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 endedJune 30, 2012
OR
£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number 1-13550
HAUPPAUGE DIGITAL INC.
(Exact name of registrant as specified in its charter)
Delaware | 11-3227864 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
91 Cabot Court, Hauppauge, New York 11788
(Address of principal executive offices)
(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.
x YES ¨ NO
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x YES ¨ NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
¨LARGE ACCELERATED FILER | ¨ACCELERATED FILER |
¨NON-ACCELERATED FILER | xSMALLER REPORTING COMPANY |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨ YES x NO
As of July 31, 2012, 10,122,344 shares of $0.01 par value Common Stock of the issuer were outstanding.
HAUPPAUGE DIGITAL INC. AND SUBSIDIARIES
INDEX
Page no. | |
PART I. FINANCIAL INFORMATION | |
Item 1. Financial Statements | 3 |
Consolidated Balance Sheets – June 30, 2012 (unaudited) and September 30, 2011 | 3 |
Consolidated Statements of Operations - Three Months ended June 30, 2012 (unaudited) and 2011 (unaudited) | 4 |
Consolidated Statements of Operations - Nine Months ended June 30, 2012 (unaudited) and 2011 (unaudited) | 4 |
Consolidated Statements of Other Comprehensive Loss Three Months and Nine Months ended June 30, 2012 (unaudited) and 2011 (unaudited) | 6 |
Consolidated Statements of Cash Flows - Nine Months ended June 30, 2012 (unaudited) and 2011 (unaudited) | 7 |
Notes to Consolidated Financial Statements | 8-12 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13-22 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 22 |
Item 4. Controls and Procedures | 23 |
PART II. OTHER INFORMATION | |
Item 6. Exhibits | 24 |
Signatures | 25 |
2 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2012 (unaudited) | September 30 , 2011 | |||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 4,149,110 | $ | 4,080,537 | ||||
Trade receivables, net of various allowances | 3,032,764 | 3,708,696 | ||||||
Other non trade receivables | 890,951 | 2,408,326 | ||||||
Inventories | 11,061,527 | 10,092,224 | ||||||
Deferred tax asset-current | 1,077,837 | 1,127,641 | ||||||
Prepaid expenses and other current assets | 1,140,357 | 992,258 | ||||||
Total current assets | 21,352,546 | 22,409,682 | ||||||
Intangible assets, net | 2,620,303 | 3,186,430 | ||||||
Property, plant and equipment, net | 274,618 | 368,703 | ||||||
Security deposits and other non-current assets | 113,883 | 112,813 | ||||||
Deferred tax asset-non current | 404,890 | 789,297 | ||||||
Total assets | $ | 24,766,240 | $ | 26,866,925 | ||||
Liabilities and Stockholders’ Equity: | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 3,815,037 | $ | 6,674,900 | ||||
Accrued expenses fees | 4,900,534 | 4,082,719 | ||||||
Accrued expenses | 12,348,028 | 11,417,895 | ||||||
Income taxes payable | 226,000 | 242,201 | ||||||
Total current liabilities | 21,289,599 | 22,417,715 | ||||||
Stockholders' Equity: | ||||||||
Common stock, $.01 par value; 25,000,000 shares authorized, 10,882,823 issued | 108,828 | 108,828 | ||||||
Additional paid-in capital | 18,282,526 | 18,187,595 | ||||||
Retained deficit | (7,830,189 | ) | (6,899,958 | ) | ||||
Accumulated other comprehensive loss | (4,678,976 | ) | (4,541,707 | ) | ||||
Treasury Stock, at cost, 760,479 shares | (2,405,548 | ) | (2,405,548 | ) | ||||
Total stockholders' equity | 3,476,641 | 4,449,210 | ||||||
Total liabilities and stockholders' equity | $ | 24,766,240 | $ | 26,866,925 |
See accompanying notes to consolidated financial statements
3 |
HAUPPAUGE DIGITAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended June 30, | ||||||||
2012 | 2011 | |||||||
Net sales | $ | 9,215,703 | $ | 8,879,417 | ||||
Cost of sales | 6,563,941 | 6,210,010 | ||||||
Gross profit | 2,651,762 | 2,669,407 | ||||||
Selling, general and administrative expenses | 2,935,797 | 3,273,690 | ||||||
Research and development expenses | 821,414 | 977,489 | ||||||
Loss from operations | (1,105,449 | ) | (1,581,772 | ) | ||||
Other expense : | ||||||||
Interest income | 967 | 5,394 | ||||||
Foreign currency loss | (3,659 | ) | (6,918 | ) | ||||
Total other expense | (2,692 | ) | (1,524 | ) | ||||
Loss before tax provision | (1,108,141 | ) | (1,583,296 | ) | ||||
Current tax expense | 35,469 | 39,289 | ||||||
Deferred tax benefit | (116,627 | ) | (30,830 | ) | ||||
Net loss | $ | (1,026,983 | ) | $ | (1,591,755 | ) | ||
Net loss per share: | ||||||||
Basic and diluted | $ | (0.10 | ) | $ | (0.16 | ) |
See accompanying notes to consolidated financial statements
4 |
HAUPPAUGE DIGITAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine months ended June 30, | ||||||||
2012 | 2011 | |||||||
Net sales | $ | 35,963,918 | $ | 32,066,525 | ||||
Cost of sales | 24,703,077 | 21,828,482 | ||||||
Gross profit | 11,260,841 | 10,238,043 | ||||||
Selling, general and administrative expenses | 9,225,702 | 10,562,265 | ||||||
Research and development expenses | 2,440,008 | 3,217,181 | ||||||
Loss from operations | (404,869 | ) | (3,541,403 | ) | ||||
Other income : | ||||||||
Interest income | 3,802 | .8,569 | ||||||
Foreign currency gain (loss) | 12,911 | (2,455 | ) | |||||
Total other income | 16,713 | 6,114 | ||||||
Loss before tax provision | (388,156 | ) | (3,535,289 | ) | ||||
Current tax expense | 107,864 | 138,345 | ||||||
Deferred tax expense | 434,211 | 99,708 | ||||||
Net loss | $ | (930,231 | ) | $ | (3,773,342 | ) | ||
Net loss per share: | ||||||||
Basic and diluted | $ | (0.09 | ) | $ | (0.37 | ) |
See accompanying notes to consolidated financial statements
5 |
HAUPPAUGE DIGITAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE LOSS
(UNAUDITED)
