HAUPPAUGE DIGITAL INC, 424B3, 1996-06-07

HAUPPAUGE DIGITAL INC
424B3, 1996-06-07
COMPUTER PERIPHERAL EQUIPMENT, NEC

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Rule 424(b)(3)
(See "Use of Proceeds" Section for change.)

Registration No. 33-85426

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, net worth or other established

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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 March 29,
1996, the closing prices of the Common Stock and Class A Warrants as reported
by NASDAQ were $3.75 and $0.625, 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 May 3, 1996.

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<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".
(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".

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(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".

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>

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".

Nine Months Three Months
Year Ended Ended Ended
September 30, September 30, December 31
1995 1994 (Unaudited)
1995 1994
Statement of Income
(Loss) Data:

Net Sales $11,551,169 $4,166,807 $4,510,217 $2,153,805
Income (loss) before income
tax provision (benefit) (1,523,078) (1,288,916) 212,627 (767,127)
Net profit, (loss) (1,523,078) (1,317,548) 202,627 (767,127)
Net income, (loss)
per share(1) ($0.64) ($1.03) $0.07 ($0.55)
Weighted average shares
outstanding 2,382,928 1,280,000 2,756,183 1,405,770
_______
(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.

Consolidated Balance Sheet Data:

As of September 30, 1995 As of December 31, 1995
(Unaudited)
Actual As Adjusted (1) Actual As Adjusted

Working capital $1,472,033 $ 8,072,033 $1,680,643 $8,280,643
Total assets 4,945,815 11,545,815 5,409,632 12,009,632
Current liabilities 3,270,442 3,270,442 3,531,632 3,531,632
Shareholders' equity 1,675,373 8,275,373 1,878,000 8,478,000

_______
(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.

<PAGE>
<PAGE>
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. Until the quarter ended
December 31, 1995, the Company had 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 $1,523,078 and $1,288,916,
respectively. As of September 30, 1995, the Company had an accumulated deficit
of $2,493,532. 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. The Company had net sales of $4,510,217 for the three months ended
December 31, 1995 compared to $2,153,805 for the comparative quarter one year
previous. Income before taxes was $212,627 for the three months ended December
31, 1995, compared to a loss before taxes of $767,127 for the three months ended
December 31, 1994. The Company had an accumulated deficit of $2,290,905 as of
December 31, 1995. The Company's working capital as of December 31, 1995 was
$1,680,643 compared to a working capital deficit of $1,103,346 as of December
31, 1994. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations". The Company's ability to continue its 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 continue to be profitable following this Offering. There can be no
assurances that the Company's losses will not resume and continue or that the
Company will be profitable 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.
On March 28, 1996, Hauppauge Computer Works, Inc., the Company's wholly owned
subsidiary, entered into a loan facility (the "Credit Agreement") with MTB Bank
("MTB"). The Credit Agreement provides for, among other things, a credit line
to the Company of up to $1,100,000 increasing to up to $1,600,000 upon receipt
by MTB of the Company's September 30, 1996 consolidated financial statements.
The credit line is secured by the assets of the Company and are based upon
eligible accounts receivable and the terms of the Credit Agreement. As of March
31, 1996, the Company has not utilized this loan facility. The Company, HCW
Distributing Corp., HCW GmbH, LTD, Kenneth R. Aupperle and Kenneth Plotkin have
guaranteed the obligations of Hauppauge Computer Works, Inc. The guarantee of
Messrs. Aupperle and Plotkin are each limited to a maximum of $150,000. The
loan requires the Company to have a consolidated net worth of at least
$1,750,000 until September 30, 1996 and $2,000,000 thereafter, and if the
Company does not meet these and other covenants the Company may lose the credit
facility. The Company, HCW Distributing Corp., HCW GmbH and LTD have each
entered into a security agreement with MTB. If the Company's losses were to
resume 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

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grow or become profitable may be impaired. 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
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. For the quarter
ended December 31, 1995, PC system sales accounted for 9% of the Company's sales
compared to 13% for the previous year's first quarter. 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. For the three months
ended December 31, 1995, sales of digital video products accounted for 91% of
revenues compared to 87% of sales for the quarter ended December 31, 1994. 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

<PAGE>

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
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. For the three months ended December 31, 1995, Vobis AG and Tulip Computers
accounted for 18.6% and 10.1% of the Company's sales, respectively and Reuters
accounted for 6.3%. No other customer accounts for more than 10% of sales
during such three month period. The loss of Reuters, Vobis AG or Tulip
Computers 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). For the three months ended December 31, 1995 and
1994, approximately 67% and 64%, respectively, of the Company's sales were made
outside the United States. 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

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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 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
1,241,360 shares of Common Stock, an aggregate of 44.5% 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 December 31, 1995, the net
tangible book value of the Company was $1,878,000, or approximately $0.68 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 $1.92
per share of Common Stock, which is approximately 51%, based on investors
converting their Class A Warrants and Underwriter Units to Common Stock. See
"Dilution".

