UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20459
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to __________
Commission file number 1-13550
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HAUPPAUGE DIGITAL, INC.
-----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 11-3227864
-------- ----------
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
91 Cabot Court, Hauppauge, New York 11788
-----------------------------------------
(Address of principal executive offices)
(516) 434-1600
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
---- -----
As of February 4, 1997, 4,444,102 shares of .01 par value Common Stock of the
registrant were outstanding.
Page 1 of 12 pages.
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HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
----------------------------------------
INDEX
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Page No.
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PART I. FINANCIAL INFORMATION
- -----------------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
December 31, 1996 and September 30, 1996 3
Condensed Consolidated Statements of Operations-
Three Months ended December 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows-
Three Months ended December 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
- ----------
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HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
As of As of
December 31, September 30,
1996 1996
(Unaudited) (Unaudited)
------------ -----------
CURRENT ASSETS:
Cash . . . . . . . . . . $ 5,842,822 $6,559,175
Accounts receivable, net
of allowance for doubtful
accounts. . . . . . . 3,191,616 1,835,882
Inventories (Note 2). . 4,979,745 3,138,961
Prepaid expenses and other
current assets . . . . . . . 273,015 191,161
---------- ----------
Total Current Assets . . . 14,287,198 11,725,179
---------- ----------
Property, plant and equipment
at-cost . . . . . . . . . . . 393,221 374,218
Less: Accumulated depreciation
and amortization . . . . . . 238,653 228,678
----------- -----------
154,568 145,540
----------- -----------
SECURITY DEPOSITS AND
OTHER ASSETS 59,224 59,881
----------- -----------
$14,500,990 $11,930,600
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable. . . . . . . 4,756,390 2,818,832
Accrued expenses. . . . . . . 1,198,658 936,851
----------- ---------
Total Current Liabilities 5,955,048 3,755,683
SHAREHOLDERS' EQUITY
Common Stock $.01 par value;
10,000,000 shares authorized
4,465,302 issued as of December
31, 1996 and September 30, 1996 44,653 44,653
Additional paid-in
capital . . . . . . . . . . 10,344,844 10,344,844
Accumulated deficit . . . . (1,764,641) (2,214,580)
Treasury Stock-at cost (Note 5) (78,914) -
=========== ===========
8,545,942 8,174,917
----------- ----------
$14,500,990 $11,930,600
=========== ==========
See notes to condensed consolidated financial statements
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HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended December 31,
1996 1995
(Unaudited) (Unaudited)
---------- -----------
SALES . . . . . . . . . . . . . $ 6,546,188 $ 4,510,217
COST OF SALES . . . . . . . . . 4,917,290 3,468,809
----------- ------------
Gross Profit . . . . . . . 1,628,898 1,041,408
SELLING, GENERAL & ADMINISTRATIVE
EXPENSES . . . . . . . . . . . 1,003,662 747,060
RESEARCH & DEVELOPMENT
EXPENSES . . . . . . . . . 108,749 93,877
----------- ------------
Income, from operations 516,487 200,471
OTHER INCOME (EXPENSE):
Interest income . . . . . . 71,064 9,816
Miscellaneous income (expense) (6,685) 2,340
----------- -----------
Income before income
tax provision . . . . . . . 580,866 212,627
INCOME TAX PROVISION (Note 4) 130,927 10,000
----------- -----------
Net Income $449,939 $202,627
=========== ===========
Net income per share. . . . . . $0.10 $0.07
=========== ===========
Weighted average shares
outstanding (Note 3) . . . 4,456,191 2,756,183
=========== ===========
See notes to condensed consolidated financial statements
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HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended December 31,
1996 1995
(Unaudited) (Unaudited)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $449,939 $ 202,627
Adjustments to reconcile net income to
net cash (used in) provided by operating
activities:
Depreciation and amortization 10,632 9,433
Provision for uncollectible accounts
receivable 3,000 5,000
Provision for system board obsolescence 10,000 10,000
Increase (decrease) in cash resulting from
changes in operating assets and liabilities:
Accounts receivable (1,358,736) (356,271)
Inventories (1,850,784) (734,261)
Prepaid expenses and other current assets (81,854) 48,632
Accounts payable 1,937,560 183,070
Accrued expenses 261,807 78,120
---------- ---------
(1,068,375) (756,277)
----------- ----------
