UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549





FORM
10-Q





(Mark
One)


x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934





For
the quarterly period ended  December 31,
2010





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.
      Employerincorporation
      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).





 ̈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 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
              x  SMALLER
      REPORTING COMPANY(Do
      not check if a smaller reporting company)





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





 ̈
YES              x  NO





As of
January 31, 2011, 10,084,795 shares of .01 par value Common Stock of the issuer
were outstanding.









HAUPPAUGE DIGITAL INC. AND
SUBSIDIARIES




INDEX




Page no.PART I. FINANCIAL
    INFORMATIONItem
      1. Financial StatementsConsolidated
      Balance Sheets –December  31,
      2010 (unaudited) and September 30, 2010
                            
                            4Consolidated
      Statements of Operations -Three
      Months ended December 31, 2010 (unaudited) and 2009
      (unaudited)
                            
                            5Consolidated
      Statements of Other Comprehensive LossThree
      Months ended December 31, 2010 (unaudited) and 2009
      (unaudited)
                            
                            6Consolidated
      Statements of Cash Flows - Three Months ended December 31, 2010
      (unaudited) and 2009 (unaudited)
                            
                            7Notes
      to Consolidated Financial Statements
                            
                            8-13Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                            
                            14-18Item
      3. Quantitative and Qualitative Disclosures about Market
    Risks
                            
                            19Item  4.
      Controls and Procedures
                            
                            19
  2
  PART II.  OTHER
      INFORMATIONItem
      6. Exhibits
                              
                              20Signatures
                              
                              21




3


PART I. FINANCIAL
INFORMATION




Item 1.
Financial Statements


HAUPPAUGE
DIGITAL INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS





December 31,
                                        2010
                                        (unaudited)
                                      
                                      
                                      September 30 , 
      2010Assets:Cash
      and cash  equivalents
                                      
                                      $
                                      7,286,019
                                      
                                      
                                      $
                                      7,057,904Trade  receivables,
      net of  various allowances
                                      
                                      
                                      3,623,630
                                      
                                      
                                      
                                      4,403,194Other
      non trade receivables
                                      
                                      
                                      1,829,872
                                      
                                      
                                      
                                      2,355,834Inventories
                                      
                                      
                                      12,214,733
                                      
                                      
                                      
                                      11,450,565Deferred
      tax asset-current
                                      
                                      
                                      1,271,988
                                      
                                      
                                      
                                      1,310,204Prepaid
      expenses and other current assets
                                      
                                      
                                      1,070,173
                                      
                                      
                                      
                                      980,087Total
      current assets
                                      
                                      
                                      27,296,415
                                      
                                      
                                      
                                      27,557,788Intangible
      assets, net
                                      
                                      
                                      3,752,557
                                      
                                      
                                      
                                      3,941,266Property,
      plant and equipment, net
                                      
                                      
                                      505,835
                                      
                                      
                                      
                                      544,959Security
      deposits and other non current assets
                                      
                                      
                                      106,241
                                      
                                      
                                      
                                      106,241Deferred
      tax asset-non current
                                      
                                      
                                      449,224
                                      
                                      
                                      
                                      610,734Total
      assets
                                      
                                      $
                                      32,110,272
                                      
                                      
                                      $
                                      32,760,988Liabilities
      and  Stockholders’  Equity:Current
      Liabilities:Accounts
      payable
                                      
                                      $
                                      7,015,036
                                      
                                      
                                      $
                                      7,306,221Accrued
      expenses  fees
                                      
                                      
                                      4,917,267
                                      
                                      
                                      
                                      4,955,540Accrued
      expenses
                                      
                                      
                                      10,416,263
                                      
                                      
                                      
                                      10,266,495Income
      taxes payable
                                      
                                      
                                      276,717
                                      
                                      
                                      
                                      252,090Total
      current  liabilities
                                      
                                      
                                      22,625,283
                                      
                                      
                                      
                                      22,780,346Stockholders'
      Equity:Common
      stock, $.01 par value; 25,000,000 shares authorized,10,845,368  and
      10,842,274  issued, respectively
                                      
                                      
                                      108,454
                                      
                                      
                                      
                                      108,423Additional
      paid-in capital
                                      
                                      
                                      17,843,446
                                      
                                      
                                      
                                      17,739,330Retained
      deficit
                                      
                                      
                                      (1,789,106
                                      )
                                      
                                      
                                      (1,050,886
                                      )Accumulated
      other comprehensive loss
                                      
