HAUPPAUGE DIGITAL INC, POS AM, 1996-01-23

HAUPPAUGE DIGITAL INC
POS AM, 1996-01-23
COMPUTER PERIPHERAL EQUIPMENT, NEC

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As filed with the Securities and Exchange Commission on January 23, 1996
Registration No. 33-85426
=========================================================================

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

POST-EFFECTIVE
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

HAUPPAUGE DIGITAL, INC.
(Name of small business issuer in its charter)

Delaware 3577 11-3227864
(State or jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification
organization) Code Number) Number)

91 Cabot Court
Hauppauge, New York 11788
(516) 434-1600
(Address and telephone number of principal executive offices and
principal place of business)

Mr. Kenneth R. Aupperle
President
Mr. Kenneth Plotkin
Chairman of the Board of Directors and
Chief Executive Officer
Hauppauge Digital, Inc.
91 Cabot Court
Hauppauge, New York 11788
(516) 434-1600
(Name, address and telephone of agent for service)

Copies to:
Herbert W. Solomon, Esq.
Scott D. Zucker, Esq.
Hollenberg Levin Solomon Ross & Belsky, LLP
585 Stewart Avenue
Garden City, New York 11530
(516) 745-6000
(516) 745-6642 (FAX)

Approximate date of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.

The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, as amended, or until the Registration
Statement shall become effective on such date as the Securities and
Exchange Commission, acting pursuant to Section 8(a), may determine.
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HAUPPAUGE DIGITAL, INC.
Cross Reference Sheet Showing Location
in Prospectus of Information
Required by Items of SB-2

Item and Heading Location in Prospectus
---------------- ----------------------
1. Front of the Registration Outside Front Cover Page of
Statement and Outside Front Prospectus
Cover Page of Prospectus
2. Inside Front and Outside Back Inside Front and Outside
of Prospectus Back Cover Pages of Prospectus
3. Summary Information and Prospectus Summary;
Risk Factors Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Front Page of Prospectus; Risk
Factors; Plan of Distribution
6. Dilution Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Plan of Distribution
9. Legal Proceedings Business - Litigation
10. Directors, Executive Officers, Management
Promoters and Control Persons
11. Security Ownership of Certain Principal Shareholders
Beneficial Owners and Management
12. Description of Securities Description of Securities
13. Interest of Named Experts Experts; Legal Matters
and Counsel
14. Disclosure of Commission Description of Securities -
Position on Indemnification Limited Liability of Directors
for Securities Act Liabilities and Executive Officers
15. Organization Within Last Five Not Applicable
Years
16. Description of Business Business
17. Management's Discussion and Management's Discussion
Analysis or Plan of Operation and Analysis of Financial Condition
and Results of Operations
18. Description of Property Business - Facilities
19. Certain Relationships and Certain Transactions
Related Transactions
20. Market for Common Equity and Outside Front Cover Page of
Related Stockholder Matters Prospectus; Market Information
21. Executive Compensation Management-Executive Compensation
and Employment Agreements
22. Financial Statements Financial Statements
23. Changes in and Disagreements Experts
With Accountants on Accounting
Financial Disclosure

<PAGE>
<PAGE>
HAUPPAUGE DIGITAL, INC.
1,476,183 Shares of Common Stock
$3.75 per Share
-----------
133,333 Underwriter Units
Each Underwriter Unit consisting of one share of Common Stock
and one Class A Redeemable Common Stock Purchase Warrant
$4.41 per Unit
-----------
133,333 Shares of Common Stock
$3.75 per Share

This Prospectus relates to an offering (the "Offering") by Hauppauge
Digital, Inc., a Delaware corporation (the "Company") of the following
securities: (a) 1,476,183 shares of Company's common stock, $.01 par
value (the "Common Stock") issuable upon the exercise of the Company's
class A redeemable common stock purchase warrants (the "Class A
Warrants"); (b) 133,333 units (the "Underwriter Units") issuable upon the
exercise of an option (the "Underwriter Unit Purchase Option"), and each
Underwriter Unit consists of one share of Common Stock and one Class A
Warrant (the Class A Warrant issuable upon the exercise of the
Underwriter Unit Purchase Option shall be referred to as the "Underwriter
Warrants"); and (c) 133,333 shares of Common Stock issuable upon the
exercise of the Underwriter Warrants. The Class A Warrants were
previously sold as part of units (the "Units") which were sold to the
public by the Company (the "Unit Offering") through Lew Lieberbaum & Co.,
Inc. (the "Underwriter'').
There are presently 1,476,183 outstanding Class A Warrants. Each Class
A Warrant entitles the holder to purchase one share of Common Stock
commencing January 10, 1996 until the close of business on January 9,
2000 at an exercise price of $3.75 per share, subject to adjustment in
certain circumstances pursuant to the anti-dilution provisions therein.
The Class A Warrants are redeemable, in whole or in part, at a price of
$.10 per Class A Warrant commencing January 10, 1996; provided that (i)
prior notice of not less than 30 days is given to the Class A
Warrantholders; and (ii) the closing high bid price of the Company's
Common Stock, for the 10 consecutive trading days ending on the third day
prior to the date on which the Company gives notice, has been at least
$4.75 per share (to be adjusted for any stock dividends and stock
splits). See "Description of Securities -- Class A Warrants".
The Underwriter's Unit Purchase Option was sold for $10 to the
Underwriter as part of its compensation in connection with its
underwriting of the Unit Offering. Each of the Underwriter Units,
issuable upon exercise at $4.41 per Underwriter Unit under the
Underwriter Unit Purchase Option commencing January 10, 1996 until the
close of business on January 9, 2000, consist of one share of the
Company's Common Stock and one Underwriter Warrant. Each Underwriter
Warrant entitles the holder thereof to purchase one share of Common Stock
at an exercise price of $3.75 per share, subject to adjustment in certain
circumstances. The Underwriter Warrants are identical to the Class A
Warrants offered in the Unit Offering. The Class A Warrants and the
Underwriter Warrants are sometimes referred to herein as the "Warrants".
The public offering prices of the Common Stock offered hereby are equal
to the exercise price of the Class A Warrants, the Underwriter's Unit
Purchase Option and the Underwriter Warrant. The exercise prices of such
securities were determined by negotiations between the Company and the
Underwriter and are not necessarily related to the Company's asset value,

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net worth or other established criteria of value. The Company will
receive no proceeds from the Common Stock underlying the Underwriter
Unit.
The Company's Common Stock and Class A Warrants are listed on the
National Association of Securities Dealers, Inc. Automated Quotation
System ("NASDAQ") under the symbols "HAUP" and "HAUPW", respectively, and
listed on the Boston Stock Exchange under the symbols "HAU" and "HAUW",
respectively. On January 18, 1996, the closing prices of the Common Stock
and Class A Warrants as reported by NASDAQ were $3.375 and $0.375,
respectively. There is no public market for the Underwriter's Unit
Purchase Option.

THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AND "DILUTION".

The date of this Prospectus is ________________, 1996

<PAGE>
<PAGE>
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to
the more detailed information, including financial statements and notes
thereto, appearing elsewhere in this Prospectus. Each prospective
investor is urged to read this Prospectus in its entirety.

The Company

The Company was incorporated in the state of Delaware on August 2,
1994 and has two wholly owned subsidiaries, Hauppauge Computer Works,
Inc., which was incorporated in the state of New York on December 14,
1982, and HCW Distributing Corp., which was incorporated in the state of
New York on September 13, 1984. Hauppauge Computer Works, Inc. is the
owner of all the outstanding shares of Hauppauge Computer Works, GmbH,
("HCW, GmbH"), a German corporation responsible for directing European
marketing efforts, and is the owner of all the outstanding shares of
Hauppauge Computer Works, LTD ("LTD"), a Virgin Islands corporation
responsible for handling sales outside of the United States. All
references herein to the Company include the Company and its two wholly
owned subsidiaries. The Company's executive offices are located at 91
Cabot Court, Hauppauge, New York 11788, its telephone number at that
address is (516) 434-1600 and its Internet address is
http://www.hauppauge.com/hcw/index.htm.

From 1987 and until 1991, the Company concentrated its business on
the development and sale of system boards which are the "heart" of a
personal computer ("PC") and which may be used to upgrade older PCS.
Prior thereto and since its inception in 1982, the Company focused its
business on the development and sale of hardware and software for math
acceleration products for the PC market which are used to accelerate
scientific and mathematical calculations. The Company stopped actively
marketing these products by 1988. Since 1992, the Company has changed the
focus of its business and is presently engaged primarily in the business
of designing, manufacturing and selling digital video products for the
IBM and IBM compatible PC market, consisting of Win/TV boards. Win/TV
boards are used to convert moving video images from a video camera, video
tape recorder or cable TV to a digital format which is displayed in a
resizable window on a PC video monitor. These video images may be viewed
simultaneously with normal PC operations such as word processing and may
also be used in conjunction with CD-ROM packages.

The Company has entered the PC-based digital video market by
distributing the Win/TV boards to computer retailers and Original
Equipment Manufacturers ("OEMs"). Computer retailers typically stock
Win/TV boards on their shelves and sell them to end users for
installation in their own PC's, while OEMs typically purchase Win/TV
boards and incorporate them in multimedia PC packages, which are then
ultimately sold to the end user.

The Offering

Securities Offered . .. . . (a) 1,476,183 shares of Common Stock
underlying the Class A Warrants
exercisable at $3.75 per share.
See "Description of Securities".

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<PAGE>
(b) 133,333 Underwriter Units
underlying the Underwriter's
Unit Purchase Option, each
Underwriter Unit consisting of
one share of Common Stock and
one Underwriter Warrant
exercisable at $4.41 per Unit.
See "Description of Securities -
Underwriter's Unit Purchase
Option".

(c) 133,333 shares of Common Stock
underling the Underwriter
Warrants exercisable at $3.75
per share. See "Description of
Securities".

Common Stock Outstanding
Prior to the Offering (1) . . 2,756,183 shares.

Common Stock Outstanding
After the Offering (1) . . . . 4,232,366 shares.

Warrants to be Issued
in the Offering . . . . . . . 1,476,183 Class A Warrants.

Exercise Terms . . . . . . . . Each Class A Warrant and Underwriter
Warrant entitles the holder thereof
to purchase one share of Common Stock
for $3.75 (the "Exercise Price"),
from January 10, 1996 until January
9, 2000, subject to adjustment in
certain circumstances. See
"Description of Securities --
Warrants".

Expiration Date . . . . . . January 9, 2000.

Redemption . . . . . . . . Each Warrant is redeemable by the
Company, in whole or in part, at a
price of $.10 per Warrant commencing
January 10, 1996, upon not less than
30 days prior written notice to the
holders of such Warrants, provided
that the closing high bid price of
the Company's Common Stock is at
least $4.75 per share (subject to
adjustment for stock dividends and
stock splits) for 10 consecutive
trading days ending on the third day
prior to the date on which the
Company gives notice of redemption.
See "Description of Securities --
Warrants".

<PAGE>
<PAGE>
Use of Proceeds . . . . . . . The Company intends to use the net
proceeds of this Offering, amounting
to approximately $6,600,000 for
working capital and general corporate
purposes. See "Use of Proceeds".

Risk Factors . . . . . . . . . . The securities offered hereby involve
a high degree of risk and immediate
substantial dilution. See "Risk
Factors" and "Dilution''.

NASDAQ Symbols . . . . . . . . . Common Stock: HAUP
Class A Warrants: HAUPW

Boston Stock Exchange Symbols . . Common Stock: HAU
Class A Warrants: HAUW

(1) Does not include (a) 133,333 shares of Common Stock included in the
Underwriter Unit issuable upon exercise of the Underwriter's Unit
Purchase Option or 133,333 shares of Common Stock issuable upon
exercise of the Underwriter Warrant which are part of the
Underwriter Unit or (b) any shares of Common Stock that may be
issued as the result of existing stock options. See "Management".

<PAGE>

<PAGE>
Summary Financial Information

The following is a summary of the Company's financial information
extracted from the Company's indicated fiscal year end Consolidated
Financial Statements, and is qualified in its entirety by the detailed
financial information appearing in the Consolidated Financial Statements
and the Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations".

Year Ended Nine Months Ended
September 30, 1995 September 30, 1994
------------------ ----------------
Statement of Income (Loss) Data:

Net Sales $11,551,169 $4,166,807
Loss Before income
tax provision (benefit) (1,427,440) (1,288,916)
Net loss (1,427,440) (1,317,548)
Net loss per share(1) ($0.60) ($1.03)
Weighted average
shares outstanding 2,382,928 1,280,000
_______
(1) Net loss per share has been computed on the basis of weighted
average number of shares outstanding for each period presented.
Included in the 1995 computation were 142,850 and 1,333,333 shares
issued through a private placement offering and the Unit Offering.
The effect of including Warrants as Common Stock equivalents would
result in a reduction of the loss per share. Therefore, they are
not recognized as a component of the weighed average shares
outstanding.

Balance Sheet Data:

As of September 30, 1995
------------------------
Actual As Adjusted (1)
------ ---------------
Working capital $1,472,033 $ 8,072,033
Total assets 4,945,815 11,545,815
Current liabilities 3,270,442 3,270,442
Shareholders' equity 1,675,373 8,275,373
_______
(1) Gives effect to the issuance of 1,742,849 shares of $.01 par value
Common Stock upon the exercise of Class A Warrants and Underwriter
Units.

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RISK FACTORS

THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND SHOULD BE
PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO SUSTAIN THE LOSS OF THEIR
ENTIRE INVESTMENT IN THE COMPANY. PROSPECTIVE INVESTORS SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS AS WELL AS ALL OF THE OTHER
INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS:

1. Historical Losses and Accumulated Deficit. The Company has not
generated an annual pre-tax profit since its year ended December 31,
1989. In such year the Company had a profit before taxes of $747,739 on
net sales of $11,400,927. During the year ended September 30, 1995 and
the nine months ended September 30, 1994, the Company had net sales of
$11,551,169 and $4,166,807, respectively. Losses before taxes for fiscal
1995 and the nine months ended September 30, 1994 were $1,427,440 and
$1,288,916, respectively. As of September 30, 1995, the Company had an
accumulated deficit of $2,397,894. The Company's working capital as of
September 30, 1995 was $1,472,033 compared to a working capital
deficiency of $779,839 as of September 30, 1994. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations". The Company's
ability to return to profitability will depend on several factors
including; its ability to expand marketing and sales efforts in the
United States and Europe and thus increase sales, enhancing its products
through ongoing research and development, improving its gross margins and
controlling its expenses. No assurance can be given that the Company will
be able to return to profitability following this Offering. There can be
no assurances that the Company's losses will not continue or that the
Company will ever be profitability in the future.

2. Dependence Upon Proceeds from the Offering and Possible Need for
Additional Financing. The Company believes that it has sufficient
capital to fund its operations for at least 12 months from the date of
this Prospectus. However, if the Company's losses continue and the Company does
not receive any proceeds from this Offering, the Company may be required to seek
additional financing. There can be no assurances that the Company will
be able to obtain additional financing on acceptable terms or at all. In
the event that the Company is unable to obtain such additional financing,
development or commercialization of certain of its present or planned
products would be suspended, and the Company's ability to grow or become
profitable may be impair. In such event, holders of Warrants who choose
to exercise such Warrants may lose their entire investment. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations".

3. Change in Focus of Company's Business. The Company has been in
the personal computer market since its inception in 1982. From 1987
until 1991, the Company concentrated its business on the development and
sale of system boards which are the "heart" of a PC and which may be used
to upgrade older PCs. From the inception of the Company and until 1987,
the Company focused its business on the development and sale of hardware
and software for math acceleration products for the PC market used to
accelerate scientific and mathematical calculations. The Company stopped
actively marketing these products by 1988. Over the last four years, the
Company has changed the focus of its business by developing and
manufacturing products for the digital video market, consisting of Win/TV
boards. Sales of PC system boards constituted 7% of the Company's

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revenue for the year ended September 30, 1995, 29% for the nine months
ended September 30, 1994 and 51% of the Company's revenues in 1993. The
Company believes that sales of PC system boards will represent a smaller
percentage of overall revenue in 1996 and beyond. The Company has not
operated profitably during the period of its shift in emphasis to
products for the digital video market and there can be no assurances that
the Company will ever return to profitability. See "Business".

4. Reliance on Products for Digital Video Market. Since 1991, when
the Company altered the focus of its business, the Company has
concentrated its new product development primarily on products for the
digital video market through its development of the Win/TV board. For the
year ended September 30, 1995, the digital video products have accounted
for 93% of the Company's revenues. Sales of digital video products
constituted 71% of the Company's revenues for the nine months ended
September 30, 1994, compared to 49% in 1993. It is anticipated that
digital video products will account for an increasing percentage of the
Company's revenues in 1996. Though the Company believes that the digital
video market will have dramatic growth in the upcoming years, there can
be no assurances that there will be substantial growth in this market, as
the Company believes that the technology for the digital video market is
still in its early stages. Furthermore, there can be no assurance that
the Company's products will be successful in this market. See "Business".