Net cash used in operating activities (618,436) (553,650)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (19,003) (3,450)
--------- ----------
Net cash used in investing activities (19,003) (3,450)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Treasury Stock (78,914) -
--------- ---------
Net cash used by financing activities (78,914) -
--------- ---------
Net decrease in cash (716,353) (557,100)
CASH, beginning of period 6,559,175 1,214,940
--------- ----------
CASH, end of period $5,842,822 $657,840
========= ==========
SUPPLEMENTAL DISCLOSURES:
Income taxes paid $5,467 $4,286
========= ==========
See notes to condensed consolidated financial statements
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HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
included herein have been prepared in accordance with generally accepted
accounting principles for interim period reporting in conjunction with the
instructions to Form 10-QSB. Accordingly, these statements do not include all
of the information required by generally accepted accounting principles for
annual financial statements, and are subject to year-end adjustments. In the
opinion of management, all known adjustments (consisting of normal recurring
accruals and reserves) necessary to present fairly the quarterly financial
results for the period have been included. It is suggested that these interim
statements be read in conjunction with the financial statements and related
notes included in the Company's September 30, 1996 Form 10-KSB.
The operating results for the three months ended December 31, 1996 are not
necessarily indicative of the results to be expected for the September 30, 1997
year end.
NOTE 2. INVENTORIES
Inventories have been valued at the lower of average cost or market. The
components of inventory at December 31, 1996 and September 30, 1996 consist
of:
December 31, September 30,
1996 1996
----------- ------------
Component Parts $1,347,394 $ 849,324
Work in Process 2,952,968 1,861,391
Finished Goods 679,383 428,246
----------- ------------
$4,979,745 $3,138,961
NOTE 3. NET INCOME PER SHARE
Net income per share has been computed on the basis of weighted average
common shares for each period presented.
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HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Net income per share - continued
- --------------------------------
Weighted average shares outstanding listed below were used in the
per share computation:
Three Months Ended
December 31,
1996 1995
---- ----
4,456,191 2,756,183
On November 8, 1996, the Company approved a stock repurchase program
(See note 5). Shares outstanding for the quarter reflect a reduction on
a weighted average basis for the repurchased shares. For the prior year's
quarter ended December 31, 1995, the Company's stock did not trade at an
average price that was in excess of the exercise price for the Company's
Class A warrants that were outstanding at the time. Therefore, the
warrants were not included in the weighted average shares outstanding.
NOTE 4. INCOME TAXES
Income taxes are based on statutory rates for federal and state income
taxes. The provision for income taxes reflects an annualized effective
tax rate after deductions for the utilization of restricted and
unrestricted net operating loss carryforwards, adjusted for the
applicable federal and state alternative minimum tax provisions. The benefits
of these operating loss carryforwards had previously been subjected to a
100% valuation allowance. However, based on projected fiscal 1997 taxable
income, management has reduced the valuation allowance accordingly. Future
reductions in the valuation allowance will be predicated on projected results
for future years which are not available.
NOTE 5. STOCK REPURCHASE PROGRAM
On November 8, 1996, the Company approved a stock repurchase program
for the repurchase of up to 300,000 shares of its own stock. The
repurchased shares will be used by the Company for certain employee
benefit programs. As of December 31, 1996, the Company had repurchased
21,200 shares for $78,914 at an average purchase price of approximately
$3.72 per share.
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<PAGE>
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
Results of Operations
- ---------------------
Three Month Period ended December 31, 1996 versus December 31, 1995
- -------------------------------------------------------------------
Net sales for the three months ended December 31, 1996 were $6,546,188,
compared to $4,510,217 for the comparable period in the prior fiscal year,
resulting in an increase of $2,035,971 or 45%. The increase in sales were
primarily due to the shipments of several new digital video TV products
introduced domestically and internationally during the latter part of fiscal
1996, coupled with the commencement of shipments during the first quarter of
the Company's video conferencing board, currently sold on an OEM basis.