                                      
                                      (4,272,257
                                      )
                                      
                                      
                                      (4,410,677
                                      )Treasury
      Stock, at cost, 760,479 shares
                                      
                                      
                                      (2,405,548
                                      )
                                      
                                      
                                      (2,405,548
                                      )Total
      stockholders' equity
                                      
                                      
                                      9,484,989
                                      
                                      
                                      
                                      9,980,642Total  liabilities
      and  stockholders' equity
                                      
                                      $
                                      32,110,272
                                      
                                      
                                      $
                                      32,760,988





See accompanying notes to
consolidated financial statements


4




HAUPPAUGE
DIGITAL INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


(UNAUDITED)




Three months ended December 31,2010
                                      
                                      
                                      2009Net
      sales
                                      
                                      $
                                      12,862,946
                                      
                                      
                                      $
                                      17,878,358Cost  of
      sales
                                      
                                      
                                      8,515,708
                                      
                                      
                                      
                                      12,655,961Gross
      profit
                                      
                                      
                                      4,347,238
                                      
                                      
                                      
                                      5,222,397Selling,
      general and  administrative expenses
                                      
                                      
                                      3,774,704
                                      
                                      
                                      
                                      4,332,523Research
      and development expenses
                                      
                                      
                                      1,096,779
                                      
                                      
                                      
                                      1,170,071Loss  from
      operations
                                      
                                      
                                      (524,245
                                      )
                                      
                                      
                                      (280,197
                                      )Other  income
      (expense):Interest  income
                                      
                                      
                                      1,559
                                      
                                      
                                      
                                      1,452Interest
      expense
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (4,340
                                      )Foreign
      currency  gain (loss)
                                      
                                      
                                      31,523
                                      
                                      
                                      
                                      (240
                                      )Total  other
      income (expense)
                                      
                                      
                                      33,082
                                      
                                      
                                      
                                      (3,128
                                      )Loss
      before tax provision
                                      
                                      
                                      (491,163
                                      )
                                      
                                      
                                      (283,325
                                      )Deferred
      tax expense
                                      
                                      
                                      199,726
                                      
                                      
                                      
                                      -Current
      tax expense
                                      
                                      
                                      47,331
                                      
                                      
                                      
                                      51,226Net
      loss
                                      
                                      $
                                      (738,220
                                      )
                                      
                                      $
                                      (334,551
                                      )Net  loss  per
      share:Basic
      and diluted
                                      
                                      $
                                      (0.07
                                      )
                                      
                                      $
                                      (0.03
                                      )





See
accompanying notes to consolidated financial
statements


5




HAUPPAUGE
DIGITAL INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OTHER  COMPREHENSIVE LOSS


(UNAUDITED)





Three months ended December 31,2010
                            
                            
                            2009Net  loss
                            
                            $
                            (738,220
                            )
                            
                            $
                            (334,551
                            )Foreign
      currency translation gain (loss)
                            
                            
                            161,219
                            
                            
                            
                            (122,240
                            )Forward
      exchange contracts marked to market  loss
                            
                            
                            (22,798
                            )
                            
                            
                            (2,424
                            )Other  comprehensive
      loss
                            
                            $
                            (599,799
                            )
                            
                            $
                            (459,215
                            )





See
accompanying notes to consolidated financial statements


6




HAUPPAUGE
DIGITAL INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(UNAUDITED)




Three months
      ended December 31,2010
                                              
                                              
                                              2009Net
      loss
                                              
                                              $
                                              (738,220
                                              )
                                              
                                              $
                                              (334,551
                                              )Adjustments
      to reconcile net loss to net cash provided by (used
      in) operating activities:Depreciation
      and amortization
                                              
                                              
                                              59,931
                                              
                                              
                                              
                                              69,521Amortization
      of intangible assets
                                              
                                              
                                              188,709
                                              
                                              
                                              
                                              188,709Stock compensation
      expense
                                              
                                              
                                              100,470
                                              
                                              
                                              
                                              106,251Deferred
      tax expense
                                              
                                              
                                              199,726
                                              
                                              
                                              
                                              -Sales
      reserve, net
                                              
                                              
                                              (110,569
                                              )
                                              
                                              
                                              78,300Bad
      debt reserve
                                              
                                              
                                              -
                                              
                                              
                                              
                                              20,000Other items
                                              
                                              
                                              54,429
                                              
                                              
                                              
                                              18Changes
      in current assets and liabilities, net of effects of
      acquisition:Accounts
      receivable
                                              