5. Rapid Changes in Technology and Lack of Funds for Research and
Development. The technology underlying the Company's products and other
products in the computer industry, in general, is subject to rapid
change, including the potential introduction of new types of products and
technologies, which may have a material adverse impact upon the Company's
business. The Company will need to maintain an ongoing research and
development program, and the Company's success will depend in part on its
ability to respond quickly to technological advances by developing and
introducing new products, successfully incorporating such advances in
existing products, and obtaining licenses, patents, or other proprietary
technologies to be used in connection with new or existing products. The
Company, prior to the Unit Offering, was hindered by a lack of working
capital which has allowed it to expend only $269,888 and $214,174 for
research and development expenses for fiscal 1995 and for the nine months
ended September 30, 1994, respectively. The Company has budgeted
approximately $398,000 for research and development for fiscal 1996.
There can be no assurance that the Company's research and development
will be successful, that the Company will be able to foresee and respond
to such advances in technological developments, or that proceeds of this
Offering to be utilized for research and development will be sufficient
for the Company's purposes. Additionally, there can be no assurances that
the development of technologies and products by competitors will not
render the Company's products or technologies non-competitive or
obsolete. See "Business -- Product Production".

6. Highly Competitive Industry. The Company's business is subject
to significant competition. Competition exists from larger companies
that possess substantially greater technical, financial, sales and
marketing resources than that which the Company has. The Company
believes that competition from new entrants is expected to increase as
the market for digital video in a PC and for PC-based video
teleconferencing expands. There can be no assurance that the Company
will not experience increased competition in the future. Such increased

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competition may have a material adverse effect on the Company's ability
to successfully market its products. See "Business - Competition".

7. Proprietary Rights and Patents. Even though the Company
independently develops its hardware and software products, the Company's
success will depend, in large part, on its ability to innovate, obtain or
license patents, protect trade secrets and operate without infringing on
the proprietary rights of others. The Company maintains copyrights on its
designs and software programs, but currently has no patent on the Win/TV
board and the Company believes that such technology cannot be patented.
There can be no assurance that challenges will not be instituted against
the validity or enforceability of any patents which may be issued or
licensed to the Company or, if instituted, that such challenges will not
be successful. The cost of litigation to uphold the validity of a patent
and prevent infringement can be substantial even if the Company were to
prevail. See "Business-Patents and Trademarks".

8. Dependence on Major Customers. For fiscal 1995 and the nine
months ended September 30, 1994, Reuters Ltd. ("Reuters") accounted for
approximately 16.6% and 18.1%, respectively, of the Company's sales. The
foregoing was the only customer to account for more than 10% of the
Company's sales during fiscal 1995. The loss of Reuters would have a
material adverse affect on the Company's business and its financial
condition. See "Business - Marketing and Sales".

9. Dependence on Foreign Sales. For the fiscal year ended
September 30, 1995 and the nine months ended September 30, 1994,
approximately 70% and 45% of the Company's sales were made outside the
United States (predominately in Germany and Great Britain). See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations". The Company's business and prospects could thus be
adversely affected by adverse political and economic conditions in
foreign countries and may also be subject to many of the risks of foreign
sales and operations, including tariff restrictions and currency control
regulation.

10. Low Operating Margins. Due to the competitiveness in the
computer industry and because of the Company's aggressive pricing
strategy, the Company has low gross margins. Consequently, its
profitability is highly dependent upon effective cost and management
controls. See "Business - Product Production".

11. Dependence on Suppliers. The Company is dependent upon
AuraVision Corporation ("AuraVision") for its supply of digital video
processing chips, which are necessary for the production of the Win/TV
digital video board. The Company is not aware of an alternate source of
supply for the digital video processing chips manufactured by AuraVision.
In the event that the Company were unable to obtain its supply of digital
video processing chips from AuraVision, the Company might not be able to
produce Win/TV boards and its business may be adversely affected. No
assurance can be given that the Company will continue to be able to
retain such source or obtain products from another source. The Company is
also dependent, to a lesser extent, upon Philips, a division of North
American Philips Company ("Philips") and Brooktree Corporation
("Brooktree"), manufacturers of video digitizers, which are also
necessary for the production of various models of the Win/TV digital
video board. If the foregoing suppliers do not supply their products to

<PAGE>

the Company, the Company may also be adversely affected because the
Company would have to seek alternative suppliers of video digitizers
which may adversely affect the Company's production and profitability.
See "Business - Product Production".

12. International Market Susceptible to Currency Fluctuations. The
Company's international sales are invoiced primarily in U.S. dollars. A
rising value of the U.S. dollar makes the Company's products more
expensive to overseas buyers. The Company's sales could be materially
impacted if the U.S. dollar rose in value compared with the German mark
and the British pound, the two currencies of the countries which account
for most of the international sales.

13. Reliance on Current Management and Key Personnel. The
Company's success depends to a large extent upon the efforts and
abilities of its key executive officers, Kenneth R. Aupperle and Kenneth
Plotkin, the President and Chief Executive Officer, respectively, of the
Company. See "Management - Executive Compensation and Employment
Agreements" for the terms of employment agreements with Kenneth R.
Aupperle and Kenneth Plotkin. Currently, the Company has key person life
insurance in the amount of $1,000,000 on each of the lives of Kenneth R.
Aupperle and Kenneth Plotkin. No assurance can be given the insurance
can or will be maintained. The loss of either of these individuals could
have a material adverse effect on the Company. the success of the
Company's business will also depend upon its ability to attract and
retain qualified employees. There can be no assurances that the Company
will be successful in attracting or retaining such personnel. See
"Management".

14. Control by Management. As of the date of this Prospectus,
the Company's executive officers and directors own of record and
beneficially 1,211,360 shares of Common Stock, an aggregate of 43.7% of
the Company's outstanding Common Stock and may be in a position to have
significant influence over the outcome of all matters submitted to
stockholders for approval, including the election of directors of the
Company, as a result of their control of such shares which will vote on
all matters. See "Management" and "Principal Shareholders."

15. No Dividends and None Anticipated. The Company has not paid
any dividends on its Common Stock since its inception and does not
contemplate or anticipate paying any dividends on its Common Stock in the
foreseeable future. It is anticipated that earnings, if any, will be
used to finance the development and expansion of the Company's business.
See "Dividend Policy" and "Description of Securities".

16. Immediate and Substantial Dilution. As of September 30, 1995,
the net tangible book value of the Company was $1,675,373, or
approximately $0.61 per share of Common Stock, based on 2,756,183 shares
outstanding on such date. Purchasers of Warrants in the Offering will
suffer immediate dilution of $1.96 per share of Common Stock, which is
approximately 52%, based on investors converting their Class A Warrants
and Underwriter Units to Common Stock. See "Dilution".

17. Alleged Market Manipulation by the Underwriter. The National
Association of Securities Dealers, Inc. ("NASD") recently alleged that

<PAGE>

the Underwriter and others, including Leonard A. Neuhaus, a director of
the Company, in 1991, engaged in market manipulation, inaccurately
maintained books and records and failed to adequately supervise the
activities of the Underwriter's personnel in connection with the trading
for the Underwriter's account of warrants which were part of a public
offering of units of convertible preferred stock and warrants of a
company for which the Underwriter had acted in 1991 as managing
underwriter. In order to expeditiously resolve this matter and without
admitting or denying these allegations, in January 1995, Mr. Neuhaus and
others voluntarily entered into a Letter of Acceptance, Waiver and
Consent with the NASD pursuant to which Mr. Neuhaus was censured and
fined by the NASD, agreed to pay with the Underwriter and others
restitution to customers and was suspended for associating with any NASD
member for a three month period.

18. Potential Adverse Effect of Redemption of Warrants. The
Company currently has 1,476,183 Class A Warrants outstanding to purchase
shares of Common Stock and if the Underwriter exercises all of its Unit
Purchase Options, there will be another 133,333 Underwriter Warrants
outstanding to purchase shares of Common Stock. The exercise of such
Warrants, or a substantial portion thereof, and the sale of the shares
issued upon exercise of such Warrants could adversely affect the market
price of the Common Stock. In addition, the Warrants may be redeemed by
the Company, commencing January 10, 1996, at a redemption price of $.10
per Warrant upon 30 days prior written notice provided the average
closing bid price of the Common Stock for 10 consecutive trading days
ending on the third day prior to the date of the redemption notice equals
or exceeds $4.75 per share (to be adjusted for any stock dividends and
stock splits). Redemption of the Warrants could force the holders to
exercise the Warrants and pay the exercise price at a time when it may be
disadvantageous for the holders to do so, to sell the Warrants at the
then current market price when they might otherwise wish to hold the
Warrants, or to accept the redemption price, which is likely to be
substantially less than the market value of the Warrants at the time of
redemption. The Warrants may not be exercised unless a registration
statement pursuant to the Securities Act of 1933, as amended (the
"Securities Act") covering the underlying shares of Common Stock is
current and such shares have been qualified for sale, or there is an
exemption from applicable qualification requirements, under the
securities laws of the state of residence of the holder of the Warrants.
Although the Company does not presently intend to do so, the Company
reserves the right to call the Warrants for redemption whether or not a
current prospectus is in effect or such underlying shares are not, or
cannot be registered in the applicable states. See "Description of
Securities -- Warrants."

19. Shares Eligible for Future Sale. Of the shares of Common Stock
of the Company outstanding as of the date of this Prospectus, 1,280,000
shares are restricted securities, as that term is defined in Rule 144
promulgated under the Securities Act, and may only be sold pursuant to a
registration under the Securities Act, in compliance with Rule 144 under
the Securities Act, or pursuant to another exemption therefrom. In
general, under Rule 144, subject to the satisfaction of certain other
conditions, a person, including an affiliate of the Company, who has
beneficially owned restricted shares of Common Stock for at least two

<PAGE>

years is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the total number of
outstanding shares of the same class, or if the Common Stock is quoted on
NASDAQ, the average weekly trading volume during the four calendar weeks
preceding the sale. A person who has not been an affiliate of the Company
for at least three months immediately preceding the sale and who has
beneficially owned the shares of Common Stock for at least three years is
entitled to sell such shares under Rule 144 without regard to any of the
volume limitations described above. Messrs. Aupperle and Plotkin and
their wives, holders of 1,150,260 shares of Common Stock, have agreed not
to permit or cause a private or public sale or public offering of their
shares of Common Stock until August 9, 1996 (eighteen (18) months from
the effective date of the Unit Offering) without obtaining the prior
written approval of the Underwriter. No assurance can be made as to the
effect, if any, that sales of shares of Common Stock or the availability
of such shares for sale will have on the market prices prevailing from
time to time. Nevertheless, the possibility that substantial amounts of
Common Stock may be sold in the public market may adversely affect
prevailing market prices for the Common Stock and could impair the
Company's ability to raise capital in the future through the sale of
equity securities. See "Shares Eligible for Future Sale."

20. Penny Stock Regulation. In the event that the Company is
unable to satisfy the maintenance requirements for the NASDAQ small
capitalization market or the Boston Stock Exchange, trading would be
conducted on the "pink sheets" or the NASD's Electronic Bulletin Board.
In the absence of the Common Stock being quoted on NASDAQ or the Boston
Stock Exchange, or the Company's having $2,000,000 in stockholders'
equity, trading in the Common Stock would be covered by Rule 15g-9
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), for non-NASDAQ and non-exchange listed securities.
Under such rule, broker-dealers who recommend such securities to persons
other than established customers and accredited investors must make a
special written suitability determination for the purchaser and receive
the purchaser's written agreement to a transaction prior to sale.
Securities are exempt from this rule if the market price is at least
$5.00 per share.

The Commission adopted regulations that generally define a penny
stock to be any equity security that has a market price of less than
$5.00 per share, subject to certain exceptions. Such exceptions include
an equity security listed on NASDAQ, the Boston Stock Exchange, and an
equity security issued by an issuer that has (i) net tangible assets of
at least $2,000,000, if such issuer has been in continuous operation for
three years, (ii) net tangible assets of at least $5,000,000, if such
issuer has been in continuous operation for less than three years, or
(iii) average revenue of at least $6,000,000 for the preceding three
years. Unless an exception is available, the regulations require the
delivery, prior to any transaction involving a penny stock, of a
disclosure schedule explaining the penny stock market and the risks
associated therewith.

If the Company's securities were to become subject to the
regulations applicable to penny stocks, the market liquidity for the
securities would be severely affected by limiting the ability of broker-
dealers to sell the securities and the ability of holders of the

<PAGE>

Company's securities to sell their securities in the secondary market.
There is no assurance that trading in the Company's securities will not
be subject to these or other regulations that would adversely affect the
market for such securities.

21. Current Prospectus and State Blue Sky Registration Required to
Exercise Warrants. Holders of Warrants will have the right to exercise
Warrants for the purchase of shares of Common Stock only if a current
prospectus relating to such shares is then in effect and only if the
shares are qualified for sale under the securities laws of the applicable
state or states. The Company has undertaken and intends to file and keep
current the Prospectus which will permit the purchase and sale of the
Common Stock underlying the Warrants, but there can be no assurance that
the Company will be able to do so. Although the Company intends to seek
to qualify for sale the shares of Common Stock underlying the Warrants in
those states in which the securities are to be offered, no assurance can
be given that such qualification will occur. The Warrants may be deprived
of any value if a prospectus covering the shares issuable upon the
exercise thereof is not kept current or if such underlying shares are
not, or cannot be, registered in the applicable states. See "Description
of Securities -- Warrants."

22. Non-Registration in Certain Jurisdictions of Shares Underlying
the Warrants. Holders of Warrants may presently or in the future move to
jurisdictions in which the shares of Common Stock issuable upon exercise
of the Warrants are not registered or qualified during the period that
the Warrants are exercisable. In such event, the Company would be unable
to issue shares to those persons desiring to exercise their Warrants
unless and until the shares could be registered or qualified for sale in
the jurisdiction in which such purchasers reside, or an exemption to such
qualification exists in such jurisdiction. If the Company were unable to
register or qualify the shares in a particular state and no exemption to
such registration or qualification was available in such jurisdiction,
the holder of the Warrants might not be able to realize any economic
benefit from the Warrants. See "Description of Securities -- Warrants."

23. Relationship of Underwriter Trading. The Underwriter may act
in a brokerage capacity with respect to the purchase or sale of Common
Stock or Class A Warrants in the over-the-counter market where each will
trade. The Underwriter also has the right to act as the Company's
exclusive agent in connection with any future solicitation of
warrantholders to exercise their Class A Warrants. Unless granted an
exemption by the Commission from Rule 10b-6 promulgated under the
Exchange Act, the Underwriter and any soliciting broker-dealers will be
prohibited from engaging in any market-making activities or solicited
brokerage activities with regard to the Company's securities during a
period beginning nine business days prior to the commencement of any such
solicitation and ending on the later of the termination of such
solicitation activity or the termination (by waiver or otherwise) of any
right that the Underwriter and soliciting broker-dealers may have to
receive a fee for soliciting the exercise of the Class A Warrants. As a
result, the Underwriter and soliciting broker-dealers may be unable to
continue to make a market for the Company's securities during certain
periods while the Class A Warrants are exercisable. Such a limitation,

<PAGE>

while in effect, could impair the liquidity and market price of the
Company's securities. See "Plan of Distribution".

24. Underwriter's Unit Purchase Option and Registration Rights. In
connection with the Unit Offering, the Company sold to the Underwriter,
for $10, the Underwriter's Unit Purchase Option which entitles the
Underwriter to purchase 133,333 Underwriter Units. The Underwriter Units
issuable upon the exercise of the Underwriter's Unit Purchase Option are
identical to those offered in the Unit Offering. The Underwriter's Unit
Purchase Option is exercisable at $4.41 per Underwriter Unit until
January 9, 2000. The exercise of the Underwriter's Unit Purchase Option
and the exercise of the Underwriter Warrants contained in the Underwriter
Unit may dilute the value of the shares of Common Stock to be acquired by
holders of the Class A Warrants, may adversely affect the Company's
ability to obtain equity capital, and, if the Common Stock issuable upon
the exercise of the Underwriter's Unit Purchase Option and the
Underwriter's Warrants are sold in the public market, such may affect the
market price of the Common Stock. The Underwriter has been granted
certain "piggyback" and demand registration rights until January 9, 2000
with respect to the registration under the Securities Act of the
securities directly and indirectly issuable upon exercise of the
Underwriter's Unit Purchase Option. The exercise of such rights could
result in substantial expense to the Company.

25. Broad Discretion in Application of Proceeds. The net proceeds
of this Offering will be approximately $6,600,000, if all of the Warrants
and Underwriters Units are exercised. These net proceeds will be
utilized for working capital and general corporate purposes which include
the purchase of inventory, payment of accounts payable, salaries,
financing receivables and other operating expenses including the payment
of salaries to executive officers. Accordingly, the Company will have
broad discretion as to the application of such proceeds. See "Use of
Proceeds".

<PAGE>
<PAGE>
USE OF PROCEEDS

If all of the Warrants and Underwriters Units are exercised, of
which there can be no assurance, the Company will receive aggregate net
proceeds of approximately $6,600,000 after the deduction of approximately
$23,683 for expenses in connection with this Offering. The Company
anticipates that the net proceeds of the Offering will be utilized as
follows:

Percentage
Amount of Net Proceeds
------ ---------------
Working Capital and
General Corporate Purposes $6,600,000 100%

These net proceeds which will be utilized for working capital and
general corporate purposes include the purchase of inventory, payment of
accounts payable, salaries, financing receivables and other operating
expenses including the payment of salaries to executive officers.
Accordingly, the Company will have broad discretion as to the application
of such proceeds.

