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, 2003
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number 1-13550
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HAUPPAUGE DIGITAL, INC.
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 11-3227864
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
91 Cabot Court, Hauppauge, New York 11788
-----------------------------------------
(Address of principal executive offices)
(631) 434-1600
--------------
(Registrant's telephone number, including area code )
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act)
Yes No X
--- ---
As of January 30, 2004, 8,881,682 shares of .01 par value Common Stock of the
registrant were outstanding, not including treasury shares.
1
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
----------------------------------------
INDEX
-----
PART I. FINANCIAL INFORMATION
- -----------------------------
Page No.
--------
Item 1.Financial Statements
Condensed Consolidated Balance Sheets-
December 31, 2003 (unaudited) and September 30, 2003 (audited) 3
Condensed Consolidated Statements of Income-
Three Months ended December 31, 2003 (unaudited) and 2002 (unaudited) 4
Condensed Consolidated Statements of Other Comprehensive Income -
Three Months ended December 31, 2003 (unaudited) and 2002 (unaudited) 5
Condensed Consolidated Statements of Cash Flow-
Three Months ended December 31, 2003 (unaudited) and 2002 (unaudited) 6
Notes to Condensed Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-19
Item 3. Quantitative and Qualitative Disclosures about Market Risks 20
Item 4. Controls and Procedures 20-21
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 21
Item 5. Other information 21
Item 6. Exhibits and Reports on form 8-K 22
SIGNATURES 23
2
PART I. FINANCIAL INFORMATION
- -----------------------------
Item 1. Financial Statements
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30,
2003 2003
(Unaudited)
-------------------------------------
Assets:
Current Assets:
Cash and cash equivalents $ 5,203,858 $ 5,838,160
Receivables, net of various allowances 13,799,977 9,182,758
Inventories 9,949,148 5,474,374
Prepaid expenses and other current assets 699,383 546,328
-------------------------------------
Total current assets 29,652,366 21,041,620
Property, plant and equipment, net 492,203 532,516
Security deposits and other non current assets 76,216 76,216
-------------------------------------
$ 30,220,785 $ 21,650,352
=====================================
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable $ 13,019,337 $ 7,452,867
Accrued expenses 3,506,988 2,539,678
Income taxes payable 161,997 189,122
-------------------------------------
Total current liabilities 16,688,322 10,181,667
Stockholders' Equity
Common stock $.01 par value; 25,000,000 shares authorized, 9,423,749
and 9,420,315 issued, respectively 94,237 94,203
Additional paid-in capital 12,318,573 12,302,119
Retained earnings 1,092,847 99,987
Accumulated other comprehensive income 1,524,022 469,592
Treasury Stock, at cost, 542,067 shares (1,497,216) (1,497,216)
-------------------------------------
Total stockholders' equity 13,532,463 11,468,685
-------------------------------------
$ 30,220,785 $ 21,650,352
=====================================
See accompanying notes to condensed consolidated financial statements
3
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended December 31,
---------------------------------
2003 2002
---------------------------------
Net Sales $18,230,298 $15,520,486
Cost of Sales 13,648,675 11,599,524
---------------------------------
Gross Profit 4,581,623 3,920,962
Selling, General and Administrative Expenses 3,120,616 2,706,302
Research & Development Expenses 410,274 493,073
---------------------------------
Income from operations 1,050,733 721,587
Other Income (expense):
Interest income 1,739 5,971
Foreign currency (11,333) (44,603)
---------------------------------
Other income (expense) (9,594) (38,632)
---------------------------------
Income before taxes on income 1,041,139 682,955
Tax provision 48,279 26,483
---------------------------------
Net income $992,860 $656,472
=================================
Net income per share:
Basic and Diluted $0.11 $0.07
=================================
See accompanying notes to condensed consolidated financial statements
4
HAUPPAUGE DIGITAL, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
(UNAUDITED)
Three months ended December 31,
-------------------------------
2003 2002
---- ----
Net income $ 992,860 $ 656,472
Forward exchange contracts marked to market 204,461 (518,974)
Foreign currency translation gain 849,969 150,728
----------------------------------
Other comprehensive income $ 2,047,290 $ 288,226
==================================
See accompanying notes to condensed consolidated financial statements
5
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
Three months ended December 31,
2003 2002
-------------------------------------
Net income $992,860 $656,472
-------------------------------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 60,309 248,067
Other non cash items 10,079 6,334
Changes in current assets and liabilities:
Accounts receivable (3,562,789) (3,420,021)
Inventories (4,474,774) (2,999,976)
Prepaid expenses and other current assets (153,055) (176,019)
Accounts payable and other current liabilities 6,506,655 6,274,254
-------------------------------------
Total adjustments (1,613,575) (242,313)
-------------------------------------
Net cash (used in) provided by operating activities (620,715) 414,159
-------------------------------------
Cash Flows From Investing Activities:
Purchases of property, plant and equipment (20,574) (51,370)
-------------------------------------
Net cash used in investing activities (20,574) (51,370)
-------------------------------------
Cash Flows From Financing Activities:
Proceeds from employee stock purchases 6,987 6,108
Purchase of treasury stock - (35,642)
-------------------------------------
Net cash provided by (used in) financing activities 6,987 (29,534)
-------------------------------------
Net (decrease) increase in cash and cash equivalents (634,302) 333,255
Cash and cash equivalents, beginning of period 5,838,160 4,964,522
-------------------------------------
Cash and cash equivalents, end of period $ 5,203,858 $ 5,297,777
=====================================
Supplemental disclosures:
Income taxes paid $ 67,802 $ 4,945
=====================================
See accompanying notes to condensed 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-Q. Accordingly, these statements do not include all of the information
required by generally accepted accounting principles for annual financial
statements. 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 month
period ended December 31, 2003 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, 2003 Form 10-K.
The operating results for the three month period ended December 31, 2003 are not
necessarily indicative of the results to be expected for the September 30, 2004
year end.