Three months ended June 30, | ||||||||
2012 | 2011 | |||||||
Net loss | $ | (1,026,983 | ) | $ | (1,591,755 | ) | ||
Foreign currency translation gain (loss) | (103,310 | ) | 41,182 | |||||
Forward exchange contracts marked to market gain | - | 607 | ||||||
Other comprehensive loss | $ | (1,130,293 | ) | $ | (1,549,966 | ) |
Nine months ended June 30, | ||||||||
2012 | 2011 | |||||||
Net loss | $ | (930,231 | ) | $ | (3,773,342 | ) | ||
Foreign currency translation gain (loss) | (137,269 | ) | 224,171 | |||||
Other comprehensive loss | $ | (1,067,500 | ) | $ | (3,549,171 | ) |
See accompanying notes to consolidated financial statements
6 |
HAUPPAUGE DIGITAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended June 30, | ||||||||
2012 | 2011 | |||||||
Net loss | $ | (930,231 | ) | $ | (3,773,342 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 133,515 | 180,168 | ||||||
Amortization of intangible assets | 566,127 | 566,127 | ||||||
Stock compensation expense | 94,931 | 301,405 | ||||||
Deferred tax expense | 434,211 | 99,708 | ||||||
Sales reserve, net | 75,029 | (110,569 | ) | |||||
Bad debt reserve | 40,000 | - | ||||||
Inventory reserve | 340,000 | 179,000 | ||||||
Other items | 24,755 | (14,287 | ) | |||||
Changes in current assets and liabilities | ||||||||
Accounts receivable and other non trade receivables | 1,715,178 | 3,429,576 | ||||||
Inventories | (1,134,235 | ) | 335,234 | |||||
Prepaid expenses and other current assets | (163,884 | ) | (229,189 | ) | ||||
Accounts payable | (2,823,561 | ) | (3,418,548 | ) | ||||
Accrued expenses and other current liabilities | 1,808,119 | (709,208 | ) | |||||
Total adjustments | 1,110,185 | 609,417 | ||||||
Net cash provided by (used in) operating activities | 179,954 | (3,163,925 | ) | |||||
Cash Flows From Investing Activities: | ||||||||
Purchases of property, plant and equipment | (39,430 | ) | (48,501 | ) | ||||
Net cash used in investing activities | (39,430 | ) | (48,501 | ) | ||||
Cash Flows From Financing Activities: | ||||||||
Proceeds from the exercise of stock options and employee stock purchases | - | 46,798 | ||||||
Net cash provided by financing activities | - | 46,798 | ||||||
Effect of exchange rates on cash | (71,951 | ) | 87,529 | |||||
Net increase (decrease) in cash and cash equivalents | 68,573 | (3,078,099 | ) | |||||
Cash and cash equivalents, beginning of period | 4,080,537 | 7,057,904 | ||||||
Cash and cash equivalents, end of period | $ | 4,149,110 | $ | 3,979,805 | ||||
Supplemental disclosures: | ||||||||
Income taxes paid | $ | 117,303 | $ | 163,239 |
See accompanying notes to consolidated financial statements
7 |
HAUPPAUGE DIGITAL INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements for Hauppauge Digital Inc. and subsidiaries (collectively, the “Company”) 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 Company’s consolidated financial position, results of operations and cash flows as of and for the interim periods 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, 2011 Form 10-K.
The operating results for the three months and nine months ended June 30, 2012 are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2012.
Note 2. Trade Accounts and Other Non-Trade Receivables
Trade receivables consist of:
· | Trade receivables from sales to customers |
· | Allowances, consisting of sales and bad debt |
Other non trade receivables consist of:
· | Receivables pertaining to component parts purchased from the Company at cost by the Company’s contract manufacturers which are excluded from sales |
· | General services tax (GST) and value added tax (VAT) reclaimable on goods purchased by the Company’s Asian and European locations |
· | Other minor non-trade receivables |
Trade receivables and other non-trade receivables as of June 30, 2012 and September 30, 2011 consisted of:
June 30, | September 30, | |||||||
2012 | 2011 | |||||||
Trade receivables | $ | 7,396,438 | $ | 7,893,923 | ||||
Allowance for doubtful accounts | (352,123 | ) | (423,773 | ) | ||||
Sales reserve | (4,011,551 | ) | (3,761,454 | ) | ||||
Net trade receivables | $ | 3,032,764 | $ | 3,708,696 | ||||
Receivable from contract manufacturers | $ | 608,331 | $ | 2,030,251 | ||||
GST and VAT tax receivables | 214,138 | 298,303 | ||||||
Other | 68,482 | 79,772 | ||||||
Total other non trade receivables | $ | 890,951 | $ | 2,408,326 |
8 |
HAUPPAUGE DIGITAL INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Unaudited)
Note 3. 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:
June 30, | September 30, | |||||||
2012 | 2011 | |||||||
Component parts | $ | 4,317,478 | $ | 3,504,129 | ||||
Finished goods | 3,755,803 | 3,774,917 | ||||||
Subtotal | 8,073,281 | 7,279,046 | ||||||
Reserve for anticipated sales returns at cost | 2,988,246 | 2,813,178 | ||||||
Total | $ | 11,061,527 | $ | 10,092,224 |
Note 4. Net Income (Loss) Per Share
Basic net income (loss) per share includes no dilution and is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) 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 | Nine months ended | |||||||||||||||
June 30 | June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Weighted average shares outstanding-basic | 10,122,344 | 10,122,344 | 10,122,344 | 10,104,061 | ||||||||||||
Number of shares issued on the assumed exercise of stock options | - | - | - | - | ||||||||||||
Weighted average shares outstanding-diluted | 10,122,344 | 10,122,344 | 10,122,344 | 10,104,061 |
Options to purchase 1,531,567 and 1,501,317 shares of common stock, at prices from $0.77 to $7.45 and from $0.89 to $7.45, were outstanding for the three months and nine months ended June 30, 2012 and 2011, respectively, but were not included in the computation of diluted earnings per share because they were anti-dilutive.