The foregoing represents the Company's best estimates of the
anticipated use of the net proceeds of the Company based upon its present
plans and certain assumptions regarding general economic conditions and
the Company's future revenues and expenditures. Proceeds not immediately
required for specified uses will be invested principally in United States
government securities, short-term certificates of deposit, money market
funds or other short-term interest-bearing investments. While the Company
hopes that substantially all of the Class A Warrants will be exercised,
if the market price of the Company's Common Stock exceeds $3.75 per
share, to the extent that less than the proceeds estimated above are
received by the Company, the Company's Board will determine how much of
the funds received will be applied to each of the above uses. In
addition, if the Company's Board deems it reasonable and appropriate, the
uses may be changed.

DIVIDEND POLICY

The payment by the Company of dividends, if any, rests within the
discretion of its Board of Directors and, among other things, will depend
upon the Company's earnings, capital requirements and financial
condition, as well as other relevant factors. The Company has not
declared any dividends since inception, and has no present intention of
paying any dividends on its Common Stock in the foreseeable future, and
intends to use earnings to generate increased growth.

<PAGE>
<PAGE>
DILUTION

As of September 30, 1995, the net tangible book value of the Company
was $1,675,373, or approximately $0.61 per share of Common Stock. Net
tangible book value represents the Company's tangible assets less total
liabilities. Dilution per share represents the difference between the
amount paid per share upon conversion by the purchasers of the Class A
Warrants and Underwriter's Units, and the net tangible book value per
share after conversion of all the Class A Warrants and Underwriter's
Units. After giving effect to (i) the exercise of 1,609,516 Class A
Warrants and (ii) exercise of the 133,333 Underwriter's Units, and the
receipt and application of the estimated net proceeds therefrom, the
Company's net tangible book value as of September 30, 1995 would have
been $8,275,373 or approximately $1.84 per share, which represents an
immediate increase in the net tangible book value of $1.23 per share to
current shareholders and an immediate dilution of $1.96 per share to the
investors converting their Class A Warrants and Underwriter Units to
common stock.

The following table indicates the per share dilution to be incurred
by the investors who exercise their Warrants and Underwriter Units from
the exercise prices:

Weighted Average Exercise price (1) ................. $3.80
Net tangible book value before exercise of Warrants . $0.61
Increase per share attributable to investors
exercising Warrants ............................... $1.23
Net tangible book value per share after
exercise of Warrants............................... $1.84
-----
Dilution per share to investors exercising Warrants . $1.96
______ -----
(1) Weighted average exercise price in the result of 1,609,516 Class A
Warrants exercised at $3.75 per warrant plus 133,333 Underwriter's
Units exercised at $4.41 per unit.

The following table summarizes the number of shares of Common Stock
purchased from the Company through the date of this updated registration
statement, the amount of cash consideration paid and the average price
per share paid by existing shareholders and by the investors exercising
their Class A Warrants and Underwriter's Units:

Average
Shares Consideration Price
Purchased Paid Per Share
--------- ---- ---------
New investors exercising warrants 1,609,516 $6,035,685 $3.75
Underwriter's Units 133,333 $ 587,999 4.41
--------- ---------- -----
Amount from exercising
security holders 1,742,849 $6,623,684 3.80

Existing shareholders 2,756,183 $4,212,000 1.53
--------- ----------
Total 4,499,032 $10,835,684

<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as
of September 30, 1995, and as adjusted to give effect to the exercise of
Class A Warrants and Underwriter's Units pursuant to this updated
registration statement. This table should be read in conjunction with
the Company's Financial Statements and the Notes thereto, included
elsewhere in this updated registration statement.

September 30, 1995
------------------
Actual As Adjusted (1)
------ --------------
Shareholders' Equity
Common Stock $.01 par value:
Authorized 10,000,000 shares
Issued and outstanding -
2,756,183 and 4,499,032,
respectively (2) $ 27,562 $ 44,990
Additional paid in capital 4,045,705 10,628,277
Accumulated deficit (2,397,894) (2,397,894)
---------- -----------
Total shareholders' equity $ 1,675,373 $ 8,275,373
_______
(1) Gives effect to the exercise of Class A Warrants and the conversion
of the Underwriter's Units to Common Stock and the receipt of net
proceeds of approximately $6,600,000.
(2) Does not include any shares of Common Stock that may be issued as
the result of existing stock options.

<PAGE>
<PAGE>
MARKET INFORMATION

The principal market on which the Common Stock is traded is the
over-the counter market. The Common Stock is traded on NASDAQ on the
Small-Cap Market and its symbol is HAUP. Effective January 10, 1995, the
Company offered for sale 1,333,333 Units, each of which consisted of one
Class A Warrant, exercisable at $3.75 per share commencing January 10,
1996 and expiring on January 9, 2000, and one share of Common Stock. The
Common Stock became separately tradeable from the Class A Warrants on
April 25, 1995. At such time, trading in the Units ceased. The
following chart sets forth the high and low sales prices as determined
from NASDAQ for the Common Stock from April 25, 1995 until January 18,
1996.

High Low
---- ---
Fiscal Year Ended
September 30, 1996
- ------------------
First Quarter 3 15/16 1 5/8

Second Quarter (until
January 18, 1996) 3 3/8 3

Fiscal Year Ended
September 30, 1995(1)
- ---------------------
Third Quarter (commencing
April 25, 1995) 3 1/2 2 1/8

Fourth Quarter 2 1/2 1 5/8

The following chart sets forth the high and low sales prices as
determined from NASDAQ for the Units from January 10, 1995 until April
24, 1995:

High Low
---- ---
Second Quarter (commencing
January 10, 1995) 4 1/16 3 5/8

Third Quarter (until
April 24, 1995) 4 1/8 3 3/4

The approximate number of holders of record of the Common Stock as
of January 4, 1996 was 74. The Company believes there are in excess of
750 beneficial holders of the Common Stock. On January 18, 1996, the
closing price of the Common Stock was $3.375.

<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Change in Fiscal Year

The Company changed its fiscal year end from December 31 to
September 30, effective September 30, 1994. All comparisons presented
herein reflect this change in fiscal year.

Results of Operations

Year ended September 30, 1995 compared to the nine months ended September
30, 1994

Net sales for the year ended September 30, 1995 were $11,551,169,
compared to $4,166,807 for the nine months ended September 30, 1994,
resulting in an increase of $7,384,362 or 177%. The increase in net sales
has been attributable to the Company's ability to accelerate production
of Win/TV boards and increase marketing programs due to the infusion of
capital derived from the Company's October 1994 Private Placement
Offering and January 1995 public offering (See Note 6 to the attached
financial statements), plus the elimination in 1994 of development
problems, which created strong product demand and significant sales
increases.

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

Nine months
Year ended September 30, Increase
1995 1994 (Decrease)%
---- ---- ----------
System Boards $ 792,857 $1,208,573 (34)
Win/TV Boards 10,758,312 2,958,234 264
----------- ---------- ---
Total Net Sales $11,551,169 $4,166,807 177
=========== ========== ===

Unit sales of Win/TV boards, the Company's newest product line,
increased to approximately 41,600 as compared to approximately 8,800 for
the prior nine month period, resulting in an increase of 375%. Sales to
domestic customers for the year ended September 30 were 30% of net sales
for the current year and 55% for the nine months ended September 30,
1994. Sales to international customers, which were primarily in U.S.
Dollars, were 70% of net sales for the current year and 45% for the nine
months ended September 30, 1994.

Gross profit increased $1,753,937 or 317% when compared to the prior
nine month period. The gross profit percentage increased to 20% from 13%.
The negative impact of $300,000 charged to the reserve for inventory
obsolescence during the nine months ended September 30, 1994 due to the
declining sales of systems boards plus the dynamics of the market mix of
product sold were the major contributors to the contraction of the 1994
gross profit percentage.

<PAGE>

Though selling, general and administrative expenses for the year
ended September 30, 1995 increased $1,342,250 over the nine month period
ended September 30, 1994, they declined to 26% of net sales in fiscal
1995 compared to 39% of net sales for the nine months ended September 30,
1994. The increase in expenses was primarily due to increased sales and
marketing expenses, strategically implemented to obtain worldwide
penetration, of $701,407, consisting primarily of increases for
advertising and trade shows of $487,448 and increased commissions of
$156,531 resulting from higher sales; technical support costs and
receiving and shipping costs increased $55,322 and $66,062 respectively,
mainly due to the increased support and freight costs needed to handle
the 375% increase in unit board sales, plus higher administrative costs
mainly due to increased professional services costs and stock exchange
listing fees associated with becoming a publicly traded company of
$89,370 and consulting fees of $57,000, which includes $27,000 paid to
the Underwriter.

Research and development expenses increased $55,714, or
approximately 26%. The increase was due to the infusion of new capital
generated by the public offering which enabled the Company to expand its
research and development resources to further the implementation of
existing product lines and develop new product lines.

The Company had net other expense of $501,605 for the year ended
September, 30, 1995 as opposed to net other expense of $7,108 for the
nine months ended September 30, 1994. The increase in expense was
primarily due to the cash expenses of the Private Placement Offering,
$122,696, and the underlying value of the units issued, $449,978 (142,850
shares valued at the public offering price of $3.15) which were charged
to expense under the caption "Private Placement Financing Costs" (See
Note 6 to the attached financial statements), offset somewhat by higher
interest income.

In light of the above, the Company's experienced a decrease in the
net loss from operations of $355,973 for the year ended September 30,
1995. Due to the nonrecurring charge of $572,674 for private placement
financing costs incurred during 1995, the net loss increased $109,892
when compared to the nine months ended September 30, 1994.

Nine months ended September 30, 1994 compared to year ended December 31,
1993

For the nine months ended September 30, 1994, the Company had net
sales of $4,166,807 and a loss before taxes of $1,288,916 compared to net
sales of $8,399,612 and a loss before taxes of $287,661 for the year
ended December 31, 1993. The decrease in sales was related primarily to
(a) a reduction in sales of PC system boards and (b) product development
delays in introducing a new line of digital video products, consisting of
Win/TV boards, which the Company did not begin to ship until May of 1994.
Net sales to international customers aggregating 45% of total net sales
were comprised of sales to customers in the United Kingdom (21%), Germany
(5%), Switzerland (4%), Norway (3%) and all other international countries
(12%). International orders are typically billed in U.S. dollars, at the
same prices as domestic orders. Therefore, profitability in the domestic
market and in the international market are roughly comparable.

<PAGE>

From 1987 and until 1991, the Company concentrated its business on
the development and sale of system boards which are the "heart" of a PC
and which may be used to upgrade older PCs. From the inception of the
Company and until 1987, the Company focused its business on the
development and sale of hardware and software for math acceleration
products for the PC market used to accelerate scientific and mathematical
calculations. The Company stopped actively marketing these products by
1988. Over the last three years, the Company has changed the focus of its
business by developing and manufacturing products for the digital video
market, consisting of Win/TV boards. Sales of PC system boards
constituted 29% of the Company's revenue for the nine months ended
September 30, 1994, 51% of the Company's revenues in 1993, and 85% in
1992. The Company believes that sales of PC system boards will represent
a smaller percentage of overall revenue in 1995 and beyond. On June 15,
1994 because of the continued sales declines and certain market
developments, including the rapid acceptance of a new generation of
processor chips which adversely affected the salability of products based
on earlier generations, the Company decided to de-emphasize the marketing
of its PC system boards product line in favor of the newer Win/TV boards
and, as a result, recorded a reserve for inventory obsolescence in the
amount of $300,000. Such amount has been reflected separately in the
statement of operations for the nine months ended September 30, 1994. The
Company will continue to sell its PC system boards to certain customers
at amounts in excess of the recorded net cost of such products. Although
the Company is not emphasizing the sale of this product line, the Company
currently has not set a date as to when it will cease sales of the PC
system boards.

Cost of sales (including provision for obsolescence) for the nine
months ended September 30, 1994 was $3,613,331, or 87%, as compared to
$6,334,278, or 75%, for the year ended December 31, 1993. The increase
(as a percentage) over the prior year was primarily attributable to the
1994 provision for obsolescence as discussed above, and a higher mix of
the Company's newer models of its Win/TV product line (initially produced
at lower profit margins).

The Company introduced the Celebrity and HighQ digital video boards
in November of 1993 at the Fall Comdex show in Las Vegas (a major United
States PC show) and originally scheduled these items for shipment in
January of 1994. However, due to product development delays, the Company
was not able to ship the Celebrity until May 1994 and did not ship the
HighQ until July 1994. From November 1993 until the first shipments in
May 1994, many distributors did not place orders for the Company's
earlier models awaiting the release of the newer models.

Financial Condition

The Company had a net cash position of $1,214,940, working capital
of $1,472,033 and shareholders' equity of $1,675,373 as of September 30,
1995. On January 10, 1995, the Company completed a public offering of
stock. The net proceeds received from the offering were $3,267,023. In
addition the Company received net proceeds of $477,304 from a Private
Placement Offering, which was consummated during October 1994, pursuant
to which unaffiliated third parties loaned the Company $600,000. (See
Note 6 of the attached financial statements). For the year ended

<PAGE>

September 30, 1995, $1,614,407 was used to fund operating activities,
with $2,268,792 invested in current assets offset by $1,261,747 of
operations funded through accounts payable and accrued expenses. The
Company used $71,388 to acquire capital assets. Funds of $395,000 and
$600,000 were disbursed from the proceeds of the public offering to
extinguish bank and private placement debt.

The Company believes that the proceeds from the public offering and
its internally generated cash flow will be sufficient to satisfy the
Company's anticipated operating needs for at least the ensuing twelve
months.

<PAGE>
<PAGE>
BUSINESS

General

From 1987 and until 1991, the Company concentrated its business on
the development and sale of system boards which are the "heart" of a
personal computer ("PC") and which may be used to upgrade older PCs.
Prior thereto and since its inception in 1982, the Company focused its
business on the development and sale of hardware and software for math
acceleration products for the PC market which are used to accelerate
scientific and mathematical calculations. The Company stopped actively
marketing these products by 1988. Since 1992, the Company has changed the
focus of its business and is presently engaged primarily in the business
of designing, manufacturing and selling digital video products for the
IBM and IBM compatible PC market, consisting of Win/TV boards. Win/TV
boards are used to convert moving video images from a video camera, video
tape recorder or cable TV to a digital format which is displayed in a
resizable window on a PC video monitor. These video images may be viewed
simultaneously with normal PC operations such as word processing and may
also be used in conjunction with CD-ROM packages.

The Company has entered the PC-based digital video market by
distributing the Win/TV boards to computer retailers and Original
Equipment Manufacturers ("OEMs"). Computer retailers typically stock
Win/TV boards on their shelves and sell them to end users for
installation in their own PCS, while OEMs typically purchase Win/TV
boards and incorporate them in multimedia PC packages, which are then
ultimately sold to the end user.

Net sales of the Company's products for the Company's last two
fiscal years are summarized as follows:

Year Ended Nine Months Ended
September 30, 1995 September 30, 1994
------------------ ----------------
System Boards $ 792,857 $1,208,573
Win/TV Boards $10,758,312 $2,958,234
----------- ----------
Total Company Sales $11,551,169 $4,166,807
=========== ==========
The Product

The Win/TV board was designed so that a PC user can watch television
in a resizable window on her PC video monitor during normal computer use.
This activity requires a board that plugs into a PC, and operating
software to control functions such as channel change, volume adjustment,
freeze frame, and channel scan. The application of the Win/TV board does
not interfere with the normal operation of the PC. All hardware functions
required, such as video digitizing, windowing, color space conversion and
chroma keying, are performed on the Win/TV board and do not affect the
operation of the PC. The Win/TV board includes audio functions so that
sound can be heard while watching TV or video. The audio can be connected
to speakers or to a PC's sound card.

All Win/TV board models come with software that runs under the

<PAGE>

popular Microsoft Windows operating system that allows the TV picture
to be resized from a tiny window size all the way to full screen, all
under the control of the mouse.

The Company presently has six models of the Win/TV board, two of
which were introduced in fiscal 1995. It is the Company's strategy to
provide a wide range of Win/TV boards for the PC market. With a Win/TV
board installed in a PC, a user sees live video within a window on the PC
video monitor without interfering with the normal operation of the
computer. The user can resize this video image, making it small so that
it will take up less space on the video monitor, or the user can enlarge
the image to full screen if the user wants to see bigger image detail.
The video images can be viewed simultaneously with normal PC operations
such as word processing programs and spread sheet applications. A
stockbroker who is working on a PC and watching CNBC might keep the image
small on the PC video monitor while receiving stock quotations, and then
with one click, the user can enlarge the video image to full screen size.

The Win/TV-Celebrity ("Celebrity") board is primarily sold through
computer retailers and distributors. This model uses a proprietary
Company designed technology called "SmartLock". This feature has made the
Celebrity popular for use in PCs that are already installed in the office
or home. The SmartLock feature on the Celebrity allows the Win/TV board
to be used in all existing PCs. Previously, when digital video products
were sold through the computer retail market, there were installation
problems which were due to the way in which the digital video boards were
connected to the PC. SmartLock eliminates such problems and has been a
key selling feature, intended to reduce sales returns and the need for
additional technical support. The suggested retail price of the Celebrity
is $449.

