UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number 1-13550
HAUPPAUGE DIGITAL, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
Delaware 11-3227864
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
As of August 4, 1998, 4,416,202 shares of .01 par value Common Stock of the
registrant were outstanding, not including treasury shares
Index schedule found on Page No. 16
Page 1 of 17 pages.
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<PAGE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
- - -----------------------------
Page No.
--------
Item 1.Financial Statements
Condensed Consolidated Balance Sheets-
June 30, 1998 and September 30, 1997 3
Condensed Consolidated Statements of Income-
Nine Months ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Income-
Three Months ended June 30, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows-
Nine Months ended June 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial Condition 10-15
and Results of Operations
PART II. OTHER INFORMATION
- - --------------------------
Item 5. Other Information 16
Item 6. Exhibits and Reports on form 8-K 16
SIGNATURES 17
- - ----------
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
1998 September 30,
(Unaudited) 1997
---------------- ----------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $5,379,142 $5,602,412
Accounts receivable, net of allowance for doubtful accounts 5,097,148 3,194,128
Inventories (Note 2) 5,269,996 4,844,366
Prepaid expenses and other current assets 507,359 553,540
---------------- ----------------
Total current assets 16,253,645 14,194,446
Property, plant and equipment-at cost 745,884 494,220
Less: Accumulated depreciation and amortization 324,830 276,832
---------------- ----------------
421,054 217,388
---------------- ----------------
Security deposits and other non-current assets 58,154 59,470
---------------- ----------------
$16,732,853 $14,471,304
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY :
CURRENT LIABILITIES:
Accounts payable $4,603,729 $4,403,787
Accrued expenses 2,046,068 1,100,745
---------------- ----------------
Total current liabilities 6,649,797 5,504,532
---------------- ----------------
SHAREHOLDERS' EQUITY
Common stock $.01 par value; 10,000,000 shares authorized, 4,497,402 and
4,465,302 issued as of June 30 , 1998 and September 30, 1997 respectively 44,974 44,653
Additional paid-in capital 10,454,987 10,344,844
Accumulated deficit (117,906) (1,228,772)
Treasury Stock, at cost, 81,200 and 59,200 shares respectively (Note 5) (298,999) (193,953)
---------------- ----------------
10,083,056 8,966,772
---------------- ----------------
$16,732,853 $14,471,304
================ ================
See accompanying notes to consolidated financial statements
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</TABLE>
<TABLE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Nine months Nine months
ended ended
June 30, June 30,
1998 1997
(Unaudited) (Unaudited)
----------------- ------------------
<S> <C> <C>
NET SALES $26,443,939 $18,695,544
COST OF SALES 19,820,546 14,426,315
----------------- ------------------
Gross Profit 6,623,393 4,269,229
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 4,649,857 3,071,592
RESEARCH & DEVELOPMENT EXPENSES 576,670 395,577
----------------- ------------------
Income from operations 1,396,866 802,060
OTHER INCOME (EXPENSE):
Interest income 178,875 185,033
Other, net 81,940 (14,015)
----------------- ------------------
Income before income tax provision 1,657,681 973,078
INCOME TAX PROVISION (Note 4) 546,815 220,927
----------------- ------------------
Net income $1,110,866 $752,151
========== ========
Net income per share-basic (Note 3) $0.25 $0.17
Net income per share-diluted (Note 3) $0.24 $0.17
= ================= ==================
See accompanying notes to consolidated financial statements
</TABLE>
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<PAGE>
<TABLE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three months Three months
ended ended
June 30, June 30,
1998 1997
(Unaudited) (Unaudited)
------------------ -----------------
<S> <C> <C>
NET SALES $9,042,704 $5,843,431
COST OF SALES 6,628,542 4,531,054
------------------ -----------------
Gross Profit 2,414,162 1,312,377
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,800,393 1,057,306
RESEARCH & DEVELOPMENT EXPENSES 228,389 156,178
------------------ -----------------
Income from operations 385,380 98,893
OTHER INCOME (EXPENSE):
Interest income 58,480 57,260
Other, net 21,301 (2,512)
------------------ -----------------
Income before income tax provision 465,161 153,641
INCOME TAX PROVISION (Note 4) 154,000 35,000
------------------ -----------------
Net income $311,161 $118,641
======== ========
Net income per share-basic (Note 3) $0.07 $0.03
Net income per share-diluted (Note 3) $0.07 $0.03