                                              
                                              1,696,257
                                              
                                              
                                              
                                              251,123Inventories
                                              
                                              
                                              (1,032,798
                                              )
                                              
                                              
                                              146,083Prepaid
      expenses and other current assets
                                              
                                              
                                              (86,338
                                              )
                                              
                                              
                                              103,248Accounts
      payable
                                              
                                              
                                              (301,340
                                              )
                                              
                                              
                                              (151,918
                                              )Accrued
      expenses and other current liabilities
                                              
                                              
                                              238,624
                                              
                                              
                                              
                                              1,971,997Total
      adjustments
                                              
                                              
                                              1,007,101
                                              
                                              
                                              
                                              2,783,332Net
      cash provided by operating activities
                                              
                                              
                                              268,881
                                              
                                              
                                              
                                              2,448,781Cash
      Flows From Investing Activities:PCTV
      acquisition
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (511,332
                                              )Purchases
      of property, plant and equipment
                                              
                                              
                                              (20,807
                                              )
                                              
                                              
                                              (2,773
                                              )Net
      cash used in investing activities
                                              
                                              
                                              (20,807
                                              )
                                              
                                              
                                              (514,105
                                              )Cash
      Flows From Financing Activities:Proceeds
      from the exercise of stock options and employee stock
      purchases
                                              
                                              
                                              3,677
                                              
                                              
                                              
                                              5,237Net
      cash provided by financing activities
                                              
                                              
                                              3,677
                                              
                                              
                                              
                                              5,237Effect
      of exchange rates on cash
                                              
                                              
                                              (23,636
                                              )
                                              
                                              
                                              (124,664
                                              )Net
      increase in cash and cash equivalents
                                              
                                              
                                              228,115
                                              
                                              
                                              
                                              1,815,249Cash
      and cash equivalents, beginning of period
                                              
                                              
                                              7,057,904
                                              
                                              
                                              
                                              8,368,342Cash
      and cash equivalents, end of period
                                              
                                              $
                                              7,286,019
                                              
                                              
                                              $
                                              10,183,591Supplemental
      disclosures:Interest
      paid
                                              
                                              
                                              -
                                              
                                              
                                              $
                                              4,340Income
      taxes paid
                                              
                                              $
                                              33,416
                                              
                                              
                                              $
                                              61,171





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, 2010 Form 10-K.





The
operating results for the three  months ended December 31, 2010 are
not necessarily indicative of the results to be expected for the September 30,
2011 year end.





Management
has evaluated subsequent events after the balance sheet date through the
issuance of the financial statements for appropriate accounting and
disclosure.




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




8





HAUPPAUGE
DIGITAL INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





Trade
receivables and other non-trade receivables as of December 31, 2010 and
September 30, 2010 consisted of:





December 31,
                  
                  
                  September 30,2010
                  
                  
                  2010Trade
      receivables
                  
                  $
                  7,975,599
                  
                  
                  $
                  9,123,726Allowance
      for doubtful accounts
                  
                  
                  (383,773
                  )
                  
                  
                  (383,773
                  )Sales
      reserve
                  
                  
                  (3,968,196
                  )
                  
                  
                  (4,336,759
                  )Net
      trade receivables
                  
                  $
                  3,623,630
                  
                  
                  $
                  4,403,194Receivable
      from contract manufacturers
                  
                  $
                  1,276,732
                  
                  
                  $
                  1,846,949GST
      and VAT taxes receivables
                  
                  
                  477,161
                  
                  
                  
                  439,745Other
                  
                  
                  75,979
                  
                  
                  
                  69,140Total
      other non trade receivables
                  
                  $
                  1,829,872
                  
                  
                  $
                  2,355,834




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:





December 31,
                      2010
                    
                    
                    September 30,
                      2010Component
      parts
                    
                    $
                    4,455,874
                    
                    
                    $
                    3,565,643Finished
      goods
                    
                    
                    7,758,859
                    
                    
                    
                    7,884,922$
                    12,214,733
                    
                    
                    $
                    11,450,565




Note
4.  Net Loss Per Share





Basic net
loss per share includes no dilution and is computed by dividing net loss by the
weighted average number of shares of common stock outstanding for the period.
Diluted net 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 endedDecember 31,2010
                  
                  
                  2009Weighted
      average shares outstanding-basic
                  
                  
                  10,083,417
                  
                  
                  
                  10,059,808Number
      of shares issued on the assumed exercise of  stock
      options
                  
                  
                  -
                  
                  
                  
