UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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, 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 registrant 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)
Indicate by check mark 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 February 9, 1999, 4,308,502 shares of .01 par value Common Stock of the
registrant were Outstanding, not including treasury shares
<PAGE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements Page No.
Condensed Consolidated Balance Sheets-
December 31, 1998 and September 30, 1998 3
Condensed Consolidated Statements of Income-
Three Months ended December 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows-
Three Months ended December 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition 8-12
and Results of Operations
PART II. OTHER INFORMATION
Item 5. Legal proceedings 13
Item 6. Exhibits and Reports on form 8-K 13
SIGNATURES 14
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31,
1998 September 30,
(Unaudited) 1998
------------------ ------------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $6,658,417 $6,281,852
Accounts receivable, net of allowance for doubtful accounts 4,939,399 6,497,163
Inventories (Note 2) 8,916,120 8,552,097
Prepaid expenses and other current assets 415,197 468,763
Deferred tax assets 655,519 597,131
------------------ -----------------
Total current assets 21,584,652 22,397,006
Property, plant and equipment-at cost 901,678 805,953
Less: Accumulated depreciation and amortization 397,759 362,343
------------------ -----------------
503,919 443,610
Security deposits and other non-current assets 56,180 56,838
------------------ -----------------
$22,144,751 $22,897,454
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY :
CURRENT LIABILITIES:
Accounts payable $7,578,558 $9,497,003
Accrued expenses 2,700,775 2,342,380
Income taxes payable 846,569 1,021,173
------------------ -----------------
Total current liabilities 11,125,902 12,860,556
------------------ -----------------
SHAREHOLDERS' EQUITY
Common stock $.01 par value; 10,000,000 shares authorized, 4,511,702 and
4,501,402 issued as of December 31 , 1998 and September 30, 1998 45,117 45,014
Additional paid-in capital 10,494,904 10,465,707
Retained earnings 1,682,432 729,781
Treasury Stock, at cost, 207,200 shares (Note 5) (1,203,604) (1,203,604)
------------------ -----------------
Total stockholders' equity 11,018,849 10,036,898
------------------ -----------------
$22,144,751 $22,897,454
================== =================
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended December 31,
1998 1997
(Unaudited) (Unaudited)
--------------------------------------
<S> <C> <C>
NET SALES $15,056,999 $9,575,745
COST OF SALES 11,048,110 7,235,944
--------------------------------------
Gross Profit 4,008,889 2,339,801
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,309,314 1,521,919
RESEARCH & DEVELOPMENT EXPENSES 241,092 174,263
--------------------------------------
Income from operations 1,458,483 643,619
OTHER INCOME :
Interest income 49,405 60,546
Other, net 41,763 40,729
--------------------------------------
Income before income tax provision 1,549,651 744,894
INCOME TAX PROVISION (Note 4) 597,000 245,815
--------------------------------------
Net income $952,651 $499,079
======================================
Net income per share-basic (Note 3) $0.22 $0.11
Net income per share-diluted (Note 3) $0.21 $0.11
======================================
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Three Months Ended December 31,
1998 1997
(Unaudited) (Unaudited)
------------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $952,651 $499,079
------------------- -----------------
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 36,072 15,037
Provision for uncollectible accounts receivable 10,000 10,000
Provision for system board obsolescence 50,000 50,000
Compensation paid in stock 2,400 -
Deferred tax benefits (58,388) -
Changes in current assets and liabilities:
Accounts receivable 1,547,764 (191,847)
Inventories (414,023) (168,321)
Prepaid expenses and other current assets 53,566 83,824
Accounts payable (1,918,443) 119,511
Accrued expenses 183,791 609,517
------------------- ----------------
(507,261) 527,721
------------------- ----------------
Net cash provided by operating activities 445,390 1,026,800
------------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (95,725) (103,347)
------------------- -----------------
Net cash used in investing activities (95,725) (103,347)
------------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock - (41,894)
Proceeds from the exercise of stock options 26,900 20,950
------------------- -----------------
Net cash provided by (used in) financing activities 26,900 (20,944)
------------------- -----------------
Net increase in cash and cash equivalents 376,565 902,509
Cash and Cash Equivalents, beginning of period 6,281,852 5,602,412
------------------- -----------------
Cash and Cash Equivalents, end of period $6,658,417 $6,504,921
=================== =================
SUPPLEMENTAL DISCLOSURES:
Income taxes paid $829,992 $29,392
=================== =================
</TABLE>
See accompanying notes to consolidated financial statements
<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-Q. 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 financial position, results of
operations and cash flows for the three months ended December 31, 1998 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, 1998 Form 10- KSB.