= ================= ================
See accompanying notes to consolidated financial statements
</TABLE>
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<PAGE>
<TABLE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Nine months Nine months
ended ended
June 30, June 30,
1998 1997
(Unaudited) (Unaudited)
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $1,110,866 $752,151
------------------ ------------------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 49,311 31,896
Provision for uncollectible accounts receivable 10,000 9,367
Provision for system board obsolescence 80,000 20,000
Compensation paid in stock 29,656 -
Changes in current assets and liabilities:
Accounts receivable (1,913,017) 393,032
Inventories (505,630) (2,703,195)
Prepaid expenses and other current assets 46,181 (158,427)
Accounts payable 199,942 575,161
Accrued expenses 945,323 92,082
------------------ ------------------
(1,058,234) (1,740,084)
------------------ ------------------
Net cash provided by (used in) operating activities 52,632 (987,933)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Security Deposit - (2,220)
Purchases of property, plant and equipment (251,664) (80,982)
------------------ ------------------
Net cash used in investing activities (251,664) (83,202)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (105,046) (193,952)
Proceeds from the exercise of stock options 80,808 -
------------------ ------------------
Net cash used by financing activities (24,238) (193,952)
------------------ ------------------
Net (decrease) in cash and cash equivalents (223,270) (1,265,087)
CASH AND CASH EQUIVALENTS, beginning of period 5,602,412 6,559,175
------------------ ------------------
CASH AND CASH EQUIVALENTS, end of period $5,379,142 $5,294,088
========== ==========
SUPPLEMENTAL DISCLOSURES:
Income taxes paid $42,306 $11,774
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
included herein have been prepared in accordance with generally accepted
accounting principles for interim period reporting in conjunction with the
instructions to Form 10-QSB. Accordingly, these statements do not include all of
the information required by generally accepted accounting principles for annual
financial statements, and are subject to year-end adjustments. In the opinion of
management, all known adjustments (consisting of normal recurring accruals and
reserves) necessary to present fairly the quarterly financial results for the
period have been included. It is suggested that these interim statements be read
in conjunction with the financial statements and related notes included in the
Company's September 30, 1997 Form 10-KSB.
The operating results for the three months and nine months ended June 30,
1998 are not necessarily indicative of the results to be expected for the
September 30, 1998 year end.
NOTE 2. INVENTORIES
Inventories have been valued at the lower of average cost or market. The
components of inventory at June 30, 1998 and September 30, 1997 consist of:
June 30, September 30,
1998 1997
---- ----
Component Parts $1,580,999 $1,545,790
Work in Progress 790,499 2,181,249
Finished Goods 2,898,498 1,117,327
--------- ---------
$5,269,996 $4,844,366
========== ==========
NOTE 3. NET INCOME PER SHARE
In 1997, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Number 128, "Earnings per Share." Statement 128
replaced the previously reported primary and fully diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. Net income per share amounts for the three months and nine
months ended June 30, 1998 and 1997 have been presented or, as in the case of
the prior year, restated to conform to Statement 128 requirements. Conformity to
Statement 128 did not have a material affect on the previous year's reported
third quarter and year to date earnings per share.
-7-
<PAGE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Net income (loss) per share - continued
Weighted average shares outstanding listed below were used in the basic and
diluted per share computation:
Three Months Ended
June 30,
1998 1997
---- ----
4,406,870 4,411,893
Weighted average shares outstanding-basic
Common stock equivalents 343,584 4,810
----------- ---------
Weighted average shares outstanding-diluted 4,750,454 4,416,703
---------- ---------
Nine Months Ended
June 30,
1998 1997
---- ----
4,404,545 4,434,630
Weighted average shares outstanding-basic
Common stock equivalents 206,625 10,186
----------- ---------
Weighted average shares outstanding-diluted 4,611,170 4,444,816
---------- ---------
On November 8, 1996, the Company approved a stock repurchase program. On
December 17, 1997, the buyback plan was extended until December 31, 1998 (See
note 5). Shares outstanding for the quarter and nine months ended June 30, 1998
reflect a reduction on a weighted average basis for the repurchased shares.