                  -Weighted
      average shares outstanding-diluted
                  
                  
                  10,083,417
                  
                  
                  
                  10,059,808





Options
to purchase 1,537,442 and 1,522,394 shares of common stock, at prices from $0.89
to $7.45 and from $1.05 to $8.75, were outstanding for the three months ended
December 31, 2010 and 2009, 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 CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)




Note
5.  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 average rate during the
year.   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 $4,410,677 recorded on
the balance sheet as of September 30, 2010. For the three months
ended December 31, 2010 the Company recorded on the balance sheet translation
gains of $161,219,   resulting in an accumulated translation loss
of $4,249,458 recorded as a component of accumulated other comprehensive loss as
of December 31 2010.




Note
6.  Product segment and geographic information





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





The
Company’s products fall under three product categories:





·
            Analog
      TV tuner products


·
            Digital  TV
      tuner, and combination analog and digital TV tuner,
    products


·
            Other
      non-TV tuner products





The
Company’s Analog TV tuner products are TV tuner modules which can be added to a
PC and enable a PC user, among other things, to watch and record analog cable TV
in a resizable window on a PC.





The
Company’s digital TV and combination analog and digital tuner products are TV
tuner modules which enable a PC user, among other things, to watch and record
analog cable TV and digital TV in a resizable window on a
PC.


10




HAUPPAUGE
DIGITAL INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





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





Sales by
functional category are as follows:





Three months ended December 31,Product line sales
                  
                  2010
                  
                  
                  2009Analog
      TV tuner products
                  
                  $
                  530,576
                  
                  
                  $
                  277,870Digital
      and combination analog and  digital TV  tuner
      products
                  
                  
                  8,195,740
                  
                  
                  
                  15,805,316Other
      non-TV tuner products
                  
                  
                  4,136,630
                  
                  
                  
                  1,795,172Total
      sales
                  
                  $
                  12,862,946
                  
                  
                  $
                  17,878,358





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





Three months ended December 31,Geographic region
                  
                  2010
                  
                  
                  2009The
      Americas
                  
                  
                  61
                  %
                  
                  
                  43
                  %Europe
                  
                  
                  37
                  %
                  
                  
                  55
                  %Asia
                  
                  
                  2
                  %
                  
                  
                  2
                  %Total
                  
                  
                  100
                  %
                  
                  
                  100
                  %




Note
7. Tax provision




The
Company’s tax provision for the three months ended December 31, 2010 and 2009 is
as follows:





Three months ended December 31,2010
                  
                  
                  2009Tax
      expense on international  operations
                  
                  $
                  37,331
                  
                  
                  $
                  41,226State
      taxes
                  
                  
                  10,000
                  
                  
                  
                  10,000Deferred
      tax expense
                  
                  
                  199,726
                  
                  
                  
                  -Tax
      provision
                  
                  $
                  247,057
                  
                  
                  $
                  51,226





Note
8. 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. The Accrued expense fees are accounted for as a component of
product cost and are charged to cost of sales.  As of December 31, 2010 and
September 30, 2010 the amount of Accrued expense fees amounted to $4,917,267 and
$4,955,540, respectively.


11




HAUPPAUGE
DIGITAL INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





Note
9, 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 December 31, 2010 and
September 30, 2010 were $10,416,263 and $10,266,495, respectively. Included in
accrued expenses are accruals for product costs,  accruals for sales
costs relating to a sales rebate program,
accruals  for  freight and duty expenses, accruals
for  compensation, accruals for  warranty repair costs
and  accruals for advertising and marketing costs. During the quarter
ended December 31, 201 the Company reduced its warranty repair accrual by
$150,787  as the actual warranty costs appear to have decreased
compared to original estimates.





Note
10. 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 adopted
the provisions of ASC 820-10 with respect to its non-financial assets and
liabilities 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:





• 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.





As of
December 31, 2010, the Company had foreign currency contracts outstanding of
approximately $1,319,000 with a fair market value of $1,341,798 against the
delivery of the Euro. These contracts expire each month through March 31, 2011.
The Company had no forward exchange contracts outstanding as of September 30,
2010.


12




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 receivables and accounts payables and other
short-term financial instruments approximate their fair value due to their
short-term nature.