The Win/TV-Cinema board ("Cinema") does not use SmartLock, but
instead uses a less expensive but more limited technique to connect to a
PC. This version has been popular with OEM manufacturers of PCs, who are
more interested in low cost designs than universal compatibility. PC
OEM's have a limited set of hardware in their system, and therefore,
universality is not as important to them. The suggested retail price of
the Cinema is $349.

The Win/TV-HighQ ("HighQ") board was designed for users who needed
higher quality digitizing of video images for use in a PC. Uses include
medical imaging, such as the creation of medical databases of images
captured from microscopes; industrial imaging, such as parts inspection;
and desktop publishing. The HighQ supports a scheme called "square pixel"
digitizing, where the horizontal and vertical aspects of the digitized
image are kept to exactly a 1:1 ratio, an important feature for medical
and industrial applications. The HighQ is the only model that does not
include a cable ready television tuner, but it does use the SmartLock
feature. The suggested retail price of the HighQ is $499.

The Win/TV-02 board ("-02") was designed for the computer retail
market and was introduced in 1991 primarily to be sold in the upgrade
market. Due to system compatibility limitations in older generations of
PCs, the -02 is being phased out of production and is being replaced by
the Celebrity and Cinema.

<PAGE>

The Win/TV Prism board ("Prism"), which was introduced in fiscal
1995, is a low cost video board that combines many of the features of the
Company's higher-end boards. The Prism is cable and TV antenna ready and
comes equipped with an automatic 122 channel scan. The Prism can be
connected to sound cards, VCR's and video cameras. The Prism does not
use the SmartLock feature used in the Company's higher-end boards and
requires an active feature connector on an SVGA card. The Company
believes that the low cost and the features of this product make it an
attractive OEM product. The suggested retail price of the Prism is $249.

The Win/Motion 60 board ("Win/Motion"), which was also introduced in
fiscal 1995, digitizes full frame live video from a video camera or VCR
and stores it to the hard disk so that it can be digitally edited on a
PC. The Win/Motion uses Motion-JPEG compression technology which
increases performance and reduces the storage space required for digital
video clips. The compression technology allows the board to capture 60
fields per second, resulting in more accurate frame-by-frame video
editing and more realistic video playback. The Win/Motion can also play
back full screen video clips from a hard disk, which can be recorded on
tape or displayed on a video monitor. The Win/Motion was designed for
corporate marketing communication departments, training video developers,
trade show demonstration creators, video hobbyists, CD-ROM title
producers and creators of corporate product literature on CD-ROM. The
suggested retail price of the Win/Motion is $595.

The Win/TV boards which are for sale to the computer retail market
are essentially the same as the ones which are for sale to the OEM
market. The differences are in the packaging and in the sophistication of
the operating software. The Company believes that the Celebrity is
currently the digital video board of choice for the computer retail
market and the Cinema and Prism boards are the choice of the OEM market.
The Company also expects that due to the lower cost of the Cinema and
Prism boards they will be popular in the retail market as well.

For the international market, the Company has developed an option
for the Win/TV board called a teletext decoder. This device allows the
reception of digital text which is transmitted along with live
television. Though relatively unknown here in the United States,
internationally, teletext is standard on all European TV sets. The types
of teletext data transmitted by TV stations include weather information,
travel schedules, stock market data and home shopping services.

Until 1988, the Company actively marketed system boards which are
the "heart" of a PC and which could be used to upgrade older PCS. The
Company still designs and assembles custom made PCS. This line of
business in not emphasized and is not sold in the retail market. However,
the Company does specific designs to meet particular customer
requirements. The Company purchases all of the hardware and software,
assembles the machine and installs the software. These products are
popular with companies that require specific configurations not available
through off-the-shelf wholesalers or retailers.

Product Production

The Company designs the Win/TV boards and also writes the operating

<PAGE>

software of the Win/TV boards to be used in conjunction with the popular
Microsoft Windows operating system, the WindowsNT operating system and
the IBM OS/2 operating system. The Company subcontracts the manufacturing
of the Win/TV boards to independent third parties. The Company then
assembles and final tests the boards at its facility in Hauppauge, New
York.

The Company is dependent upon AuraVision for its supply of digital
video processing chips, which are necessary for the production of the
Win/TV digital video board. The Company is not aware of an alternate
source of supply for the digital video processing chips manufactured by
AuraVision. In the event that the Company were unable to obtain its
supply of digital video processing chips from AuraVision, the Company
might not be able to produce Win/TV boards and its business may be
adversely affected. No assurance can be given that the Company will
continue to be able to retain such source or obtain products from another
source. The Company is also dependent, to a lesser extent, upon Philips
and Brooktree, manufacturers of video digitizers, which are also
necessary for the production of various models of the Win/TV digital
video board. If the foregoing suppliers do not supply their products to
the Company, the Company may also be adversely affected because the
Company would have to seek alternative suppliers of video digitizers
which may adversely affect the Company's production and profitability.

Digital Video Market

The digital video market, as it pertains to the Win/TV board,
involves the use of a PC to turn a video image into a digital form which
can be stored on a PC's hard disk drive. Once a video image is on the
PC's hard disk drive, the image can be merged into a document using
various word processing systems such as WordPerfect or Microsoft Word .
A sequence of video images that are digitized are stored in a form called
"AVI", which has digital audio and video interleaved to create a digital
movie. This digital movie can be edited on the PC, adding special
effects, audio overdubs and titles. These digital movies are used in
multimedia presentations and multimedia CD-ROMs. The digital video
sequences can also be transmitted to another location over the highspeed
communication lines, allowing video conferencing.

Typical Win/TV board owners might include business persons who need
to keep in touch with news while working on a PC. Other owners might
include business users who want to merge video images into a document,
watch financial television news programs while working on personal
computers, or video conference with PC users in other locations.

End users may use the Win/TV board for the entertainment value of
being able to watch television on their PC and to capture video images
for use with "paintbrush" software. Other home uses might include the
ability to edit video tapes on a home PC and to have video conferencing
in the home. Another popular use of the Win/TV board may be for
multimedia development. The Win/TV board digitizes live video and allows
this video to be stored on the PC hard disk drive. The stored video can
be used to create presentations that combine the digitized video with
text, create multimedia CD-ROM packages, and digitally edit video tapes.

<PAGE>

Industrial uses of the Win/TV board might include, among other
things, medical applications (eye surgery, microscope imaging and hearing
aid fitting), image recognition applications (automobile license plate
identification, parts inspection), i.d. badges and driver's licenses. In
addition, the Win/TV board may be utilized by real estate brokerage firms
to merge digital pictures of real estate into faxes.

The uses of digital video are just starting to become widely applied
in PCS. The Company believes that there is a trend toward replacing
projects currently done in text on PCS into projects that include full
motion video or still video pictures. For example, a real estate broker
today might, on a desktop PC, create a fax describing a property for
sale. Equipped with the Win/TV board, the broker could include a picture
of the property in the fax. The Win/TV board would be used to digitize a
video image coming from a camcorder, and this image could be included in
the fax generated on the desktop PC.

Sales people who currently create written proposals are creating
proposals that are played on portable computers that include digital
videos to describe processes or procedures, making their proposals more
effective. The Win/TV board can be used to both digitize the raw video
from a camcorder and to play back the digital video from the PC hard disk
drive.

Distribution to the Retail Market

During fiscal 1995, sales to the retail market through distributors
from the Company totaled approximately $7,785,262 or 67% of the Company's
net sales. This is in comparison to net sales of approximately
$3,137,415 or 75% for the nine months ended September 30, 1994. The
Company has no exclusive distributor and sells through a multitude of
distributors, no one of which accounted for more than 10% of the
Company's net sales. These distributors sell to a variety of retailers
who sell personal computer products. Such retailers include PC
Connection and Micro Warehouse in the United States and Dixons and Escom
in Europe.

Original Equipment Manufacturers ("OEMs")

The OEM business is one where a PC manufacturer adds the Win/TV
board and its operating software to create a new model PC. Most of the
activity by the Company to date regarding OEMs has been to create new
model multimedia PCS. It is expected that the new generation of
multimedia PCS will be among the fastest growing market segments of the
PC market. Until recently, multimedia equipped PCS had a sound card and
a CD-ROM. The new generation of multimedia PCS currently being designed
by OEMs will include digital video and in particular TV video.

The Company is presently incorporating or planning to incorporate
its Win/TV board for use in products of Reuters and ships to 20 Reuters
locations worldwide. Reuters has developed a financial news service
called "Reuters TV" which requires a Win/TV, or similar, board in each
stockbroker's PC to receive the service. The Company has a Master
Purchase Agreement with Reuters relating to the -02 and Celebrity boards.
The Company's sales to Reuters for the year ended September 30, 1995 and

<PAGE>

for the nine months ended September 30, 1994 totaled $1,921,813 and
$756,079, respectively. Reuters is the only company that accounts for
more than ten (10%) percent of the Company's sales.

The Company's remaining OEM business totaled approximately
$1,844,094 for fiscal 1995 compared to approximately $273,313 for the
nine months ended September 30, 1994. Current OEM customers include C.
Olivetti & Co. S.p.A., IBM PC Company (PS/1 Division) and ICL Personal
Computer Systems, OY. For fiscal 1995, approximately 33% of the
Company's net sales were for the OEM market as compared to 25% for the
nine months ended September 30, 1994.

Marketing and Sales

The Company sells both domestically and internationally through
sales offices in New York, London and Germany. For the fiscal year ended
September 30, 1995 and the nine months ended September 30, 1994,
approximately 30% and 55% of the Company's sales were made within the
United States, respectively, while approximately 70% and 45% were outside
the United States (predominately in Germany and Great Britain),
respectively. Less than 1% of the Company's sales are currently made in
Asia. LTD handles all sales outside of the United States. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations".

The Company advertises its products in a number of U.S. and
international PC magazines. These magazines, plus a public relations
program aimed at editors of key personal computer magazines, are the
principal means of getting the product introduced to end users. The sales
rate in the computer retail market is very much determined by the
effectiveness of these programs, along with the technical capabilities of
the product itself. The Company also markets its products in trade shows
and lists its products in catalogs of various mail order companies.

The Company currently has four international sales persons, three in
Germany who also cover continental Europe, and one in London. The Company
has four sales persons in the United States, located in New York and
Dallas. The Company also has two manufacturer Underwriters retained by it
on a non-exclusive basis, who work with customers in certain geographic
areas.

Competition

The Company's business is subject to significant competition.
Competition exists from larger companies that possess substantially
greater technical, financial, sales and marketing resources than that
which the Company has. The Company believes that competition from new
entrants will increase as the market for digital video in a PC expands.
There can be no assurances that the Company will not experience increased
competition in the future. Such increased competition may have a material
adverse effect on the Company's ability to successfully market its
products. However, the Company believes that through research and
development and aggressive marketing it can compete in this very
competitive market.

<PAGE>

Major Customers

For the fiscal year ended September 30, 1995 and the nine months
ended September 30, 1994, Reuters accounted for approximately 16.6% and
18.1%, respectively, of the Company's sales. Reuters was the only
customer to account for more than 10% of the Company's sales during
fiscal 1995. The loss of Reuters would have a material adverse affect on
the Company's business and its financial condition. During fiscal 1995,
approximately 8% of the Company's net sales were to ESCOM Computers, a
distributor to the retail market in Europe. ESCOM did not account for
any significant sales in fiscal 1994.

Patents and Trademarks

Even though the Company independently develops its hardware and
software products, the Company's success will depend, in large part, on
its ability to innovate, obtain or license patents, protect trade secrets
and operate without infringing on the proprietary rights of others. The
Company maintains copyrights on its designs and software programs, but
currently has no patent on the Win/TV board and the Company believes that
such technology cannot be patented.

On December 27, 1994, the Company's mark, "Win/TV" was duly
registered with the United States Patent and Trademark Office.

Governmental Regulations

The Company believes that existing or probable governmental
regulations have no material effect on the Company's business.

Research and Development

The technology underlying the Company's products and other products
in the computer industry, in general, is subject to rapid change,
including the potential introduction of new types of products and
technologies, which may have a material adverse impact upon the Company's
business. The Company will need to maintain an ongoing research and
development program, and the Company's success will depend in part on its
ability to respond quickly to technological advances by developing and
introducing new products, successfully incorporating such advances in
existing products, and obtaining licenses, patents, or other proprietary
technologies to be used in connection with new or existing products. The
Company expended $214,174 for research and development expenses for the
nine months ended September 30, 1994. During fiscal 1995, the Company
expended $269,888 for research and development expenses. There can be no
assurance that the Company's research and development will be successful
or that the Company will be able to foresee and respond to such advances
in technological developments and to successfully develop other products.
Additionally, there can be no assurances that the development of
technologies and products by competitors will not render the Company's
products or technologies non-competitive or obsolete.

Compliance with Environmental Laws

The costs and effects of compliance with environmental laws

<PAGE>

(federal, state and local) will have no material effect upon the business
of the Company.

Employees

As of September 30, 1995, the Company had 45 employees including its
executive officers, of which 39 are full-time and 6 are part-time. None
of the Company's employees are represented by a union, and management
considers its relationship with its employees to be excellent.

Litigation

The Company is presently party to no pending material legal
proceedings.

Facilities

The Company occupies a 25,000 square foot facility at 91 Cabot
Court, Hauppauge, New York which it uses as its executive offices and for
the assembly and storage of its products. The Company considers the
premises to be suitable for all its needs. The building is owned by a
partnership consisting of Messrs. Aupperle and Plotkin and their wives
and is leased to the Company under a lease agreement dated February 7,
1990 for a term of 20 years commencing February 1, 1990. Rent is
currently at the annual rate of $292,025, and will increase to $306,627
per year on February 1, 1996. The rent is payable in equal monthly
installments and increases at a rate of 5% per year on February 1 of each
year thereafter. The premises are subject to two mortgages which have
been guaranteed by the Company upon which the outstanding principal
amount due as of September 30, 1995 was $1,260,543. The Company pays the
taxes and operating costs of maintaining the premises.

In addition, the Company, through HCW, GmbH, maintains an office in
Germany, which consists of approximately 2,500 square feet. This facility
contains a sales office, a demonstration room and a storage facility for
a limited number of the Company's products. The Company pays a monthly
rent of approximately $2,000 per month for this facility pursuant to a
rental agreement which expires on December 31, 1996 and contains an
option to renew for two additional years.

<PAGE>
<PAGE>
MANAGEMENT

Directors and Officers

The directors and executive officers of the Company are as follows:

Name Age Position
- ----- --- --------
Kenneth R. Aupperle 38 President, Chief Operations Officer
and a Director

Kenneth Plotkin 44 Chief Executive Officer, Vice-
President of Marketing, Secretary and
a Director

Laura Aupperle 39 Director

Dorothy Plotkin 44 Director

Leonard A. Neuhaus 37 Director

John Casey 39 Vice President of Technology

Gerald Tucciarone 40 Chief Financial Officer and Treasurer

The term of office of the directors does not expire until the
Company's next annual meeting scheduled for March 5, 1996, and when their
successors are chosen.

Kenneth R. Aupperle is a co-founder of the Company. He has been the
Company's president and chief operations officer since the Company's
incorporation. Mr. Aupperle hold a BS in Electrical Engineering and an
MS in Computer Science from Potytechnic University, along with additional
work toward a Ph.D. He has lectured on computer science at Polytechnic
University since 1979.

Kenneth Plotkin is a co-founder of the Company. He has been the
Company's chairman of the board of directors and chief executive officer
since the Company's incorporation. Mr. Plotkin is presently Secretary of
the Company and is vice-president in charge of marketing. He holds a BS
and an MS in Electrical Engineering from the State University of New York
at Stony Brook.

Laura Aupperle has served as director of the Company since the
Company's incorporation. She worked for the Company on a full time basis
in sales and production from 1983 to 1990 and on a part time basis in
production planning since May, 1994. She is the wife of Kenneth R.
Aupperle.

Dorothy Plotkin has served as director of the Company since the
Company's incorporation. She has worked for the Company on a full time basis
since 1982 in various capacities and presently in sales and as a shipping
manager. She is the wife of Kenneth Plotkin.

Leonard A. Neuhaus has served as a director of the Company since

<PAGE>

January 10, 1995, the effective date of the Company's 1995 public
offering, in accordance with LLC's right to designate a nominee pursuant
to the letter of intent between the Company and LLC dated July 20, 1994.
Mr. Neuhaus is a co-founder, stockholder, chief operations officer and
director of the Underwriter. From June 1988 through March 1990, Mr.
Neuhaus was chief financial officer of Global Capital Group, Inc. /
Global Capital Securities, Inc. a registered broker-dealer. Mr. Neuhaus
only devotes a limited portion of his time to the affairs of the Company.

The National Association of Securities Dealers, Inc. ("NASD")
recently alleged that the Underwriter and others, including Mr. Neuhaus,
in 1991, engaged in market manipulation, inaccurately maintained books
and records and failed to adequately supervise the activities of the
Underwriter's personnel in connection with the trading for the
Underwriter's account of warrants which were part of a public offering of
units of convertible preferred stock and warrants of a company for which
the Underwriter had acted in 1991 as managing underwriter. In order to
expeditiously resolve this matter and without admitting or denying these
allegations, in January 1995, Mr. Neuhaus and others voluntarily entered
into a Letter of Acceptance, Waiver and Consent with the NASD pursuant to
which Mr. Neuhaus was censured and fined by the NASD, agreed to pay with
the Underwriter and others restitution to customers and was suspended for
associating with any NASD member for a three month period.

