Hauppauge Digital Inc. (NASDAQ: HAUP), a leading developer of analog and digital TV receiver products for the personal computer market, reported financial results for the third fiscal quarter and nine-month period ended June 30, 2010.

THIRD QUARTER RESULTS

Net sales were $13.6 million for the third quarter of fiscal 2010, an increase of approximately 4.03% from the $13.1 million reported for the previous year’s third fiscal quarter.

The Company recorded net income of $915,216 for the third quarter of fiscal 2010 compared to a net loss of $1,887,382 for the third quarter of fiscal 2009. The results for the third quarter of fiscal 2010 reflect a reduction in accrued expenses fees of about $2.2 million for settlements and changes in estimates. Net income per share for the third quarter of fiscal 2010 was $0.09 on a basic and diluted basis, compared to a net loss per share of $0.19 on a basic and diluted basis for the third quarter of fiscal 2009.

NINE-MONTH RESULTS

Net sales were $45.3 million for the nine months ended June 30, 2010, an increase of approximately 5.17% from the $43.1 million reported for the nine months ended June 30, 2009.

The Company incurred a net loss of $322,208 for the nine months ended June 30, 2010 compared to a net loss of $5,591,765 for the nine months ended June 30, 2009. The results for the nine months ended June 30, 2010 reflect a reduction in accrued expenses fees of about $2.2 million for settlements and changes in estimates. Net loss per share for the nine months ended June 30, 2010 was $0.03 on a basic and diluted basis, compared to a net loss per share of $0.56 on a basic and diluted basis for the nine months ended June 30, 2009.

DISCUSSION OF RESULTS

Ken Plotkin, Hauppauge’s Chief Executive Officer stated, “While TV tuner sales to the PC OEM market continue to be soft, we continue to see sales growth in the PC retail market both in the U.S. and in Europe. Our PCTV product line, acquired in 2009 from Avid Technology, Inc., has established itself as our premium TV tuner product line and has helped drive an improvement in gross profit margins. Excluding the change in estimates, our gross profit margins have increased from 20.4% for the first nine months of fiscal 2009 to 28.3% for the first nine months of our 2010 fiscal year.

During our fiscal third quarter we introduced the WinTV Extend software, which brings live TV to the iPhone and iPad and other portable devices, plus started to make shipments of our MediaMVP-HD digital media player. In addition, we have recently introduced new software which allows our HD PVR high definition TV recorder to be used in Windows Media Center. Windows 7 Media Center has been installed in over 50 million PCs to date, and we believe this new software will help expand the sales of the HD PVR and other members of the HD PVR family.

Though sales in Europe continue to grow, we have been negatively affected by the drop in value of the euro. Euro denominated sales currently account for approximately 45% of our total worldwide sales, and the drop in the value of the euro from November 2009 to the present has impacted our sales and profitability.”

ABOUT HAUPPAUGE DIGITAL

Hauppauge Digital Inc. is a leading developer of analog and digital TV receiver products for the personal computer market. Through its Hauppauge Computer Works, Inc. and Hauppauge Digital Europe SARL subsidiaries, the Company designs and develops analog and digital TV receivers that allow PC users to watch television on their PC screen in a resizable window and enable the recording of TV shows to a hard disk, digital video editing, video conferencing, receiving of digital TV transmissions, and the display of digital media stored on a computer to a TV set via a home network. The Company is headquartered in Hauppauge, New York, with administrative offices in Luxembourg, Ireland and Singapore, sales offices in Germany, London, Paris, The Netherlands, Sweden, Italy, Spain, Singapore, Taiwan, and California and research and development centers in Hauppauge, New York, Taipei, Taiwan and Braunschweig, Germany. The Company’s Internet web site can be found at http://www.hauppauge.com.