Weighted average shares for the quarter and nine months ended June 30, 1997 have
been restated to reflect the provisions of SFAS Number 128
NOTE 4. INCOME TAXES
Income taxes are based on annualized 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 carry forwards,
adjusted for applicable federal and state alternative minimum tax provisions.
The benefits of these operating loss carry forwards had previously been subject
to a 100% valuation allowance. However, based on actual fiscal 1997 taxable
income and projected fiscal 1998 taxable income, management has reduced the
valuation allowance accordingly. The amount of future reductions in the
valuation allowance will be predicated on projected results for future years.
-8-
<PAGE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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 Company will use
the repurchased shares for certain employee benefit programs. On December 17,
1997, the stock repurchase program was extended by a resolution of the Board of
Directors until December 31, 1998. Through June 30, 1998, the Company had
repurchased 81,200 shares for $298,999 at an average purchase price of
approximately $3.68 per share.
-9-
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Nine Month Period ended June 30, 1998 versus June 30, 1997
Net sales for the nine months ended June 30, 1998 were $26,443,939 compared
to $18,695,544 for the comparable period in the prior fiscal year, resulting in
an increase of $7,748,395 or 41%. The increase in sales was primarily due to the
expansion of the Company's domestic distribution and retail channels, promotions
and inventory increases at the retail level leading up to the launch of
Windows98, continued sales growth in Europe, plus strong sales to direct
corporate customers.
Unit sales of digital video and conferencing boards increased to
approximately 275,000 as compared to approximately 208,200 for the prior year.
Sales to domestic customers for the nine month period were 32% of net sales for
the current fiscal year and 35% for the prior year. Sales to international
customers were 68% of net sales for the current year and 65% for the comparable
six month period of last year.
Gross profit increased to $6,623,393 from $4,269,229, an increase of
$2,354,164 or 55% over the comparable prior fiscal year period. The gross profit
percentage was 25% for the current nine month period ended June 30, 1998
compared to 23% for the prior fiscal year period. For the prior fiscal year
ended September 30, 1997, gross margins were 22%. The increase in margins for
the nine months ended June 30, 1998 was primarily due to a program of hedging
foreign sales, primarily for German Marks and British Sterling, which has
stabilized the effect of foreign currency fluctuations, lower custom duties and
the absorption of manufacturing overhead over a greater number of units.
Selling, general and administrative expenses as a percentage of revenue
increased to 17.6% from 16.4% for the prior year. Although sales and promotional
expenses as a percentage of revenue increased 2.79 % over sales and promotional
expenses as a percentage of revenue for the comparable prior year period,
general and administrative expenses as a percentage of revenue declined by 1.29%
when compared to general and administrative expenses as a percentage of revenue
for the prior year's nine month period. The increase in sales and promotional
expenses was primarily due to the Company allocating additional funds to
participate, as a Microsoft Windows98 launch partner, in the marketing,
promotional and media campaign associated with the introduction of Windows98.
Represented in dollars, selling general and administrative expenses increased
$1,578,265 over the prior nine month period of fiscal 1997. Sales and
promotional expenses, which increased $1,354,747 over the nine month period
ending June 30, 1997, represents about 86% of the total increase. In addition to
the funds expended for the opportunity to participate in the Windows98
promotional launch campaign, the Company during fiscal 1998 embarked on
commitment to increase its domestic market presence. To accomplish this goal,
the Company has increased its outside sales staff, paid higher commissions
resulting from the 41% net sales increase and higher marketing and promotional
costs in support of increased distribution and retail locations. As a result of
this program, the number of retail stores carrying the Company's products
increased from approximately 300 retail locations at the start of the year to
approximately 3,000 as of the end of the third fiscal quarter.