The Company's cash position also contributed to sales growth by providing
the resources required to sufficiently fund its sales, marketing and
procurement programs.
Net sales of the Company's products are summarized as follows:
Three Months Ended December 31, Increase
1996 1995 (Decrease)%
---- ---- ----------
System Sales $ 179,342 $ 402,576 (124)
Digital Video and Conferencing Boards 6,366,846 4,107,641 55
--------- --------- -----
Total Company Sales $6,546,188 $4,510,217 45
========= ========== =======
Unit sales of digital video and conferencing boards increased to approximately
82,000 as compared to approximately 20,000 for the corresponding prior year's
quarter, resulting in an increase of approximately 310%. Sales to domestic
customers for the three month period were 38% of net sales for the current
year and 33% for the prior year. Sales to international customers, which were
primarily in U.S. Dollars, were 62% of net sales for the current year and 67%
for the comparable period of last year.
Gross profit increased to $1,628,898 from $1,041,408, an increase of
$587,490 or 56% over the prior year's first fiscal quarter. The gross profit
percentage increased to approximately 25% as compared to approximately 23%
for the three months ended December 31, 1995. The effect of lower component
costs resulting from the economies gained by purchasing larger volumes of
inventory plus the absorption of fixed production labor costs over a greater
number of units negated the effect of somewhat lower margins on OEM sales.
Though selling, general and administrative expenses increased $256,602
over last year's first fiscal quarter, they declined to 15% of revenue in
the current three month period compared to 17% of revenue for the three
months ended December 31, 1995. The increase in expenses was
primarily due to increased sales and marketing expenses
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ITEM 2. Management's Discussion and Analysis-Continued
- --------------------------------------------------------
of $163,428, mainly for higher personnel costs due to an increased
outside sales staff, increased commissions resulting from the 45% sales
increase; higher technical support costs of $20,698 for the additional
staff required to consistently maintain a high level of customer support
and higher general and administrative expenses of $24,568, mainly for
contractual wage increases, insurance premiums for D&O insurance and the
amortization of costs relating to the Company's bank line of credit.
Research and development expenses increased $14,872 or approximately
16%. The increase was due to the infusion of new capital from the
Company's January 1995 public offering and July 1996 conversion of the
Company's Class A Warrants, which has enabled the Company to expand its
engineering research and development resources to enhance current
products and further develop future product lines.
The Company had net other income of $64,379 for the December 31,
1996 three month period as compared to net other income of $12,156 for
the corresponding three months of the preceding fiscal year. The increase
to net other income was primarily due to the higher interest income
earned from the investing of the cash received from the July 1996 warrant
conversion.
As a result of all the above, the Company recorded a net profit after
taxes for the three months ended December 31, 1996 of $449,939 or $0.10 per
share as opposed to a net income after taxes of $202,627 or $0.07 per share
for the corresponding prior year quarter.
Over the prior two fiscal years, the Company has experienced certain
revenue trends. Since a major portion of the Company's products are sold
through distributors and retailers, the Company has historically recorded
stronger sales results during the Company's first fiscal quarter (October
to December), which due to the holiday season, is a strong quarter for
computer equipment sales. In addition, the Company's international sales,
mostly into the European market, have been 54% and 70% of sales for
fiscal 1996 and 1995 and 62% for the first fiscal quarter. Due to this,
the Company's sales for its fourth fiscal quarter (July to September) are
impacted by the reduction of activity experienced with Europe during the
July and August summer holiday period.
To offset the above cycles, the Company is working to increase its
penetration of the domestic retail market to create counterbalancing
domestic sales. Since it is difficult to control the seasonality of
retail sales, the Company is also looking to establish strategic OEM
alliances to produce a consistent level of annual revenue to help offset
the seasonality of the retail segment of its business.
