Hauppauge Digital Reports Fiscal 2001 Fourth Quarter and Full Year Financial Results; Reports Earnings of $0.04 on Sales of $42.8 Million.Business Editors HAUPPAUGE, N.Y.--(BUSINESS WIRE)--Dec. 27, 2002 Hauppauge Digital, Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on : HAUP HAUP High-Accuracy Universal Polarimeter ), a leading developer and manufacturer of digital video TV and data broadcast receiver products for personal computers, today reported financial results for the fiscal fourth quarter and fiscal year ended September 30, 2002. FOURTH QUARTER RESULTS Net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight for the quarter were $9.9 million, compared to $9.1 million for the prior year's fourth quarter, an increase of 8%. The sales growth was attributable to Domestic and European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. sales, as both regions experienced sales growth over last year's fourth quarter. Gross profit margins Gross profit margin Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold. gross profit margin A measure calculated by dividing gross profit by net sales. were 27.6% for the fourth quarter, compared with gross profit margins of 19.8% (excluding a $1.8 million reserve for obsolete OBSOLETE. This term is applied to those laws which have lost their efficacy, without being repealed, 2. A positive statute, unrepealed, can never be repealed by non-user alone. 4 Yeates, Rep. 181; Id. 215; 1 Browne's Rep. Appx. 28; 13 Serg. & Rawle, 447. and slow moving inventory) for the prior years fourth fiscal quarter. Gross margin increase over the previous year was due to favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. product mix, lower material costs and reduced labor costs. Including the reserve for obsolete and slow moving inventory of $1,862,766, gross margins for the fourth quarter of fiscal 2001 were (0.6%). A similar provision for the fourth quarter of fiscal 2002 was not required. Selling, General and Administrative expenses decreased by $14,558, the result of lower spending for general corporate and administrative expenses. Spending for research and development increased 12%, reflecting the Company's commitment to product development and enhancement. Fourth quarter 2001 results also included $701,919 in costs associated with the write off of goodwill. Net loss for the quarter was $179,540, or $0.02 on a basic and diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. basis, compared to loss of $3,741,219, or $0.26 on a basic and diluted basis, for the prior year's fourth quarter. Fourth quarter 2001 results included $1,000,000 in insurance proceeds pursuant to a key man life insurance policy. FISCAL YEAR RESULTS Net sales for the fiscal year ended September 30, 2002 were $42.8 million compared to $50.9 million for the same period in fiscal 2001, a decrease of 16%. Gross margins for the fiscal year were 26.0%, compared to 21% (excluding a $1.8 million reserve for obsolete and slow moving inventory) for fiscal 2001. The gross margin increase was due to favorable product mix, lower material costs and reduced labor costs. Including an increase to our reserve for obsolete and slow moving inventory of $1,862,766, gross profit margins for the previous fiscal year was 17.4%. A similar provision for fiscal 2002 was not required. Selling, General and Administrative expenses decreased by $1,213,429, the result of a cost reduction program initiated during fiscal 2001. Spending for research and development increased 5% over last year, reflecting the Company's commitment to product development and enhancement. Fiscal 2001 results also included $701,919 in costs associated with the write off of goodwill and $212,500 in costs associated with a litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. settlement. Net income for the fiscal year ended September 30, 2002 was $347,522, or $0.04 per share on a basic and diluted basis, compared to a loss of $2,281,697, or $0.26 per share on a basic and diluted basis, for the prior fiscal year. Fiscal 2001 results included $2,000,000 in insurance proceeds pursuant to a key man life insurance policy. SHARE REPURCHASE Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. Under its stock repurchase Stock repurchase A firm's repurchase of outstanding shares of its common stock. program, the Company continued to repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. shares on the open market during the quarter. The Company has, as of September 30, 2002, repurchased approximately 514,000 shares pursuant to such program. The stock repurchase program, as amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. , authorizes the Company to purchase up to an aggregate of 850,000 shares. DISCUSSION OF RESULTS Ken Plotkin, Hauppauge's Chief Executive Officer, stated, "Our last two quarters of fiscal 2002 showed sales increases over the previous year, totaling approximately $1,466,000 over the last six months of fiscal 2001. These are the first quarterly sales increases we have seen since fiscal 2000. This trend seems to have continued into our first fiscal quarter of 2003, as we are experiencing an up tick Up tick Plus tick. in sales for the quarter. "Our Research and Development program continues to deliver new products to the market. In our fourth fiscal quarter, the Company secured orders from a major PC OEM (Original Equipment Manufacturer) The rebranding of equipment and selling it. The term initially referred to the company that made the products (the "original" manufacturer), but eventually became widely used to refer to the organization that buys the products and for our Personal Video Recorder See DVR. product, the WinTV-PVR-250, which was introduced in Q3 of 2002. We have been advised that this OEM plans to include the WinTV-PVR-250 in their Windows XP Media Center Edition See Media Center