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

<PAGE>

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 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,

<PAGE>

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, 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

<PAGE>

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. This does not include additional
compensation which may be paid to the Underwriter by the Company arising from
the Company's agreement that it pay to the Underwriter a solicitation fee of
five (5%) percent of the aggregate exercise price of the Class A Warrants
exercised through the efforts and with the assistance of the Underwriter. See
"Plan of Distribution" and page 2 of the Cover Page. (The foregoing two
sentences added June 6, 1996.) 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. Pursuant to the terms of the Credit Agreement with MTB, the
Company is prohibited from declaring or paying any cash dividends. See
"Managements Discussion and Analysis of Financial Conditions and Results of
Operations - Financial Condition".

<PAGE>

<PAGE>
DILUTION

As of December 31, 1995, the net tangible book value of the Company was
$1,878,000, or approximately $0.68 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 December 31, 1995 would have been
$8,478,000 or approximately $1.88 per share, which represents an immediate
increase in the net tangible book value of $1.20 per share to current
shareholders and an immediate dilution of $1.92 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..................... $0.68
Increase per share attributable
to investors exercising Warrants......... $1.20
Net tangible book value per share
after exercise of Warrants............... $1.88
-----
Dilution per share to investors
exercising Warrants...................... $1.92
______ -----
(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
December 31, 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.

December 31, 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 4,141,343 10,723,915
Accumulated deficit (2,290,905) (2,290,905)
----------- -----------
Total shareholders' equity $ 1,675,373 $ 8,478,000
_______
(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 April 16, 1996.

High Low
---- ---
Fiscal Year Ended
September 30, 1996

First Quarter 3 15/16 1 5/8

Second Quarter 4 3/8 3

Third Quarter (until
April 16, 1996) 4 1/4 3 1/4

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 April
16, 1996 was 77. The Company believes there are in excess of 750 beneficial
holders of the Common Stock. On April 16, 1996, the closing price of the Common
Stock was $3.75.

<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

Three months ended December 31, 1995 compared to the three months ended December
31, 1994

Net sales for the three months ended December 31, 1995 were $4,510,217,
compared to $2,153,805 for the comparable period in the prior fiscal year,
resulting in an increase of $2,356,412 or 109%. The increase in sales was
primarily due to the investment of the IPO proceeds during the prior fiscal year
in increased marketing and production capabilities. Market share was gained
through intensified marketing and the ability of the Company to procure
additional inventory and expand production sources enabled the Company to meet
the increased sales demand.

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

Three Months Ended December 31, Increase
1995 1994 (Decrease)%
---- ---- -----------
System Boards $ 402,576 $ 277,510 45
Win/TV Boards 4,107,641 1,876,295 119
--------- --------- ---
Total Net Sales $4,510,217 $2,153,805 109
========= =========

Unit sales of Win/TV boards, the Company's digital video product line,
increased to approximately 20,000 as compared to approximately 7,300 for the
corresponding prior year's quarter, resulting in an increase of 173%. Sales to
domestic customers for the three month period were 33% of net sales for the
current year and 36% for the prior year. Sales to international customers, which
were primarily in U.S. Dollars, were 67% of net sales for the current year and
64% for the comparable period of last year.

Gross profit increased to $1,041,408 from $473,806, an increase of $567,602
or 120% over the prior year's first fiscal. The gross profit percentage
increased to 23% as compared to 22% for the three months ended December 31,
1994. The increase in the margin percentage was due to lower component costs
resulting from the economies gained by purchasing larger volumes of inventory
plus fixed production labor costs absorbed over a greater number of units, which
lowered labor costs per unit.

Though selling, general and administrative expenses increased $130,502
over the last year's first fiscal quarter, they declined to 17% of revenue in
the current three month period compared to 29% of revenue for the three months
ended December 31, 1994. The increase in expenses was primarily due to increased
sales and marketing expenses of $98,143, mainly due to intensified marketing
programs for advertising and trade shows plus increased commissions because of
higher sales, and higher general and administrative expenses of $47,903, mainly
for increased compensation costs for new personnel and wage increases plus
increased rent expense.

Research and development expenses increased $52,099, or approximately 125%.