Note 2. Receivables
Accounts and other receivables consisted of the following as of December 31,
2003:
December 31, September 30,
2003 2003
-------------- ---------------
Trade receivables $ 10,858,832 $ 7,435,539
Receivable from contract manufacturers 5,517,599 4,134,456
GST and VAT taxes receivables 407,353 289,700
Allowances and reserves (3,232,184) (2,887,184)
Income tax receivable 175,000 175,000
Other 73,377 35,247
-------------- ---------------
$ 13,799,977 $ 9,182,758
============== ===============
Note 3. Derivative Financial Instruments
Product is invoiced to our European customers in local currencies and payments
from our customers are received in local currencies (primarily the Euro and
Great British Pound). On the supply side, since we predominantly deal with North
American and Asian suppliers, approximately 70% of our inventory supporting our
Euro and Great British Pound sales are purchased and paid in U.S. Dollars.
Consequently, changes in exchange rates expose our U.S. denominated inventory on
the books of our European subsidiary to market risks resulting from the
fluctuations in the foreign currency exchange rates to the U.S. Dollar. We
attempt to reduce these risks by entering into foreign exchange forward
contracts with financial institutions. The purpose of these forward contracts is
to hedge the foreign currency market exposures underlying the forecasted U.S.
Dollar denominated inventory purchases required to support our European sales.
As of December 31, 2003, we had foreign currency contracts outstanding of
approximately $851,600 against the delivery of the Euro. The contracts expire
through January 2004. Our accounting policies for these instruments designate
such instruments as cash flow hedging transactions. We do not enter into such
contracts for speculative purposes. We record all derivative gains and losses on
the balance sheet as a component of stockholders' equity under the caption
"Accumulated other comprehensive income (loss)". The Company recorded a deferred
gain of $204,461 for the three months ended December 31, 2003. As of December
31, 2003, a deferred loss of $30,130, reflecting the cumulative mark to market
loss of our derivatives, was recorded as a component of accumulated other
comprehensive income on the balance sheet.
For the three months December 31, 2003, we recorded a decrease in sales of
$805,553 and $549,600, respectively, related to our contracts that closed during
these periods and the changes in the fair value of our derivative contracts.
7
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4. Inventories
Inventories have been valued at the lower of average cost or market on a first
in first out basis. The components of inventory consist of:
December 31, September 30,
2003 2003
---- ----
Component Parts $3,907,231 $1,446,670
Finished Goods 6,041,917 4,027,670
--------- ---------
$9,949,148 $5,474,374
========= =========
Note 5. Net Income Per Share
Basic net income per share includes no dilution and is computed by dividing net
income by the weighted average number of shares of common stock outstanding for
the period. Diluted net income per share reflects, in the periods in which they
have a dilutive effect, the dilution which would occur upon the exercise of
stock options. A reconciliation of the shares used in calculating basic and
diluted net income per share is as follows:
Three Months Ended
December 31,
2003 2002
---- ----
Weighted average shares outstanding-basic 8,880,651 8,858,431
Number of shares issued on the assumed exercise of stock options 489,430 19,750
Weighted average shares outstanding-diluted 9,370,081 8,878,181
========= =========
Options to purchase 485,337 and 1,462,826 shares of common stock at prices
ranging $2.81 to $ 10.06 and $1.35 and $10.06, respectively, were outstanding
for the three month periods ending December 31, 2003 and 2002, respectively, but
were not included in the computation of diluted earnings per share because they
were anti-dilutive.
Note 6. Accumulated other comprehensive income
The Euro is the functional currency of the Company's European subsidiary,
Hauppauge Digital Europe Sarl. Assets and liabilities of this subsidiary are
translated to U.S. Dollars at the spot exchange rate in effect at end of each
reporting period, while equity accounts are translated to U.S. Dollars at the
historical rate in effect at the date of the contribution. Operating results are
translated to U.S. Dollars at the average prevailing exchange rate for the
period, with the exception of sales which are translated to U.S. Dollars at the
average monthly forward exchange contract rate. The use of translating accounts
at the spot, historical and average exchange rates results in foreign currency
translation gains or losses. These translation gains or losses are recorded on
the balance sheet under accumulated other comprehensive income.
The Company uses forward exchange contracts to reduce our exposure to
fluctuations in foreign currencies. Mark to market gains and losses on these
open contracts result from the difference between the USD value of our open
foreign currency forward contracts at the average contract rate as opposed to
the same contracts translated at the month end spot rate. The Company qualifies
for cash flow hedge accounting as prescribed under FAS 133, which allows the
Company to record the mark to market gains and losses in the equity section of
our balance sheet under accumulated other comprehensive income.
8
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of December 31, 2003, appearing in the equity section under "Accumulated
other comprehensive income" was a deferred gain of $1,524,022, which consisted
of a deferred translation gain of $1,554,152 and a deferred loss of $30,130 due
to the mark to market losses on the difference between the value of our open
forward exchange contracts at the contract rates versus the same contracts
valued at the period ending forward rate.
The Company's Asian subsidiary reports its financial position and results of
operations in the reporting currency of the Company.
Note 7. Revenue Recognition
We sell through a sales channel which consist of retailers , distributors and
original equipment manufacturers (OEM's). Our prices are fixed consistently over
the entire sales channel. The majority of our customers are granted open payment
terms. Those customers deemed as large credit risks either pay in advance or
issue us a letter of credit.
The Company requires the customer to submit a purchase order to the Company. The
price of the product and payment terms are fixed per the terms of the purchase
order. Upon shipment of the order to the customer, the title to the goods is
passed to the customer. The customer is legally obligated to pay for the order
within the payment terms stated on the customer's purchase order. The obligation
to insure the products and the cost of any pilferage while in the customer's
possession is the responsibility of the customer. Our retail products are
typically stocked on the shelves of retailers, and is subject to the normal
consumer traffic that retail stores attract. Aside from normal store promotions
such as end-caps and advertisements in the store's circular, the Company has no
further obligation to assist in the resale of the product.
