10-Q

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 March 31, 2007

OR

o 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 o NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (See definition of “accelerated filer and large accelerated filer’ in Rule 12b-2 of the Exchange Act).

x LARGE ACCELERATED FILER o ACCELERATED FILER x NON-ACCELERATED FILER

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange act).

o YES x NO

As of April 30, 2007, 9,958,766 shares of .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
Condensed Consolidated Balance Sheets - March 31, 2007 (unaudited) and September 30, 2006	3
Condensed Consolidated Statements of Income - Three Months ended March 31, 2007 (unaudited) and 2006 (unaudited)	4
Condensed Consolidated Statements of Income - Six Months ended March 31, 2007 (unaudited) and 2006 (unaudited)	5
Condensed Consolidated Statements of Other Comprehensive Income -Three and six months ended March 31, 2007 (unaudited) and 2006 (unaudited)	6
Condensed Consolidated Statements of Cash Flows-Six months ended March 31, 2007 (unaudited) and 2006 (unaudited)	7
Notes to Condensed Consolidated Financial Statements	8 -12
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	13 -19
Item 3. Quantitative and Qualitative Disclosures about Market Risk	20
Item 4. Controls and Procedures	21
PART II. OTHER INFORMATION
Item 1A. Risk Factors	22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 6. Exhibits	22
Signatures	23

2

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2007 (unaudited)			September 30, 2006
Assets:
Current Assets:
Cash and cash equivalents	$	10,090,574		$	9,020,941
Receivables, net of various allowances		28,636,149			16,132,928
Inventories		11,992,208			9,905,746
Prepaid expenses and other current assets		1,009,171			895,223
Total current assets		51,728,102			35,954,838
Property, plant and equipment, net		694,438			612,311
Security deposits and other non current assets		83,428			83,239
Total assets	$	52,505,968		$	36,650,388
Liabilities and Stockholders’ Equity:
Current Liabilities:
Accounts payable	$	22,071,671		$	12,011,232
Accrued expenses - fees		7,691,641			5,481,005
Accrued expenses - other		1,010,811			1,174,323
Income taxes payable		220,660			204,103
Total current liabilities		30,994,783			18,870,663
Stockholders' Equity:
Common stock $.01 par value; 25,000,000 shares authorized, 10,559,053 and 10,260,464 issued, respectively		105,591			102,605
Additional paid-in capital		15,112,939			14,222,890
Retained earnings		9,201,169			5,721,500
Accumulated other comprehensive (loss)		(1,150,563	)		(509,319	)
Treasury Stock, at cost, 607,547 shares		(1,757,951	)		(1,757,951	)
Total stockholders' equity		21,511,185			17,779,725
Total liabilities and stockholders' equity	$	52,505,968		$	36,650,388

See accompanying notes to condensed consolidated financial statements

3

HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Three months ended March 31,
	2007			2006
Net sales	$	29,891,841		$	26,685,393
Cost of sales		24,248,250			21,503,859
Gross profit		5,643,591			5,181,534
Selling, general and administrative expenses		3,550,240			3,429,858
Research and development expenses		749,827			768,832
Income from operations		1,343,524			982,844
Other income (expense):
Interest income		9,347			6,275
Foreign currency		(18,245	)		13,487
Other income (expense)		(8,898	)		19,762
Income before taxes on income		1,334,626			1,002,606
Tax provision		57,693			44,728
Net income	$	1,276,933		$	957,878
Net income per share:
Basic	$	0.13		$	0.10
Diluted	$	0.12		$	0.10

See accompanying notes to condensed consolidated financial statements

4

HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Six months ended March 31,
	2007			2006
Net sales	$	59,810,974		$	51,730,383
Cost of sales		47,349,846			41,317,065
Gross profit		12,461,128			10,413,318
Selling, general and administrative expenses		7,352,462			6,810,926
Research and development expenses		1,503,272			1,562,833
Income from operations		3,605,394			2,039,559
Other income:
Interest income		21,738			11,481
Foreign currency		(6,218	)		14,451
Other income		15,520			25,932
Income before taxes on income		3,620,914			2,065,491
Tax provision		141,245			87,139
Net income	$	3,479,669		$	1,978,352
Net income per share:
Basic	$	0.36		$	0.21
Diluted	$	0.34		$	0.20

See accompanying notes to condensed consolidated financial statements

5

HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME

(UNAUDITED)

	Three months ended March 31,
	2007			2006
Net income	$	1,276,933		$	957,878
Foreign currency translation (loss)		(644,215	)		(175,651	)
Forward exchange contracts marked to market		31,403			(39,528	)
Other comprehensive income	$	664,121		$	742,699

	Six months ended March 31,
	2007			2006
Net income	$	3,479,669		$	1,978,352
Foreign currency translation (loss)		(587,950	)		(918,922	)
Forward exchange contracts marked to market		(53,294	)		(143,666	)
Other comprehensive income	$	2,838,425		$	915,764

