 $4,945,815
========= ==========
See notes to condensed consolidated financial statements
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HAUPPAUGE DIGITAL, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three For the Three
Months Ended Months Ended
December 31, 1995 December 31, 1994
(Unaudited) (Unaudited)
----------- -----------
SALES $4,510,217 $2,153,805
COST OF SALES 3,468,809 1,679,999
---------- ----------
Gross Profit 1,041,408 473,806
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 747,060 616,558
RESEARCH & DEVELOPMENT EXPENSES 93,877 41,778
--------- ----------
Income (loss) from operations 200,471 (184,530)
OTHER INCOME (EXPENSE):
Interest income (expense), net 9,816 (13,593)
Private placement financing costs (Note 4) - (572,674)
Miscellaneous income 2,340 3,670
-------- --------
Income (loss) before income
tax provision 212,627 (767,127)
INCOME TAX PROVISION (Note 5) 10,000 -
-------- --------
Net income (loss) $202,627 ($767,127)
======== =========
Net income (loss) per share $0.07 ($0.55)
======== =========
Weighted average shares outstanding (Note 3) 2,756,183 1,405,770
========= =========
See notes to condensed consolidated financial statements
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<PAGE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three For the three
Months Ended Months Ended
December 31, 1995 December 31, 1994
(Unaudited) (Unaudited)
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit, (loss) $202,627 ($767,127)
-------- --------
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities:
Depreciation and amortization 9,433 7,283
Provision for uncollectible
accounts receivable 5,000 10,000
Provision for system board obsolescence 10,000 20,000
Private placement financing costs - 572,674
Increase (decrease) in cash resulting from
changes in operating assets and liabilities:
Accounts receivable (356,271) (542,659)
Inventories (734,261) (333,480)
Prepaid expenses and other current assets 48,632 (29,858)
Deferred registration costs - (204,777)
Accounts payable 183,070 746,861
Accrued expenses 78,120 83,825
------- -------
(756,277) 329,869
------- -------
Net cash used in operating activities (553,650) (437,258)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (3,450) -
Purchase of software rights - (13,158)
Security deposits - (483)
----- -------
Net cash used in investing activities (3,450) (13,641)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from private placement offering - 477,304
Principal payment on bank loan - (50,000)
----- -------
Net cash provided by financing activities - 427,304
----- -------
Net decrease in cash (557,100) (23,595)
CASH, beginning of period 1,214,940 151,408
--------- -------
CASH, end of period $657,840 $127,813
========= ========
SUPPLEMENTAL DISCLOSURES:
Interest paid - $7,000
========= =======
Income taxes paid $4,286 $1,053
========= ========
See notes to condensed consolidated financial statements
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<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 ended December 31, 1995
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 December 31, 1995 and September 30, 1995
consist of:
December 31, September 30,
1995 1995
---- ----
Component Parts $ 983,417 $ 738,846
Work in Progress 1,297,351 974,706
Finished Goods 631,474 474,429
--------- ---------
$2,912,242 $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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<PAGE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Net income (loss) per share - continued
Weighted average shares outstanding listed below were used in the
per share computation:
Three Months Ended
December 31,
1995 1994
---- ----
2,756,183 1,405,770
During the quarter ended December 31, 1995, the Company's stock did not
trade at an average price that was in excess of the exercise price for
the Company's Class A warrants. Therefore, the warrants, which in
certain circumstances are considered as a component of weighted average
shares outstanding, were not included in the calculation of weighted
average shares. The Company has 1,476,183 Class A Warrants outstanding,
exercisable at $3.75 per share, commencing January 10, 1996 and expiring
on January 9, 2000.
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 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.
-7-
<PAGE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
-8-
<PAGE>
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Three Month Period ended December 31, 1995 versus December 31, 1994
Net sales for the three months ended December 31, 1995 were
$4,510,217, compared to $2,153,805 for the comparable period in the prior
fiscal year, resulting in an increase of $2,356,412 or 109%. 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.
Market share was gained through intensified marketing and the ability of
the Company to procure additional inventory and expand production sources
enabled the Company to meet the increased sales demand.
Net sales of the Company's products are summarized as follows:
Three Months Ended December 31, Increase
1995 1994 (Decrease)%
---- ---- -----------
System Sales $ 402,576 $ 277,510 45
Win/TV Boards 4,107,641 1,876,295 119
--------- --------- ---
Total Company Sales $4,510,217 $2,153,805 109
========= =========
Unit sales of Win/TV boards, the Company's digital video product line,
increased to approximately 20,000 as compared to approximately 7,300 for
the corresponding prior year's quarter, resulting in an increase of 173%.