The Company offers it customers a right of return, but does not offer stock
balancing. Our accounting complies with SFAS 48 as typically at the end of every
quarter, the Company, based on historical data, evaluates its sales reserve
level based on the previous six months sales. Due to seasonal nature of our
business coupled with the changing economic environment, management exercises
some judgement with regard to the historical data to arrive at the reserve.
Note 8. Product segment and Geographic Information
We engineer, develop, subcontract for manufacture, market and sell products for
the personal computer ("PC") market and the Apple(R) Macintosh(R) market.
We also offer products for the home entertainment market. We have two primary
product categories: analog TV products and digital TV products. Our WinTV(R)
analog TV receivers allow PC users to watch television on their PC screen in a
resizable window, and also enable recording of TV shows to a hard disk. Our
WinTV(R)-PVR TV personal video recorder products include hardware MPEG encoders,
which improve the performance of TV recording and add instant replay and program
pause functions, plus also enable the `burning' of TV recordings onto DVD or CD
media. Our Eskape(TM) Labs products allow users of Apple(R)Macintosh(R)
computers to watch television on their computer screen.
We offer three types of digital TV receivers. Our WinTV(R) digital receivers can
receive digital TV transmissions and display the digital TV show in a
re-sizeable window on a user's PC screen. Our Digital Entertainment Center
products ("DEC") allow users to receive digital TV broadcasts and display the
digital TV on either a TV set or a PC screen. Our MediaMVP(TM) product was
designed to allow PC users to play digital media such as digital music, digital
pictures and digital videos on a TV set via a home network.
9
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8. Product segment and Geographic Information-continued
We sell our products through computer and electronic retailers, computer
products distributors and original equipment manufacturers ("OEMs"). Sales by
functional category are as follows:
Three months ended December 31,
-------------------------------
2003 2002
------------ ------------
Product line sales
- ------------------
Analog sales $ 14,429,228 $ 11,246,167
Digital sales 3,801,070 4,274,319
------------ ------------
$ 18,230,298 $ 15,520,486
============ ============
The Company sells its products through an international network of distributors
and retailers. European sales accounted for 75% and 70% of sales for the three
moths ended December 31, 2003 and 2002. Sales percent by geographic region are
as follows:
Three months ended, December 31,
--------------------------------
Sales percent by geographic region 2003 2002
- ---------------------------------- ---- ----
United States 24% 29%
Europe 75% 70%
Asia 1% 1%
-- --
Total 100% 100%
==== ====
Note 9. Stock-Based Compensation
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", ("APB 25"), and related interpretations in
accounting for its employee stock options. Under APB 25, no compensation expense
is recorded so long as the quoted market price of the stock at the date of the
grant is equal to the exercise price.
Pro forma information regarding net income and earnings per share has been
determined as if the Company had accounted for its employee stock options under
the fair value method of Financial Accounting Standards Board Statement No. 123
"Accounting for Stock-Based Compensation", ("FAS 123"). The weighted average
fair value of options granted during the three months ended December 31, 2003
and December, 31 2002 was $0.43 and $0.42, respectively. The fair value for
these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted average assumptions for the three
months ended December 31, 2003 and December 31, 2002: risk-free interest rates
of 3.25%, volatility factor of the expected market price of the Company's Common
Stock of 40%, assumed dividend yield of 0%, and a weighted-average expected life
of the option of 5 years.
Under the accounting provisions of FAS 123, the Company's net income and net
income per share would have been adjusted to the pro forma amounts indicated
below:
10
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, December 31,
2003 2002
---------------- --------------
Net income as reported.......................................... $ 992,860 $ 656,472
- -----------------------
Deduct: Total stock-based employee compensation expense
determined under fair value method, net of related taxes ... (24,788) (19,865)
---------- ----------
Pro forma net income............................................. $ 968,072 $ 636,607
- -------------------- ========== ==========
Net income per share - as reported:
Basic and diluted................................................ $ 0.11 $ 0.07
========== ==========
Net income per share - pro forma:
Basic............................................................ $ 0.11 $ 0.07
========== =========
Diluted.......................................................... $ 0.10 $ 0.07
========== =========
Note 10. Arrangements with Off-Balance Sheet Risk - Guarantees
In November 2002, the FASB issued Interpretation No. 45 (FIN 45), Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of the Indebtedness of Others, which clarifies the requirements of
SFAS No. 5, Accounting for Contingencies, relating to a guarantor's accounting
for and disclosures of certain guarantees issued. FIN 45 requires enhanced
disclosures for certain guarantees. It also requires certain guarantees that are
issued or modified after December 31, 2002, including certain third-party
guarantees, to be initially recorded on the balance sheet at fair value. For
guarantees issued on or before December 31, 2002, liabilities are recorded when
and if payments become probable and estimable. FIN 45 has the general effect of
delaying recognition for a portion of the revenue for product sales that are
accompanied by certain third-party guarantees. The financial statement
recognition provisions became effective prospectively beginning January 1, 2003.
The Company has not entered into any new guarantees, nor have they ammended
their existing guarantee since the effective date.