The operating results for the three months ended December 31, 1998 are
not necessarily indicative of the results to be expected for the September 30,
1999 year end.
NOTE 2. INVENTORIES
Inventories have been valued at the lower of average cost or market.
The components of inventory at December 31, 1998 and September 30, 1998 consist
of:
December 31, September 30,
1998 1998
---- ----
Component Parts $1,569,623 $1,445,811
Work in Progress 481,080 511,640
Finished Goods 6,865,417 6,594,646
--------- ---------
$8,916,120 $8,552,097
========== ==========
NOTE 3. NET INCOME PER SHARE
Earnings per share are computed using Financial Accounting Standards
Number 128, ("SFAS 128") "Earnings per Share." The statement provides for the
calculation of "basic" and "diluted" earnings per share. Basic earnings per
share is computed by dividing income available to common shareholders by the
weighted average shares outstanding for the period, and excludes any dilutive
effects of stock options, warrants and convertible securities. Diluted earnings
per share reflects the dilutive effect of additional shares of common stock that
could be issued upon the exercise stock options, warrants and convertible
securities. Net income per share amounts for the three months ended December 31,
1998, and 1997 have been presented per the requirements of "SFAS 128".
<PAGE>
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Net income per share - continued
The table below shows the number of weighted average shares used in
determining basic and diluted earnings per share:
Three Months Ended
December 31,
1998 1997
---- ----
Weighted average shares outstanding-basic 4,297,640 4,406,178
Number of shares issued on the assumed
exercise of stock options 301,857 89,720
---------- ---------
Weighted average shares outstanding-diluted 4,599,497 4,495,898
---------- ---------
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 ended December 31, 1998 reflect a
reduction on a weighted average basis for the repurchased shares. As of December
31, 1998, the Company had repurchased 207,200 shares.
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 net operating loss
carry forwards, adjustments for items deductible for book purposes but not
currently deductible for tax purposes and the benefit which results from the
utilization of a foreign sales corporation The benefits of these operating loss
carry forwards and deferred tax benefits had previously been subject to a 100%
valuation allowance. However, based on three years of profitability up through
the end of fiscal 1998 and projected fiscal 1999 taxable income, management
reduced the valuation allowance at September 30, 1998 to $127,000. In
recognition of continued profitability, the Company reduced the valuation
allowance by $30,000 during the first fiscal quarter of 1999 and anticipates
total elimination of the valuation by the end of the fiscal year.
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 intends
to 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 December 31, 1998, the Company had
repurchased 207,200 shares for $1,203,604 at an average purchase price of
approximately $5.81 per share.
<PAGE>
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
Three Month Period ended December 31, 1998 versus December 30, 1997
- ----------------------------------------------------------------------
Sales for the three months ended December 31, 1998 were $15,056,999
compared to $9,575,745 for the prior year's first fiscal quarter, resulting in
an increase of $5,481,254 or 57%. The increase in sales was primarily due to the
expansion of the Company's domestic distribution and retail channels from
approximately 300 retail locations carrying the Company's product to
approximately 3,000 retail locations, sales growth in Europe due to expanding
sales from existing customers plus expansion into new geographic markets in
Europe, plus a growth in sales to direct corporate customers.
Unit sales of digital video and conferencing boards for the three months
ended December 31, 1998 increased about 75% to approximately 166,000 as compared
to approximately 95,000 for the prior year. Sales to domestic customers for the
first fiscal quarter were 26% of net sales for this year's first fiscal quarter
and 23% for the prior year's first fiscal quarter. Sales to international
customers were 74% of net sales compared to 77% of net sales for the three
months ended December 31, 1997.