John Casey has served as vice president of technology of the Company
since 1987. Mr. Casey holds a BS in Electrical Engineering from
Polytechnic University.

Gerald Tucciarone, prior to his employment with the Company in
January, 1995, served as a vice-president of finance from 1985 to 1992
with Walker-Telecommunications, Inc., a manufacturer of phones and voice
mail equipment and from 1992 to 1995, as assistant controller with
Chadbourne and Parke, a law firm. Mr. Tucciarone is a certified public
accountant.

Executive Compensation

The following table describes the components of the total
compensation of the CEO of the Company for the years ended September 30,
1995 and 1994. No executive, other than the CEO, had a total annual
salary and bonus for the three years ended June 30, 1995 which exceeded
$100,000.
<PAGE>

<PAGE>
Summary Compensation Table

Annual Compensation Long term compensation
------------------------ --------------------------------------
Awards Payouts
------------------ -----------------
Other Securities All
Name and annual Restricted underlying LTIP other
principal Salary Bonus compen- stock options / payouts compen
position Year ($) ($) sation($) award(s)($) SARs (#) ($) sation($)
- -------- ---- ------ ----- ---------- --------- ---------- ------ --------
Kenneth 1995 56,083 --- 1,600(1) --- --- --- ---
Plotkin,
CEO 1994 29,261 --- 1,112(1) --- --- --- ---
_________
(1) Represents non-cash compensation in the form of the use of a car and
related expenses.

Stock Options

The following table sets forth certain information with respect to
options granted in the year ended September 30, 1995 to the individual listed
in the Summary Compensation table.

Option/sar Grants in Last Fiscal Year
[Individual Grants]

Number of Percent of
securities total options /
underlying SARs granted Exercise
Options/SARs in fiscal or base Expiration
Name granted (#)(1) year (1) price ($/Sh) Date
- ---- ------------- ------------ ------------ ----
Kenneth Plotkin, 150,000 50% 3.15 1/09/05
CEO
________
(1) On January 10, 1995, Kenneth Plotkin was granted an option to purchase
150,000 shares of Common Stock at $3.15 per share, subject to
adjustment. The option shall not be exercisable for a period of ten
years except as follows: For the first full fiscal year after the date
of grant and for each of the four years thereafter, should the Company
attain an audited annual pre-tax income of at least $1,000,000, options
to purchase 30,000 shares of Common Stock shall then become immediately
exercisable. If the Company fails to attain the $1,000,000 plateau
during the first year, should the Company's combined pre-tax income for
the first two full fiscal years exceed $2,000,000, then options to
purchase 60,000 shares of Common Stock shall then become immediately
exercisable. Kenneth R. Aupperle was also granted a similar option.

<PAGE>
<PAGE>
The following table sets forth certain information with respect to the
unexercised options to purchase Common Stock granted to individuals named in
the Summary Compensation Table above. Such individual did not exercise any
stock options during the year ended September 30, 1995.

Aggregated Option/Sar Exercises in Last Fiscal Year
and Fy-End Option/Sar Values

Number
of securities Value
underlying unexercised in-
unexercised the-money options
Shares SARs at FY-end (#) SARs at FY-end($)
acquired on Value exercisable / exercisable /
Name exercise (#) realized($) unexersisable unexercisable(1)
- ----- ------------ ----------- ------------- ----------------
Kenneth Plotkin,
CEO -0- -0- -0- / 150,000 -0- / -0-
______________
(1) See footnote (1) above in Option/SAR Grants in Last fiscal Year.

Compensation of Directors

Directors of the Company are not compensated solely for being on the
board of directors.

Employment Agreements

On January 10, 1995, Kenneth R. Aupperle and Kenneth Plotkin each
entered into a three year employment agreement with the Company to serve as
president, and chief operations officer, and chief executive officer,
vice-president in charge of marketing and secretary, respectively. The
agreements provide for an annual salary of $60,000 during the first year,
$80,000 during the second year and $100,000 during the third year. Each
agreement provides for disability benefits, a car allowance of $400 per
month, reasonable reimbursements for automobile expenses and also medical
insurance as is standard for the employees of the Company.

Incentive Stock Option Plan

On August 2, 1994, the Company adopted an Incentive Stock Option Plan
("ISO"), as defined in section 422 of the Internal Revenue Code, as amended.
200,000 shares of Common Stock have been reserved for issuance under the ISO.
Pursuant to the ISO, options may be granted for up to ten years with exercise
prices (A) during the first two years after January 10, 1995, of no less than
the greater of $3.15, or the fair market value of the Common Stock on the
date of grant, or (B) thereafter, of no less than fair market value of the
Common Stock on the date of grant. No options have been granted to date under
the ISO.

Non-Qualified Stock Option Plan

On December 14, 1995, the board of directors authorized the adoption of
the 1996 Non Qualified Option Plan (the "1996 Non-Qualified Plan"). The
adoption of the 1996 Non-Qualified Plan is subject to the approval of the

<PAGE>

Company's stockholders at the annual meeting which is scheduled for March 5,
1996. The purpose of the 1996 Non-Qualified Plan is to encourage and reward
key employees, consultants and other individuals and entities
("Participants") by giving them an opportunity to share in any future success
of the Company without burdening the Company's cash resources. The 1996 Non-
Qualified Plan authorizes stock options to Participants to acquire shares of
the Company's Common Stock. The 1996 Non-Qualified Plan authorizes the grant
of 250,000 shares subject to adjustment as provided therein. No options have
been granted under the 1996 Non-Qualified Plan to date. The 1996 Non-
Qualified Plan terminates ten (10) years after stockholder approval.

PRINCIPAL STOCKHOLDERS

The following are known by the Company, as of the date hereof, to be the
beneficial owners of more than five percent of Common Stock:

Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Owner of Common Stock
- ------------------- ------------------- ---------------
Kenneth R. Auppperle (1)(3) 287,610 10.4%
91 Cabot Court
Hauppauge, NY 11788

Kenneth Plotkin (2)(3) 287,550 10.4%
91 Cabot Court
Hauppauge, NY 11788

Laura Aupperle (1) 287,550 10.4%
91 Cabot Court
Hauppauge, NY 11788

Dorothy Plotkin (2) 287,550 10.4%
91 Cabot Court
Hauppauge, NY 11788

Jay Rasmussen 140,000 5.1%
2212 E. Little Cloud Circle
Sandy, Utah 84093

All Officers and Directors 1,211,360 43.7%
as a Group (7 Persons) (4)
________
(1) Kenneth R. Aupperle and Laura Aupperle are husband and wife. Ownership
set forth does not include shares of Common Stock owned by the spouse of
the other individual.

(2) Kenneth Plotkin and Dorothy Plotkin are husband and wife. Ownership set
forth does not include shares of Common Stock owned by the spouse of the
other individual. Ownership set forth also does not include 10,000
Class A Warrants held of record by Mr. Plotkin's father as custodian for
the Plotkin's son and daughter. The Plotkins disclaim beneficial
ownership of such Class A Warrants.

(3) Ownership does not include an option to purchase 150,000 shares of
Common Stock granted to Kenneth R. Aupperle and Kenneth Plotkin on

<PAGE>

January 10, 1995. See "Executive Compensation - Option/SAR Grants in
Last Fiscal Year" for a description of the option.

(4) Ownership includes 2,000 Class A Warrants owned of record by John Casey,
6,000 Class A Warrants owned of record by Gerald Tucciarone and an
option to acquire 10,000 shares of Common Stock granted on November 6,
1995 to Mr. Tucciarone. Furthermore, assumes no ownership by Mr.
Neuhaus of the Underwriter's Unit Purchase Option to acquire 133,333
Underwriter Units at an exercise price of $4.41 per Underwriter Unit
until January 9, 2000.

CERTAIN TRANSACTIONS

On August 2, 1994, Kenneth R. Aupperle, Laura Aupperle, Kenneth Plotkin
and Dorothy Plotkin exchanged all of their issued and outstanding shares of
the Company's two wholly owned subsidiaries for 1,280,000 shares of Common
Stock of the Company, representing all of the outstanding shares of the
Company at the time.

On July 6, 1995, Messrs. Aupperle and Plotkin and their wives
transferred an aggregate of 99,740 shares of Common Stock to certain key
employees of the Company, as incentive to them. No consideration was paid
with respect to any transfer of less than 1,000 shares of Common Stock to any
such employee, and $0.03 per share was paid to cover the costs of any
transfer of more than 1,000 shares of Common Stock to any employee. John
Casey and Gerald Tucciarone, executive officers of the Company, were
transferred 38,100 and 2,000 shares of Common Stock, respectively.

The Company leases its facilities from a partnership consisting of
Messrs. Aupperle and Plotkin and their wives (the "Partnership") under a
lease agreement dated February 7, 1990 for a term of 20 years commencing
February 1, 1990. For the nine months ended September 30, 1994, the Company
obtained a rent concession from the Partnership in the amount of $68,118. The
Company did not obtain a rent concession for fiscal 1995 and does not
anticipate obtaining rent concessions in the future. Rent is currently at the
annual rate of $282,604. The rent is payable in equal monthly installments
and increases at a rate of 5% per year. The premises are subject to two
mortgages which have guaranteed by the Company upon which the outstanding
principal due as of September 30, 1995 was $1,260,543. The Company pays the
taxes and operating costs of maintaining the premises.

DESCRIPTION OF SECURITIES
Common Stock

The Company is authorized to issue up to 10,000,000 shares of Common
Stock, $0.01 par value per share. Holders of Common Stock are entitled to one
vote per share held of record on all matters on which shareholders may vote
at all meetings of shareholders. There is no cumulative voting with respect
to the election of directors, with the result that the holders of more than
50% of the shares that voted for the election of directors can elect all of
the directors. See Risk Factor 14, "Control by Management" and "Principal
Stockholders". Holders of Common Stock are entitled to receive dividends
when, as and if declared by the Board of Directors out of funds legally
available therefor. The Company has no intention to pay dividends in the
foreseeable future. See Risk Factor 15, "No Dividends and None Anticipated"

<PAGE>

and "Dividend Policy". In the event of a liquidation, dissolution or winding
up of the Company, the holders of shares of Common Stock shall be entitled to
receive pro rata all of the remaining assets of the Company available for
distribution to its shareholders after payment of liabilities and after
provision has been made for each class of stock, if any, having preference
over the Common Stock. Holders of shares of Common Stock, as such, have no
conversion, preemptive or other subscription rights, and there are no
redemption or sinking fund provisions applicable to the Common Stock.

Warrants

The Class A Warrants have been issued pursuant to an agreement (the
"Warrant Agreement") between the Company, North American Transfer Co., as
warrant agent (the "Warrant Agent") and the Underwriter dated January 10,
1995. The following discussion of certain terms and provisions of the Class
A Warrants are qualified in its entirety by reference to the detailed
provisions of the Warrant Agreement and the Class A Warrant certificates, the
forms of which have been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part.

Each Class A Warrant entitles its holder to purchase one share of Common
Stock at an exercise price of $3.75 per share commencing January 10, 1996.
The Class A Warrants expire on January 9, 2000. The exercise price of the
Class A Warrants and the number of shares issuable upon exercise of such
Class A Warrants will be subject to adjustment to protect against dilution in
the event of stock dividends, stock splits, combinations, subdivisions and
reclassification. Class A Warrants may be exercised by surrendering to the
Warrant Agent the Class A Warrants together with the payment of the exercise
price in United States funds by cash or certified or bank check. No
fractional shares of Common Stock will be issued in connection with the
exercise of the Class A Warrants. Upon exercise, the Company will pay the
holder the value of any such fractional shares based upon the market value of
the Common Stock at such time.

The Class A Warrants may be redeemed, in whole or in part, by the
Company at any time at a redemption price of $.10 per Warrant commencing
January 10, 1996; provided that (i) prior notice of not less than 30 days is
given to the Class A Warrantholders; and (ii) the closing high bid price of
the Common Stock for 10 consecutive trading days ending on the third day
prior to the date of the notice of redemption equals or exceeds $4.75 per
share. Holders of Class A Warrants shall have exercise rights until the close
of business on the day preceding the date fixed for redemption.

Unless extended by the Company at its discretion, the Class A Warrants
will expire at 3:00 p.m. New York time on January 9, 2000. In the event a
holder of Warrants fails to exercise the Class A Warrants prior to the
expiration, the Class A Warrants will expire and the holder thereof will have
no further rights with respect to the Class A Warrants.

In order for a holder to exercise a Class A Warrant, and as required in
the Warrant Agreement, there must be a current registration statement on file
with the Commission pertaining to the shares of Common Stock underlying the
Class A Warrants, and such shares must be registered or qualified for sale
under the securities laws of the state in which such warrantholder resides or
such exercise must be exempt from registration in such state. The Company

<PAGE>

will be required to file post-effective amendments to the Registration
Statement of which this Prospectus forms a part during the nine-month period
from the date hereof or when events require such amendments. In addition, the
Company has agreed with the Underwriter to use its best efforts to keep the
Registration Statement covering the shares underlying the Class A Warrants
current and effective. There can be no assurance however, that such
Registration Statement (or any other Registration Statement filed by the
Company to cover shares of Common Stock underlying the Class A Warrants) can
be kept current. If a Registration Statement covering such shares of Common
Stock is not kept current for any reason, or if the shares underlying the
Class A Warrants are not registered in the state in which a holder resides,
the Class A Warrants will not be exercisable and will be deprived of any
value.

Underwriter's Unit Purchase Option

Upon the closing of the Unit Offering, the Company sold to the
Underwriter for $10, the Underwriter's Unit Purchase Option to purchase
133,333 Underwriter Units. The Underwriter's Unit Purchase Option is
exercisable at a price of $4.41 per Underwriter Unit for a period of four
years commencing January 10, 1996. The Underwriter Units contained in the
Underwriter's Unit Purchase Option are identical to the Units offered to the
public in the Unit Offering. The holders of Underwriter's Unit Purchase
Options have certain registration rights with respect to the Common Stock and
Class A Warrants issuable upon the exercise of the Underwriter's Unit
Purchase Option. See "Plan of Distribution".

Limited Liability of Directors and Executive Officers

The Certificate of Incorporation of the Company authorizes the Company
to indemnify to the fullest extent permitted by Delaware law any person whom
it may indemnify thereunder, which includes directors, officers, employees
and agents of the Company. Such indemnification (other than as ordered by a
court) shall be made by the Company only upon a determination that
indemnification is proper in the circumstances because the individual met the
applicable standard of conduct. Advances for such indemnification may be
made pending such determination. In addition, the Certificate of
Incorporation provides for the elimination, to the extent permitted by
Delaware law, of personal liability of directors to the Company and its
stockholders for monetary damages for breach of fiduciary duty as directors.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Company, will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it
is against public policy, as expressed in the Securities Act, and will by

<PAGE>

governed by the final adjudication of such issue.

Transfer Agent, Warrant Agent and Registrar

The Transfer Agent, Warrant Agent and Registrar for the Common Stock and
the Class A Warrants is North American Transfer Co., 147 W. Merrick Road,
Freeport, New York 11520.

SHARES ELIGIBLE FOR FUTURE SALE

Of the shares of Common Stock of the Company outstanding as of the date
of this Prospectus, 1,280,000 shares are restricted securities, as that term
is defined in Rule 144 promulgated under the Securities Act, and may only be
sold pursuant to a registration under the Securities Act, in compliance with
Rule 144 under the Securities Act, or pursuant to another exemption
therefrom. In general, under Rule 144, subject to the satisfaction of
certain other conditions, a person, including an affiliate of the Company,
who has beneficially owned restricted shares of Common Stock for at least two
years is entitled to sell, within any three-month period, a number of shares
that does not exceed the greater of 1% of the total number of outstanding
shares of the same class, or if the Common Stock is quoted on NASDAQ, the
average weekly trading volume during the four calendar weeks preceding the
sale. A person who has not been an affiliate of the Company for at least
three months immediately preceding the sale and who has beneficially owned
the shares of Common Stock for at least three years is entitled to sell such
shares under Rule 144 without regard to any of the volume limitations
described above. Messrs. Aupperle and Plotkin and their wives, holders of
1,150,260 shares of Common Stock, have agreed not to permit or cause a
private or public sale or public offering of their shares of Common Stock
until August 9, 1996 (eighteen (18) months from the effective date of the
Unit Offering) without obtaining the prior written approval of the
Underwriter. No assurance can be made as to the effect, if any, that sales
of shares of Common Stock or the availability of such shares for sale will
have on the market prices prevailing from time to time. Nevertheless, the
possibility that substantial amounts of Common Stock may be sold in the
public market may adversely affect prevailing market prices for the Common
Stock and could impair the Company's ability to raise capital in the future
through the sale of equity securities.