We occupy a facility located in Hauppauge, New York and use it as our executive
offices and for the testing, storage, and shipping of our products. The building
is owned by a partnership comprised of certain of our principal stockholders'
and is leased to us under a lease agreement expiring on January 31, 2006, which
may be extended, at our option, for an additional three years. The premises are
subject to two mortgages which have been guaranteed by us upon which the
outstanding principal amount due as of December 31, 2003 was $733,031. The two
mortgages guaranteed expire on Janauary 31, 2010, at which time the related
gurantees expire.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
Three Month Period ended December 31, 2003 Compared to December 31, 2002
- ------------------------------------------------------------------------
Results of operations for the three months ended December 31, 2003 compared to
December 31, 2002 are as follows:
Three Three
Months Months
Ended Ended Variance Percentage of sales
12/31/03 12/31/02 $ 2003 2002 Variance
-------- ---------- - ---- ---- --------
Net Sales $18,230,298 $ 15,520,486 $ 2,709,812 100.0% 100.0% 0
Cost of sales 13,648,675 11,599,524 2,049,151 74.87% 74.74% 0.13%
----------- ----------- ---------- ------ ------ -----
Gross Profit 4,581,623 3,920,962 660,661 25.13% 25.26% -0.13%
Gross Profit % 25.13% 25.26% -0.13%
Costs:
Sales & Marketing 2,125,709 1,863,012 262,697 11.66% 12.00% -0.34%
Technical Support 108,455 98,360 10,095 0.60% 0.63% -0.03%
General & Administrative 886,452 744,930 141,522 4.86% 4.80% 0.06%
-------- -------- -------- ----- ----- -----
Total Selling, General and Administrative costs 3,120,616 2,706,302 414,314 17.12% 17.43% -0.31%
Research & Development 410,274 493,073 (82,799) 2.25% 3.18% -0.93%
-------- -------- -------- ----- ----- ------
Total Costs 3,530,890 3,199,375 331,515 19.37% 20.61% -1.24%
---------- ---------- -------- ------ ------ ------
Net operating income 1,050,733 721,587 329,146 5.76% 4.65% 1.11%
Other income (expense)
- ----------------------
Interest income 1,739 5,971 (4,232) 0.01% 0.04% -0.03%
Foreign currency (11,333) (44,503) 33,270 -0.06% -0.29% 0.23%
------- ------- ------ ----- ----- -----
Total other income (expense) ( 9,594) (38,632) 29,038 -0.05% -0.25% 0.20%
------- ------- ------ ----- ----- -----
Income before taxes 1,041,139 682,955 358,184 5.71% 4.40% 1.31%
Taxes on income 48,279 26,483 21,796 0.26% 0.17% 0.09%
--------- ------- ------- ----- ----- -----
Net income $ 992,860 $ 656,472 $ 336,388 5.45% 4.23% 1.22%
=========== ========== ========== ===== ===== =====
Net sales for the three months ended December 31, 2003 increased $2,709,812
compared to the three months ended December 31, 2002 as shown on the table
below.
Increase
(decrease) Increase Percentage of sales by
Three Months Three Months Dollar (decrease) Geographic region
Location ended 12/31/03 ended 12/31/02 Variance Variance % 2003 2002
- -------- -------------- -------------- -------------- ---------- ---- ----
Domestic $ 4,352,730 $ 4,480,128 $ (127,398) (3)% 24% 29%
Europe 13,626,714 10,854,699 2,772,015 26% 75% 70%
Asia 250,854 185,659 65,195 35% 1% 1%
------------- -------------- -------------- ---------- ------ -----
Total $ 18,230,298 $ 15,520,486 $ 2,709,812 17% 100% 100%
=============== ============== ============== ========== ======= =====
The primary factors contributing the sales increase were:
o Increased sales of OEM PVR-250 for media center products
o Introduction of Media MVP product in October 2003
o Stronger demand for retail PVR-250 products due to exposure generated from
sales of media center systems
o Increased DVB sales
o Increase PVR-USB sales due to introduction of lower cost model during
fiscal 2003
o Increased USB sales due to direct sales of a particular OEM product
o Increase in our average Euro to USD contract rate of approximately 17.5%
for the three months ended December 31, 2003 over the same three months of
last year , which yielded higher converted Euro to USD sales
12
Results of operations-three month period ended December 31, 2003 compared to
- --------------------------------------------------------------------------------
December 31,2002-continued
- --------------------------
Net sales to domestic customers were 24% of net sales for the three months ended
December 31, 2003 compared to 29% for the three months ended December 31, 2002.
Net sales to European customers were 75% of net sales compared to 70% for the
same period of last year. Net sales to Asian customers were 1% for both periods.
Gross profit increased $660,661 for the three months ended December 31, 2003
compared to the prior year's first quarter.
The increases and (decreases) in the gross profit are detailed below:
Increase
(decrease)
----------
Due to increased sales $845,245
Higher margins due to product mix 878,328
Increased sales mix of lower margin OEM sales (606,372)
Due to increases in labor related and other costs (456,540)
---------
Total increase in gross profit $660,661
=========
Gross profit percentage for the three months ended December 31, 2003 was 25.13%
compared to 25.26% for the three months ended December 31, 2002, a decrease of
0.13%.
The increases and (decreases) in the gross profit percent are detailed below:
Increase
(decrease)
----------
Higher gross profit percent due to product mix of non-OEM products 4.81%
Increased sales mix of lower margin OEM sales (3.32)%
Labor related and other costs (1.62)%
-------
Net increase in gross profit % (0.13)%
=======
The increase in gross profit percent of 4.81% for non-OEM products was primarily
due to:
o Cost reductions attained during fiscal 2003
o Cost reduced versions of the PVR-250 and PVR-USB introduced during fiscal
2003
o Increase in our average Euro to USD contract rates, used to convert Euro
sales to U.S. dollar sales, of approximately 17.5% for the three months
ended December 31, 2003 over the same month three month period of last
year. Since approximately 75% of our European inventory is purchased in
U.S. dollars while most of the European sales are invoiced in Euros or
Great British Pounds, the Company benefited from the higher converted Euro
to U.S. dollar sales which are sold against U.S dollar denominated
inventory
o Sales of lower margin DEC boards declined as a percentage of sales from
last year
Sales of our OEM PVR-250 boards for the three months ended December 31, 2003
were $2,753,250 and 15.10% of sales compared to $520,131 and 3.35% of sales for
the three months ended December 31, 2002. OEM sales require less sales and
marketing support, but also sell at a lower gross profit percentage than our
retail products. Our OEM sales had a gross profit percentage of 9.55% for the
three months ended December 31, 2003. The increased product mix of OEM sales
over the month and three month period ending December 31, 2002 caused a
reduction of our gross profit percentage of 3.32%. for the three months ended
December 31, 2003.