)
Note 5. Product segment and geographic information
The Company operates in one business segment, which is the development, marketing and manufacturing of analog and digital video products for the personal computer market and Apple iPad® and iPhone® market. The products are similar in function and share commonality of component parts and manufacturing processes. The Company’s products are either sold, or can be sold, by the same retailers and distributors in the Company’s marketing channel. The Company also sells product directly to PC manufacturers.
9 |
HAUPPAUGE DIGITAL INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Unaudited)
The Company’s products fall under three product categories:
· | Video recorder products, such as USB-Live2, which allows consumers to record video tapes to DVD disc or to some of the Company’s products, such as the HD PVR and Colossus |
· | TV receivers, which include Broadway and the Company’s WinTV and PCTV TV tuner products |
· | Non-TV tuner products such as the ImpactVCB, MediaMVP-HD and the Company’s TV applications for the PC and the Apple iPad® and iPhone® |
The Company’s TV tuner products enable, among other things, a PC user to watch TV in a resizable window on a PC. The Company’s video recorder products allow consumers to record high definition video from a cable TV or satellite set top box or a game console such as a Xbox 360 or Sony Playstation 3. The Company’s other non-TV tuner products enable, among other things, the ability to watch and listen to PC based videos, music and pictures on a TV set through a home network.
Sales by functional category are as follows:
Three months ended June 30, | Nine months ended June 30 | |||||||||||||||
Product line sales | 2012 | 2011 | 2012 | 2011 | ||||||||||||
Video recorder products | $ | 4,137,859 | $ | 3,585,118 | $ | 19,115,575 | $ | 11,829,507 | ||||||||
TV tuner products | 4,629,434 | 4,610,004 | 14,747,645 | 18,697,862 | ||||||||||||
Other video products and software | 448,410 | 684,295 | 2,100,698 | 1,539,156 | ||||||||||||
Total sales | $ | 9,215,703 | $ | 8,879,417 | $ | 35,963,918 | $ | 32,066,525 |
The Company sells its products through a North American and international network of distributors and retailers. It maintains sales offices in the United Stated, Europe and Asia. Sales percentages by geographic region are as follows:
Three months ended June 30, | Nine months ended June 30, | |||||||||||||||
Geographic region | 2012 | 2011 | 2012 | 2011 | ||||||||||||
The Americas | 46 | % | 58 | % | 54 | % | 59 | % | ||||||||
Europe | 50 | % | 38 | % | 42 | % | 38 | % | ||||||||
Asia | 4 | % | 4 | % | 4 | % | 3 | % | ||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % |
10 |
HAUPPAUGE DIGITAL INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Unaudited)
Note 6. Tax provision
The Company’s tax provision for the three and nine months ended June 30, 2012 and 2011 is as follows:
Three months ended June 30, | Nine months ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Current tax expense on international operations | $ | 25,469 | $ | 29,289 | $ | 77,864 | $ | 108,345 | ||||||||
Current state taxes | 10,000 | 10,000 | 30,000 | 30,000 | ||||||||||||
Deferred tax (benefit) expense | (116,627 | ) | (30,830 | ) | 434,211 | 99,708 | ||||||||||
Tax (benefit) provision | $ | (81,158 | ) | $ | 8,459 | $ | 542,075 | $ | 238,053 |
Deferred tax benefit for the three months ended June 30, 2012 was primarily due to increases in reserves and net operating losses offset somewhat by write-offs for bad debt.
Deferred tax expense for the nine months ended June 30, 2012 was primarily due to the utilization of net operating losses and write-offs of inventory and bad debt.
Note 7. Accrued expense-fees
The Company uses software and technology purchased or licensed from third parties in certain of the Company’s products. The Company enters into agreements for these technologies, and incurs a fee for each product sold that includes the technology. The Company recognizes and estimates the amount of fees owed to third parties based on products sold that include software and technology purchased or licensed from these third parties. The Company uses all available applicable information in determining these estimates and thus the accrued amounts are subject to change as new information is made available to the Company. Accrued expense-fees are accounted for as a component of product cost and are charged to cost of sales. As of June 30, 2012 and September 30, 2011 the amount of accrued expense-fees amounted to $4,900,534 and $4,082,719, respectively.
Note 8. Accrued Expenses
Accrued expenses are for costs incurred for goods and services which are based on estimates, charged as incurred to operations as period costs and for which no invoice has been rendered. Accrued expenses as of June 30, 2012 and September 30, 2011 were$12,348,028 and $11,417,895, respectively. Included in accrued expenses are accruals for product costs, accruals for sales costs relating to sales rebate programs, accruals for freight and duty expenses, accruals for compensation, accruals for warranty repair costs and accruals for advertising and marketing costs.
Note 9. Fair Value Measurements
ASC Topic 820, “Fair Value Measurements and Disclosures”, establishes a framework for measuring fair value, and expands the related disclosure requirements. The ASC indicates, among other things, that a fair value measurement assumes a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The Company also follows the provisions of ASC 820-10 with respect to its non-financial assets and liabilities adopted during the first quarter of fiscal 2010. In order to increase consistency and comparability in fair value measurements, ASC 820-10 establishes a hierarchy for observable and unobservable inputs used to measure fair value into three broad Levels, which are described below:
11 |
HAUPPAUGE DIGITAL INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Unaudited)
• Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
• Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
• Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.
Additionally, on a nonrecurring basis, the Company uses fair value measures when analyzing asset impairment. Long-lived assets and certain identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining amortization periods, their carrying values are reduced to estimated fair value. Measurements based on undiscounted cash flows are considered to be Level 3 inputs.
The carrying amount of cash, accounts receivable and accounts payable and other short-term financial instruments approximate their fair value due to their short-term nature.