-10-
<PAGE>
Item 2. Management's Discussion and Analysis -Continued
Technical support, shipping and general and administrative expenses, which
represents about 14% of the increase over the prior year, increased $45,861,
$38,130 and $139,527 respectively. Additional staff required to consistently
maintain a high level of customer support in light of the Company's expanding
customer base caused the technical support costs to increase. Increased shipping
costs was a function of greater shipment volume. The increase in general and
administrative costs were mainyl for contractual wage increases, higher rent,
utilities and building costs for the Company's sales office in California, which
opened in June 1997 and higher communication costs due to increased voice and
data traffic.
Research and development expenses increased $181,093 or approximately 46%.
The increase was due to the strategic addition of personnel which is in line
with the Company's commitment to expand its engineering research and development
resources to continually enhance current products and further develop future
product lines.
The Company had net other income of $260,815 compared to net other income
of $171,018 for the corresponding nine months of the preceding fiscal year. The
increase in net other income was primarily foreign currency exchange rate gains
as a result of favorable foreign rates. Provision for income taxes increased to
$546,815 or an effective tax rate of 33% in fiscal 1998 compared to $220,927 or
an effective tax rate of 22.5% for fiscal 1997. The increase in the effective
tax rate is due to the utilization of all the unrestricted net operating loss
carry forwards in fiscal 1997, leaving only restricted net operating loss carry
forwards which can be utilized to offset current year taxable income. .
As a result of all of the above, the Company recorded a net profit after
taxes for the nine months ended June 30, 1998 of $1,110,866, which resulted in
basic and diluted earnings per share of $0.25 and $0.24 respectively, on weighed
average basic and diluted shares outstanding of 4,404,545, and 4,611,170, as
opposed to a net income after taxes of $752,151, which resulted in basic and
diluted earnings per share of $0.17 on weighted average basic and diluted shares
of 4,434,630 and 4,444,816 for the corresponding nine month period ending June
30, 1997.
-11-
<PAGE>
Three Month Period ended June 30, 1998 versus June 30, 1997
Net sales for the three months ended June 30, 1998 were $9,042,704 compared
to $5,843,431 for the comparable quarter of the prior fiscal year, resulting in
an increase of $3,199,273 or 55%. The increase in sales was primarily due to the
expansion of the Company's domestic distribution and retail channels, promotions
and inventory increases at the retail level leading up to the launch of
Windows98, continued sales growth in Europe, plus strong sales to direct
corporate customers.
Unit sales of digital video and conferencing boards increased to
approximately 106,000 as compared to approximately 54,500 for the prior year.
Sales to domestic customers for the three month period were 43% of net sales for
the current quarter and 32% for the prior year's quarter. Sales to international
customers were 57% of net sales for the current quarter and 68% for the
comparable quarter of last year.
Gross profit increased to $2,414,182 from $1,312,377, an increase of
$1,101,785 or 84% over the prior comparable three month period ended June 30,
1997. The gross profit percentage was 26% for the current quarter and 22% the
quarter ended June 30, 1997. The increase in margins during the current fiscal
year was primarily due to a program of hedging foreign sales, primarily for
German Marks and British Sterling which has stabilized the effect of foreign
currency fluctuations, lower custom duties and the absorption of manufacturing
overhead over a greater number of units.
Selling, general and administrative expenses as a percentage of revenue
increased to 19.9% from 18.1% for the corresponding quarter of the prior year.