<PAGE>

The increase was due to the infusion of new capital from the Company's January
1995 IPO, which was used to expand the Company's engineering research and
development resources to enhance current products and further develop future
product lines.

The Company had net other income of $12,156 for the December 31, 1995 three
month period as opposed to net other expense of $582,597 for the corresponding
three months of the preceding fiscal year. The increase to net other income was
primarily due to the non recurring private placement financing costs of $572,674
charged to operations in the prior year's first fiscal quarter plus higher
current quarter interest earned.

As a result of all the above, the Company recorded a net profit after taxes
for the three months ended December 31, 1995 of $202,627 or $0.07 per share as
opposed to a net loss after taxes (which taxes for the prior year were nominal)
of ($767,127) or ($0.55) per share.

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 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.

Though selling, general and administrative expenses for the year ended
September 30, 1995 increased $1,529,910 over the nine month period ended
September 30, 1994, they declined to 27% of net sales in fiscal 1995 compared

<PAGE>

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, consulting
fees of $57,000, which includes $27,000 paid to the Underwriter. In addition,
$187,660, which represents the excess of the fair market value over the price
of the shares sold relating to a July 1995 sale of 99,740 shares owned by the
principal shareholders and sold for $0.03 per share to certain key employees,
was charged to operations as additional compensation. This compensation charged
to operations by reason of the stock sold by the principal shareholders had no
net effect upon shareholders equity as of September 30, 1995 and no impact upon
future operations of the Company.

Research and development expenses increased $55,714, or approximately 26%.
The increase was due to the infusion of new capital generated by the IPO which
enabled the Company 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 $409,583 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, $30,674, and the underlying
value of the units issued, $449,978 (142,850 shares valued at the IPO 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 experienced a decrease in the net loss
from operations of $168,313 for the year ended September 30, 1995. Due to the
nonrecurring charge of $480,652 for private placement financing costs incurred
during 1995, the net loss increased $205,530 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.

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

<PAGE>

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 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 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.

On March 28, 1996, Hauppauge Computer Works, Inc., the Company's wholly
owned subsidiary, entered into the Credit Agreement with MTB. The Credit
Agreement provides for, among other things, a two year line of credit, whereby
the Company may borrow up to $1,100,000, which sum shall increase to up to
$1,600,000 upon receipt by MTB of the Company's September 30, 1996 consolidated
financial statements, with interest payable monthly at 2 1/2% above MTB's prime
commercial lending rate on a floating basis. The credit line is secured by the
assets of the Company and are based upon eligible accounts receivable and the
terms of the Credit Agreement. As of March 31, 1996, the Company has not

<PAGE>

utilized this loan facility. The Company, HCW Distributing Corp., HCW GmbH,
LTD, Kenneth R. Aupperle and Kenneth Plotkin have guaranteed the obligations of
Hauppauge Computer Works, Inc. The guarantee of Messrs. Aupperle and Plotkin
are each limited to a maximum of $150,000. The loan requires the Company to
have a consolidated net worth of at least $1,750,000 until September 30, 1996
and $2,000,000 thereafter, and if the Company does not meet these and other
covenants the Company may lose the credit facility. The Company, HCW
Distributing Corp., HCW GmbH and LTD have each entered into a security agreement
with MTB. The Credit Agreement prohibits the payment of cash dividends by the
Company.

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
and the first quarter of fiscal 1996 are summarized as follows:

Quarter Ended Year Ended Nine Months Ended
December 31, 1995 September 30, 1995 September 30, 1994
----------------- ------------------ ------------------
System Boards $ 402,576 $ 792,857 $1,208,573
Win/TV Boards $4,102,641 $10,758,312 $2,958,234
----------- ------------- ---------
Total Company Sales $4,510,217 $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 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

<PAGE>

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.

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

<PAGE>

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
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.

<PAGE>

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.

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. For the three months ended December 31,
1995, sales to the retail market through distribution were $3,773,712 or 84% of
sales. The Company has no exclusive distributor and sells through a multitude

<PAGE>

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 for the nine months ended September 30, 1994
totaled $1,921,813 and $756,079, respectively. Reuters was the only company
that accounted for more than ten (10%) percent of the Company's sales during
fiscal 1995. As of December 31, 1995, Vobis AG and Tulip Computers were the
only companies that accounted for more than ten (10%) percent of the Company's
revenue. For the three months ended December 31, 1995, sales to Reuters were
$282,771, 6.3% 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. The Company's OEM
business totaled approximately $453,734 for the three months ended December 31,
1995.

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 at trade shows and lists its products in catalogs of various mail order

<PAGE>

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.