PLAN OF DISTRIBUTION

This Offering is made by the Company in connection with the exercise of
outstanding Class A Warrants to purchase shares of the Company's Common Stock
which Class A Warrants were previously sold to the public as part of Units in
the Company's Unit Offering by the prospectus dated January 10, 1995. There
are currently issued and outstanding 1,476,183 Class A Warrants (plus an
additional 133,333 Underwriter Warrants that are part of the Underwriter's
Unit underlying the Underwriter's Unit Purchase Option which Underwriter's
Unit Purchase Option to date has not been exercised), all of which may be
exercised to purchase the Company's Common Stock pursuant to this Offering.
There is no minimum number of shares which must be purchased upon the
exercise of the Warrants except that one Warrant is required to purchase one

<PAGE>

share of Common Stock and no fractional shares will be issued. There are no
arrangements to escrow any of the funds to be paid in connection with the
exercise of the Warrants. All payments made pursuant to the exercise of the
Warrants will be made directly to the Company and may be used by the Company
immediately upon receipt.

A registered holder may exercise his or her Warrants by surrendering the
certificate representing the Warrants together with a Warrant exercise form
on the Warrant certificate properly completed and signed with full payment of
the exercise price payable to the Company. Warrants may be exercised in
whole or in part. If Warrants are exercised in part, a new Warrant
certificate will be issued for the remaining number of shares. No fractional
shares will be issued upon the exercise of Warrants. Rather, they will be
settled for cash. All payments must be received by the Company prior to the
expiration date or the redemption date established by the Company and
Warrants not exercised prior to the expiration date shall expire.

A five percent solicitation fee will be paid to the Underwriter in
connection with the Class A Warrants exercised through the efforts and with
the assistance of the Underwriter if: (i) the market price of the Company's
Common Stock on the date the Class A Warrant is exercised is greater than the
then exercise price of the Warrants; (ii) the Class A Warrant is not held in
a discretionary account; (iii) disclosure of the compensation arrangements
was made both at the time the Class A Warrants were initially offered for
sale and at the time of exercise; (iv) the exercise of the Class A Warrants
was a solicited transaction; and (v) the exercise of the Class A Warrants was
not solicited by the Company. In addition, upon consent of the Underwriter,
other NASD members may solicit the exercise of the Class A Warrants without
giving up a portion of the 5% solicitation fee to the Underwriter. Further,
the Underwriter and any other NASD broker/dealer will receive a 5%
solicitation fee only when designated in writing by the warrantholder and the
Underwriter or any other NASD member provides bona fide services in
connection with solicitation.

The exercise price of $3.75 per share for each Class A Warrant was
arbitrarily determined by the Company in negotiation with the Underwriter in
the Company's Unit Offering and the price bears no relationship to the
Company's assets, earnings, book value or to any other established criteria
of value. Thus, the exercise prices of the Warrants should not be considered
an indication of the actual value of the Company. Therefore, holders of
Warrants are subject to an increased risk that the prices of the Company's
securities have been arrived at arbitrarily.

LEGAL MATTERS

Certain legal matters with respect to the issuance of the securities
offered hereby will be passed upon for the Company by Hollenberg Levin
Solomon Ross Belsky & Daniels, LLP, 585 Stewart Avenue, Garden City, New York
11530. Members of the firm of Hollenberg Levin Solomon Ross Belsky &
Daniels, LLP own 19,000 shares of Common Stock of the Company.

EXPERTS

The consolidated financial statements for fiscal 1995 included in this
Prospectus and elsewhere in the Registration Statement have been audited by
BDO Seidman, LLP independent certified public accountants to the extent and
for the periods indicated in their report with respect thereto and were
included herein in reliance upon the authority of said firm as experts in
accounting and auditing.

<PAGE>

The consolidated financial statements for fiscal 1994 included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen, LLP ("Andersen") independent certified public accountants to
the extent and for the periods indicated in their report with respect thereto
and were included herein in reliance upon the authority of said firm as
experts in giving said reports.

Effective August 10, 1995 the Company dismissed Andersen as its
independent public accountants. Andersen had served as the Company's
independent public accountants for the Company's fiscal year ended December
31, 1993 and for the nine months ended September 30, 1994. During such
periods the reports prepared by Andersen did not contain any adverse opinions
or disclaimer of opinions nor were they qualified or modified as to
uncertainties, audit scope or accounting principles except that the report
for the nine months ended September 30, 1994 was prepared assuming the
Company would continue as a going concern and it expressed doubt about the
Company's ability to continue as a going concern. That report was prepared
before the Company's consummation of its Unit Offering. Reference is made to
said report which includes an explanatory paragraph regarding the Company's
litigation uncertainties.

The decision to change accountants was recommended and approved by the
Company's board of directors. There were no disagreements with Andersen on
any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedures while Andersen served as the
Company's independent public accountants. The dismissal of Andersen was
because of fee considerations.

ADDITIONAL INFORMATION

With respect to the securities offered hereby, the Company has filed
with the Securities and Exchange Commission (the "Commission") a post-
effective amendment to its Registration Statement on Form SB-2 under the
Securities Act. For purposes hereof, the term "Registration Statement" means
the original Registration Statement and any and all amendments thereto. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, to which reference hereby is
made. Each statement made in this Prospectus concerning a document filed as
an exhibit to the Registration Statement is qualified in its entirety by
reference to such exhibit for a complete statement of its provisions.

The Company is subject to the informational requirements of the Exchange
Act, and in accordance with those requirements files reports and other
information with the Commission under the File No. 1-13550. Such reports,
proxy statements and other information can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 or at its Regional Offices located at 7 World
Trade Center, New York, New York 10007 and Room 1204, Everett McKinley
Dirksen Building, 219 South Dearborn Street, Chicago, Illinois 60604. Copies
of such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.

The Company distributes annual reports containing audited financial
statements to the Company's shareholders.

<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page(s)

-------
Report of Independent Certified Public Accountants F-2

Report of Independent Public Accountants F-3

Consolidated Balance Sheets as of September 30,
1995 and 1994 F-4

Consolidated Statements of Operations for the
year ended September 30, 1995 and the nine
months ended September 30, 1994 F-5

Consolidated Statements of Shareholders' Equity

(Deficit) for the year ended September 30, 1995
and the nine months ended September 30, 1994 F-6

Consolidated Statements of Cash Flows for the year
ended September 30, 1995 and the nine months
ended September 30, 1994 F-7

Notes to Consolidated Financial Statements F-8 - F-18

F-1

Report of Independent Certified Public Accountants

To the Board of Directors and Shareholders of
Hauppauge Digital, Inc. and Subsidiaries
Hauppauge, New York

We have audited the consolidated balance sheet of Hauppauge
Digital, Inc. and Subsidiaries as of September 30, 1995 and
the related consolidated statements of operations,
stockholders' equity and cash flows for the year ended
September 30, 1995. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of
the financial statements. We believe that our audit provides
a reasonable basis for our opinion.

In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of Hauppauge Digital, Inc. and
Subsidiaries at September 30, 1995 and the results of its
operations and cash flows for the year ended September 30,
1995 in conformity with generally accepted accounting
principles.

/s/ BDO Seidman, LLP
--------------------
BDO Seidman, LLP

Mitchel Field, New York
November 20, 1995

F-2
<PAGE>
<PAGE>
ARTHUR ANDERSEN LLP

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Hauppauge Digital, Inc.:

We have audited the accompanying consolidated balance sheet of Hauppauge
Digital, Inc. (a Delaware corporation) and subsidiaries as of September 30,
1994, and the related consolidated statements of operations, shareholders'
equity (deficit) and cash flows for the nine months ended September 30, 1994.
These financial statements are the responsibility of the Company's
managements. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hauppauge Digital, Inc. and
subsidiaries as of September 30, 1994, and the results of their operations
and their cash flows for the nine months ended September 30, 1994 in
conformity with generally accepted accounting principles.

/s/ Arthur Andersen LLP
-----------------------
Arthur Andersen LLP

Melville, New York
December 2, 1994 (except with respect
to the matter described in Note 6(b),
as to which the date if January 10, 1995)

F-3

<PAGE>
<PAGE>
HAUPPAUGE DIGITAL, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS
As of As of
September 30, 1995 September 30, 1994
------------------ ------------------
CURRENT ASSETS:
Cash and Cash Equivalents (Note 1) $1,214,940 $151,408
Accounts receivable, net of
allowance for doubtful accounts of
approximately $62,000 in 1995 and
$16,000 in 1994 1,146,865 554,642
Inventories (Note 2) 2,187,981 879,147
Prepaid expenses & other current assets 192,689 38,659
--------- ---------
Total current assets 4,742,475 1,623,856

Property, plant and equipment-
at cost 334,443 305,905
Less: Accumulated depreciation
and amortization 193,188 190,891
--------- ---------
141,255 115,014

SECURITY DEPOSITS AND OTHER ASSETS 62,085 50,637
---------- ----------
$4,945,815 $1,789,507
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
Short term borrowings-bank loan (Note 4) - $ 395,000
Accounts Payable 2,645,268 1,766,866
Accrued expenses 625,174 241,829
--------- ---------
Total current liabilities 3,270,442 2,403,695
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 9)

SHAREHOLDERS' EQUITY (DEFICIT) (NOTE 6)
Common stock $.01 par value; 10,000,000 shares
authorized, 2,756,183 and 1,280,000 issued
and outstanding as of September 30,
1995 and 1994 27,562 12,800
Additional paid-in capital 4,045.705 343,466
Accumulated deficit (2,397,894) (970,454)
---------- ----------
1,675,373 (614,188)
---------- -----------
$4,945,815 $1,789,507
========== ==========

See accompanying notes to consolidated financial statements

F-4
<PAGE>

HAUPPAUGE DIGITAL, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

For the Year For the Year Nine
Ended Months Ended
September 30, 1995 September 30,1994
------------------ -----------------
NET SALES (Note 7) $11,551,169 $4,166,807

COST OF SALES 9,079,245 3,313,331
PROVISION FOR INVENTORY
OBSOLESCENCE (Note 2) 164,511 300,000
----------- ---------
Total cost of sales 9,243,756 3,613,331
Gross Profit 2,307,413 553,476

SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
(Note 8) 2,963,360 1,621,110
RESEARCH & DEVELOPMENT
EXPENSES 269,888 214,174
---------- ----------
Loss from operations (925,835) (1,281,808)

OTHER INCOME (EXPENSE)
Interest income 50,026 4,940
Interest expense (20,233) (34,997)
Private placement financing
costs (Note 6) (572,674) -
Miscellaneous income 41,276 22,949
--------- ---------
Loss before tax provision (1,427,440) (1,288,916)

INCOME TAX PROVISION (Note 5) - 28,632
--------- ----------
Net Loss $(1,427,440) $(1,317,548)
=========== ===========
Net loss per share $ (.0.60) $ (1.03)
Weighted average shares
outstanding (Note 1) 2,382,928 1,280,000
=========== ===========

See accompanying notes to consolidated financial statements

F-5
<PAGE>
<PAGE>

HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED SEPTEMBER 30, 1995, AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1994

<S> <C> <C> <C> <C> <C>
Retained
Common Stock Additional Earnings
-----------------
Number of Paid in (Accumulated
Shares Amount Capital Deficit) Total
------ ------ ----------- ------------ ------

BALANCE AT JANUARY
1, 1994 1,280,000 12,800 80,848 347,094 440,742
Net loss for the
nine months ended
September 30, 1994 - - - (1,317,548) (1,317,548)
Issuance of shares
to the Company's
legal counsel
by principal
shareholders (Note 6) - - 94,500 - 94,500
Conversion of shareholders'
loans to equity without
the issuance of common
shares (Note 6) - - 100,000 - 100,000
Rent expense funded
by principal
shareholders (Note 8) - - 68,118 - 68,118
-------- ----- ------- ------- -------
BALANCE A SEPTEMBER,
30, 1994 1,280,000 12,800 343,466 (970,454) (614,188)
Net loss for the
year ended
September 30, 1995 - - - (1,427,440) (1,427,440)
Issuance of shares
pursuant to a private
placement offering
(Note 6) 142,850 1,429 448,548 - 449,549
Issuance of shares
pursuant to the
Company's initial
public offering
(Note 6) 1,333,333 13,333 3,253,690 - 3,267,023
BALANCE AT --------- ------ --------- -------- ---------
SEPTEMBER 30, 1995 $2,756,183$27,562 $4,045,705 $(2,397,894) $1,675,373
========= ====== ========== ============ ==========

</TABLE>
See accompanying notes to consolidated financial statements

F-6
<PAGE>
<PAGE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS

For the Year For the Year Nine
Ended Months Ended
September 30, 1995 September 30,1994
------------------ -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,427,440) $(1,317,548)
Adjustments to reconcile net loss to ------------ ------------
net cash used in operating activities:
Depreciation and amortization 33,693 21,459
Provision for uncollectible receivables 49,200 15,925
Provision for system board obsolescence 164,511 300,000
Private placement financing costs 572,674 -
Rent expense funded by principal
shareholders - 68,118
Legal expense incurred in connection with
the issuance of common shares to legal
counsel - 94,500
Increase (decrease) in cash resulting from
changes in operating assets and liabilities:
Accounts receivable (641,420) 182,347
Inventories (1,473,342) (37,218)
Prepaid expenses and other
current assets (154,030) (11,704)
Accounts payable 878,402 281,934
Accrued expenses 383,345 44,752
-------- -------
(186,967) 960,113
---------- --------
Net cash used in operating activities (1,614,407) (357,435)
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property,
plant and equipment (57,749) (4,817)
Purchase of software rights (13,156) -
Security deposits (483) -
--------- -------
Net cash used in investing
activities (71,388) (4,817)
-------- -------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from private
placement offering 477,304 -
Net proceeds from initial
public offering 3,267,023 -
Principal payment on bank loan (395,000) -
Principal payment on private placement
bridge loan (600,000) -
Net cash provided by --------- ------
financing activities 2,749,327 -
Net increase (decrease) --------- --------
in cash and cash equivalents 1,063,532 (362,252)
CASH AND CASH EQUIVALENTS,
beginning of period 151,408 513,660
CASH AND CASH EQUIVALENTS, end of period $1,214,940 $ 151,408
========== =========
SUPPLEMENTAL DISCLOSURES:
Interest paid $46,206 $11,033
========== =========
Income taxes paid $19,322 $ 6,071
========== =========
See accompanying notes to consolidated financial statements
F-7

<PAGE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Hauppauge
Digital, Inc. and its two wholly owned subsidiaries, Hauppauge Computer
Works, Inc. and HCW Distributing Corp., as well as Hauppauge Computer Works,
GMBH and Hauppauge Computer Works, Ltd., both wholly owned subsidiaries of
Hauppauge Computer Works, Inc. (collectively, the "Company"). All
intercompany accounts and transactions have been eliminated.

Change in Fiscal Year

Effective September 30, 1994, the Company changed its fiscal year end
from December 31 to September 30. The comparative financial information for
September 30, 1994, presented on the consolidated balance sheet, statements
of operations, shareholders' equity (deficit) and cash flows are for the nine
months ended September 30, 1994. Comparative condensed income statement data
for the year ended September 30, 1995 compared to the unaudited results for
the year ended September 30, 1994 is presented below:

Years Ended September 30,
1995 1994
(Unaudited)
------------ -----------
Net Sales..................... $ 11,551,169 $ 6,458,498
Gross Profit.................. $ 2,307,413 $ 1,134,517
Net operating loss............ $ (925,835) $ (1,309,241)
Loss before tax provision..... $ (1,427,440) $ (1,305,531)
Net (Loss).................... $ (1,427,440) $ (1,334,909)

Nature of Business

The Company is primarily engaged in the design, manufacture and selling
of Win/TV digital video computer boards. Win/TV boards convert moving video
images from cable TV, video cameras or a VCR to a digital format which is
displayed in a sizable window on a PC monitor. These video images can be
viewed simultaneously with normal PC operations such as word processing
programs and spreadsheet applications. The Win/TV board is marketed worldwide
through distributors, original equipment manufacturers and manufacturers'
representatives. Net sales to international and domestic customers were
approximately 70% and 30%, respectively, of total sales for the year ended
September 30, 1995, and 45% and 55%, respectively, of total sales for the
nine months ended September 30, 1994. Although the Company believes it
operates in one industry segment, it does not believe that it has a material

F-8

<PAGE>

HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nature of business-continued

concentration of credit risk either from an individual counterparty or a
group of counterparties, due to the large and diverse user group for its
products. Substantially all of the Company's assets are located in the United
States.

Net sales to international customers consist of:

Year ended Nine months ended
Sales to: September 30, 1995 September 30, 1994
- -------- ------------------ ------------------
United Kingdom 22% 21%
Germany 20% 5%
The Netherlands 5% -
Other countries 23% 19%
--- ---
70% 45%
=== ===

Cash and Cash Equivalents

For the purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments purchased with an original maturity date
of three months or less to be cash equivalents.

Revenue Recognition

The Company records revenue when its products are shipped.

Warranty Policy

The Company warrants that its products are free from defects in material
and workmanship for a period of one year from the date of initial retail
purchase. The warranty does not cover any losses or damage that occur as a
result of improper installation, misuse or neglect and repair or modification
by anyone other than the Company or an authorized repair agent. The Company
accrues anticipated warranty costs based upon historical percentages of items
returned for repair within one year of the initial sale.

Inventories

Inventories are valued at the lower of cost (principally average cost)
or market. A reserve has been provided to reduce obsolete and/or excess
inventory to its net realizable value.