Although sales and promotional expenses as a percentage of revenue increased
4.34 % when compared to sales and promotional expenses as a percentage of
revenue the third fiscal quarter of the prior year, general and administrative
expenses as a percentage of revenue declined by 2.51% when compared to general
and administrative expenses as a percentage of revenue for the three months
ended June 30, 1997. The increase in sales and promotional expenses was
primarily due to the Company allocating additional funds to participate, as a
Microsoft Windows98 launch partner, in the marketing, promotional and media
campaign associated with the introduction of Windows98. Represented in dollars,
selling general and administrative expenses increased $743,087 over the
corresponding three month perio of fiscal 1997. Sales and promotional expenses,
which increased $667,701 over the prior year's third fiscal quarter, represents
about 90% of the total increase. In addition to the funds expended for the
opportunity to participate in the Windows98 promotional launch campaign, the
Company during fiscal 1998 embarked on a commitment to increase its domestic
market presence. To accomplish this goal, the Company has increased its outside
sales staff, paid higher commissions resulting from the 55% ne sales increase
and higher marketing and promotional costs in support of increased distribution
and retail locations. As a result of this program, the number of retail stores
carrying the Company's product has increased from approximately 1,000 retail
locations at the start of the fiscal third quarter to approximately 3,000 as of
the end of the third fiscal quarter.
-12-
<PAGE>
Item 2. Management's Discussion and Analysis -Continued
Technical support, shipping and general and administrative expenses, which
represents about 10% of the total increase over the prior year's quarter ended
June 30, 1997, increased $19,925, $46,695 and $8,766 respectively. Additional
staff required to consistently maintain a high level of customer support in
light of the Company's expanding customer base caused the technical support
costs to increase. Increased shipping costs was a function of greater shipment
volume. The increase in general an administrative costs were mainly for
contractual wage increases, higher rent, utilities and building costs for the
Company's sales office in California, which opened in June 1997 and higher
communication costs due to increased voice and data traffic.
Research and development expenses increased $72,211 or approximately 46%.
The increase was due to the strategic addition of personnel which is in line
with the Company's commitment to expand its engineering research and development
resources to continually enhance current products and further develop future
product lines.
The Company had net other income of $79,781 for the June 30, 1998 three
month period compared to net other income of $54,748 for the corresponding
quarter of the preceding fiscal year. The increase in net other income was
primarily foreign currency exchange rate gains as a result of favorable foreign
rates. Provision for income taxes increased to $154,000 or an effective tax rate
of 33% in fiscal 1998 compared to $35,000 or an effective tax rate of 22.5% for
fiscal 1997. The increase in the effective tax rate is due to the utilization of
all the unrestricted net operating loss carry forwards in fiscal 1997, leaving
only restricted net operating loss carry forwards which can be utilized to
offset current year taxable income. .
As a result of all of the above, the Company recorded a net profit after
taxes for the three months ended June 30, 1998 of $311,161, which resulted in
basic and diluted earnings per share of $0.07 on weighed average basic and
diluted shares outstanding of 4,406,870 and 4,750,454 as opposed to a net income
after taxes of $118,641, which resulted in basic and diluted earnings per share
of $0.03 on weighted average basic and diluted shares of 4,111,893 and 4,416,703
for the corresponding three month period ending June 30, 1997.
Over the prior two fiscal years, the company has experienced certain
revenue trends. Since the Company's products are primarily sold through
distributors and retailers, the Company has historically recorded stronger sales
results during the Company's first 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 66% and 54% of sales for fiscal 1997 an 1996 and are 68% for the first
nine months of fiscal 1998. Due to this, the Company's sales for its fourth
fiscal quarter (July to September) can potentially be impacted by the reduction
of activity in Europe during the July and August summer holiday period.
-13-
<PAGE>
Item 2. Management's Discussion and Analysis -Continued
To offset the above cycles, the Company is targeting a wide range of
customer types in order to moderate the seasonality of the retail sales.
However, there can be no assurances that the Company will be successful in
minimizing the effects that seasonality has on the business.
Liquidity and Capital Resources
The Company had a net cash position of $5,379,142 working capital of
$9,603,848 and shareholders' equity of $10,083,056 as of June 30, 1998. The
significant items of cash provided by and cash (used ) are detailed below:
Net income(adjusted for non cash items) $ 1,279,833
Increase in investment for current assets (2,372,466)
Operations funded by increase in current liabilities-net 1,145,265
Purchase of Property, Plant & Equipment (251,664)
Purchase of treasury stock (105,046)
Other 80,808
Net cash of $52,632 provided by operating activities was primarily due to
cash generated from the Company's net income and cash provided by the increase
in liabilities, mainly vendor accounts payable, used to fund operations offset
by the increase in investments for current assets, mainly receivables and
inventory.