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. For the three months ended
December 31, 1995, Vobis AG accounted for 18.6% of sales, Tulip Computers
accounted for 10.1% and Reuters accounted for 6.3% of sales.

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

<PAGE>

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. For the quarter ended December 31, 1995, the
Company expended $93,877 for research and development.

Compliance with Environmental Laws

The costs and effects of compliance with environmental laws (federal, state
and local) will have no material effect upon the business of the Company.

Employees

As of December 31, 1995, the Company had 46 employees including its executive
officers, of which 39 are full-time and 7 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 $306,627 per year. 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 December 31, 1995 was $1,252,789. 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 40 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 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 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.

<PAGE>

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.

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.

<PAGE>

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.

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.

<PAGE>

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") which was
approved by the Company's shareholders on 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. Options to acquire 30,000 shares of Common Stock were
granted under the 1996 Non-Qualified Plan on March 15, which includes an option
to acquire 15,000 shares each to Kenneth R. Aupperle and Kenneth Plotkin
exercisable at $3.00 per share until March 14, 2006. The options were granted
in consideration for Messrs. Aupperle and Plotkin's guarantee of the MTB loan.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Financial Condition". The 1996 Non-Qualified Plan terminates ten
(10) years after stockholder approval.

<PAGE>

<PAGE>
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. Aupperle (1)(3) 302,610 10.9%
91 Cabot Court
Hauppauge, NY 11788

Kenneth Plotkin (2)(3) 302,610 10.9%
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 1,241,360 44.5%
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 each Kenneth R. Aupperle and Kenneth Plotkin on January
10, 1995. See "Executive Compensation - Option/SAR Grants in Last Fiscal
Year" for a description of the option. Includes an option to each Kenneth
R. Aupperle and Kenneth Plotkin to acquire 15,000 shares each at $3.00 per
share until March 14, 2006.

(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

<PAGE>

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 shares sold were issued and outstanding but
were non registered and subject to restrictions regarding public sale. See Note
10 to the Consolidated Financial Statements regarding the treatment of this
transfer with respect to the Consolidated Financial Statements of the Company.

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 December 31, 1995 was
$1,252,789. The Company pays the taxes and operating costs of maintaining
the premises.

On March 28, 1996, Hauppauge Computer Works, Inc. entered into the Credit
Agreement with MTB. The Credit Agreement provides for, among other things, a
two year line of credit, whereby the Company may borrow up to $1,100,00, which
sum shall increase to $1,600,000 upon receipt by MTB of the Company September
30, 1996 consolidated financial statements, with interest payable monthly at 2
1/2% above MTB's prime commercial lending rate on a floating basis. Borrowings
under the Credit Agreement are limited to 70% of eligible domestic accounts
receivable not older than 90 days from billing date and 70% of eligible credit
insured foreign accounts receivable not older than 90 days. The Company, HCW
Distributing Corp., HCW GmbH, LTD, Kenneth R. Aupperle and Kenneth Plotkin have
guaranteed the obligations of Hauppauge Computer Works, Inc. The loans are
collateralized by a first priority security interest in all of the assets of the
Company which assets shall be subject to no other liens or security interests,
excluding fixed assets subject to other liens. The Credit Agreement prohibits
the payment of cash dividends by the Company.

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" and "Dividend Policy". In the
event of a liquidation, dissolution or winding up of the Company, the holders

<PAGE>

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 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

<PAGE>

(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 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

<PAGE>

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 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

<PAGE>

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.

The consolidated financial statements for the nine months ended September
1994 included in this Prospectus and elsewhere in the Registration Statement
have been audited by Arthur Andersen, LLP ("Andersen") independent public
accountants to the extent and for the periods indicated in their report with
respect thereto and are 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

<PAGE>

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>

<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-19

F-1

<PAGE>
<PAGE>
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, except for
Note 10 for which the date is
March 20, 1996

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 iS 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 of accounts
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 4,472,475 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) (NOTES 6 and 10)
Common stock $.01 par value; 10,000 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 4,141,343 343,466
Accumulated deficit (2,493,532) (970,454)
--------- --------
1,675,373 (614,188)
--------- --------
$4,945,815 $1,789,507
========= =========

See accompanying notes to consolidated financial statements

F-4
<PAGE>
<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
(Notes 8 and 10) 3,151,020 1,621,110
RESEARCH & DEVELOPMENT EXPENSES 269,888 214,174
--------- ---------
Loss from operations (1,113,495) (1,281,808)