13





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




THREE
MONTH PERIOD ENDED DECEMBER 31, 2010 COMPARED TO THE THREE MONTH PERIOD ENDED
DECEMBER 31, 2009





Results
of operations for the three months ended December 31, 2010 compared to the three
months ended  December 31, 2009 is as follows:





Three
                
                
                ThreeMonths
                
                
                MonthsEnded
                
                
                Ended
                
                
                Variance
                
                
                Percentage of sales12/31/10
                
                
                12/31/09
                
                
                $
                
                
                
                2010
                
                
                2009
                
                
                VarianceNet
      Sales
                
                $
                12,862,946
                
                
                $
                17,878,358
                
                
                $
                (5,015,412
                )
                
                
                100.00
                %
                
                
                100.00
                %
                
                
                -Cost
      of sales
                
                
                8,515,708
                
                
                
                12,655,961
                
                
                
                (4,140,253
                )
                
                
                66.20
                %
                
                
                70.79
                %
                
                
                -4.59
                %Gross
      Profit
                
                
                4,347,238
                
                
                
                5,222,397
                
                
                
                (875,159
                )
                
                
                33.80
                %
                
                
                29.21
                %
                
                
                4.59
                %Gross
      Profit %
                
                
                33.80
                %
                
                
                29.21
                %
                
                
                4.59
                %Expenses:Sales
      & marketing
                
                
                2,510,330
                
                
                
                2,900,815
                
                
                
                (390,485
                )
                
                
                19.52
                %
                
                
                16.23
                %
                
                
                3.29
                %Sales
      & marketing-PCTV
                
                
                97,398
                
                
                
                124,713
                
                
                
                (27,315
                )
                
                
                0.76
                %
                
                
                0.70
                %
                
                
                0.06
                %Technical
      support
                
                
                110,718
                
                
                
                121,173
                
                
                
                (10,455
                )
                
                
                0.86
                %
                
                
                0.68
                %
                
                
                0.18
                %General   &
      administrative
                
                
                747,422
                
                
                
                835,677
                
                
                
                (88,255
                )
                
                
                5.81
                %
                
                
                4.67
                %
                
                
                1.14
                %General   &
      administrative-PCTV
                
                
                56,184
                
                
                
                92,980
                
                
                
                (36,796
                )
                
                
                0.44
                %
                
                
                0.52
                %
                
                
                -0.08
                %Amortization
      of intangible assets
                
                
                188,709
                
                
                
                188,709
                
                
                
                -
                
                
                
                1.47
                %
                
                
                1.06
                %
                
                
                0.41
                %Selling,
      general and administrative stock compensation expense
                
                
                63,943
                
                
                
                68,456
                
                
                
                (4,513
                )
                
                
                0.50
                %
                
                
                0.38
                %
                
                
                0.12
                %Total  selling,
      general and administrative expense
                
                
                3,774,704
                
                
                
                4,332,523
                
                
                
                (557,819
                )
                
                
                29.36
                %
                
                
                24.24
                %
                
                
                5.12
                %Research  and
      development
                
                
                655,950
                
                
                
                627,757
                
                
                
                28,193
                
                
                
                5.10
                %
                
                
                3.51
                %
                
                
                1.59
                %Research  and
      development-PCTV
                
                
                404,302
                
                
                
                504,519
                
                
                
                (100,217
                )
                
                
                3.14
                %
                
                
                2.82
                %
                
                
                0.32
                %Research
      and development stock compensation expense
                
                
                36,527
                
                
                
                37,795
                
                
                
                (1,268
                )
                
                
                0.28
                %
                
                
                0.21
                %
                
                
                0.07
                %Total
      expenses
                
                
                4,871,483
                
                
                
                5,502,594
                
                
                
                (631,111
                )
                
                
                37.88
                %
                
                
                30.78
                %
                
                
                7.10
                %Loss
      from operations
                
                
                (524,245
                )
                
                
                (280,197
                )
                
                
                (244,048
                )
                
                
                -4.08
                %
                
                
                -1.57
                %
                
                
                -2.51
                %Other
      income (expense) :Interest
      income
                
                
                1,559
                
                
                
                1,452
                
                
                
                107
                
                
                
                0.01
                %
                
                
                0.01
                %
                
                
                0.00
                %Interest  (expense)
                
                
                -
                
                
                
                (4,340
                )
                
                
                4,340
                
                
                
                0.00
                %
                
                
                -0.02
                %
                
                
                0.02
                %Foreign
      currency
                
                
                31,523
                
                
                
                (240
                )
                
                
                31,763
                
                
                
                0.25
                %
                
                
                0.00
                %
                
                
                0.25
                %Total
      other income (expense)
                
                
                33,082
                
                
                
