-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TsBtrVZg5kEco584vEXHoGKS3+kJYccNxRTFLV3+qKr/5z9Ul2OLwrclDHWPUu5/ bSgm10ETq2gde651ZzNurA== 0001021771-98-000051.txt : 19980925 0001021771-98-000051.hdr.sgml : 19980925 ACCESSION NUMBER: 0001021771-98-000051 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAUPPAUGE DIGITAL INC CENTRAL INDEX KEY: 0000930803 STANDARD INDUSTRIAL CLASSIFICATION: 3577 IRS NUMBER: 113227864 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-13550 FILM NUMBER: 98686252 BUSINESS ADDRESS: STREET 1: 91 CABOT COURT CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 5164341600 MAIL ADDRESS: STREET 1: 91 CABOT COURT CITY: HAUPPAUGE STATE: NY ZIP: 11788 10QSB 1 HAUPPAUGE DIGITAL, INC. 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. -1- 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 - - ---------- -2- PART I. FINANCIAL INFORMATION Item 1. Financial Statements
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS June 30, 1998 September 30, (Unaudited) 1997 ---------------- ---------------- CURRENT ASSETS: 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 -3-
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Nine months Nine months ended ended June 30, June 30, 1998 1997 (Unaudited) (Unaudited) ----------------- ------------------ 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
-4- HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three months Three months ended ended June 30, June 30, 1998 1997 (Unaudited) (Unaudited) ------------------ ----------------- 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
-5- HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months Nine months ended ended June 30, June 30, 1998 1997 (Unaudited) (Unaudited) ------------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: 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 ======= =======
See accompanying notes to consolidated financial statements -6- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- EX-27 2 FDS --
5 1 U.S. Dollars 6-MOS Dec-31-1998 Jan-01-1998 Jun-30-1998 1 5,379,142 0 5,097,148 (110,000) 5,269,996 16,253,645 745,884 (324,830) 16,732,853 6,649,797 0 0 0 44,974 10,038,082 16,732,853 26,443,939 26,443,939 19,820,546 5,226,527 0 90,000 0 1,657,681 546,815 1,110,866 0 0 0 1,110,866 0.25 0.24
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