12 |
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Month Period ENDED JUNE 30, 2012 Compared to THE THREE MONTH
PERIOD ENDED JUNE 30, 2011
Results of operations for the three months ended June 30, 2012 compared to the three months ended June 30, 2011 is as follows:
Three | Three | |||||||||||||||||||||||
Months | Months | |||||||||||||||||||||||
Ended | Ended | Variance | Percentage of sales | |||||||||||||||||||||
06/30/12 | 06/30/11 | $ | 2012 | 2011 | Variance | |||||||||||||||||||
Net Sales | $ | 9,215,703 | $ | 8,879,417 | $ | 336,286 | 100.00 | % | 100.00 | % | - | |||||||||||||
Cost of sales | 6,563,941 | 6,210,010 | 353,931 | 71.23 | % | 69.94 | % | 1.29 | % | |||||||||||||||
Gross Profit | 2,651,762 | 2,669,407 | (17,645 | ) | 28.77 | % | 30.06 | % | -1.29 | % | ||||||||||||||
Gross Profit % | 28.77 | % | 30.06 | % | -1.29 | % | ||||||||||||||||||
Expenses: | ||||||||||||||||||||||||
Sales & marketing | 1,748,014 | 1,978,195 | (230,181 | ) | 18.97 | % | 22.28 | % | -3.31 | % | ||||||||||||||
Sales & marketing-PCTV | 63,065 | 107,842 | (44,777 | ) | 0.68 | % | 1.21 | % | -0.53 | % | ||||||||||||||
Technical support | 90,941 | 105,909 | (14,968 | ) | 0.99 | % | 1.19 | % | -0.20 | % | ||||||||||||||
General & administrative | 753,762 | 759,250 | (5,488 | ) | 8.18 | % | 8.55 | % | -0.37 | % | ||||||||||||||
General & administrative-PCTV | 71,167 | 69,842 | 1,325 | 0.77 | % | 0.79 | % | -0.02 | % | |||||||||||||||
Amortization of intangible assets | 188,709 | 188,709 | 0 | 2.05 | % | 2.13 | % | -0.08 | % | |||||||||||||||
Selling, general and administrative stock compensation expense | 20,139 | 63,943 | (43,804 | ) | 0.22 | % | 0.72 | % | -0.50 | % | ||||||||||||||
Total selling, general and administrative expense | 2,935,797 | 3,273,690 | (337,893 | ) | 31.86 | % | 36.87 | % | -5.01 | % | ||||||||||||||
Research and development | 517,737 | 511,533 | 6,204 | 5.62 | % | 5.76 | % | -0.14 | % | |||||||||||||||
Research and development-PCTV | 292,172 | 429,432 | (137,260 | ) | 3.17 | % | 4.84 | % | -1.67 | % | ||||||||||||||
Research and development stock compensation expense | 11,505 | 36,524 | (25,019 | ) | 0.12 | % | 0.41 | % | -0.29 | % | ||||||||||||||
Total expenses | 3,757,211 | 4,251,179 | (493,968 | ) | 40.77 | % | 47.88 | % | -7.11 | % | ||||||||||||||
Loss from operations | (1,105,449 | ) | (1,581,772 | ) | 476,323 | -12.00 | % | -17.82 | % | 5.82 | % | |||||||||||||
Other expense: | ||||||||||||||||||||||||
Interest income | 967 | 5,394 | (4,427 | ) | 0.01 | % | 0.06 | % | -0.05 | % | ||||||||||||||
Foreign currency | (3,659 | ) | (6,918 | ) | 3,259 | -0.04 | % | -0.08 | % | 0.04 | % | |||||||||||||
Total other expense | (2,692 | ) | (1,524 | ) | (1,168 | ) | -0.03 | % | -0.02 | % | -0.01 | % | ||||||||||||
Loss before tax provision | (1,108,141 | ) | (1,583,296 | ) | 475,155 | -12.03 | % | -17.84 | % | 5.81 | % | |||||||||||||
Current tax expense | 35,469 | 39,289 | (3,820 | ) | 0.37 | % | 0.44 | % | -0.07 | % | ||||||||||||||
Deferred tax benefit | (116,627 | ) | (30,830 | ) | (85,797 | ) | -1.27 | % | -0.35 | % | -0.92 | % | ||||||||||||
Net loss | $ | (1,026,983 | ) | $ | (1,591,755 | ) | $ | 564,772 | -11.13 | % | -17.93 | % | 6.80 | % |
13 |
Net sales for the three months ended June 30, 2012 increased $336,286 compared to the three months ended June 30, 2011 as shown in the table below.
Increase | ||||||||||||||||||||||||
(decrease) | Increase | Percentage of sales by | ||||||||||||||||||||||
Three Months | Three Months | Dollar | (decrease) | geographic region | ||||||||||||||||||||
ended 0630/12 | ended 06/30/11 | Variance | variance % | 2012 | 2011 | |||||||||||||||||||
The Americas | $ | 4,217,404 | $ | 5,035,699 | $ | (818,295 | ) | (16 | )% | 46 | % | 58 | % | |||||||||||
Europe | 4,673,280 | 3,467,110 | 1,206,170 | 35 | % | 50 | % | 38 | % | |||||||||||||||
Asia | 325,019 | 376,608 | (51,589 | ) | (4 | )% | 4 | % | 4 | % | ||||||||||||||
Total | $ | 9,215,703 | $ | 8,879,417 | $ | 336,286 | 4 | % | 100 | % | 100 | % |
Led by sales of our video recorder and video streaming products, our sales increased by approximately 10.24% before the effect on sales caused by the decline in the Euro. The decline in the Euro resulted in a reduction in sales of approximately 6.46%. The average USD to Euro rate for the third quarter of fiscal 2012 was $1.28330 compared to $1.44010 for the third quarter of fiscal 2011, a reduction of approximately 10.89%.