See accompanying notes to condensed consolidated financial statements

6

HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six months ended March 31,
	2007			2006
Net income	$	3,479,669		$	1,978,352
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		105,051			90,609
Stock compensation expense		236,584			187,824
Other non cash items		(189	)		(1,711	)
Changes in current assets and liabilities:
Accounts receivable		(12,503,221	)		(14,813,398	)
Inventories		(2,086,462	)		(2,946,148	)
Prepaid expenses and other current assets		(113,948	)		(50,749	)
Accounts payable		10,060,439			12,817,718
Accrued expenses and other current liabilities		2,063,681			590,578
Total adjustments		(2,238,065	)		(4,125,277	)
Net cash provided by (used in) operating activities		1,241,604			(2,146,925	)
Cash Flows From Investing Activities:
Purchases of property, plant and equipment		(187,178	)		(107,670	)
Net cash used in investing activities		(187,178	)		(107,670	)
Cash Flows From Financing Activities:
Proceeds from the exercise of stock options and employee stock purchases		656,451			205,308
Net cash provided by financing activities		656,451			205,038
Effect of exchange rates on cash		(641,244	)		(1,062,588	)
Net increase (decrease) in cash and cash equivalents		1,069,633			(3,111,875	)
Cash and cash equivalents, beginning of period		9,020,941			7,567,393
Cash and cash equivalents, end of period	$	10,090,574		$	4,455,518
Supplemental disclosures:
Income taxes paid	$	123,211		$	36,607

See accompanying notes to condensed consolidated financial statements

7

HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Basis of presentation

The accompanying unaudited condensed consolidated financial statements for Hauppauge Digital Inc. (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, 2006 Form 10-K.

The operating results for the three months and six months ended March 31, 2007 are not necessarily indicative of the results to be expected for the September 30, 2007 year end.

Note 2. Receivables

Accounts and other receivables as of March 31, 2007 and September 30, 2006 consisted of :

	March 31, 2007			September 30,  2006
Trade receivables	$	19,273,613		$	13,910,101
Receivable from contract manufacturers		11,702,044			4,916,402
GST and VAT taxes receivables		1,241,724			616,119
Allowances and reserves		(3,652,500	)		(3,377,000	)
Other		71,268			67,306
	$	28,636,149		$	16,132,928

Note 3. Foreign currency translations and transactions

The Company’s Asian subsidiary reports its financial position and results of operations in the reporting currency of the Company.

The financial position and results of operations of the Company’s European subsidiaries are determined using Euros as the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rate in effect at each period end. Income statement accounts are translated at the prevailing average spot rate. For periods prior to April 2006, the Company translated sales amounts at the average forward exchange contract rate. The change in this accounting treatment was immaterial to the Company’s current and prior financial statements. Translation adjustments arising from the translation to U.S. dollars at differing exchange rates are included in the accumulated other comprehensive income (loss) account in stockholders’ equity. Gains and losses resulting from transactions that are denominated in currencies other than Euros are included in earnings as a component of other income. The Company had a translation loss of $531,289 recorded on the balance sheet as of September 30, 2006. For the six months ended March 31, 2007, the Company recorded on the balance sheet a deferred translation loss of $587,950, resulting in a translation loss of $1,119,239 recorded as a component of accumulated other comprehensive income as of March 31, 2007. 

8

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:

	March 31, 2007		September 30, 2006
Component parts	$	5,190,544	$	4,868,483
Finished goods		6,801,664		5,037,263
	$	11,992,208	$	9,905,746

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 March 31,				Six months ended March 31,
	2007		2006		2007		2006
Weighted average shares outstanding-basic		9,885,419		9,576,522		9,781,009		9,541,935
Number of shares issued on the assumed exercise of stock options		671,985		481,063		586,553		447,764
Weighted average shares outstanding-diluted		10,557,404		10,057,585		10,367,562		9,989,699

Options to purchase 2,668 and 173,111 shares of common stock, at a price of $8.75 and ranging from $3.19 to $8.75, were outstanding for the three months ended March 31, 2007 and 2006, respectively, but were not included in the computation of diluted earnings per share because they were anti-dilutive.

Options to purchase 22,781 and 218,173 shares of common stock, at a prices of $7.45 and $8.75 and ranging from $3.19 to $8.75, were outstanding for the six months ended March 31, 2007 and 2006, respectively, but were not included in the computation of diluted earnings per share because they were anti-dilutive.