The decrease in the gross margin percent of for the three months ending December
31, 2003 of 1.62% attributable to labor related and other costs was due to the
percentage increase in labor related and other costs of 49.61% exceeding the
percentage increase in sales of 17.46%.
13
Results of operations-three month period ended December 31, 2003 compared to
- --------------------------------------------------------------------------------
December 31,2002-continued
- --------------------------
The chart below illustrates the components of Selling, General and
Administrative costs:
Three months ended December 31,
--------------------------------
Dollar Costs Percentage of Sales
-------------------------------------------------------------------------------------
Increase Increase
2003 2002 (Decrease) 2003 2002 (Decrease)
---- ---- ---------- ---- ---- ----------
Sales and Marketing $2,125,709 $ 1,863,012 $ 262,697 11.66% 12.00% -0.34%
Technical Support 108,455 98,360 10,095 0.60% 0.63% -0.03%
General and Administrative 886,452 744,930 141,522 4.86% 4.80% 0.06%
---------- ----------- ---------- ----- ------ ------
Total $3,120,616 $ 2,706,302 $ 414,314 17.12% 17.43% -0.31%
----- ========== =========== ========== ===== ====== ======
Selling, General and Administrative expenses increased $414,314 from the prior
year's first quarter. As a percentage of sales, Selling, General and
Administrative expenses decreased by 0.31% when compared to the three months
ended December 31, 2002.
The increase in Sales and Marketing expense of $262,697, which accounted for
approximately 63% of the total increase in Selling, General and Administrative
expenses, was mainly due to:
o Higher advertising costs of $14,697 due to higher sales based
co-operative advertising, higher customer rebate realization and
increased special promotions
o Higher advertising costs of $86,692 due to higher translated Euro to
U.S dollar amounts due to the strengthening of the Euro against the
USD
o Increased commission expense of $22,172 due to higher translated Euro
to U.S dollar amounts due to the strengthening of the Euro against the
USD
o Increased European sales office costs of $81,140 due to higher
translated Euro to U.S dollar amounts due to the strengthening of the
Euro against the USD
o Increased third party European merchandising program of $69,349
o Increased UK in store promotions of $70,326
o Lower sales office expenses of $96,967 due to personnel shift and
stricter budget controls
The increase in General and Administrative expenses of $141,522 was primarily
due to:
o Higher legal and legal related costs of $41,495
o Directors fees of $29,750
o Banking fees, credit card fees and cash discounts of $21,602
o European accounting service fees $17,482
o Increment to account receivables reserves of $25,000 in reflection of
higher sales
Research and Development expenses decreased $82,799 . The decrease was mainly
due to lower compensation costs attributable to less staff and less third party
software development services used in the first quarter of fiscal 2004.
Other income (expense)
Net other expense for the three months ended December 31, 2003 was $9,594
compared to net other expense of $38,632 for the three months ended December 31,
2002 as detailed below:
Three months ended December 31,
-------------------------------
2003 2002
---- ----
Interest income $ 1,739 $ 5,971
Foreign currency transaction gains (losses) (11,333) (44,903)
---------- ----------
Total other income (expense) $ (9,594) $ (38,932)
========== ==========
14
Results of operations-three month period ended December 31, 2003 compared to
- --------------------------------------------------------------------------------
December 31,2002-continued
- --------------------------
Re-measurement of accounts denominated in currencies other than the Euro
We follow the rules prescribed in paragraph 16 of SFAS 52 "Foreign Currency
Translation", which states that accounts denominated in a currency other than an
entities functional currency, excluding inter-company accounts which are long
term in nature, need to be re-measured into the entities functional currency,
and any gain or loss from this re-measurement are included in the determination
of net income.
Since the functional currency of Hauppauge Digital Europe Sarl ("HDE Sarl") is
the Euro, any asset, liability or equity accounts which are invested in or
purchased using U.S. Dollars or Great British Pounds by HDE Sarl are revalued
into Euros at the end of each period. The gains or losses on HDE Sarl's books
resulting from the revaluation of U.S. Dollar and Great British Pound accounts
into Euros are booked in the Company's profit and loss statement in the other
income (loss) section under the description foreign currency transaction gains
(losses).
Accumulated other comprehensive income (loss)
The Euro is the functional currency of the Company's European subsidiary, HDE
Sarl. Assets and liabilities of this subsidiary are translated to U.S. Dollars
at the exchange rate in effect at the end of each reporting period, while equity
accounts are translated to U.S. Dollars at the historical rate in effect at the
date of the contribution. Operating results are translated to U.S. Dollars at
the average prevailing exchange rate for the period, with the exception of sales
which are translated to U.S. Dollars at the average monthly forward exchange
contract rate. The use of differing exchange rates results in foreign currency
translation gains or losses. Since the Euro denominated accounts on HDE Sarl's
books result in a net asset position (total Euro assets are in excess of Euro
liabilities), an increase in the Euro value results in a deferred gain for the
translation of Euro accounts to U.S. Dollars. The Company had a translation gain
of $704,183 recorded on the balance sheet as of September 30, 2003. For the
three months ended December 31 2003, the Company recorded on the balance sheet
deferred translation gains $849,969 resulting in a translation gain of
$1,554,152 recorded as a component of accumulated other comprehensive income as
of December 31, 2003.
The Company uses forward exchange contracts to reduce our exposure to
fluctuations in foreign currencies. Mark to market gains and losses on these
open contracts result from the difference between the USD value of our open
foreign currency forward contracts at the average contract rate as opposed to
the same contracts translated at the month end forward rate. The Company
qualifies for cash flow hedge accounting as prescribed under SFAS 133, which
allows the Company to record the mark to market gains and losses in the equity
section of our balance sheet under accumulated other comprehensive income. The
Company had mark to market losses of $234,591 recorded on the balance sheet as
of September 30, 2003. For the three months ended December 31, 2003, the Company
recorded, as component of other comprehensive income, a mark to market gain of
$204,461, resulting in a mark to market loss of $30,130 for contracts open as of
December 31, 2003.