Gross profit
Gross profit decreased $17,645 for the three months ended June 30, 2012 compared to the same quarter in the prior fiscal year. The decrease in gross profit was due to:
Three Months ended | ||||
Gross profit in dollars-increase (decrease) | 06/30/12 | |||
Higher sales | $ | 142,931 | ||
Weaker Euro | (573,238 | ) | ||
Labor related and other costs | (49,434 | ) | ||
Sales mix of higher gross profit retail sales | 518,474 | |||
License fee adjustment | (96,690 | ) | ||
Sales mix of OEM sales | 40,312 | |||
Total decrease in gross profit | $ | (17,645 | ) |
The decrease in the gross profit percentage was due to:
Three Months ended | ||||
Gross profit percentage-increase (decrease) | 06/30/12 | |||
Sales mix of higher gross profit retail sales | 2.91 | % | ||
Weaker Euro | (3.44 | )% | ||
Labor related and other costs | (0.08 | )% | ||
License fee adjustment | (1.12 | )% | ||
Sales mix of OEM sales | 0.44 | % | ||
Total gross profit percentage decrease | (1.29 | )% |
14 |
The factors contributing to the gross profit percentage decrease of 1.29% for the three months ended June 30, 2012 were primarily:
· | Favorable gross profit percentage due to sales mix of higher average sales price retail sales resulted in an increase of 2.91%. |
· | A decrease in the USD to Euro exchange rate from $1.4401 for the three months ended June 30, 2011 to $1.28330 for the three months ended June 30, 2012 resulted in a gross profit decrease of 3.44%. |
· | A decrease in the sales mix of lower gross profit OEM sales resulted in a gross profit increase of 0.44% |
· | Labor related and other costs resulted in a gross profit decrease of 0.08% |
· | Lower license fee adjustments resulted in a gross profit decrease of 1.12% |
Selling, general and administrative expenses
The chart below illustrates the components of selling, general and administrative expense.
Three months ended June 30, | ||||||||||||||||||||||||
Dollar Costs | Percentage of Sales | |||||||||||||||||||||||
Increase | Increase | |||||||||||||||||||||||
2012 | 2011 | (Decrease) | 2012 | 2011 | (Decrease) | |||||||||||||||||||
Sales and marketing-HCW | $ | 1,748,014 | $ | 1,978,195 | $ | (230,181 | ) | 18.97 | % | 22.28 | % | -3.31 | % | |||||||||||
Sales and marketing-PCTV | 63,065 | 107,842 | (44,777 | ) | 0.68 | % | 1.21 | % | -0.53 | % | ||||||||||||||
Technical support | 90,941 | 105,909 | (14,968 | ) | 0.99 | % | 1.19 | % | -0.20 | % | ||||||||||||||
General and administrative-HCW | 753,762 | 759,250 | (5,488 | ) | 8.18 | % | 8.55 | % | -0.37 | % | ||||||||||||||
General and administrative-PCTV | 71,167 | 69,842 | 1,325 | 0.77 | % | 0.79 | % | -0.02 | % | |||||||||||||||
Amortization of intangible assets | 188,709 | 188,709 | 0 | 2.05 | % | 2.13 | % | -0.08 | % | |||||||||||||||
Stock compensation | 20,139 | 63,943 | (43,804 | ) | 0.22 | % | 0.72 | % | -0.50 | % | ||||||||||||||
Total | $ | 2,935,797 | $ | 3,273,690 | $ | (337,893 | ) | 31.86 | % | 36.87 | % | -5.01 | % |
As a result of an expense reduction plan implemented in the fourth quarter of fiscal 2011, selling, general and administrative expense decreased $337,893 from the same quarter in the prior fiscal year as follows:
Sales and marketing expenses decreased $274,958, driven primarily by $6,224 in lower compensation expenses and $361,615 in lower sales office expenses due to office downsizing and office closures, offset somewhat by $92,881 in higher sales related expenses, primarily for commission and co-op advertising.
The decrease in technical support of $14,968 was primarily due to lower personnel expenses. The decrease in general and administrative expenses of $4,163 was due primarily to lower compensation expenses and negotiated rent reductions. The decrease in stock compensation expense was due to fewer option grants issued at a lower fair value.
Research and development expenses
Research and development expenses for the three months ended June 30, 2012 decreased $156,075 from the same quarter in the prior fiscal year. The decrease was mainly due to lower compensation and compensation related expenses pursuant to an expense reduction plan implemented in the fourth quarter of fiscal 2011. The decrease in stock compensation expense was due to fewer option grants issued at a lower fair value.
15 |
Tax provision
Our tax provision for the three months ended June 30, 2012 and 2011 is as follows:
Three months ended June 30, | ||||||||
2012 | 2011 | |||||||
Current tax expense on international operations | $ | 25,469 | $ | 29,289 | ||||
Current state taxes | 10,000 | 10,000 | ||||||
Deferred tax benefit | (116,627 | ) | (30,830 | ) | ||||
Tax provision (benefit) | $ | (81,158 | ) | $ | 8,459 |
Deferred tax benefit for the three months ended June 30, 2012 was primarily due to increases in reserves and net operating losses offset somewhat by write-offs for bad debt.
Summary of operations
We recorded a net loss of $1,026,983 for the three months ended June 30, 2012, which resulted in basic and diluted net loss per share of $0.10 on weighted average basic and diluted shares of 10,122,344, compared to a net loss of $1,591,755 for the three months ended June 30, 2011, which resulted in basic and diluted net loss per share of $0.16 on weighted average basic and diluted shares of 10,122,344.
Options to purchase 1,531,567 and 1,501,317 shares of common stock, at prices from $0.77 to $7.45 and from $0.89 to $7.45, were outstanding for the three months ended June 30, 2012 and 2011, respectively, but were not included in the computation of diluted earnings (loss) per share because they were anti-dilutive.