9

HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 6. Accumulated other comprehensive income (loss)

Accumulated other comprehensive income (loss) consists of two components: translation gains and losses and FAS 133 mark to market gains and losses on our open foreign exchange contracts. As of March 31, 2007, appearing in the equity section under “ Accumulated other comprehensive income (loss)” was a loss of $1,150,563, which consisted of a deferred translation loss of $1,119,239 and a deferred loss of $31,324 due to the mark to market differences between the value of the Company’s open forward exchange contracts at the contract rates versus the same contracts valued at the period ending forward rate.

The table below details the gains and losses that make up the accumulated other comprehensive loss of $1,150,563 recorded on our balance sheet as of March 31, 2007:

Accumulated other comprehensive income (loss) Fiscal 2007 activity	Balance as of Sept 30 2006			Oct 06 to Mar 07 gains (losses)			Balance as of Mar 31, 2007
Translation gains and losses	$	(531,289	)	$	(587,950	)	$	(1,119,239	)
FAS 133 mark to market adjustment		21,970			(53,294	)		(31,324	)
	$	(509,319	)	$	(641,244	)	$	(1,150,563	)

Note 7. Revenue recognition

The Company sells through a sales channel which consist of retailers, PC manufacturers and distributors. The majority of our customers are granted lines of credit. The product is shipped on account with the majority of customers primarily given 30 to 60 day 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 boards and the cost of any pilferage while in the customer’s possession is the responsibility of the customer. The Company sells analog, hybrid video recorders or digital computer boards that are stocked on the shelves of retailers and are subject to the normal consumer traffic that retail stores attract. Aside from normal store promotions such as advertisements in the store’s circular, the Company has no further obligation to assist in the resale of the products.

The Company offers some of its customers a right of return. The Company’s accounting complies with SFAS 48 Revenue Recognition when Right of Return Exists, 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 the business coupled with the changing economic environment, management exercises some judgment with regard to the historical data to arrive at the reserve.

The Company offers mail-in rebates on certain products at certain times as determined by the Company. The rebates are recorded as a reduction to sales. The Company also participates in limited cooperative advertising programs with retailers and distributors and accounts for these in accordance with EITF 01-09, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)”.

10

HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 8. Product segment and geographic information

The Company operates in one business segment, which is the development, marketing and manufacturing of analog and digital TV receiver products for the personal computer 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 our marketing channel. The Company also sells product directly to PC manufacturers. The Company evaluates its product lines under the functional categories of analog TV receivers, digital TV receivers and other non-TV tuner products.

The Company’s products fall under three product categories:

Analog TV receivers

Digital TV receivers

Other non-TV receiver products

The Company’s analog TV receiver products enable, among other things, a PC user to watch and record analog cable TV in a resizable window on a PC.

The Company’s digital TV receiver products enable, among other things, a PC user to watch and record digital TV in a resizable window on a PC.

The Company’s other non-TV receiver products enable, among other things, a PC user to video conference, watch and listen to PC based videos, music and pictures on a TV set through a home network, and record TV shows on a PC for playback on portable video players.

Sales by functional category are as follows:

	Three months ended March 31,				Six months ended March 31,
Product line sales	2007		2006		2007		2006
Analog sales	$	18,517,756	$	19,073,668	$	33,075,148	$	34,111,143
Digital sales		10,786,065		7,117,034		25,639,367		16,514,879
Other non-TV tuners products		588,020		494,691		1,096,459		1,104,361
Total sales	$	29,891,841	$	26,685,393	$	59,810,974	$	51,730,383

The Company sells its products through a North American and international network of distributors and retailers. It maintains sales offices in both Europe and Asia. Sales percent by geographic region are as follows:

	Three months ended March 31,						Six months ended March 31,
Sales percent by geographic region	2007			2006			2007			2006
The Americas		60	%		51	%		51	%		46	%
Europe		39	%		47	%		47	%		52	%
Asia		1	%		2	%		2	%		2	%
Total		100	%		100	%		100	%		100	%

11

HAUPPAUGE DIGITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 9. Stock-based compensation

Effective October 1, 2005, the Company adopted SFAS No. 123R, “Share-Based Payments” using the modified prospective method, which requires measurement of compensation cost for all stock-based awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. The fair value of stock options are determined using the Black-Scholes valuation model, which is consistent with our valuation techniques previously utilized for stock options in footnote disclosures required under SFAS No. 123. Such fair value is recognized as expense over the service period, net of estimated forfeitures. The stock compensation charges recorded for the vested options during the three and six month periods ended March 31, 2007 and 2006 are $127,716 and $86,946 , and $236,584 and $187,824.