As stated above, accumulated other comprehensive income (loss) consists of two
components:
o Translations gains and losses
o FAS 133 mark to market gains and losses on our open foreign exchange contracts
The table below details the gains and losses recorded for the components that
make up accumulated other comprehensive income (loss):
Balance October to Balance
as of December 2003 As of
September 30, Gains December 31,
Accumulated other comprehensive income 2003 (loss) 2002
- -------------------------------------- ---- ------ ----
Translation gains $ 704,183 $ 849,969 $ 1,554,152
FAS 133 mark to market adjustments (234,591) 204,461 (30,130)
----------- ---------- ------------
$ 469,592 $1,054,430 $ 1,524,022
=========== ========== ============
15
Results of operations-three month period ended December 31, 2003 compared to
- --------------------------------------------------------------------------------
December 31,2002-continued
- --------------------------
Tax provision
Our net tax provision for the three months ended December 31, 2003 and 2002 is
as follows:
Three months ended December 31,
-------------------------------
2003 2002
------ ------
Tax (benefit) attributable to U.S operations $ (73,300) $(63,700)
Tax expense European operations 40,779 26,483
State taxes 7,500 7,000
Deferred tax asset valuation allowance 73,300 56,700
---------- ---------
Net tax provision $ 48,279 $ 26,483
========== =========
For the last four fiscal years, our domestic operation has incurred losses. We
analyzed the future realization of our deferred tax assets as of December 31,
2003 and we concluded that under the present circumstances, it would be
appropriate for us to record a valuation allowance against the increase in the
deferred tax asset attributable to the loss incurred in the first quarter of
fiscal 2004 from domestic operations.
As a result of all of the above items mentioned in the Management's Discussion
and Analysis of Financial Condition and Results of Operations, we recorded net
income of $992,860, for the three months ended December 31, 2003, which resulted
in basic and diluted net income per share of $0.11 on weighted average basic and
diluted shares of 8,880,651 and 9,370,081, respectively, compared to a net
income of $656,172 for the three months ended December 31, 2002, which resulted
in basic and diluted net income per share of $0.07 on weighted average basic and
diluted shares of 8,858,431 and 8,878,181, respectively.
Options to purchase 485,337 and 1,462,826 shares of common stock at prices
ranging $2.81 to $ 10.06 and $1.35 and $10.06, respectively, were outstanding
for the three month periods ended December 31, 2003 and 2002, respectively, but
were not included in the computation of diluted earnings per share because they
were anti-dilutive.
Seasonality
As our sales are primarily to the consumer market, we have experienced certain
seasonal revenue trends. Our peak sales quarter, due to holiday season sales of
computer equipment, is our first fiscal quarter (October to December), followed
by our fourth fiscal quarter (July to September). In addition, our international
sales, mostly in the European, market, were 68%, 73% and 77 % of sales for the
years ended September 30, 2003, 2002 and 2003, respectively. Our fiscal fourth
quarter sales (July to September) can be potentially impacted by the reduction
of activity experienced in Europe during the July and August summer holiday
period.
To offset the above cycles, we target a wide range of customer types in order to
moderate the seasonal nature of our retail sales.
Liquidity and Capital Resources
Our cash, working capital and stockholders' equity position is disclosed below:
December 31, September 30,
2003 2003
------------ -------------
Cash $ 5,203,858 $ 5,838,160
Working Capital 12,964,044 10,859,953
Stockholders' Equity 13,532,463 11,468,685
16
Results of operations-three month period ended December 31, 2003 compared to
- --------------------------------------------------------------------------------
December 31, 2002-continued
- ---------------------------
We had cash and cash equivalents as of December 31, 2003 of $5,203,858, a
decrease of $634,302 from September 30, 2003.
The decrease was due to:
Net income adjusted for non cash items $ 1,063,248
Increase in accounts payable other current liabilities 6,506,655
Proceeds from employee stock purchases 6,987
Less cash used for:
Increase in accounts receivable (3,562,789)
Increase in inventories (4,474,774)
Increase in prepaid expenses and other current assets (153,055)
Capital equipment purchases (20,574)
-------
Net cash decrease $ (634,302)
==========
Net cash of $620,715 used in operating activities was primarily due to a
increases in accounts receivable, inventory and prepaid expenses and other
current assets of $3,562,789 and $4,474,774 and $153,055 respectively, offset by
and net income adjusted for non cash items of $1,063,248 and increases in
accounts payable and other current liabilities of $6,506,655. The increase in
accounts receivable was the result of an increase in sales of approximately $6.7
million between the quarter ended September 30, 2003 and the quarter ended
December 31, 2003, in addition to an increase of approximately $1.4 million in
increased component parts that our contract manufacturer purchased from us to in
support of increased production volume.
Cash of $20,574 was used to purchase fixed assets. Proceeds from the stock
purchased by employees through the employee stock purchase plan provided
additional cash of $6,987.
On November 8, 1996, we approved a stock repurchase program. The program, as
amended, authorizes the Company to repurchase up to 850,000 shares of our own
stock. We intend to use the repurchased shares for certain employee benefit
programs. On December 17, 1997, the stock repurchase program was extended by a
resolution of our Board of Directors. As of December 31, 2003, we held 542,067
treasury shares purchased for $1,497,216 at an average purchase price of
approximately $2.76 per share.
We believe that our cash and cash equivalents as of December 31, 2003 and our
internally generated cash flow will provide us with sufficient liquidity to meet
our currently foreseeable short-term and long-term capital needs.
Future Contractual Obligations
The following table shows the Company's contractual obligations related to lease
obligations as of December 31 , 2003:
Payments due by period
Contractual obligations Total 1 year 1-3 years
- ----------------------- -------- --------- ---------
Operating lease obligations $ 1,422,930 $ 679,272 $ 743,658
=========== =========== =========
Critical Accounting Policies and Estimates
Financial Reporting Release No. 60, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements.