Gross profit increased to $4,008,889 from $2,339,801, an increase of
$1,669,088 or 71% over the comparable quarterly period of the prior fiscal year.
The gross profit percentage was 27% for the three months ended December 31, 1998
compared to 24% for the prior year's first fiscal quarter. The increase in
margins was primarily due to the absorption of manufacturing overhead over a
greater number of units, a program of hedging foreign sales currency exposure,
primarily for German Marks and British Sterling, which has stabilized the effect
of foreign currency fluctuations, and the shifting of production for most of the
Company's European sales to a subcontractor in Scotland, which resulted in lower
unit production costs, the elimination of duty on completed boards and reduced
shipping costs.
The chart below illustrates the components of selling, general and
administrative expenses:
<TABLE>
<CAPTION>
Three months ended December 31,
Dollar Costs Percentage of Sales
Increase/
1998 1997 Increase 1998 1997 (Decrease)
---- ---- -------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Sales & Promotional $1,460,838 $ 881,706 $579,132 9.7% 9.2% .5%
Customer Support 96,762 74,594 22,168 .6% .8% (.2%)
Product Handling 126,229 119,570 6,659 .8% 1.2% (.4%)
General & Admin 625,485 446,049 179,436 4.2% 4.7% (.5%)
------- ------- ------- --- --- ---
Total $2,309,314 $1,521,919 $787,395 15.3% 15.9% (.6%)
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis -Continued
As a percentage of sales, Selling, General and Administrative expenses declined
by .6% when compared to the first fiscal quarter of 1998. Declines in Customer
Support, Product Handling and General and Administrative expenses of 1.1% were
offset by a .5% increase in Sales and Promotional expense. Represented in
dollars, Selling General and Administrative expenses increased $787,395 over the
comparable prior year's fiscal first quarter. The largest component of this
increase was Sales and Promotional expenses whose increase of $579,132 over the
prior year's first fiscal quarter represents approximately 74% of the total
increase. The increase in sales and promotional expenses was primarily due to
the expansion of marketing and advertising funds required to support the
increase in retail locations, which the Company believes stands at approximately
3,000 retail locations at the end of the first fiscal quarter of 1999 as opposed
to approximately 300 retail locations at the end of the prior year's first
fiscal quarter, increased outside sales staffing, higher commissions resulting
from the 57% net sales increase and higher marketing costs attributed to Europe
as the Company expands its European sales offices into new geographic locations.
Customer Support, Product Handling, and General and Administrative
expenses, which represents approximately 26% of the increase over the prior
year, increased $22,168, $6,659 and $179,436 respectively. Additional staff
required to consistently maintain a high level of customer support in light of
the Company's expanding customer base caused the Customer Support costs to
increase. Increased Product Handling costs was a function of greater shipment
volume to customers. The increase in General and Administrative costs was mainly
for contractual wage increases, higher professional fees for consulting work
performed for the Company, and increased accruals for compensation that is based
on the profitability of the Company.
Research and development expenses increased $66,829 or approximately
38%. The increase was due to the 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 $91,168 compared to net other
income for the prior year's first fiscal quarter of $101,275. The decrease in
net other income was primarily due to slightly lower returns on monies invested.
Provision for income taxes was $597,000, or an effective tax rate of
38% for the three months ended December 31, 1998 compared to $245,815 or an
effective tax rate of 33% for the three months ended December 31, 1997. The
increase in the net effective rate is primarily due to the timing of certain
reserves which are deductible for book purposes but not currently deductible for
tax purposes, which resulted in an addition to the deferred tax asset account of
$28,388.
<PAGE>
Item 2. Management's Discussion and Analysis -Continued
At the end of fiscal 1998, the Company had a deferred tax valuation
allowance of $127,000. In recognition of the continued profitability during the
first quarter of fiscal 1999, the valuation allowance was reduced by $30,000 in
the first quarter of 1999.