Note 10.  Arrangements with off-balance sheet risk - guarantees

The Company occupies a facility located in Hauppauge New York which is used for its executive offices and for the testing, storage and shipping of the Company’s products. Hauppauge Computer Works, Inc. (“HCW’), a wholly owned subsidiary of Hauppauge Digital Inc., leases this facility from Ladokk Realty, LLC (“Ladokk”), the members of which are Kenneth Plotkin, the Company’s Chairman of the Board, Chief Executive Officer, President, Chief Operating Officer and Vice President of Marketing, Director and the holder of approximately 8.1% of the Company’s Common Stock as of March 31, 2007, Dorothy Plotkin, the wife of Kenneth Plotkin and holder of approximately 5.8% of the Company’s Common Stock as of March 31, 2007, and Laura Aupperle, believed by the Company to be the holder of approximately 9.5% of the Company’s Common Stock, including Common Stock attributed to the Estate of Kenneth R. Aupperle.

On October 17, 2006, HCW executed an amendment to the 2004 Lease with Ladokk for the premises (the “Lease Amendment”). The Lease Amendment commenced as of September 1, 2006 and ends on August 31, 2011. The base rent under the Lease Amendment for the first year of the term is $300,000, payable monthly in the amount of $25,000. Rent is subject to an annual increase of 3% over the term. The execution of the Lease Amendment was approved by the Company’s Board of Directors , following the recommendation of the Company’s Audit Committee.

The Lease Amendment provides for the payment of rent arrearages in the aggregate amount of $168,667 (the “Arrearage”) to be paid in the amount of $5,000 per month tendered with rent until the Arrearage is paid in full. Subject to the terms and conditions of the 2004 Lease, HCW is obligated to pay for utilities, repairs to the building, and taxes during the term.

The Lease Amendment provides that HCW has the option to renew the current lease term for an additional 5 year term after the expiration of the current lease term upon written notice given to Ladokk between six and twelve months prior to expiration of the current lease. Rent due during the first year of the renewal term is to be equal to the market rate at the end of the current lease, but not less than rent paid during the last year of the current lease, and is subject to rent increases for the second through fifth years of the renewal term by CPI plus 1% per annum.

12

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THREE MONTH PERIOD ENDED MARCH 31, 2007 COMPARED TO THREE MONTH PERIOD ENDED MARCH 31, 2006

Results of operations for the three months ended March 31, 2007 compared to March 31, 2006 are as follows:

	Three Months Ended			Three Months Ended			Variance			Percentage of sales
	3/31/07			3/31/06			$			2007			2006			Variance
Net sales	$	29,891,841		$	26,685,393		$	3,206,448			100.00	%		100.00	%		-
Cost of sales		24,248,250			21,503,859			2,744,391			81.12	%		80.58	%		0.54	%
Gross profit		5,643,591			5,181,534			462,057			18.88	%		19.42	%		-0.54	%
Gross profit %		18.88	%		19.42	%		-0.54	%
Selling , general and administrative expenses:
Sales and marketing		2,428,804			2,315,414			113,390			8.13	%		8.68	%		-0.55	%
Technical support		146,570			154,771			(8,201	)		0.49	%		0.58	%		-0.09	%
General and administrative		894,179			901,419			(7,240	)		2.99	%		3.38	%		-0.39	%
Stock compensation expense		80,687			58,254			22,433			0.27	%		0.22	%		0.05	%
Total selling, general and administrative expense		3,550,240			3,429,858			120,382			11.88	%		12.86	%		-0.98	%
Research and development		702,798			740,140			(37,342	)		2.35	%		2.77	%		-0.42	%
Research and stock compensation expense		47,029			28,692			18,337			0.16	%		0.11	%		0.05	%
Total expenses		4,300,067			4,198,690			101,377			14.39	%		15.74	%		-1.35	%
Net operating income		1,343,524			982,844			360,680			4.49	%		3.68	%		0.81	%
Other income (expense) :
Interest income		9,347			6,275			3,072			0.03	%		0.02	%		0.01	%
Foreign currency		(18,245	)		13,487			(31,732	)		-0.06	%		0.05	%		-0.11	%
Total other income (expense)		(8,898	)		19,762			(28,660	)		-0.03	%		0.07	%		-0.10	%
Income before taxes on income		1,334,626			1,002,606			332,020			4.46	%		3.75	%		0.71	%
Taxes on income		57,693			44,728			12,965			0.19	%		0.17	%		0.02	%
Net income	$	1,276,933		$	957,878		$	319,055			4.27	%		3.58	%		0.69	%

Net sales for the three months ended March 31, 2007 increased $3,206,448 compared to the three months ended March 31, 2006 as shown in the table below.

	Three Months ended		Three Months ended		Increase(decrease)Dollar			Increase(decrease) variance			Percentage of sales by geographic region
Location	3/31/07		3/31/06		variance			%			2007			2006
The Americas	$	17,927,014	$	13,477,731	$	4,449,283			33	%		60	%		51	%
Europe		11,579,486		12,682,887		(1,103,401	)		-9	%		39	%		47	%
Asia		385,341		524,775		(139,434	)		-27	%		1	%		2	%
Total	$	29,891,841	$	26,685,393	$	3,206,448			12	%		100	%		100	%

Net sales to customers in North and South America were 60% and 51% of net sales for the three months ended March 31, 2007 and 2006, respectively. Net sales to Europe was 39% and 47% of net sales for the three months ended March 31, 2007 and 2006, respectively. Net sales to Asian customers were 1% and 2% of net sales for the three months ended March 31, 2007 and 2006, respectively. We experienced an increase in unit sales of about 18% while the dynamics of new production and changes in sales mix lowered the average sales price by about 5%.