16 |
NINE Month Period ENDED JUNE 30, 2012 Compared to THE NINE MONTH PERIOD ENDED JUNE 30, 2011
Results of operations for the nine months ended June 30, 2012 compared to the nine months ended June 30, 2011 is as follows:
Nine | Nine | |||||||||||||||||||||||
Months | Months | |||||||||||||||||||||||
Ended | Ended | Variance | Percentage of sales | |||||||||||||||||||||
06/30/12 | 06/30/11 | $ | 2012 | 2011 | Variance | |||||||||||||||||||
Net Sales | $ | 35,963,918 | $ | 32,066,525 | $ | 3,897,393 | 100.00 | % | 100.00 | % | 0.00 | % | ||||||||||||
Cost of sales | 24,703,077 | 21,828,482 | 2,874,595 | 68.69 | % | 68.07 | % | 0.62 | % | |||||||||||||||
Gross Profit | 11,260,841 | 10,238,043 | 1,022,798 | 31.31 | % | 31.93 | % | -0.62 | % | |||||||||||||||
Gross Profit % | 31.31 | % | 31.93 | % | -0.62 | % | ||||||||||||||||||
Expenses: | ||||||||||||||||||||||||
Sales & marketing | 5,674,601 | 6,713,710 | (1,039,109 | ) | 15.77 | % | 20.94 | % | -5.17 | % | ||||||||||||||
Sales & marketing-PCTV | 192,686 | 305,831 | (113,145 | ) | 0.54 | % | 0.95 | % | -0.41 | % | ||||||||||||||
Technical support | 277,659 | 325,857 | (48,198 | ) | 0.77 | % | 1.02 | % | -0.25 | % | ||||||||||||||
General & administrative | 2,248,113 | 2,259,663 | (11,550 | ) | 6.25 | % | 7.05 | % | -0.80 | % | ||||||||||||||
General & administrative-PCTV | 206,102 | 199,250 | 6,852 | 0.57 | % | 0.62 | % | -0.05 | % | |||||||||||||||
Amortization of intangible assets | 566,127 | 566,127 | 0 | 1.57 | % | 1.77 | % | -0.20 | % | |||||||||||||||
Selling, general and administrative stock compensation expense | 60,414 | 191,827 | (131,413 | ) | 0.17 | % | 0.60 | % | -0.43 | % | ||||||||||||||
Total selling, general and administrative expense | 9,225,702 | 10,562,265 | (1,336,563 | ) | 25.64 | % | 32.95 | % | -7.31 | % | ||||||||||||||
Research and development | 1,554,715 | 1,853,198 | (298,483 | ) | 4.32 | % | 5.78 | % | -1.46 | % | ||||||||||||||
Research and development-PCTV | 850,777 | 1,254,405 | (403,628 | ) | 2.37 | % | 3.91 | % | -1.54 | % | ||||||||||||||
Research and development stock compensation expense | 34,516 | 109,578 | (75,062 | ) | 0.10 | % | 0.34 | % | -0.24 | % | ||||||||||||||
Total expenses | 11,665,710 | 13,779,446 | (2,113,736 | ) | 32.43 | % | 42.98 | % | -10.55 | % | ||||||||||||||
Loss from operations | (404,869 | ) | (3,541,403 | ) | 3,136,534 | -1.12 | % | -11.05 | % | 9.93 | % | |||||||||||||
Other income: | ||||||||||||||||||||||||
Interest income | 3,802 | 8,569 | (4,767 | ) | 0.01 | % | 0.03 | % | -0.02 | % | ||||||||||||||
Foreign currency | 12,911 | (2,455 | ) | 15,366 | 0.04 | % | -0.01 | % | 0.04 | % | ||||||||||||||
Total other income | 16,713 | 6,114 | 10,599 | 0.05 | % | 0.02 | % | 0.03 | % | |||||||||||||||
Loss before tax provision | (388,156 | ) | (3,535,289 | ) | 3,147,133 | -1.07 | % | -11.03 | % | 9.96 | % | |||||||||||||
Current tax expense | 107,864 | 138,345 | (30,481 | ) | 0.30 | % | 0.43 | % | -0.13 | % | ||||||||||||||
Deferred tax expense | 434,211 | 99,708 | 334,503 | 1.21 | % | 0.31 | % | 0.90 | % | |||||||||||||||
Net loss | $ | (930,231 | ) | $ | (3,773,342 | ) | $ | 2,843,111 | -2.58 | % | -11.77 | % | 9.19 | % |
17 |
Net sales for the nine months ended June 30, 2012 increased $3,897,393 compared to the nine months ended June 30, 2011 as shown in the table below.
Increase | ||||||||||||||||||||||||
(decrease) | Increase | Percentage of sales by | ||||||||||||||||||||||
Nine Months | Nine Months | Dollar | (decrease) | geographic region | ||||||||||||||||||||
ended 06/30/12 | ended 06/30/11 | Variance | variance % | 2012 | 2011 | |||||||||||||||||||
The Americas | $ | 19,290,328 | $ | 18,916,028 | $ | 374,300 | 2 | % | 54 | % | 59 | % | ||||||||||||
Europe | 15,225,059 | 12,285,865 | 2,939,194 | 24 | % | 42 | % | 38 | % | |||||||||||||||
Asia | 1,448,531 | 864,632 | 583,899 | 68 | % | 4 | % | 3 | % | |||||||||||||||
Total | $ | 35,963,918 | $ | 32,066,525 | $ | 3,897,393 | 12 | % | 100 | % | 100 | % |
Led by sales of our video recorder and video streaming products, our sales increased by approximately 14.74% before the effect on sales caused by the decline in the Euro. The decline in the Euro resulted in a reduction in sales of approximately 2.58%. The average USD to Euro rate for the nine months ended June 30, 2012 was $1.31420 compared to $1.38910 for the nine months ended June 30, 2011, a reduction of approximately 5.39%.
Gross profit
Gross profit increased $1,022,798 for the nine months ended June 30, 2012 compared to the same period in the prior fiscal year. The increase in gross profit was due to:
Nine Months ended | ||||
Gross profit in dollars-increase (decrease) | 06/30/12 | |||
Higher sales | $ | 1,670,582 | ||
Weaker Euro | (828,851 | ) | ||
Labor related and other costs | (323,964 | ) | ||
Sales mix of higher gross profit retail sales | 775,983 | |||
License fee adjustment | (379,874 | ) | ||
Sales mix of OEM sales | 108,922 | |||
Total increase in gross profit | $ | 1,022,798 |
The decrease in the gross profit percentage was due to:
Nine Months ended | ||||
Gross profit percentage-increase (decrease) | 06/30/12 | |||
Sales mix of higher gross profit retail sales | 1.40 | % | ||
Weaker Euro | (1.32 | )% | ||
Labor related and other costs | 0.29 | % | ||
License fee adjustment | (1.28 | )% | ||
Sales mix of OEM sales | 0.29 | % | ||
Total gross profit percentage decrease | (0.62 | )% |
The factors contributing to the gross profit percentage decrease of 0.62% for the nine months ended June 30, 2012 were primarily:
18 |
· | Favorable gross profit percentage due to sales mix of higher average sales price retail sales resulted in an increase of 1.40%. |
· | A decrease in the USD to Euro exchange rate from $1.38910 for the nine months ended June 30, 2011 to $1.31420 for the nine months ended June 30, 2012 resulted in a gross profit decrease of 1.32% |
· | A decrease in the sales mix of lower gross profit OEM sales resulted in a gross profit increase of 0.29% |
· | Labor related and other costs resulted in a gross profit increase of 0.29% |
· | Lower license fee adjustments resulted in a gross profit decrease of 1.28% |
Selling, general and administrative expenses
The chart below illustrates the components of selling, general and administrative expense.