F-9
<PAGE>

HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property, Plant and Equipment

Depreciation of machinery and equipment and amortization of leasehold
improvements is provided for using both accelerated and straight line methods
over the estimated useful lives of the related assets as follows:

Office Equipment and Machinery: 5 to 7 years
Leasehold improvements: Asset life or lease term,
whichever is shorter

Income Taxes

For the fiscal year ended September 30, 1994, the Company filed separate
corporate income tax returns for Hauppauge Digital, Inc., Hauppauge Computer
Works, Inc. and HCW Distributing Corp.. During 1995, Hauppauge Computer
Works, Inc. and HCW Distributing Corp. filed an election, which was approved
by the state and federal tax authorities, to change their tax reporting year
to September 30. Effective for the year ended September 30, 1995, the Company
will file a consolidated income tax return.

The Company follows the liability method of accounting for income taxes
as prescribed by Statement No. 109 of the Financial Accounting Standards
Board ("FAS 109"). Under FAS 109, deferred income taxes are recorded to
reflect the temporary differences in the tax bases of the assets or
liabilities and their reported amounts in the financial statements. The
Company has not recorded a deferred tax asset or liability for state and
local tax purposes due to the immaterial effect on the financial statements.

Foreign Currency Transactions

The Company sells products and services to foreign customers. Revenues
and expenses are recorded in U.S. dollars at the current exchange rate at the
time of the transaction. Gains and losses due to the changes in exchange rate
are recorded in the statement of operations.

Net Loss per Share

Net loss per share has been computed on the basis of weighted average
number of common shares outstanding for each period presented. Included in
the 1995 year end computation were 142,850 and 1,333,333 shares issued
through a private placement offering and an IPO (See Note 6).

F-10
<PAGE>

HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net Loss per Share-continued

Weighted average shares outstanding for the year ended September 30,
1995 were 2,382,928. Weighted average shares for the nine months ended
September 30, 1994 were 1,280,000.

The effect of including warrants as common stock equivalents results in
a reduction of the loss per share. Therefore, the warrants are not included
as a component of the weighted average shares outstanding.

2. INVENTORIES

Inventories consist of the following:

September 30,
1995 1994
---------- --------
Component Parts $ 738,846 $444,640
Work in Process 974,706 316,739
Finished Goods 474,429 117,768
--------- --------
$2,187,981 $879,147
========== ========
During June of 1994, the Company's management observed that the System
Board product line sales volume had declined at a much faster pace than
expected, to a point where it appeared likely that the Company would have to
offer such items at significant discounts to the public, and therefore it
would not fully recover its original investment in such inventory. On June
15, 1994 because of the continued sales declines and certain market
developments, the Company decided to de-emphasize the marketing of its PC
system boards product line in favor of the newer Win/TV boards and, as a
result, recorded a reserve for inventory obsolescence in the amount of
$300,000. Such amount has been reflected separately in the statement of
operations for the year ended September 30, 1995 and the nine months ended
September 30, 1994. A reserve of approximately $165,000 was charged to
operations for 1995.

3. PROPERTY, PLANT AND EQUIPMENT

The following is a summary of property, plant and equipment at cost less
accumulated depreciation:
1995 1994
------- -------
Office Equipment and Machinery $308,787 $280,972
Leasehold Improvements 25,656 24,933
------- -------
334,443 305,905
Less: Accumulated depreciation 193,188 190,891
------- -------
Total $141,255 $115,014

F-11

<PAGE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. SHORT TERM BORROWINGS - BANK LOAN

The Company had a $500,000 line of credit from Shawmut Bank from August
15, 1991 to September 30, 1992. The terms of the credit line provided for
monthly interest payments on the outstanding balance at 1/2% above the bank's
prime interest rate and a 1/2% per annum fee on the unused portion of the
line. The line was secured by the Company's accounts receivable and the
personal guarantees of the principal shareholders, who are also the founders
and principal executive officers of the Company. The line matured on
September 30, 1992 and was not renewed. At September 30, 1994, the
outstanding balance was $395,000 and the line was considered a matured
facility by the bank. Although the Company had defaulted on certain financial
covenants, Shawmut agreed not to call the loan provided that the Company pay
Shawmut 1) $50,000 from the proceeds of the private placement described in
Note 6, and 2) pay the remaining principal plus any accumulated interest,
fees and costs in full by January 31, 1995 from the proceeds of the IPO.

The Company, from the proceeds of the private placement, made a payment
of $50,000 in October 1994. The Company also made a payment of $12,000 in
December 1994. On January 19, 1995, the Company paid $362,631 to Shawmut
from the proceeds of the IPO. Subsequent to the payment, Shawmut notified
the Company that additional legal fees and costs were due, and the payment
was first applied to these remaining amounts, resulting in unpaid principal
to Shawmut of approximately $28,900. On September 29, 1995, the Company paid
$17,500 to Shawmut in settlement of the disputed outstanding balance.

5. INCOME TAXES

The income tax provision consists of the following:

September 30,
1995 1995
---- ----
Federal income tax provision $ - $ -
Tax settlement-Federal - 17,000
State income tax provision 4,420 8,732
Tax settlement-State - 2,900
Tax benefit-overstated liability (4,420) -
------ --------
$ - $ 28,632
------ --------
During 1994, the Long Island Appeals office of the Internal Revenue
Service proposed a settlement in the amount of $17,000 plus interest, related
to income tax deficiencies in connection with the Company's tax filings for
its years ended December 31, 1988 to 1990. The Company, in recognition of

F-12
<PAGE>

HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income taxes-continued

this proposal, recorded in 1994 an income tax provision of $19,900 and a
charge to interest expense of $13,100. In 1995 the Company accepted the
proposal and paid $17,000 in taxes and $13,207 in interest to the Internal
Revenue Service.

Components of deferred taxes are as follows:
September 30,
1995 1994
Deferred tax assets: ---- ----
Net operating loss carryforwards $574,945 $361,085
Inventory obsolescence reserve 157,930 102,000
Warranty reserve 20,400 -
Allowance for doubtful accounts 16,728 -
------- -------
Total deferred tax assets 770,003 463,085
Valuation allowance (770,003) (463,085)
------- -------
Net deferred tax assets $ - $ -
------- -------
The Company has recorded a full valuation allowance to reflect the estimated
amount of deferred tax assets which may not be realized. The change in
valuation allowance for the year ended September 30, 1995 and 1994 is as
follows:

1995 1994
---- ----
Balance at the beginning of the year $463,085 $ 76,068
Increase in non utilization of net
operating loss carryforwards 213,860 285,017
Increase in reserve for inventory
obsolescence 55,930 102,000
Increase in warranty reserve 20,400 -
Increase in allowance for doubtful accounts 16,728 -
-------- --------
Balance at the end of the year $770,003 $463,085
======== ========

As of September 30, 1995, the Company had net operating losses, (which
expire in the years through 2010), of $1,690,228 available to offset future
taxable income. Due to the change in control which resulted from the
Company's January 10, 1995 initial public offering of stock, (Note 6),
$1,344,228 of the net operating losses are subject to limitations per
Internal Revenue code section 382. The Company's carryforward utilization of
these restricted net operating losses is limited to $275,386 per year. Net
operating losses of $346,000, which occurred after January 10, 1995, are
unrestricted and can be utilized without limitation.

F-13

<PAGE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income taxes-continued

The difference between the actual income tax provision (benefit) and the
tax provision computed by applying the Federal statutory income tax rate to
the loss before income tax is attributable to the following:

September 30,
1995 1994
---- ----
Income tax (benefit) at 34% $(485,330) $(438,231)
Loss producing no tax benefit 485,330 438,231
tate income taxes 4,420 8,732
IRS settlement - 19,900
Tax benefit-overstated liability (4,420) -
-------- --------
Income tax provision $ - $ 28,632
========= =========
6. SHAREHOLDERS' EQUITY

a. Private Placement

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 5%, $25,000 promissory notes 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
IPO, effective January 10, 1995 (Note 6, Initial Public Offering-IPO). The
promissory notes were subject to mandatory prepayment from the proceeds of
any public or other private offering of the Company's debt or equity
securities. On January 17, 1995, the $600,000 plus accrued interest of $7,910
was repaid. All the units issued to the former noteholders have been
registered with the Securities and Exchange Commission concurrently with the
IPO.

A summary of the application of the net proceeds (approximately $477,000) is
listed below:

Payment of loan to Shawmut Bank $ 50,000
Partial expenses of IPO 122,000
Purchase of inventory, reduction
of trade payables and general
working capital purposes 305,000
-------
$477,000
========

F-14

<PAGE>

HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

a. Private Placement-continued

Based on certain factors such as: 1) the nature of the borrowing, 2) the
Company's financial position and 3) the economic environment, 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)
has been charged to operations under the caption "Private Placement Financing
Costs" in the year ended September 30, 1995. Additionally, $122,696 of fees
and costs relating to the private placement were charged to operations within
the same caption in the year ended September 30, 1995.

b. Initial Public Offering (IPO)

Effective January 10, 1995 the Company completed an IPO of securities.
The Company sold 1,333,333 units at $3.15 per unit. Each unit consisted of
one share of $.01 par value common stock and one Class A redeemable stock
purchase warrant. Each Class A warrant entitles the holder to purchase one
share of common stock at an exercise price of $3.75 per share, subject to
adjustments for anti-dilution provisions in certain circumstances, for a
four-year period commencing one year after the January 10, 1995 effective
date and expiring January 9, 2000. The warrants are redeemable by the
Company, in whole or in part at a price of $.10 per warrant, commencing one
year after the effective date (or sooner with the consent of the
Underwriter), in accordance with a Warrant Agreement between the Company, its
Warrant Agent and the Underwriter. For the period of 180 days after the date
of the Prospectus (January 10, 1995), which period could have been terminated
sooner with the sole consent of the Underwriter, the warrants were neither
detachable, separately tradeable nor transferable from the common stock with
which they were issued. On April 20, 1995 the Underwriter consented to
accelerate the separation date. The Company's units were split into Common
Stock and Class A Warrants. The Common Stock and Class A Warrants began
trading separately on April 25, 1995.

As part of the offering, the Company sold to the Underwriter, for a
nominal fee of $10, the Underwriter's Unit Purchase Option, which entitles
the Underwriter to purchase 133,333 units at an exercise price of $4.41 (140%
of the offering price) for a period of four years, commencing one year after
the January 10, 1995 effective date. The units are identical to those offered
to the public.

F-15

<PAGE>

HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT

b. Initial Public Offering (IPO)-continued

The Company and the Underwriter have entered into a two year Consulting
Agreement. The Consulting Agreement obligates the Company to pay the
Underwriter a fee of $72,000, of which $36,000 was paid upon the closing of
the offering, and $3,000 per month for the twelve month period subsequent to
the closing.

The net proceeds received by the Company after deducting Underwriter
discounts and commissions plus expenses of the IPO were $3,267,023.

c. Incentive Stock Option Plan

In August 1994, the Company adopted an Incentive Stock Option Plan
("ISO"), as defined in section 422(A) of the Internal Revenue Code, as
amended, reserving 200,000 shares of common stock for issuance under the ISO.
Pursuant to the ISO, options may be granted for up to ten years with exercise
prices during the first two years subsequent to the IPO being the greater of
the IPO offering price per unit ($3.15) or the fair market value of the
common stock at the date of the grant. After the initial two year period, the
option price shall be no less than the fair market value of the stock on the
date the options are granted. To date, no options have been granted under the
ISO.

d. Conversion of Shareholders Loans Payable to Shareholders' Equity

During 1994, the founders of the Company converted $100,000 of loans
payable to them into additional paid in capital, without the issuance of
additional stock.

e. Issuance of Common Stock to Company's Legal Counsel

In August 1994, the founders of the Company transferred 30,000 shares of
common stock to the Company's legal counsel, or their designees, for no cash
consideration. The Company valued the stock at the IPO offering price and
recorded legal expense and additional paid in capital of $94,500 for the nine
months ended September 30, 1994.

f. Change in Company Ownership

On August 2, 1994, prior to the IPO, Hauppauge Digital, Inc., a Delaware
Corporation, was incorporated with 10,000,000 authorized common shares, $.01
par value and became the parent of two wholly owned subsidiaries - Hauppauge
Computer Works, Inc. and HCW Distributing Corp.. The Company's executive
offices and operations remained at its Hauppauge, New York location. The two

F-16

<PAGE>

HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT

f. Change in Company Ownership-continued

existing shareholders at the time, who were also the founders of the Company,
exchanged all of the issued and outstanding shares of Hauppauge Computer
Works, Inc. and HCW Distributing Corp. for 1,280,000 shares of Hauppauge
Digital, Inc. common stock, which on August 2, 1994 represented all of the
outstanding shares of Hauppauge Digital, Inc..

7. SIGNIFICANT CUSTOMER INFORMATION

Significant customers for the year ended September 30, 1995 and the nine
months ended September 30, 1994 are as follows:

Percentage of Net Sales
September 30,
1995 1994
---- ----
Reuters 17% 18%
Satellite Transmissions 1% 11%
ESCOM 8% -

8. RELATED PARTY TRANSACTIONS

The Company, on February 1, 1990, entered into a long term lease
agreement for a building containing office and warehouse space located in
Hauppauge, New York. The building is owned through a real estate partnership
by the two founders of the Company, who currently hold the positions of Chief
Executive Officer and President. The indebtedness incurred by the owners to
purchase the building is guaranteed by the Company. As of September 30, 1995
and 1994, the outstanding mortgage balance was $1,260,543 and $1,330,375,
respectively. The lease expires on January 31, 2009 and provides for rent
increases of 5% per year. Annual lease payments are as follows:

Year ended September 30,
------------------------
1996 $ 306,627
1997 321,958
1998 338,056
1999 354,959
2000 372,706
Thereafter 3,923,480
---------
$5,617,786
=========

F-17

<PAGE>

HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Related Party Transactions-continued

Rent expense totaled approximately $292,025 and $211,954 for the twelve
months and nine months ended September 30, 1995 and 1994, respectively.
During 1994, the Company received $68,118 in rent concessions. This amount
was charged to rent expense and as a contribution to additional paid in
capital. The Company pays the real estate taxes and is responsible for normal
building maintenance.

9. CONTINGENCIES

a. Litigation

In the normal course of business, the Company is a party to various
claims and/or litigation. Management and the Company's legal counsel believe
that the settlement of all such claims and or/litigation, considered in the
aggregate, will not have a material adverse effect on the Company's financial
position and results of operations.

b. Employment Contracts

On January 10, 1995, the effective date of the IPO, the Company's
president and chief executive officer entered into a three year employment
agreement with the Company. The agreements each provide for an annual salary
of $60,000 during the first year, $80,000 during the second year and $100,000
during the third year. The agreements also provide for a reasonable auto
allowance, term life insurance, medical insurance and certain other benefits
as is standard for employees of the Company. In addition, the president and
chief executive officer were granted an option to purchase 150,000 shares of
the Company's common stock. Such options are exercisable for ten years at
$3.15 per share, (which was the IPO price), only after the Company attains
certain specified pre tax income levels.

F-18

<PAGE>
No dealer, salesman or any
other person has been authorized to
give any information or to make any
representations other than those
contained in this Prospectus in
connection with the offer made by
this Prospectus and, if given or
made, such information or
representations must not be relied
upon as having been authorized by
the Company. Neither the delivery
of this Prospectus nor any sale made
hereunder shall under any
circumstances create any implication
that there has been no change in the
affairs of the Company since the 1,476,183 Shares of
date hereof. This Prospectus does Common Stock
not constitute an offer or
solicitation by anyone in any
jurisdiction in which the person 133,333 Undewriter Units
making such offer or solicitation is
not qualified to do so or to anyone
to whom it is unlawful to make such 133,333 Shares of
offer or solicitation. Common Stock

TABLE OF CONTENTS
Page
Prospectus Summary HAUPPAUGE DIGITAL, INC.
Summary Financial
Information
Risk Factors
Use of Proceeds ------------
Dividend Policy PROSPECTUS
Dilution ------------
Capitalization
Market Information
Management's Discussion and
Analysis of Operations
and Financial Condition
Business _____________, 1996
Management
Principal Stockholders
Incentive Stock Option Plan
Certain Transactions
Description of Securities
Shares Eligible for Future Sale
Plan of Distribution
Legal Matters
Experts
Additional Information
Consolidated Financial
Statements F-1

<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24. Indemnification of Directors and Officers

The Certificate of Incorporation of the Company provides that no
director shall be liable to the Company or any of its stockholders for
monetary damages for breach of fiduciary duty as a director, except with
respect to (i) a breach of the director's duty of loyalty to the Company or
its stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) liability under
Section 174 of the Delaware General Corporation Law or (iv) a transaction
from which the director derived an improper personal benefit, it being the
intention of the foregoing provision to eliminate the liability of the
Company's directors to the Company or its stockholders to the fullest extent
permitted by Section 102(b)(7) of the Delaware General Corporation Law, as
amended from time to time, each person that such Sections grant the Company
the power to indemnify.

Section 174 of the Delaware Corporation Law provides for certain
liability of directors for unlawful payment of dividends or unlawful stock
purchases or redemptions. Section 102(b)(7) of the Delaware Corporation Law
provides that liability of directors shall not be eliminated or limited for
any breach of the director's duty f loyalty, acts not in good faith, which
involve intentional conduct or a knowing violation of law, violation of
Section 174 of the Delaware Corporation Law, or transactions in which the
director derives an improper personal benefit. Section 145 of the Delaware
Law provides that a corporation may indemnify any person who was or is a
party or threatened to be made a party by reason of the fact that he is or
was a director or officer of the corporation against expenses incurred by him
n connection with the defense of certain actions that may be brought against
them, if he acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation. The foregoing
statutory discussion is limited by the terms of the statute and any
amendments thereto.