13

Gross profit

Gross profit increased $462,057 for the three months ended March 31, 2007 compared to the three months ended March 31, 2006.

The increases and (decreases) in the gross profit are detailed below:

	Increase (decrease)
Increased sales	$	891,774
Lower gross profit on sales mix		(554,780	)
Production and production related costs		125,063
Total increase in gross profit	$	462,057

Gross profit percentage for the three months ended March 31, 2007 was 18.88% compared to 19.42% for the three months ended March 31, 2006, a decrease of 0.54%.

The increases and (decreases) in the gross profit percent are detailed below:

	Increase (decrease)
Lower gross profit on sales mix		(1.85	%)
Production and production related costs		1.31	%
Net decrease in gross profit percent		(0.54	%)

The decrease in the gross profit percent of 0.54 % for the three months ended March 31, 2007 compared to the three months ended March 31, 2006 was primarily due to:

·   A higher sales percentage of lower gross profit margin products contributed to a 1.85% decrease in gross profit

·   Production and shipping costs declined as a percentage of sales which contributed to a 1.31% increase in the gross profit percent. The increase in net sales was about 12% while the production costs decreased by about 6%.

Selling, general and administrative expenses

The chart below illustrates the components of Selling, general and administrative expense.

	Three months ended March 31, Dollar Costs							Percentage of Sales
					Increase									Increase
	2007		2006		(decrease)			2007			2006			(decrease)
Sales and marketing	$	2,428,804	$	2,315,414	$	113,390			8.13	%		8.68	%		-0.55	%
Technical support		146,570		154,771		(8,201	)		0.49	%		0.58	%		-0.09	%
General and administrative		894,179		901,419		(7,240	)		2.99	%		3.38	%		-0.39	%
Stock compensation expense		80,687		58,254		22,433			0.27	%		0.22	%		0.05	%
Total	$	3,550,240	$	3,429,858	$	120,382			11.88	%		12.86	%		-0.98	%

Selling, general and administrative expenses increased $120,382 from the prior year’s second quarter. As a percentage of sales, Selling, general and administrative expenses decreased by 0.98% when compared to the three months ended March 31, 2006. The increase in sales and marketing expense of $113,390 was mainly due to higher sales based expenses such as commission, cooperative advertising and promotional expenses. The decrease in technical support expenses of $8,201 was primarily due to compensation related costs. The decrease in general and administrative expenses of $7,240 was primarily due to rent and building overhead expenses. The increase in stock compensation expense was due to the associated expense of new stock option grants.

14

Research and development expenses

Research and development expenses decreased $19,005. The decrease was mainly due decreased third party development costs offset somewhat by an increase in stock compensation expense. The increase in stock compensation expense was due to the associated expense of new stock option grants.

Other income (expense)

Net other expense for the three months ended March 31, 2007 was $8,898 compared to net other income of $19,762 for the three months ended March 31, 2006. The change was primarily driven by higher interest income offset by foreign currency transaction losses.

Tax provision

Our net tax provision for the three months ended March 31, 2007 and 2006 is as follows:

	Three months ended March 31,
	2007		2006
AMT Tax attributable to U.S operations	$	21,000	$	20,000
Tax expense European operations		31,693		19,728
State taxes		5,000		5,000
Net tax provision	$	57,693	$	44,728

The deferred tax assets and the offsetting tax valuation allowance is attributable to our domestic operations. For three out of the last five fiscal years, our domestic operation incurred tax losses. Fiscal 2005 was the first year out of the last five years in which our domestic operations had pre tax income. As of March 31, 2007, we evaluated the future realization of our deferred tax assets and the corresponding valuation allowance. We took into consideration:

· the tax losses incurred by our domestic operations in three out of the last five years

· the seasonal nature and cyclical nature of the business, which makes it difficult to predict the future realization of the deferred tax asset

· the dynamic market and technological changes that occur in our industry

After evaluating the circumstances listed above, it was our opinion that as of March 31, 2007, the valuation allowance was still applicable.

We recorded net income of $1,276,933, for the three months ended March 31, 2007, which resulted in basic net income per share of $0.13 and diluted net income per share of $0.12 on weighted average basic and diluted shares of 9,885,419 and 10,557,404, respectively, compared to a net income of $957,878 for the three months ended March 31, 2006, which resulted in basic and diluted net income per share of $0.10 on weighted average basic and diluted shares of 9,576,522 and 10,057,585, respectively.