OTHER INCOME (EXPENSE)
Interest income 50,026 4,940
Interest expense (20,233) (34,997)
Private placement financing
costs (Notes 6 and 10) (480,652) -
Miscellaneous income 41,276 22,949
-------- --------
Loss before tax provision (1,523,078) (1,288,916)

INCOME TAX PROVISION (Note 5) - 28,632
--------- ---------
Net Loss (Note 10) $(1,523,078) $(1,317,548)
========== =========
Net loss per share (Note 10) $ (0.64) $ (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

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

BALANCE AT JANUARY 1,280,000 $12,800 $80,848 $347,094 $440,742
1, 1994
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 AT SEPTEMBER,
30, 1994 1,280,000 12,800 343,466 (970,454) (614,188)

Net loss for the year
ended September
30, 1995 - - - (1,523,078) (1,523,078)
Issuance of shares pursuant
to a private placement
offering
(Notes 6 and 10) 142,850 1,429 356,527 - 357,956
Issuance of shares pursuant
to the Company's initial
public offering
(Note 6) 1,333,333 13,333 3,253,690 - 3,267,023
Compensation related
to transfer of
shares (Note 10) - - 187,660 - 187,660
--------- ------ -------- ------ --------
BALANCE AT
SEPTEMBER 30, 1995 2,756,183 $27,562 $4,141,343 $(2,493,532) $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 $(1,523,078) $(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 480,652 -
Compensation related to transfer of shares 187,660 -
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
---------- -------
(91,329) 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 1994
---- ----
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
existing

F-16

<PAGE>

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

f. Change in Company Ownership-continued

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 state 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.

10. RESTATEMENT

On March 20, 1996, the Company reexamined the recording of two fiscal
1995 transactions in order to more appropriately reflect certain components
of its fiscal 1995 statement of operations.

a. With respect to the private placement described in Note 6(a), 75
percent of the proceeds were attributable to additional paid in capital in
conjunction with the stock issued. However, the Company charged all of the
costs and fees associated with this placement to other expenses and has
accordingly reclassed 75% of such expenses, or $92,022, to additional paid in

F-18
<PAGE>

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

Restatement-continued

capital. This reclassification has resulted in the reduction of previously
reported private placement costs from $572,674 to $480,652.

b. Additionally, in July 1995, the Company's founders and principal
shareholders sold 89,040 shares of their common stock to several key
employees for $0.03 per share. The shares sold were issued and outstanding
but were non registered and subject to restrictions regarding public sale.
The conclusion of the Company was, that even though the shares sold to the
employees did not increase shares outstanding, cause no additional dilution,
have restrictions that prohibit their current marketability and did not
impact the financial condition of the Company, the Company should have
charged to operations for fiscal 1995 additional compensation expense. After
giving consideration to the market price of $2.125 at the date of transfer
less the consideration paid, $186,539 was charged to compensation expense
for fiscal 1995, with a corresponding credit to additional paid in capital.
The principal shareholders also sold an additional 10,700 shares to other
key employees. These shares were similar in nature to the other 89,040
shares, with the exception of a ratable vesting provision based on future
employment over the next five years. The amortized portion charged to
compensation for fiscal 1995 was $1,121. The effects of these two
compensation adjustments resulted in fiscal 1995 selling, general and
administrative expenses and loss from operations increasing to $3,151,020 and
($1,113,495) from the previously reported results of $2,963,360 and
($925,835) respectively.

As a result of the adjustments, the Company's previously reported fiscal
1995 net loss of ($1,427,440) and ($0.60) per share have been restated to
($1,523,078) and $(0.64), respectively. The adjustments have no net effect on
the Company's shareholders equity as of September 30, 1995.

F-19
PAGE
<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 date
hereof. This Prospectus does not constitute an offer or
solicitation by anyone in any jurisdiction in which the
person making such offer or solicitation is not qualified
to do so or to anyone to whom it is unlawful to make
such offer or solicitation.

<PAGE>

TABLE OF CONTENTS
Page
Prospectus Summary 3 1,476,183 Shares of
Summary Financial Common Stock
Information 5
Risk Factors 6
Use of Proceeds 14
Dividend Policy 14 133,333 Underwriter Units
Dilution 15
Capitalization 16
Market Information 17 133,333 Shares of
Management's Discussion Common Stock
and Analysis of Operations
and Financial Condition 18
Business 23 HAUPPAUGE DIGITAL, INC.
Management 31
Principal Stockholders 35
Certain Transactions 36
Description of Securities 36
Shares Eligible for Future Sale 39
Plan of Distribution 39 -------------------
Legal Matters 40 PROSPECTUS
Experts 40 -------------------
Additional Information 41
Consolidated Financial Statements F-1

May 3, 1996