Nine months ended June 30, | ||||||||||||||||||||||||
Dollar Costs | Percentage of Sales | |||||||||||||||||||||||
Increase | Increase | |||||||||||||||||||||||
2012 | 2011 | (Decrease) | 2012 | 2011 | (Decrease) | |||||||||||||||||||
Sales and marketing-HCW | $ | 5,674,601 | $ | 6,713,710 | $ | 1,039,109 | ) | 15.77 | % | 20.94 | % | -5.17 | % | |||||||||||
Sales and marketing-PCTV | 192,686 | 305,831 | (113,145 | ) | 0.54 | % | 0.95 | % | -0.41 | % | ||||||||||||||
Technical support | 277,659 | 325,857 | (48,198 | ) | 0.77 | % | 1.02 | % | -0.25 | % | ||||||||||||||
General and administrative-HCW | 2,248,113 | 2,259,663 | (11,550 | ) | 6.25 | % | 7.05 | % | -0.80 | % | ||||||||||||||
General and administrative-PCTV | 206,102 | 199,250 | 6,852 | 0.57 | % | 0.62 | % | -0.05 | % | |||||||||||||||
Amortization of intangible assets | 566,127 | 566,127 | 0 | 1.57 | % | 1.77 | % | -0.20 | % | |||||||||||||||
Stock compensation | 60,414 | 191,827 | (131,413 | ) | 0.17 | % | 0.60 | % | -0.43 | % | ||||||||||||||
Total | $ | 9,225,702 | $ | 10,562,265 | $ | 1,336,563 | ) | 25.64 | % | 32.95 | % | -7.31 | % |
As a result of an expense reduction plan implemented in the fourth quarter of fiscal 2011, selling, general and administrative expense decreased $1,336,563 from the same period in the prior fiscal year as follows:
Sales and marketing expenses decreased $1,152,254, driven primarily by $65,868 in lower compensation expenses, $1,316,454 in lower sales office expenses due to office downsizing and office closures, offset somewhat by $230,068 in higher sales related expenses, primarily for commission and co-op advertising.
The decrease in technical support of $48,198 was primarily due to lower personnel expenses. The decrease in general and administrative expenses of $4,698 was due primarily to decreases in rent and compensation expense offset by an increase in bad debt expense in recognition of potential non-collectible accounts. The decrease in stock compensation expense is due to fewer options issued at a lower fair value.
Research and development expenses
Research and development expenses for the nine months ended June 30, 2012 decreased $777,173 from the same period in the prior fiscal year. The decrease was mainly due to lower compensation and compensation related expenses pursuant to an expense reduction plan implemented in the fourth quarter of fiscal 2011. The decrease in stock compensation expense was due to fewer option grants issued at a lower fair value.
19 |
Tax provision (Benefit)
Our tax provision for the nine months ended June 30, 2012 and 2011 is as follows:
Nine months ended June 30, | ||||||||
2012 | 2011 | |||||||
Current tax expense on international operations | $ | 77,864 | $ | 108,345 | ||||
Current state taxes | 30,000 | 30,000 | ||||||
Deferred tax expense | 434,211 | 99,708 | ||||||
Tax provision | $ | 542,075 | $ | 238,053 |
Deferred tax expense for the nine months ended June 30, 2012 was primarily due to the utilization of net operating losses and write-offs of inventory and bad debt.
Summary of operations
We recorded a net loss of $930,231 for the nine months ended June 30, 2012, which resulted in basic and diluted net loss per share of $0.09 on weighted average basic and diluted shares of 10,122,344, compared to a net loss of $3,773,342 for the nine months ended June 30, 2011, which resulted in basic and diluted net loss per share of $0.37 on weighted average basic and diluted shares of 10,104,061.
Options to purchase 1,531,567 and 1,501,317 shares of common stock, at prices from $0.77 to $7.45 and from $0.89 to $7.45, were outstanding for the nine months ended June 30, 2012 and 2011, respectively, but were not included in the computation of diluted earnings (loss) per share because they were anti-dilutive.
Seasonality
As our sales are primarily to the consumer market, we have experienced certain seasonal revenue trends. Historically, our peak sales quarter due to holiday season sales is our first fiscal quarter (October through December), followed by our second fiscal quarter (January through March). In addition, our international sales, mostly in the European market, were 41% of sales for the fiscal year ended September 30, 2011 and 54% for the fiscal year ended September 30, 2010. Part of our third and fourth quarters (April through June and July through September) can be potentially impacted by the reduction of activity experienced in Europe during the summer holiday period.
We target a wide range of customer types to attempt to moderate the seasonal nature of our retail sales.
20 |
Liquidity and capital resources
The Company had cash and cash equivalents as of June 30, 2012 of $4,149,110, an increase of $68,573 from September 30, 2011.
The increase in cash was due to:
Operating | Investing | Financing | ||||||||||||||
Activities | Activities | Activities | Total | |||||||||||||
Sources of cash: | ||||||||||||||||
Decrease in accounts receivable | $ | 1,715,178 | $ | 0 | $ | 0 | $ | 1,715,178 | ||||||||
Net loss adjusted for non cash items | 778,337 | 0 | 0 | 778,337 | ||||||||||||
Total sources of cash | 2,493,515 | 0 | 0 | 2,493,515 | ||||||||||||
Less cash used for: | ||||||||||||||||
Increase in inventory | (1,134,235 | ) | 0 | 0 | (1,134,235 | ) | ||||||||||
Decrease in accounts payable and accrued expenses | (1,015,442 | ) | 0 | 0 | (1,015,442 | ) | ||||||||||
Increase in prepaid expenses and other current assets | (163,884 | ) | 0 | 0 | (163,884 | ) | ||||||||||
Capital equipment purchases | 0 | (39,430 | ) | 0 | (39,430 | ) | ||||||||||
Total cash usage | (2,313,561 | ) | (39,430 | ) | 0 | (2,352,991 | ) | |||||||||
Effect of exchange rates on cash | 0 | 0 | 0 | (71,951 | ) | |||||||||||
Net cash increase | $ | 179,954 | $ | (39,430 | ) | $ | 0 | $ | 68,573 |
Cash provided by operating activities of $179,954 was due to a decrease in accounts receivable of $1,715,178 and the net loss adjusted for non cash items of $778,337 offset somewhat by increases in inventory and prepaid and other current assets of $1,298,119 and a decrease in accounts payable and accrued expenses of $1,015,442. The decrease in receivables was due to collections coupled with lower sales in our third fiscal quarter compared to our second fiscal quarter. The increase in inventory was due to material purchased in response to sales demand. The decrease in accounts payable and accrued expenses was due to payments to suppliers coupled with lower material purchases. Cash of $39,430 was used to purchase capital equipment. We had working capital of $62,947 as of June 30, 2012 compared to a working capital deficit of $8,033 as of September 30, 2011.