Sales to domestic customers for the three month period were 33% of net
sales for the current year and 36% for the prior year. Sales to
international customers, which were primarily in U.S. Dollars, were 67%
of net sales for the current year and 64% for the comparable period of
last year.
Gross profit increased to $1,041,408 from $473,806, an increase of
$567,602 or 120% over the prior year's first fiscal. The gross profit
percentage increased to 23% as compared to 22% for the three months ended
December 31, 1994. 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 labor costs absorbed over a
greater number of units, which lowered labor costs per unit.
Though selling, general and administrative expenses increased $130,502
over the last year's first fiscal quarter, they declined to 17% of revenue
in the current three month period compared to 29% of revenue for the three
months ended December 31, 1994. The increase in expenses was primarily
due to increased sales and marketing expenses of $98,143, mainly due to
intensified marketing programs for advertising and trade shows plus
increased commissions because of higher sales, and higher general and
administrative expenses of $47,903, mainly for increased compensation
costs for new personnel and wage increases plus increased rent expense.
-9-
<PAGE>
ITEM 2. Management's Discussion and Analysis-Continued
Research and development expenses increased $52,099, or
approximately 125%. 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 $12,156 for the December 31,
1995 three month period as opposed to net other expense of $582,597 for
the corresponding three months of the preceding fiscal year. The increase
to net other income was primarily due to the non recurring private
placement financing costs of $572,674 charged to operations in the prior
year's first fiscal quarter plus higher current quarter interest earned.
As a result of all the above, the Company recorded a net profit
after taxes for the three months ended December 31, 1995 of $202,627 or
$0.07 per share as opposed to a net loss after taxes (which taxes for the
prior year were nominal) of ($767,127) or ($0.55) per share.
Liquidity and Capital Resources
The Company had a net cash position of $657,840, working capital of
$1,680,643 and shareholders' equity of $1,878,000 as of December 31,
1995. For the three months ended December 31, 1995, $756,277 was used to
fund operating activities. The major components of cash usage were
$356,271 invested in accounts receivable and $734,261 invested in
inventories due to the increase in sales and production offset by an
increase in cash sources due to the quarterly net profit of $202,627 plus
$261,190 of operations funded through accounts payable and accrued
expenses.
The Company believes that its prior year external financing plus its
internally generated cash flow will be sufficient to satisfy the
Company's anticipated operating needs for at least the ensuing twelve
months.
-10-
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
-11-
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this amendment to the report to be signed
on its behalf by the undersigned thereunto duly authorized.
HAUPPAUGE DIGITAL, INC.
-----------------------
Registrant
Date: April 8, 1996 By /s/ Gerald Tucciarone
---------------------
GERALD TUCCIARONE
Treasurer and Chief
Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1995
<PERIOD-END> DEC-31-1995 DEC-31-1994
<CASH> 657,840 1,214,940
<SECURITIES> 0 0
<RECEIVABLES> 1,498,136 1,146,865
<ALLOWANCES> 64,451 62,000
<INVENTORY> 2,912,242 2,187,981
<CURRENT-ASSETS> 5,212,275 4,742,475
<PP&E> 337,893 334,443
<DEPRECIATION> 201,744 193,188
<TOTAL-ASSETS> 5,409,632 4,945,815
<CURRENT-LIABILITIES> 3,531,632 3,270,442
<BONDS> 0 0
27,562 27,562
0 0
<COMMON> 0 0
<OTHER-SE> 1,850,438 1,647,811
<TOTAL-LIABILITY-AND-EQUITY> 5,409,632 4,945,315
<SALES> 4,510,217 2,153,805
<TOTAL-REVENUES> 4,510,217 2,153,805
<CGS> 3,468,809 1,679,999
<TOTAL-COSTS> 840,937 658,336
<OTHER-EXPENSES> 12,156 (582,597)
<LOSS-PROVISION> 5,000 10,000
<INTEREST-EXPENSE> 0 13,593
<INCOME-PRETAX> 212,627 (767,127)
<INCOME-TAX> 10,000 0
<INCOME-CONTINUING> 202,627 (767,127)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 202,627 (767,127)
<EPS-PRIMARY> .07 (.55)
<EPS-DILUTED> .07 (.55)
</TABLE>