<PAGE>
<PAGE>
Item 25. Other Expenses of Issuance and Distribution

Estimates of fees and expenses incurred or to be incurred in connection
with the issuance and distribution of securities being registered:

Printing and Mailing Costs and Fees $ 2,000
Legal Fees and Costs 10,000
Accounting Fees and Costs 2,000
Miscellaneous Expenses 9,683
------
TOTAL $23,683

Item 26. Recent Sales of Unregistered Securities

Except as set forth below, there were no securities sold by the
Registrant within the past three years without registering the securities
under the Securities Act:

On August August 2, 1994, Kenneth R. Aupperle, Laura Aupperle, Kenneth
Plotkin and Dorothy Plotkin exchanged all of their issued and outstanding
shares of the Company's two wholly owned subsidiaries for 1,280,000 shares of
Common Stock, representing all of the outstanding shares of the Company.

In October 1994, the Company sold $600,000 of units to 28 purchasers in
a private placement, each unit consisting of a 5% promissory note and such
number of Units as equal 75% of the principal amount of the promissory note,
divided by the price of the Unit in the Unit Offering ($3.15). Such offering
was made in compliance with Rule 506 of Regulation D of the Securities Act,
in that the offering was made to no more than 35 persons who were not
"accredited" (as defined in Rule 501 of Regulation D), any of such non-
accredited persons possessing sufficient knowledge and experience of similar
investment, the information required to be delivered pursuant to Rule 502 of
Regulation D was delivered; the offering was made without general
solicitation or advertising; and limitation were imposed upon the resale of
securities purchased. In January, 1995, the Common Stock included in the
Units and the Common Stock issuable upon the exercise of the Class A Warrants
issued in connection with the bridge loan was registered for resale on Form
SB-2. The following were the participants of such offering:

Herbert Cyrlin
Marshall N. Cyrlin
Albert Kula
Norman Laufer
William C. Albert Trust
Christopher J. Alf
Shepard Ellenberg
K & K Realty
Daniel F. Reinhart
Gregg Supinsky
M & D Construction, Inc.
Hillel Y. Marans

<PAGE>

John & Steven Albicocco
Francine Manzo
Thomas A. Peacock
Arnold D. Flam, DDS, Harvey Glicker, DDS, P.C., Profit Sharing Trust FBO
Harvey Glicker
SEP IRA Jonathan S. Elias
Ronald P. Cohen
Jesse Farrow
Karl D. Evertz
E & M RP Trust
Donald E. Millard
Arthur M. Luxenberg
Perry Weitz
717 Associates
Don Kollmar
James Lustig
Moshe Levy and Dan Levy JTWROS

The sale set forth above is claimed to be exempt from registration with
the Commission pursuant to Section 4(2) of the Securities Act of 1933, as
transactions by an issuer not involving any public offering.

Reference is also made to the transfer of 30,000 shares of Messrs.
Aupperle and Plotkin and their wives' Common Stock to members of the firm of
Hollenberg Levin Solomon Ross & Belsky, LLP, the Company's counsel, or their
designees, without payment of monies in August of 1994. The sales set forth
in this paragraph were exempt from registration with the Commission pursuant
to Section 4(1) of the Securities Act as transactions by an issuer not
involving a public offering.

Item 27. Exhibits

The following Exhibits were previously filed or incorporated by
reference with respect to this Registration Statement as indicated in
Amendment No. 2 to the Registration Statement:

Exhibit Description of Exhibit
- ------- ----------------------
(1.1) Form of Underwriting Agreement with Lew Lieberbaum & Co., Inc.
(3.1) Certificate of Incorporation, as amended to date
(3.2) By-laws
(4.1) Form of Common Stock Certificate
(4.2) Form of Class A Warrant Certificate
(4.3) Form of Warrant Agency Agreement between the Company, North
American Transfer Co. and Lew Lieberbaum & Co., Inc., as
amended
(4.4) Form of Underwriter's Unit Purchase Option
(4.5) 1994 Incentive Stock Option Plan
(10.1) Form of Employment Agreement with Kenneth R. Aupperle
(10.2) Form of Employment Agreement with Kenneth Plotkin
(10.3) Lease dated February 7, 1990 between Ladokk Realty Company and

<PAGE>
Hauppauge Computer Works, Inc.
(10.8) Long Island Development Corporation ("LIDC") Mortgage Loan
Agreements
(10.9) The Company's Guaranty of LIDC Loan Agreements
(10.10) Shawmut Mortgage Loan Agreements
(10.11) The Company's Guaranty of the Shawmut Mortgage Loan Agreements
(10.12) Master Purchase Agreement between Reuters Ltd. and Hauppauge
Computer Works Inc.
(22) Subsidiaries of the Company

The following Exhibits are annexed hereto:

(4.6) 1996 Non-Qualified Stock Option Plan
(24.1) Consent of Hollenberg Levin Solomon Ross Belsky & Daniels, LLP
(24.2) Consent of BDO Seidman, LLP
(24.3) Consent of Arthur Andersen, LLP

Item 28. Undertakings.

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales of
securities are being made, a post-effective amendment to this Registration
Statement to: (i) include any prospectus required by Section 10(a)(3) of the
Securities Act; (ii) reflect in the Prospectus any facts or events which,
individually or together, represent a fundamental change in the information
in the registration statement; and (iii) include any additional or changed
material information on the plan of distribution.

(2) For the purpose of determining liability under the Securities
Act, treat each post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at that time to be
the initial bona fide offering.

(3) To file a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the Offering.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, or otherwise, the Company
has been informed that in the opinion of the Commission such indemnification
is against public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer of controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and is therefore
unenforceable and will be governed by the final adjudication of such issue.

<PAGE>
<PAGE>
SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this Amendment
to the Registration Statement to be signed on its behalf by the undersigned,
in Hauppauge, New York on January 22, 1996.

HAUPPAUGE DIGITAL, INC.

By: /s/ Kenneth R. Aupperle
--------------------------
KENNETH R. AUPPERLE, President

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

/s/ Kenneth R. Aupperle Date: January 22, 1996
- ------------------------------ -----------------
KENNETH R. AUPPERLE, President,
Chief Operations Officer and Director

/s/ Kenneth Plotkin Date: January 22, 1996
- ------------------------------ -----------------
KENNETH PLOTKIN, Chief Executive
Officer, Secretary, Vice-President,
Chairman of the Board of Directors
and a Director

/s/ Laura Aupperle Date: January 22, 1996
- ------------------------------ -----------------
LAURA AUPPERLE, Director

/s/ Dorothy Plotkin Date: January 22, 1996
- ------------------------------ -----------------
DOROTHY PLOTKIN, Director

/s/ Leonard A. Neuhaus Date: January 22, 1996
- ------------------------------ -----------------
LEONARD A. NEUHAUS, Director

/s/ Gerald Tucciarone Date: January 22, 1996
- ------------------------------ ----------------
GERALD TUCCIARONE, Treasurer
and Chief Financial Officer

<PAGE>
<PAGE>
EXHIBIT INDEX

Exhibit No. Exhibit Description

4.6 1996 Non-Qualified Stock Option Plan
24.1 Consent of Hollenberg Levin Solomon Ross Belsky &
Daniels, LLP
24.2 Consent of BDO Seidman, LLP
24.3 Consent of Arthur Andersen LLP

EXHIBIT 4.6

HAUPPAUGE DIGITAL, INC.

NON-QUALIFIED STOCK OPTION PLAN

SECTION 1 - OBJECTIVE

The objective of the Hauppauge Digital, Inc. Non-Qualified Stock Option
Plan (the "Plan") is to attract and retain the best available executive
personnel and other key employees to be responsible for the management,
growth and success of the business, and to provide an incentive for such
employees to exert their best efforts on behalf of the Company and it
shareholders and to authorize the grant of Options to such other consultants
or other individuals or entities as may be deemed in the best interest of the
Company.

SECTION 2 - DEFINITIONS
2.1 General Definitions. The following words and phrases, when used
herein, shall have the following meanings:

(a) "Act" - The Securities Exchange Act of 1934, as amended.

(b) "Agreement" - The document which evidences the grant of any
Award under the Plan and which sets forth the terms,
conditions, and limitations relating to such Award.

(d) "Board" - The Board of Directors of Hauppauge Digital, Inc.

(e) "Code" - The Internal Revenue Code of 1986, as amended, and
including the regulations promulgated pursuant thereto.

(f) "Committee" - The Stock Option Committee which shall be the
Board or two or more members of the Board.

(g) "Common Stock" - The present shares of Common Stock of the
Company, and any shares into which such shares are converted,
changed or reclassified.

(h) "Company" - Hauppauge Digital, Inc., a Delaware corporation,
and its groups, divisions and subsidiaries.

(i) "Employee" - Any person employed by the Company as an
employee.

(j) "Fair Market Value" or "FMV" - The fair market value of Common
Stock on a particular day shall be the closing price of the
Common Stock on NASDAQ, or if not applicable, by the National

<PAGE>

Quotations Bureau or any other national stock exchange on
which the Common Stock is traded, on such date.

(k) "Option" - The right to purchase Common Stock of the Company
at a stated price for a specified period of time. For
purposes of the Plan, the option is a Non-Qualified Stock
Option.

(l) "Participant" - Any Employee or other consultant, individual
or entity designated by the Committee to participate in the
Plan.

(m) "Shares" - Shares of Common Stock.

2.2 - Other Definitions. In addition to the above definitions, certain
words and phrases used in the Plan and any Agreement may be defined elsewhere
in the Plan or in such Agreement.

SECTION 3 - COMMON STOCK

3.1 - Number of Shares. Subject to the provisions of Section 3.3, the
number of Shares which may be issued for Options granted under the Plan may
not exceed 250,000 Shares.

3.2 - Re-Usage. If an Option expires or is terminated, surrendered, or
canceled without having been fully exercised, or if any other grant results
in any Shares not being issued, the Shares covered by such Option shall again
be immediately available for Awards under the Plan.

3.3 - Adjustments. In the event of any change in the outstanding Common
Stock by reason of a stock split, stock dividend, combination,
reclassification or exchange of Shares, recapitalization, merger,
consolidation or other similar event, the number of Shares available for
Options, and the number of Shares subject to outstanding Options, and the
price thereof, and the Fair Market Value, as applicable, shall be
proportionately adjusted by the Committee in its sole discretion and any such
adjustment shall be binding and conclusive on all parties. Any fractional
Shares resulting from any such adjustment shall be disregarded.

SECTION 4 - ELIGIBILITY AND PARTICIPATION

Participants in the Plan shall be those key employees, consultants or
other individuals or entities selected by the Committee to participate in the
Plan whose participation in the Plan the Committee or management of the
Company determines to be in the best interests of the Company.

SECTION 5 - ADMINISTRATION

5.1 - Committee. The Plan shall be administered by the Committee, which
shall consist of the Board of Directors or a committee of at least two or
more members of the Board of Directors.

<PAGE>

5.2 - Authority. The Committee shall have the sole and complete
authority to:

(a) determine the individuals to whom awards are granted, the
amounts of the awards to be granted and the time of all such
grants;

(b) determine the terms, conditions and provisions of, and
restrictions relating to, each Award granted;

(d) prescribe, amend and rescind rules and regulations relating to
the Plan;

(e) determine the content and form of all Agreements;

(f) determine all questions relating to Awards under the Plan;

(g) maintain accounts, records and ledgers relating to Awards;

(h) maintain records concerning its decisions and proceedings;

(i) employ agents, attorneys, accountants or other persons for
such purposes as the Committee considers necessary or
desirable;

(j) do and perform all acts which it may deem necessary or
appropriate for the administration of the Plan and to carry
out the objectives of the Plan.

5.3 - Determinations. All determinations, interpretations, or other
actions made or taken by the Committee pursuant to the provisions of the Plan
shall be final, binding and conclusive for all purposes and upon all persons.

SECTION 6 - STOCK OPTIONS

6.1 - Type of Option. It is intended that only non-qualified stock
options may be granted by the Committee under the Plan.

6.2 - Grant of Option. An Option may be granted to Participants at such
time or times as shall be determined by the Committee. Each Option shall be
evidenced by an Option Agreement that shall specify the exercise price, the
duration of the Option, the number of Shares to which the Option applies, and
such other terms and conditions not inconsistent with the Plan as the
Committee shall determine.

6.3 - Option Price. The per share option price shall be determined by
the Committee at the time the Option is granted.

6.4 - Exercise of Options. Options awarded under the Plan shall be
exercisable at such times and shall be subject to such restrictions and

<PAGE>

conditions, including the performance of a minimum period of service after
the grant, as the Committee may impose, which need not be uniform for all
participants; provided, however, that no Option shall be exercisable for more
than 10 years after the date on which it is granted.

6.5 - Payment. The Committee shall determine the procedures governing
the exercise of Options, and shall require that the per share option price be
paid in full at the time of the exercise. The Committee may, in its
discretion, permit a Participant to make payment in cash, in Shares already
owned by the Participant, valued at the Fair Market Value thereof, as partial
or full payment of the exercise price or through a "Cashless Exercise".

If a Participant elects to utilize a Cashless Exercise, he shall be
entitled to a credit equal to the amount of that equity by which the current
Fair Market Value exceeds the option price on that number of options
surrendered and to utilize that credit to exercise additional options held by
him that such equity could purchase. There shall be canceled that number of
options utilized for the credit and for the options exercised for such
credit. For example, if the Participant has options to acquire 10,000 shares
which are exercisable, the Fair Market Value is $4.15 per share, the exercise
price is $3.15 per share, and the participant elects to utilize for a credit
5,000 options ($5,000), then upon a Cashless Exercise in connection therewith
he shall be entitled to acquire 1,587 shares of Common Stock in exchange for
the options for 5,000 shares for which a credit has been received and option
for 1,587 shares have been exercised. The Participant will still have
exercisable options to acquire 3,413 shares of Common Stock.

As soon as practical after full payment of the exercise price, the
Company shall deliver to the Participant a certificate or certificates
representing the acquired shares.

6.6 - Rights of a Shareholder. Until the exercise of an Option and the
issuance of the Shares in respect thereof, a Participant shall have no rights
as a Shareholder with respect to the Shares covered by such Option.

SECTION 7 - AMENDMENT, MODIFICATION AND TERMINATION OF PLAN

The Board of Directors at any time may terminate or suspend the Plan,
and from time to time may amend or modify the Plan or modify any option
granted under the Plan. No amendment, modification, or termination of the
Plan shall in any manner adversely affect any Award theretofore granted under
the Plan without the consent of the Participant.

SECTION 8 - MISCELLANEOUS PROVISIONS

8.1 - No Guarantee of Employment by Participation. Nothing in the Plan
shall interfere with or limit in any way the right of the Company to
terminate any Participant's relationship with the Company at any time, nor
confer upon any Participant any right to continue in the employment of the
Company. No employee shall have a right to be selected as a Participant, or,
having been so selected, to receive any future Awards.

<PAGE>

8.2 - Tax Withholding. The Company shall have the authority to
withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy federal, state and local withholding tax requirements
on any Award under the Plan, and the Company may defer payment of cash or
issuance of Shares until such requirements are satisfied. The Committee may,
in its discretion, permit a Participant to elect, subject to such conditions
as the Committee shall require, to have Shares otherwise issuable under the
Plan withheld by the Company and having a Fair Market Value sufficient to
satisfy all or part of the Participant's estimated total federal, state and
local tax obligation associated with the transaction.

8.3 - Governing Law. The Plan and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by the Code or
Act, shall be governed by the laws of the State of New York and construed in
accordance therewith.

8.4 - Effective Date. The Plan shall be submitted to the Shareholders
of the Company for approval at the Annual Meeting of Shareholders of the
Company scheduled to be held on March 5, 1996 and shall be effective
immediately upon such approval by the Shareholders of the Company. The Plan
shall terminate ten (10) years after the date of Shareholder approval.

EXHIBIT 24.1

CONSENT OF COUNSEL

We hereby consent to the use of our name wheresoever set forth in this
Registration Statement (SB-2).

/s/ Hollenberg Levin Solomon Ross Belsky & Daniels, LLP
-------------------------------------------------------
Hollenberg Levin Solomon Ross Belsky & Daniels, LLP

Garden City, New York
January 22, 1996

EXHIBIT 24.2

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form SB-2 of our report dated November 20, 1995,
relating to the consolidated financial statements of Hauppauge Digital, Inc.
and Subsidiaries as of September 30, 1995 and to the reference to our firm
under the heading "Experts" in such prospectus.

/s/ BDO Seidman, LLP
--------------------
BDO SEIDMAN, LLP

January 22, 1996
Mitchel Field, New York

EXHIBIT 24.3

CONSENT OF INDEPENDENT AUDITORS

As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of our report dated
December 2, 1994 (except with respect to the matter discussed in Note 6(b),
as to which the date is January 10, 1995) included in Hauppauge Digital, Inc.
and Subsidiaries' Form 10-KSB for the nine months ended September 30, 1994,
and to all references to our firm in this registration statement.

/s/ Arthur Andersen LLP
---------------------------
ARTHUR ANDERSEN LLP

Melville, New York
January 22, 1996