As a result of the above, the Company recorded net income after taxes for
the quarter ended December 31, 1998 of $952,651, which resulted in basic and
diluted earnings per share of $0.22 and $0.21, respectively, on weighted average
basic and diluted shares outstanding of 4,297,640 and 4,599,497, respectively,
compared to net income after taxes of $499,079 for the three months ended
December 31, 1997, which resulted in basic and diluted earnings per share of
$0.11 on weighted average basic and diluted shares of 4,406,178 and 4,495,898,
respectively.
In two of the previous four 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 fiscal quarter (October to December), which
due to the holiday season, is a strong quarter for computer equipment sales. The
Company experienced this trend in each of the fiscal years ended September 30,
1998 and September 30, 1997. In addition, the Company's international sales,
mostly in the European market, were 72 % and 66% of sales for fiscal 1998 and
1997, respectively, and 74% for the first fiscal quarter ended December 31,
1998. Due to this, the Company's sales for its fourth fiscal quarter (July to
September) can be potentially 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 targeting as wide a range of customer types in
order to moderate the seasonality of retail sales.
Liquidity and Capital Resources
The Company had a net cash position of $6,658,417 working capital of
$10,458,750 and shareholders' equity of $11,018,849 as of December 31, 1998,
compared to cash, working capital and shareholders' equity of $6,281,852,
$9,536,450 and $10,036,898, respectively, as of September 30, 1998. The
significant items of cash provided by and cash (consumed ) are detailed below:
<TABLE>
<CAPTION>
<S> <C>
Net income (adjusted for non cash items), excluding deferred tax benefits $1,051,123
Additions to deferred tax assets ( 58,388)
Decrease in investment for current assets 1,187,307
Cash expended for reduction in current liabilities-net (1,734,652)
Purchase of Property, Plant & Equipment ( 95,725)
Other 26,900
</TABLE>
<PAGE>
Liquidity and Capital Resources-continued
Net cash of $ 445,390 provided by operating activities was primarily due to
cash generated from the Company's net income, adjusted for non cash items, and
cash provided by the reduction in the company's investment in current assets,
mainly receivables, offset by cash consumed attributable to the reduction of
current liabilities, mainly vendor accounts payable and income taxes.
Additional cash was used to purchase fixed assets. 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, the stock repurchase program was extended by a resolution of the Board of
Directors until December 31, 1998. Through December 31, 1998, the Company had
repurchased 207,200 shares for $1,203,604 at an average purchase price of
approximately $5.81 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.
Year 2000
An issue affecting most companies is whether computer systems and
applications will recognize and process the year 2000 and beyond. Many computer
systems were not designed to handle dates beyond the year 1999. The Company has
evaluated the effect of year 2000 issues relating to its internal computer
systems (primarily used for accounting, inventory control, word processing and
certain other administrative functions) and has concluded that certain aspects
of its system are not year 2000 compliant. In recognition of this, the Company
during 1998 studied the feasibility of upgrading its existing computer software
or purchasing new software. The Company concluded that the purchase of new
software and the upgrading of computer hardware was the best course of action.
During the first fiscal quarter of 1999, the Company has selected new software.
The hardware upgrades and the implementation of new software began during
January 1999. Testing will be performed in house by Company personnel, with
assistance from an outside consultant. The Company expects to have the system
operational by the middle of 1999. The Company estimates the cost to the Company
to remedy the year 2000 issue with regard to their internal computer system will
be approximately $150,000. The company expects to fund this project through
internally generated cash flow, and will account for the project as prescribed
by the rules under generally accepted accounting principles.
<PAGE>
Year 2000-continued
The Company plans to initiate communications in early 1999 with third
parties the Company does business with in order to identify, if possible, the
status of the third parties' year 2000 readiness. The Company will attempt to
have this completed by the middle of 1999. However, the Company has limited or
no control over the actions taken by these third parties. Accordingly, there can
be no assurance that all the third parties the Company does business with will
successfully resolve all of their year 2000 issues. The failure of these third
parties to resolve their year 2000 issues could have a potentially adverse
affect on the Company. During 1999, the Company will attempt to monitor the
readiness of third parties it currently does business with and look to transact
business with third parties who are year 2000 compliant in an effort minimize
the risk to the Company.