Our cash requirements for the next twelve months will include, among other things, the cash needed to fund our operating and working capital needs. During the fourth quarter of fiscal 2011 we put into place an expense reduction plan. With the proper execution of this plan and our business and operating plan, we believe that our cash and cash equivalents as of June 30, 2012 and our internally generated cash will provide us with sufficient liquidity to meet our capital needs for the next twelve months. Failure to meet the business and operating plan could require the need for additional sources of capital. In light of the current economic and credit conditions there can be no assurances that we will be able to find external sources of financing to fund our additional capital needs. In addition, if we are able to obtain financing, there can be no assurances that it will be on financially reasonable terms.
21 |
Future contractual obligations
The following table shows our contractual obligations related to lease obligations as of June 30, 2012:
Payments due by period | ||||||||||||||||
Total | Less than 1 year | 1-3 years | 3 to 5 years | |||||||||||||
Operating lease obligations | $ | 1,613,376 | $ | 554,569 | $ | 725,061 | $ | 333,746 |
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 effect on us.
Recent Accounting Pronouncements
In June 2011, the FASB issued new guidance on the presentation of comprehensive income. Specifically, the new guidance allows an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. We do not expect that the adoption of this disclosure-only guidance will have an impact on our consolidated financial results when it becomes effective during the Company’s first quarter of fiscal 2013 as the Company believes it already complies with the guidance.
In May 2011, the FASB issued amendments to fair value measurement and disclosure requirements. This guidance amends United States generally accepted accounting principles (“U.S. GAAP”) to conform with measurement and disclosure requirements in International Financial Reporting Standards (“IFRS”). The amendments change the wording used to describe the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. This includes clarification of the Board’s intent about the application of existing fair value measurement and disclosure requirements and those that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. In addition, to improve consistency in application across jurisdictions, some changes in wording are necessary to ensure that U.S. GAAP and IFRS fair value measurement and disclosure requirements are described in the same way (for example, using the word “shall” rather than “should” to describe the requirements in U.S. GAAP). This amended guidance is to be applied prospectively and became effective during the second quarter of fiscal 2012. This guidance did not have a material impact on results of operations or financial position.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 305 of Regulation S-K “Quantitative and Qualitative Disclosures About Market Risk” is not required for Smaller Reporting Companies.
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Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) that are designed toensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding requireddisclosure.
As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this Quarterly Report, with the participation of our principal executive officer and principal financial officer, we evaluated the effectiveness of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2012.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting, identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 of the Exchange Act, that occurred during our most recently completed fiscal quarter 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 on Form 10-Q 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 on Form 10-Q may not occur. Generally these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, financing plans, projected or anticipated benefits from acquisitions that we may make, or projections involving anticipated revenues, earnings or other aspects of our 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. We intend 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. 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, many of which are beyond our control, that may influence the accuracy of the statements and the projections upon which the statements are based. Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. All cautionary statements made in this Quarterly Report on Form 10-Q should be read as being applicable to all related forward-looking statements wherever they appear. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.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, the availability and pricing of key raw materials, competitive product offerings and pricing actions, dependence on key members of management, the availability of financing, successful integration of acquisitions, economic conditions in the United States and abroad, fluctuating currency rates, history of operating losses, as well as other risks and uncertainties discussed in our reports filed with the Securities and Exchange Commission, including, but not limited to, our Annual Report on Form 10-K for the fiscal year ended September 30, 2011, our Form 10-Q for the three months ended December 31, 2011, the three months ended March 31, 2012 and this Form 10-Q for the three months ended June 30, 2012. Copies of these filings are available at www.sec.gov.
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PART II. OTHER INFORMATION
Item 6. Exhibits.
3.1 | Certificate of Incorporation (1) |
3.1.1 | Certificate of Amendment of the Certificate of Incorporation, dated July 14, 2000 (2) |
3.2 | By-laws, as amended to date (3) |
4.1 | Form of Common Stock Certificate (1) |
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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 |
101 INS | XBRL Instance Document ** |
101 SCH | SCH XBRL Taxonomy Extension Schema Document ** |
101 CAL | CAL XBRL Taxonomy Extension Calculation Linkbase Document ** |
101 LAB | LAB XBRL Taxonomy Extension Label Linkbase Document ** |
101 PRE | PRE XBRL Taxonomy Extension Presentation Linkbase Document** |
101 DEF | DEF XBRL Taxonomy Extension Definition Linkbase Document** |
** Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for the purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
(1) | Denotes document filed as an Exhibit to our Registration Statement on Form SB-2 (No. 33- 85426), as amended, effective January 10, 1995 and incorporated herein by reference. |
(2) | Denotes document filed as an Exhibit to our Form 10-K for the period ended September 30, 2006 (File Number: 001-13550, Film Number: 061302843) and incorporated herein by reference. |
(3) | Denotes document filed as an Exhibit to our Form 8-K dated December 26, 2007 and incorporated herein by reference. |
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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. | ||
Date:August 14, 2012 | By: | /s/Kenneth Plotkin |
KENNETH PLOTKIN | ||
Chief Executive Officer, Chairman of the | ||
Board, President (Principal Executive Officer) |
Date:August 14, 2012 | By: | /s/Gerald Tucciarone |
GERALD TUCCIARONE | ||
Treasurer, Chief Financial Officer, | ||
(Principal Financial Officer and Principal | ||
Accounting Officer) and Secretary |
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