We believe the following critical accounting policies affect the significant
judgments and estimates used in the preparation of the our financial statements:
o Revenue Recognition
o Management's estimates
o Hedging program for European subsidiary inventory purchases denominated in
U.S. dollars
17
Results of operations-three month period ended December 31, 2003 compared to
- --------------------------------------------------------------------------------
December 31,2002-continued
- --------------------------
Critical Accounting Policies and Estimates-continued
o Translation of assets and liabilities denominated in non functional
currencies on our European financial statements
Revenue Recognition
Our revenues are primarily derived from the sale of computer boards which enable
you to view television programs on your personal computer. Sales of computer
boards are commonly classified as computer hardware. Our sales are primarily to
retailers, distributors and original equipment manufacturers. Sales to our
customers are documented by a purchase order which describes the conditions of
sale. Sales are recorded when products are shipped to our customers, the product
price is fixed and determinable, collection of the resulting receivable is
probable and product returns are reasonably estimable. Revenue from freight
charged to customers is recognized when products are shipped. Provisions for
customer returns and other adjustments are provided for in the period the
related sales are recorded based upon historical data.
Management's Estimates
The discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities
and related disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts for revenues and
expenses during the reporting period. On an ongoing basis, management evaluates
estimates, including those related to sales provisions, as described above,
income taxes, bad debts, inventory reserves and contingencies. We base our
estimates on historical data, when available, experience, and on various other
assumptions that are believed to be reasonable under the circumstances, the
combined results of which form the basis for making judgments approximately the
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.
Our European subsidiary accounted for approximately 67% and 71% of our net sales
for fiscal 2003 and fiscal 2002, respectively. All of our European sales are
denominated in local currencies, primarily the Euro and Great British Pound. On
the supply side, since we predominantly deal with North American and Asian
suppliers, approximately 70% of our inventory supporting our Euro and Great
British Pound sales are purchased and paid in U.S. Dollars. Consequently,
changes in exchange rates expose our U.S. denominated inventory on the books of
our European subsidiary to market risks resulting from the fluctuations in the
foreign currency exchange rates to the U.S. Dollar. In an attempt to minimize
these risks, we enter into forward exchange contracts with financial
institutions.
We do not enter into contracts for speculative purposes. We enter into monthly
window contracts covering an average period of three months based on existing or
anticipated future inventory purchases. Although we enter into these contracts
to reduce the short term impact of currency rate changes, the following risks
are still inherent in hedging the Euro.
o Actual inventory purchases may fluctuate from our estimates, resulting in
contracts in an excess of contracts
o Short term volatility of currency markets has the potential to reduce the
effectiveness of our hedging program
o Historical volatility of the Euro has the potential to impact our gross
margins and operating income
o The magnitude of the success of our hedging program is dependent upon
movements in the Euro exchange rates. These movements are difficult to
predict over an extended period of time.
18
Results of operations-three month period ended December 31, 2003 compared to
- --------------------------------------------------------------------------------
December 31,2002-continued
- --------------------------
Critical Accounting Policies and Estimates-continued
- ----------------------------------------------------
Translation of assets and liabilities denominated in non functional currencies
- --------------------------------------------------------------------------------
on our European financial statements
- ------------------------------------
The functional currency of our European subsidiary is the Euro. In preparing our
consolidated financial statements, we are required to translate assets and
liabilities denominated in a non functional currency, mainly U.S. Dollars, to
Euros on the books of our European subsidiary. This process results in exchange
gains and losses depending on the changes in the Euro to U.S. Dollar exchange
rate. Under the relevant accounting guidance, with the exception of gains and
losses that are attributable to inter-company accounts which are long term in
nature, we are obligated to include these gains and losses on our statement of
operations, which we report in other income or expense under the description
foreign currency transaction gains (losses).
The extent of these gains and losses can fluctuate greatly from month to month
depending on the change in the exchange rate, causing results to vary widely.
Due to the past volatility of the Euro, it is difficult to forecast the long
term trend of these gains and losses.
Inflation
While inflation has not had a material effect on our operations in the past,
there can be no assurance that we will be able to continue to offset the effects
of inflation on the costs of our products or services through price increases to
our customers without experiencing a reduction in the demand for our products;
or that inflation will not have an overall effect on the computer equipment
market that would have a material affect on us.
Euro
On January 1, 1999, the Euro was adopted in Europe as the common legal currency
among 11 of the 15 member countries of the European Community. On that date, the
participating countries established fixed Euro conversion rates (i.e. the
conversion exchange rate between their existing currencies and the Euro). The
Euro now trades on currency exchanges and is available for non-cash
transactions. A new European Central Bank was established to direct monetary
policy for the participating countries.
Prior to the adoption of the Euro, we billed our European customers in German
Marks or British Pounds, depending upon which currency the customer preferred to
be billed in. Effective January 1, 1999, we began invoicing our customers who
are located in the eleven member countries in Euros. We continue to bill
customers located in the United Kingdom in British Pounds. The benefits to
billing customers in Euros were twofold:
o Our foreign currency hedging program was streamlined to the Euro and the
British Pound
o The pricing from country to country was harmonized, eliminating price
differences between countries due to the fluctuating local currencies
We handled the conversion to the Euro without any material disruptions to our
operations.