This news release contains forward-looking statements as that term is defined in the federal securities laws. The events described in forward-looking statements contained in this news release may not occur. Generally, these statements relate to the Company’s business plans or strategies, projected or anticipated benefits or other consequences of the Company’s plans or strategies, financing plans, projected or anticipated benefits from acquisitions that the Company may make, or projections involving anticipated revenues, earnings or other aspects of the Company’s operating results or financial position, and the outcome of any contingencies. Any such forward-looking statements are based on current expectations, estimates and projections of management. The Company intends for these forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements. Words such as "may," "will," "expect," "believe," "anticipate," "project," "plan," "intend," "estimate," and "continue," and their opposites and similar expressions are intended to identify forward-looking statements. The Company cautions you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond the Company’s control, that may influence the accuracy of the statements and the projections upon which the statements are based. Factors that could cause actual results to differ materially from those set forth or implied by any forward-looking statement include, but are not limited to, the mix of products sold and the profit margins thereon, order cancellation or a reduction in orders from customers, competitive product offerings and pricing actions, the availability and pricing of key raw materials, dependence on key members of management, successful integration of acquisitions, economic conditions in the United States and abroad, fluctuation of the value of the Euro versus the U.S. dollar, as well as other risks and uncertainties discussed in the Company’s reports filed with the Securities and Exchange Commission, including, but not limited to, the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2009, the Company’s Form 10-Q for the three months ended December 31, 2009, the Company’s Form 10-Q for the three months ended March 31, 2010 and the Company’s Form 10-Q for the three months ended June 30, 2010.

Any one or more of these uncertainties, risks and other influences could materially affect the Company’s results of operations and whether forward-looking statements made by the Company ultimately prove to be accurate. The Company’s actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.

HAUPPAUGE DIGITAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)
 

Three months ended June 30,

2010
 

2009
Net sales $13,593,518 $13,067,124
Cost of sales 7,653,058   9,845,438
Gross profit 5,940,460 3,221,686
 
Selling, general and administrative expenses 3,705,827 3,954,536
Research and development expenses 1,083,489   1,122,911
Income (loss) from operations 1,151,144   (1,855,761)
 
Other income (expense):
Interest income 1,442 1,707
Interest expense - (20,832)
Foreign currency gain 152,142   25,532
Total other income 153,584   6,407
Income (loss) before tax provision 1,304,728 (1,849,354)
Tax provision 389,512   38,028
Net income (loss) $915,216   ($1,887,382)
 
Net income loss per share:
Basic and diluted $0.09 ($0.19)
 
Weighted average shares-basic 10,068,765 10,048,771
Weighted average shares-diluted 10,204,092 10,048,771

HAUPPAUGE DIGITAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)
 

Nine months ended June 30,

2010
 

2009
Net sales $45,318,955 $43,089,233
Cost of sales 30,290,307   34,305,007
Gross profit 15,028,648 8,784,226
 
Selling, general and administrative expenses 11,816,087 11,655,103
Research and development expenses 3,258,661   3,236,401
Loss from operations (46,100)   (6,107,278)
 
Other income (expense):
Interest income 4,336 11,332
Interest expense (4,340) (49,478)
Foreign currency gain 213,770   669,209
Total other income 213,766   631,063
Income (loss) before tax provision 167,666 (5,476,215)
Tax provision 489,874   115,550
Net loss ($322,208)   ($5,591,765)
 
Net loss per share:
Basic and diluted ($0.03) ($0.56)
 
Weighted average shares-basic and diluted 10,064,618 10,042,546

HAUPPAUGE DIGITAL INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
 

June 30, 2010

(unaudited)
  September 30, 2009
Assets:  
Cash and cash equivalents $8,166,507 $8,368,342
Trade receivables, net of various allowances 5,002,355 9,770,584
Other non trade receivables 2,457,288 4,116,392
Inventories 12,189,968 8,616,800
Deferred tax asset-current 966,974 1,297,574
Prepaid expenses and other current assets 1,153,919   928,680
Total current assets 29,937,011 33,098,372
 
Intangible assets, net 4,129,975 4,696,102
Property, plant and equipment, net 591,531 757,488
Security deposits and other non current assets 122,401 108,088
Deferred tax asset-non current 887,611   887,611
Total assets $35,668,529   $39,547,661
     
 
Liabilities and Stockholders’ Equity:
 
Current Liabilities:
Accounts payable $9,931,085 $12,478,625
Accrued expenses fees 4,669,691 5,753,546
Accrued expenses 9,841,621 8,131,263
Note Payable 0 625,045
Income taxes payable 229,560   224,316
Total current liabilities 24,671,957 27,212,795
 
Stockholders' Equity:

Common stock, $.01 par value; 25,000,000 shares authorized, 10,829,649 and 10,814,042 issued, respectively
108,297 108,140
Additional paid-in capital 17,615,594 17,276,651
Retained earnings 473,466 795,674
Accumulated other comprehensive loss (4,795,237) (3,441,262)
Treasury Stock, at cost 760,479 and 759,579 shares, respectively (2,405,548)   (2,404,337)
Total stockholders' equity 10,996,572   12,334,866
Total liabilities and stockholders' equity $35,668,529   $39,547,661

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