Options to purchase 2,668 and 173,111 shares of common stock, at a price of $8.75 and ranging from $3.19 to $8.75, were outstanding for the three months ended March 31, 2007 and 2006, respectively, but were not included in the computation of diluted earnings per share because they were anti-dilutive.

15

SIX MONTH PERIOD ENDED MARCH 31, 2007 COMPARED TO

SIX MONTH PEROID ENDED MARCH 31, 2006

Results of operations for the six months ended March 31, 2007 compared to March 31, 2006 are as follows:

	Six Months Ended			Six Months Ended			Variance			Percentage of sales
	3/31/07			3/31/06			$			2007			2006			Variance
Net sales	$	59,810,974		$	51,730,383		$	8,080,591			100.00	%		100.00	%		-
Cost of sales		47,349,846			41,317,065			6,032,781			79.17	%		79.87	%		-0.70	%
Gross profit		12,461,128			10,413,318			2,047,810			20.83	%		20.13	%		0.70	%
Gross profit %		20.83	%		20.13	%		0.70	%
Selling , general and administrative expenses:
Sales and marketing		5,136,025			4,671,985			464,040			8.59	%		9.03	%		-0.44	%
Technical support		282,975			286,850			(3,875	)		0.47	%		0.55	%		-0.08	%
General and administrative		1,785,162			1,726,236			58,926			2.98	%		3.34	%		-0.36	%
Stock compensation expense		148,300			125,855			22,445			0.25	%		0.24	%		0.01	%
Total selling, general and administrative expense		7,352,462			6,810,926			541,536			12.29	%		13.16	%		-0.87	%
Research and development		1,414,988			1,500,864			(85,876	)		2.37	%		2.90	%		-0.53	%
Research and stock compensation expense		88,284			61,969			26,315			0.15	%		0.12	%		0.03	%
Total expenses		8,855,734			8,373,759			481,975			14.81	%		16.18	%		-1.37	%
Net operating income		3,605,394			2,039,559			1,565,835			6.02	%		3.95	%		2.07	%
Other income :
Interest income		21,738			11,481			10,257			0.04	%		0.02	%		0.02	%
Foreign currency		(6,218	)		14,451			(20,669	)		-0.01	%		0.03	%		-0.04	%
Total other income		15,520			25,932			(10,412	)		0.03	%		0.05	%		-0.02	%
Income before taxes on income		3,620,914			2,065,491			1,555,423			6.05	%		4.00	%		2.05	%
Taxes on income		141,245			87,139			54,106			0.24	%		0.17	%		0.07	%
Net income	$	3,479,669		$	1,978,352		$	1,501,317			5.81	%		3.83	%		1.98	%

Net sales for the six months ended March 31, 2007 increased $8,080,591 compared to the six months ended March 31, 2006 as shown in the table below.

	Six Months ended		Six Months ended		Increase(decrease) Dollar			Increase(decrease)			Percentage of sales by  geographic region
Location	3/31/07		3/31/06		variance			variance %			2007			2006
The Americas		30,399,845		23,682,666		6,717,179			28	%		51	%		46	%
Europe		28,499,543		26,859,813		1,639,730			6	%		47	%		52	%
Asia		911,586		1,187,904		(276,318	)		-23	%		2	%		2	%
Total	$	59,810,974	$	51,730,383	$	8,080,591			16	%		100	%		100	%

Net sales to customers in North and South America were 51% and 46% of net sales for the six months ended March 31, 2007 and 2006, respectively. Net sales to Europe was 47% and 52% of net sales for the six months ended March 31, 2007 and 2006, respectively. Net sales to Asian customers were 2% of net sales for the six months ended March 31, 2007 and 2006, respectively. We experienced an increase in unit sales of about 26% while the dynamics of new production and changes in sales mix lowered the average sales price by about 8%.

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Gross profit

Gross profit increased $2,047,810 for the six months ended March 31, 2007 compared to the six months ended March 31, 2006.

The increases and (decreases) in the gross profit are detailed below:

	Increase   (decrease)
Increased sales	$	2,269,256
Lower gross profit on sales mix		(55,490	)
Production and production related costs		(165,956	)
Total increase in gross profit	$	2,047,810

Gross profit percentage for the six months ended March 31, 2007 was 20.83% compared to 20.13% for the six months ended March 31, 2006, an increase of 0.70%.

The increases and (decreases) in the gross profit percent are detailed below:

	Increase
	(decrease)
Lower gross profit on sales mix		(0.09	%)
Production and production related costs		0.79	%
Net decrease in gross profit percent		0.70	%

The increase in the gross profit percent of 0.70 % for the six months ended March 31, 2007 compared to the six months ended March 31, 2006 was primarily due to:

·   A higher sales percentage of lower gross profit margin products contributed to a 0.09% decrease in gross profit

·   Production and shipping costs declined as a percentage of sales which contributed to a 0.79% increase in gross profit percent. The increase in net sales was about 16% while the increase in production costs was about 4%

Selling, general and administrative expenses

The chart below illustrates the components of Selling, general and administrative expense.