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<PAGE>
ITEM 2. Management's Discussion and Analysis-Continued
- ---------------------------------------------------------
Liquidity and Capital Resources
- -------------------------------
The Company had a net cash position of $5,842,822, working capital
of $8,332,150 and shareholders' equity of $8,545,942 as of December 31,
1996. The significant items of cash sources and (uses) is detailed as
follows:
Net income (adjusted for non cash items) $ 473,571
Investments in current assets (3,291,374)
Increase in current liabilities-net 2,199,367
Purchase of treasury stock (78,914)
Net cash of ($618,436) used in operating activities was primarily due to cash
used to finance accounts receivable and inventory attributed to the growth in
sales, offset partially by operations funded by accounts payable and cash
generated by the Company's net income.
The Company currently has in place an asset based bank line of credit.
Advances are to be made on a revolving basis based on a formula of eligible
domestic and foreign receivables not older than 90 days. As of December
31, 1996, the Company has not utilized this loan facility.
On November 8, 1996, the Company approved a stock repurchase program
for the repurchase of up to 300,000 shares of its own stock. The
repurchased shares will be used by the Company for certain employee
benefit programs. As of December 31, 1996, the Company had repurchased
21,200 shares for $78,914 at an average purchase price of approximately
$3.72 per share.
The Company believes that its current cash position, internally
generated cash flow and its asset based line of credit, will be
sufficient to satisfy the Company's anticipated operating needs for at
least the ensuing twelve months.
Risk Factors
- ------------
From time to time, information provided by the company, statements
made by its employees or information provided in its Securities and
Exchange Commission filings, including information contained in this Form
10-QSB, may contain forward looking information. The Company's actual
future results may differ materially from those projections or statements
made in such forward looking information as a result of various risks and
uncertainties, including but not limited to rapid changes in technology,
lack of funds for research and development, competition, proprietary
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<PAGE>
patents and rights of others, loss of major customers, loss of sources of
supply for its digital video processing chips, non-availability of
management, government regulation, and the inability of the Company to
profitably sell its products. The market price of the Company's common
stock may be volatile at times in response to fluctuation in the
Company's quarterly operating results, changes in analysts' earnings
estimates, market conditions in the computer hardware industry, as well
as general conditions and other factors external to the Company.
PART II. OTHER INFORMATION
- --------------------------
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
None
(b) Reports on Form 8-K
-------------------
On November 8, 1996, the Company filed Form 8-K under Other
Events, stating that the Company's Board of Directors approved
the adoption of a stock repurchase program, pursuant to which
the Company may repurchase up to 300,000 shares of its own
common stock. Purchases made by the Company in the open market
will be made pursuant to Rule 10b-18 of the Securities Exchange
Act of 1934.
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<PAGE>
SIGNATURES
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Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
HAUPPAUGE DIGITAL, INC.
-----------------------
Registrant
Date: February 4, 1997 By /s/ KENNETH PLOTKIN
---------------- -------------------------------
KENNETH PLOTKIN
Vice President and
Chief Executive Officer
Date: February 4, 1997 By /s/ GERALD TUCCIARONE
---------------- ------------------------------
GERALD TUCCIARONE
Treasurer and Chief
Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1996
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 5,842,822 657,840
<SECURITIES> 0 0
<RECEIVABLES> 3,191,616 1,498,136
<ALLOWANCES> 78,000 63,817
<INVENTORY> 4,979,745 2,912,292
<CURRENT-ASSETS> 14,287,198 5,212,275
<PP&E> 393,221 337,893
<DEPRECIATION> 238,653 201,744
<TOTAL-ASSETS> 14,500,990 5,409,632
<CURRENT-LIABILITIES> 5,955,048 3,531,632
<BONDS> 0 0
0 0
0 0
<COMMON> 44,653 27,562
<OTHER-SE> 8,501,289 1,850,438
<TOTAL-LIABILITY-AND-EQUITY> 14,500,990 5,409,632
<SALES> 6,546,188 4,510,217
<TOTAL-REVENUES> 6,546,188 4,510,217
<CGS> 4,917,290 3,418,809
<TOTAL-COSTS> 1,112,411 840,937
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 3,000 5,000
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 580,866 212,627
<INCOME-TAX> 130,927 10,000
<INCOME-CONTINUING> 449,939 202,627
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 449,939 202,627
<EPS-PRIMARY> $ 0.10 $ 0.07
<EPS-DILUTED> 0 0
</TABLE>