It is the Company's intention to address its year 2000 issues prior to
being affected by them. If the Company identifies significant risks associated
with year 2000 compliance, or if the Company's year 2000 project deviates from
its expected completion date, the Company will devise a contingency plan which
the Company intends to develop concurrently with the implementation of the new
computer system. Management believes that current plans and monitoring actions
will provide ample response time to avoid material adverse affects on the
Company's business and financial results.
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-Q, 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", "Anticipates", "Projects" and
similar words or expressions are intended to identify forward looking
statements. These statements speak only as of the date of this report. 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; the inability of the Company to
profitably sell its products and the impact of complications due to year 2000
compliance. 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.
<PAGE>
PART II. OTHER INFORMATION
Item 1 Legal Proceedings
In January 1998, Advanced Interactive Incorporated ("AII") contacted
Hauppauge Computer Works, Inc. ("HCW") and attempted to induce HCW to enter into
a patent license or joint venture agreement with AII relative to certain of
HCW's products. AII alleged that such products infringe U.S. Patent No. 4, 426,
698 (the "AII Patent"). At such time, HCW's engineering staff analyzed the AII
Patent and determined that HCW's products did not infringe any such patent.
Accordingly, HCW rejected AII's offer.
On October 6, 1998, HCW received notice that AII had commenced an action
against it and multiple other defendants in the United States District Court for
the Northern District of Illinois, alleging that the certain of HCW's products
infringe on certain patent rights allegedly owned by the plaintiff. The
complaint seeks unspecified compensatory and statutory damages with interest.
HCW denies such allegations and intends to vigorously defend this action. On
December 22, 1998, HCW filed its Answer (the "Answer"). Among other things,
pursuant to the Answer, HCW denies that its products infringe AII's patent
rights and asserts certain affirmative defenses, including challenging the
validity of the Patent.
Notwithstanding the foregoing, because of the uncertainties of litigation,
no assurances can be given as to the outcome of the AII litigation. In the event
that HCW were not to prevail in this litigation, HCW could be required to pay
significant damages to AII and could be enjoined from further use of such
technology as it presently exists. Although a negative outcome in the AII
litigation would have a material adverse affect on HCW, including, but not
limited to, its operations and financial condition, HCW believes that, if it is
held that HCW's products infringe AII's patent rights, HCW would attempt to
design components to replace the infringing components or would attempt to
negotiate with AII to utilize its system, although no assurances can be given
that HCW would be successful in these attempts. At the present time, HCW can not
assess the possible cost of designing and implementing a new system or obtaining
rights from AII. As of December 31, 1998, the Company estimated that legal fees
incurred up to December 31,1998 were approximately $10,000.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on form 8-K
None
<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: February 9, 1999 By /s/ Kenneth Plotkin
----------------- ----------------------------------
KENNETH PLOTKIN
Vice President and
Chief Executive Officer
Date: February 9, 1999 By /s/ Gerald Tucciarone
----------------- -----------------------------------
GERALD TUCCIARONE
Treasurer and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Sep-30-1999
<PERIOD-START> Oct-01-1998
<PERIOD-END> Dec-31-1999
<EXCHANGE-RATE> 1
<CASH> 6,658,417
<SECURITIES> 0
<RECEIVABLES> 4,939,399
<ALLOWANCES> 110,000
<INVENTORY> 8,916,120
<CURRENT-ASSETS> 21,584,652
<PP&E> 901,678
<DEPRECIATION> 397,759
<TOTAL-ASSETS> 22,144,751
<CURRENT-LIABILITIES> 11,125,902
<BONDS> 0
0
0
<COMMON> 45,117
<OTHER-SE> 10,973,732
<TOTAL-LIABILITY-AND-EQUITY> 11,018,849
<SALES> 15,056,999
<TOTAL-REVENUES> 15,056,999
<CGS> 11,048,110
<TOTAL-COSTS> 2,550,406
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,549,651
<INCOME-TAX> 597,000
<INCOME-CONTINUING> 952,651
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 952,651
<EPS-PRIMARY> .22
<EPS-DILUTED> .21
</TABLE>