	Six months ended March 31, Dollar Costs							Percentage of Sales
					Increase									Increase
	2007		2006		(deecrease)			2007			2006			(decrease)
Sales and marketing	$	5,136,025	$	4,671,985	$	464,040			8.59	%		9.03	%		-0.44	%
Technical support		282,975		286,850		(3,875	)		0.47	%		0.55	%		-0.08	%
General and administrative		1,785,162		1,726,236		58,926			2.98	%		3.34	%		-0.36	%
Stock compensation expense		148,300		125,855		22,445			0.25	%		0.24	%		0.01	%
Total	$	7,352,462	$	6,810,926	$	541,536			12.29	%		13.16	%		-0.87	%

Selling, general and administrative expenses increased $541,536 from the prior year. As a percentage of sales, Selling, general and administrative expenses decreased by 0.87% when compared to the six months ended March 31, 2006. The increase in sales and marketing expense of $460,040 was mainly due to higher sales based expenses such as commission, cooperative advertising and promotional expenses. The increase in general and administrative expenses of $58,926 was primarily due to compensation increases for additional managerial and support staff and incentive related expenses. The increase in stock compensation expense was due to the associated expense of new stock option grants.

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Research and development expenses

Research and development expenses decreased $59,561. The decrease was mainly due to decreased third party development costs offset somewhat by an increase in stock compensation expense. The increase in stock compensation expense was due to the associated expense of new stock option grants.

Other income

Net other income for the six months ended March 31, 2007 was $15,520 compared to net other income of $25,932 for the six months ended March 31, 2006. The change was primarily driven by higher interest income offset by foreign currency transaction losses.

Tax provision

Our net tax provision for the six months ended March 31, 2007 and 2006 is as follows:

	Six months ended March 31,
	2007		2006
AMT Tax attributable to U.S operations	$	52,000	$	30,000
Tax expense European operations		79,245		47,139
State taxes		10,000		10,000
Net tax provision	$	141,245	$	87,139

The deferred tax assets and the offsetting tax valuation allowance is attributable to our domestic operations. For three out of the last five fiscal years, our domestic operation incurred tax losses. Fiscal 2005 was the first year out of the last five years in which our domestic operations had pre tax income. As of March 31, 2007, we evaluated the future realization of our deferred tax assets and the corresponding valuation allowance. We took into consideration:

· the tax losses incurred by our domestic operations in three out of the last five years

· the seasonal nature and cyclical nature of the business, which makes it difficult to predict the future realization of the deferred tax asset

· the dynamic market and technological changes that occur in our industry

After evaluating the circumstances listed above, it was our opinion that as of March 31, 2007, the valuation allowance was still applicable.

We recorded net income of $3,479,669, for the six months ended March 31, 2007, which resulted in basic net income per share of $0.36 and diluted net income per share of $0.34 on weighted average basic and diluted shares of 9,781,009 and 10,367,562, respectively, compared to a net income of $1,978,352 for the six months ended March 31, 2006, which resulted in basic net income per share of $0.21 and diluted net income per share of $0.20, respectively, on weighted average basic and diluted shares of 9,541,935 and 9,989,699, respectively.

Options to purchase 22,781 and 218,173 shares of common stock, at a prices of $7.45 and $8.75 and ranging from $3.19 to $8.75, were outstanding for the six months ended March 31, 2007 and 2006, respectively, but were not included in the computation of diluted earnings per share because they were anti-dilutive.

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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 54%, 54% and 66% of sales for the years ended September 30, 2006, 2005 and 2004, 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 as of March 31, 2007 and September 30, 2006 is set forth below:

	March 31, 2007		September 30, 2006
Cash	$	10,090,574	$	9,020,941
Working Capital		20,733,319		17,084,175
Stockholders’ Equity		21,511,185		17,779,725

We had cash and cash equivalents as of March 31, 2007 of $10,090,574, a increase of $1,069,633 from September 30, 2006.

The increase in cash was due to :

Sources of cash:
Net income adjusted for non cash items	$	3,821,115
Increase in accounts payable and accrued expenses		12,124,120
Proceeds from employee stock purchases		656,451
Less cash used for:
Increase in account receivables		(12,503,221	)
Increase in inventories		(2,086,462	)
Increase in prepaid expenses and other current assets		(113,948	)
Effect of exchange rates on cash		(641,244	)
Capital equipment purchases		(187,178	)
Net cash increase	$	1,069,633

Net cash of $1,241,604 provided by operating activities was primarily due to net income adjusted for non cash items of $3,821,115 and increases in accounts payable and accrued expenses of $12,124,120. Offsetting these increases in cash were increases in accounts receivable of $12,503,221, due primarily to a 30% sales increase for the first six months of fiscal 2007 over the last six months of fiscal 2006, increases in inventory of $2,086,462 needed to fund the increase in sales and an increase in prepaid expenses and other current assets of $113,948.