Edition. models in 2003. "Also during the last fiscal quarter of 2002, we began shipping our first Digital Entertainment Center See digital media server. (DEC) products in Europe. The DEC product line is a series of digital set top boxes designed to receive over the air or satellite digital TV in Europe. We are pleased by the initial sales of this product". SEC CERTIFICATIONS Both Chief Executive Officer Ken Plotkin and Chief Financial Officer Gerald Tucciarone has furnished fur·nish tr.v. fur·nished, fur·nish·ing, fur·nish·es 1. To equip with what is needed, especially to provide furniture for. 2. to the U.S. Securities and Exchange Commission (SEC) the certification required by Section 906 of the Sarbanes-Oxley Act See SOX. of 2002. This certification accompanied the Company's Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the Fiscal Year Ended September 30, 2002. In addition, such Officers have provided the certifications required by Section 302 of such act. ABOUT HAUPPAUGE DIGITAL Hauppauge Digital, Inc. is a leading developer and manufacturer of digital TV and data broadcast receiver products for personal computers. Through its Hauppauge Computer Works, Inc. and Hauppauge Digital Europe subsidiaries, the Company designs and develops digital video boards for TV-in-a-window, digital video editing See nonlinear video editing and video editor. and video conferencing See videoconferencing. (communications) video conferencing - A discussion between two or more groups of people who are in different places but can see and hear each other using electronic communications. . The Company is headquartered in Hauppauge, New York Hauppauge (pronounced /hɔpɔg/) is a hamlet in the Town of Islip and the Town of Smithtown in Suffolk County, New York, United States. , with administrative offices in New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of , Singapore, Ireland and Luxembourg and sales offices in Germany, London, Paris, The Netherlands, Sweden, Italy, Spain, Singapore and California California (kăl'ĭfôr`nyə), most populous state in the United States, located in the Far West; bordered by Oregon (N), Nevada and, across the Colorado River, Arizona (E), Mexico (S), and the Pacific Ocean (W). . The Company's Internet web site can be found at http://www.hauppauge.com. Certain statements in this Release constitute "forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. " within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, those described in the Company's filings 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, 2002.
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months ended
September 30,
2002 2001
---- ----
Net Sales $9,872,358 $9,136,870
Cost of Sales 7,148,127 9,190,212(1)
----------- ------------
Gross Margins 2,724,231 (53,342)
Selling, General and Administrative
expenses 2,418,188 2,432,746
Research & Development expenses 463,285 415,260
Write off of goodwill - 701,919
----------- ------------
Loss from operations (157,242) (3,603,267)
Other income (expense):
Interest income 6,696 15,326
Interest expense - (4,287)
Foreign currency 2,432 (460)
Non operational USD to Euro re-measurement (15,923) (5,734)
Life insurance proceeds - 1,000,000
----------- ------------
Total other income (expense) (6,795) 1,004,845
----------- ------------
Loss before income tax expense (benefit) (164,037) (2,598,422)
Income tax expense 15,503 1,257,797
----------- ------------
Loss before cumulative effect of a change
in accounting principle (179,540) (3,856,219)
Cumulative effect of a change in accounting
principle - 115,000
----------- ------------
Net loss $(179,540) $(3,741,219)
=========== ============
Per share results-basic and diluted:
(Loss) before cumulative effect of a change
in accounting principle $(0.02) $(0.43)
Cumulative effect of a change in accounting
principle - 0.01
----------- ------------
Net (loss) per share-basic and diluted $(0.02) $(0.42)
=========== ============
Weighted average shares-basic 8,881,219 8,928,892
Weighted average shares-diluted 8,943,328 8,928,892
(1) Cost of sales include an inventory reserve of $ 1,862,776 for the
fiscal fourth quarter of 2001
HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended September 30,
2002 2001
---- ----
Net Sales $42,796,726 $50,910,463
Cost of Sales 31,661,073 42,056,859(1)
------------ ------------
Gross Margins 11,135,653 8,853,604
Selling, General and Administrative
expenses 9,069,045 10,282,474
Research & Development expenses 1,591,551 1,510,092
Litigation settlement - 212,500
Write off of goodwill - 701,919
------------ ------------
Income (loss) from operations 475,057 (3,853,381)
Other income (expense):
Interest income 34,781 42,137
Interest expense - (30,833)
Foreign currency 4,750 6,740
Non operational USD to Euro re-measurement (98,066) (15,863)
Life insurance proceeds - 2,000,000
------------ ------------
Total other income (expense) (58,535) 2,002,181
------------ ------------
Income (loss) before taxes on income 416,522 (1,851,200)
Income tax provision 69,000 749,497
------------ ------------
Income (loss) before cumulative effect of
a change in accounting principle 347,522 (2,600,697)
Cumulative effect of a change in accounting
principle - 319,000
------------ ------------
Net income (loss) $347,522 $(2,281,697)
============ ============
Per share results-basic and diluted:
Income (loss) before cumulative effect of a
change in accounting principle $0.04 $(0.29)
Cumulative effect of a change in accounting
principle - 0.03
------------ ------------
Net income (loss) per share-basic
and diluted $0.04 $(0.26)
============ ============
Weighted average shares-basic 8,887,107 8,910,117
Weighted average shares-diluted 9,002,150 8,910,117
(1) Cost of sales include an inventory reserve of $ 1,862,776 for the
fiscal fourth quarter of 2001
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