Additional cash was used to purchase fixed assets and treasury stock.
Minimal cash was provided by the exercise of employee options.
The Company's asset based credit facility expired on February 28, 1998. The
company has chosen not to renew the loan facility. The Company feels it is in a
position to obtain new financing at more competitive rates, and is currently
negotiating with new institutions to replace the expired 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 Company will use
the repurchased shares for certain employee benefit programs. On December 17,
1997 stock repurchase program was extended by a resolution of the Board of
Directors until December 31, 1998. As of March 31, 1998, the Company had
repurchased 81,200 shares for $298,999 at an average purchase price of
approximately $3.68 per share.
The Company believes that its current cash position and its internally
generated cash flow will be sufficient to satisfy the Company's anticipated
operating needs for a least the ensuing twelve months.
-14-
<PAGE>
YEAR 2000 COMPLIANCE
In recognition of the issues associated with year 2000 compliance, the
Company is currently analyzing its needs to address this issue. The management
of the company believes that compliance with year 2000 issues will not have a
material impact on the Company's operations.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS AND 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, such as information contained in this Form 10-QSB, including certain
statements under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" may contain forward looking information. The words
"Estimate, "Plan", "Intend" "Believes, "Expect" and similar expressions are
intended to identify forward looking statements. Such forward looking statements
involve and are subject to known and unknown risks, uncertainties and other
factors which could cause the actual results, performance and achievements of
the Company to be materially different from any future results, performance
(financial or operating), or achievements expressed or implied by such forward
looking statements. Such factors include, among others, the following: rapid
changes in technology; lack of funds for future research; competition,
proprietary patents and rights of others; loss of major customers; loss of
sources of supply for digital video processing chips; non-availability of
management; government regulation; domestic and foreign economic conditions;
currency fluctuations; 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, seasonality of the business cycle, as well as general
conditions and other factors external to the Company.
-15-
<PAGE>
PART II. OTHER INFORMATION
Item 5 Other Information
(a) Effective July 2, 1998, Leonard Neuhaus resigned as a director of the
Company. The resignation was not by reason of any disagreement with the Company.
(b) Effective July 2, 1998, Steven J. Kuperschmid, Esq., was appointed the
Company's board as an outside director. Mr. Kuperschmid is a partner in the law
firm of Certilman Balin Adler and Hyman LLP. Certilman Balin Adler and Hyman LLP
are also retained as the Company's outside counsel.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on form 8-K
None
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HAUPPAUGE DIGITAL, INC.
Registrant
Date: August 10, 1998 By /s/ Kenneth Plotkin
---------------- ------------------------------
KENNETH PLOTKIN
Vice President and
Chief Executive Officer
Date: August 10, 1998 By /s/ Gerald Tucciarone
---------------- -----------------------------
GERALD TUCCIARONE
Treasurer and Chief
Financial Officer
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Jun-30-1998
<EXCHANGE-RATE> 1
<CASH> 5,379,142
<SECURITIES> 0
<RECEIVABLES> 5,097,148
<ALLOWANCES> (110,000)
<INVENTORY> 5,269,996
<CURRENT-ASSETS> 16,253,645
<PP&E> 745,884
<DEPRECIATION> (324,830)
<TOTAL-ASSETS> 16,732,853
<CURRENT-LIABILITIES> 6,649,797
<BONDS> 0
0
0
<COMMON> 44,974
<OTHER-SE> 10,038,082
<TOTAL-LIABILITY-AND-EQUITY> 16,732,853
<SALES> 26,443,939
<TOTAL-REVENUES> 26,443,939
<CGS> 19,820,546
<TOTAL-COSTS> 5,226,527
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 90,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,657,681
<INCOME-TAX> 546,815
<INCOME-CONTINUING> 1,110,866
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,110,866
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.24
</TABLE>