Recent Accounting Pronouncements
- --------------------------------
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation Number 46, "Consolidation of Variable Interest Entities" ("FIN
46"). This interpretation of Accounting Research Bulletin ("ARB") No. 51,
"Consolidated Financial Statements," provides guidance for identifying a
controlling interest in a variable interest entity ("VIE") established by means
other than voting interests. FIN 46 also requires consolidation of a VIE by an
enterprise that holds such a controlling interest. In December 2003, the FASB
completed its deliberations regarding the proposed modification to FIN 46 and
issued Interpretation Number 46R, "Consolidation of Variable Interest Entities -
an Interpretation of ARB No. 51" ("FIN 46R"). The
19
Recent Accounting Pronouncement-continued
- -----------------------------------------
decisions reached included a deferral of the effective date and provisions for
additional scope exceptions for certain types of variable interests. Application
of FIN 46R is required in financial statements of public entities that have
interests in VIEs or potential VIEs commonly referred to as special-purpose
entities for periods ending after December 15, 2003. Application by public
entities (other than small business issuers) for all other types of entities is
required in financial statements for periods ending after March 15, 2004. The
Company does not expect the adoption of FIN 46R to have a material impact on our
financial position, results of operations or cash flows.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
- --------------------------------------------------------------------
Derivatives and Hedging Activities
- ----------------------------------
Product is invoiced to our European customers in local currencies and payments
from our customers are received in local currencies (primarily the Euro and
Great British Pound). On the supply side, since we predominantly deal with North
American and Asian suppliers, approximately 70% of our inventory supporting our
Euro and Great British Pound sales are purchased and paid in U.S. Dollars.
Consequently, changes in exchange rates expose our U.S. denominated inventory on
the books of our European subsidiary to market risks resulting from the
fluctuations in the foreign currency exchange rates to the U.S. Dollar. We
attempt to reduce these risks by entering into foreign exchange forward
contracts with financial institutions. The purpose of these forward contracts is
to hedge the foreign currency market exposures underlying the forecasted U.S.
Dollar denominated inventory purchases required to support our European sales.
Although we do not try to hedge against all possible foreign currency exposures
because we can not fully estimate the size of our exposure, the contracts we
procure are specifically entered into to as a hedge against existing or
anticipated foreign currency exposure. We do not enter into contracts for
speculative purposes. Although we maintain these programs to reduce the short
term impact of changes in currency exchange rates, when the U.S. Dollar sustains
a long term strengthening position against the foreign currencies in countries
where we sell our products, our gross margins, operating income and retained
earnings can be adversely affected. Factors that could impact the effectiveness
of our hedging program include volatility of the currency markets and
availability of hedging instruments.
As of December 31, 2003, 2003, we had foreign currency contracts outstanding of
approximately $851,700 against the delivery of the Euro. The contracts expire
through January 2004. Our accounting policies for these instruments are based on
its designation of such instruments as cash flow hedging transactions. We do not
enter into such contracts for speculative purposes. We record all derivative
gains and losses on the balance sheet as a component of stockholders' equity
under the caption "Accumulated other comprehensive income (loss)". As of
December 31, 2003, a deferred loss of $30,130 reflecting the net mark to market
loss of our derivatives was recorded as a component of accumulated other
comprehensive income on our balance sheet.
For the three months December 31, 2003, we recorded a decrease in sales of
$805,553 and $549,600, respectively, related to our contracts that closed during
these periods and the changes in the fair value of our derivative contracts.
Item 4. Controls and Procedures
- -------------------------------
Our Chief Executive Officer and Chief Financial Officer conducted an evaluation
of the effectiveness of our disclosure controls and procedures. Based on this
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of December 31,
2003 in alerting them in a timely manner to material information required to be
included in our SEC reports. In addition,
20
Item 4. Controls and Procedures-continued
- -----------------------------------------
no change in our internal control over financial reporting occurred during the
fiscal quarter ended December 31, 2003 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
Special Note Regarding Forward Looking Statements
This Quarterly Report contains forward-looking statements as that term is
defined in the federal securities laws. The events described in forward-looking
statements contained in this Quarterly Report may not occur. Generally these
statements relate to business plans or strategies, projected or anticipated
benefits or other consequences of our plans or strategies, projected or
anticipated benefits from acquisitions to be made by us, or projections
involving anticipated revenues, earnings or other aspects of our operating
results. The words "may," "will," "expect," "believe," "anticipate," "project,"
"plan," "intend," "estimate," and "continue," and their opposites and similar
expressions are intended to identify forward-looking statements. We caution you
that these statements are not guarantees of future performance or events and are
subject to a number of uncertainties, risks and other influences (including, but
not limited to, those set forth in our Annual Report on Form 10-K for the year
ended September 30, 2003), many of which are beyond our control, that may
influence the accuracy of the statements and the projections upon which the
statements are based. Our actual results, performance and achievements could
differ materially from those expressed or implied in these forward-looking
statements. We undertake no obligation to publicly update or revise any
forward-looking statements, whether from new information, future events or
otherwise.
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
We are presently involved in arbitration proceedings before the American
Arbitration Association, which had been brought against the Company by the
estate of the late Mr. Kenneth Aupperle ("Estate"). The Estate is claiming
property rights and interest in the Company, certain amounts due and owing to
the Estate based on various corporate agreements with Mr. Aupperle and certain
insurance policies, such amount to be no less than $2,500,000. Based on the
preliminary information presented to us, management believes that the claim and
the basis for proceeding with arbitrating such claim is without merit and will
vigorously defend it.
Item 5. Other information
This information shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
incorporated by reference in any filing under the Securities Act of 1933, as
amended or the Exchange Act except as shall be expressly set forth by specific
reference in such a filing.
On February 11, 2004, HAUPPAUGE DIGITAL, INC. issued a press release announcing
its financial results for the fiscal quarter ended December 31, 2003. A copy of
this press release is furnished as Exhibit 99.1 to this Report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule
15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
31.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or
Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
21
Item 6. Exhibits and Reports on Form 8-K-continued
32 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
99.1 Press Release, dated February 11, 2004 issued by HAUPPAUGE DIGITAL, INC.
(b) Reports on form 8-K
None
22
SIGNATURES
----------
Pursuant to the requirements of the Securities 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 13, 2004 By /s/ Kenneth Plotkin
------------------ -------------------------------------
KENNETH PLOTKIN
Chief Executive Officer and Director
Date: February 13, 2004 By /s/ Gerald Tucciarone
----------------- -------------------------------------
GERALD TUCCIARONE
Treasurer and Chief
Financial Officer
23