Cash of $187,178 was used to purchase fixed assets. Proceeds from stock purchased by employees through the purchase of options and through the employee stock purchase plan provided additional cash of $656,451. The effect of changes in foreign exchange rates used cash of $ 641,244.

19

We believe that our cash and cash equivalents as of March 31, 2007, our internally generated cash flow and our $5,000,000 bank line of credit 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 our contractual obligations related to lease obligations as of March 31, 2007:

	Payments due by period
	Total		Less than 1 year		1-3 years		3 to 5 years
Operating lease obligations	$	2,210,869	$	572,268	$	1,482,924	$	155,677

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.

Item 3. Quantitative and qualitative disclosures about market risks

For each of the past three fiscal years, at least 50 % of our sales were generated by our European subsidiary and were invoiced and collected in local currency, which was primarily the Euro. On the supply side, since we predominantly deal with North American and Asian suppliers and contract manufacturers, approximately 90% of our inventory required to support our European sales are purchased and paid in U.S. Dollars.

The combination of sales billed in Euros supported by inventory purchased in U.S. dollars results in an absence of a natural local currency hedge. Consequently, our financial results are subject to market risks resulting from the fluctuations in the Euro to U.S. Dollar exchange rates.

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 U.S. Dollar denominated inventory purchases required to support our European sales.

We do not try to hedge against all possible foreign currency exposures because of the inherent difficulty in estimating the volatility of the Euro, the contracts we procure are specifically entered into to as a hedge against forecasted or existing 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, long term strengthening or weakening of the U.S. dollar against the Euro impacts our sales, gross profit, operating income and retained earnings. Factors that could impact the effectiveness of our hedging program are:

·   volatility of the currency markets

·   availability of hedging instruments

·   accuracy of our inventory forecasts

Additionally, there is the risk that foreign exchange fluctuations will make our products less competitive in foreign markets, which would substantially reduce our sales.

20

As of March 31, 2007, we had foreign currency contracts outstanding of approximately $1,038,000 against the delivery of the Euro. These contracts expire in April 2007. 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)”. We recorded a deferred loss of $53,294 for the six months ended March 31 2007. As of March 31, 2007, a deferred loss of $31,324, reflecting the cumulative mark to market gains of our derivatives, was recorded on our balance sheet as a component of accumulated other comprehensive income in our equity section.

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 March 31, 2007 in alerting them in a timely manner to material information required to be included in our SEC reports. In addition, no change in our internal control over financial reporting occurred since our prior quarter ended December 31, 2006 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,” “anticipated,” “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, 2006), 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. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise. All cautionary statements made in this Quarterly Report should be read as being applicable to all related forward-looking statements wherever they appear.

21

PART II. OTHER INFORMATION

Item 1A. Risk factors

There have been no material changes with respect to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2006.

Item 2. Unregistered sales of equity securities and use of proceeds

On November 8, 1996, we approved a stock repurchase program. The program authorizes us to repurchase up to 850,000 shares of our own stock. The stock repurchase program was extended by a resolution of our Board of Directors on December 17, 1997.

We did not repurchase any of our common stock under our stock repurchase program during the three and six months ended March 31, 2007.

Item 6. 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

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

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: May 10, 2007	By	/s/ Kenneth Plotkin
		KENNETH PLOTKIN Chief Executive Officer, Chairman of the Board, President (Principal Executive Officer) and Director

Date: May 10, 2007	By	/s/ Gerald Tucciarone
		GERALD TUCCIARONE Treasurer, Chief Financial Officer, (Principal Accounting officer) and Secretary

23

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Kenneth Plotkin, certify that:

1. I have reviewed this Form 10-Q of Hauppauge Digital, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15-(e)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2007	/s/ Kenneth Plotkin
	Kenneth Plotkin
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Gerald Tucciarone, certify that:

1. I have reviewed this Form 10-Q of Hauppauge Digital, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15-(e)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2007	/s/ Gerald Tucciarone
	Gerald Tucciarone
	Chief Financial Officer
	Treasurer and Secretary

EX-32

Exhibit 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

The undersigned hereby certifies, pursuant to, and as required by, 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Hauppauge Digital, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 10, 2007	/s/ Kenneth Plotkin
	Kenneth Plotkin
	Chief Executive Officer

/s/ Gerald Tucciarone

Gerald Tucciarone

Chief Financial Officer, Treasurer

and Secretary