                (3,128
                )
                
                
                36,210
                
                
                
                0.26
                %
                
                
                -0.02
                %
                
                
                0.27
                %Loss  before
      tax provision
                
                
                (491,163
                )
                
                
                (283,325
                )
                
                
                (207,838
                )
                
                
                -3.82
                %
                
                
                -1.58
                %
                
                
                -2.24
                %Deferred
      tax expense
                
                
                199,726
                
                
                
                -
                
                
                
                199,726
                
                
                
                1.55
                %
                
                
                0.00
                %
                
                
                1.55
                %Current
      tax expense
                
                
                47,331
                
                
                
                51,226
                
                
                
                (3,895
                )
                
                
                0.37
                %
                
                
                0.29
                %
                
                
                0.08
                %Net  loss
                
                $
                (738,220
                )
                
                $
                (334,551
                )
                
                $
                (403,669
                )
                
                
                -5.74
                %
                
                
                -1.87
                %
                
                
                -3.87
                %




14


Net sales
for the three months ended December 31, 2010 decreased $5,015,412 compared to
the three months ended December 31, 2009 as shown in the table
below.





Increase
                  
                  
                  Increase(decrease)
                  
                  
                  (decrease)
                  
                  
                  Percentage of sales byThree Months
                  
                  
                  Three Months
                  
                  
                  Dollar
                  
                  
                  dollar
                  
                  
                  geographic regionended 12/31/10
                  
                  
                  ended 12/31/09
                  
                  
                  Variance
                  
                  
                  variance %
                  
                  
                  2010
                  
                  
                  2009The
      Americas
                  
                  $
                  7,893,888
                  
                  
                  $
                  7,663,098
                  
                  
                  $
                  230,790
                  
                  
                  
                  3
                  %
                  
                  
                  61
                  %
                  
                  
                  43
                  %Europe
                  
                  
                  4,706,131
                  
                  
                  
                  9,812,426
                  
                  
                  
                  (5,106,295
                  )
                  
                  
                  -52
                  %
                  
                  
                  37
                  %
                  
                  
                  55
                  %Asia
                  
                  
                  262,927
                  
                  
                  
                  402,834
                  
                  
                  
                  (139,907
                  )
                  
                  
                  -35
                  %
                  
                  
                  2
                  %
                  
                  
                  2
                  %Total
                  
                  $
                  12,862,946
                  
                  
                  $
                  17,878,358
                  
                  
                  $
                  (5,015,412
                  )
                  
                  
                  -28
                  %
                  
                  
                  100
                  %
                  
                  
                  100
                  %





European
sales were impacted by lower consumer demand due to weak economic conditions and
a weaker Euro exchange rate against the U.S. dollar for the quarter ended
December 31, 2010.  A sales mix of higher priced product contributed
to a 25.68% increase in the average unit sales price while unit sales declined
by 42.75%.




Gross
profit





Gross
profit decreased $875,159 for the three months ended December 31, 2010 compared
to the same period in the prior year.




The
decrease in the gross profit is detailed below:


Increase (decrease)Decreased
      sales
                  
                  $
                  (2,002,306
                  )Decrease
      due weaker Euro to USD exchange rate
                  
                  
                  (344,281
                  )Higher
      gross profit on sales mix
                  
                  
                  568,118Change
      in warranty repair reserve
                  
                  
                  150,787Lower
      production and production related costs
                  
                  
                  752,523Total
      decrease in gross profit
                  
                  $
                  (875,159
                  )





Gross
profit percentage for the three months ended December 31, 2010 was 33.80%
compared to 29.21% for the three months ended December 31, 2009, resulting in a
gross profit percentage increase of 4.59%.





The
increase in gross profit percentage is detailed below:


Increase (decrease)Higher
      gross profit on sales mix
                  
                  
                  4.60
                  %Decrease
      due weaker Euro to USD exchange rate
                  
                  
                  -1.68
                  %Change
      in  warranty  repair reserve
                  
                  
                  1.17
                  %Lower
      production and production related costs
                  
                  
                  0.50
                  %Total
      increase in gross profit percentage
                  
                  
                  4.59
                  %




The
factors contributing to the gross profit percent increase of 4.59% for the three
months ended December 31, 2010 were primarily:




15




·
            Shift
      in sales to products with a higher average unit sales price resulted in a
      gross profit percentage increase of
4.60%.


·
            A
      decrease in the Euro to USD exchange rate from 1.4773 for the three months
      ended December 31, 2010 to 1.3591 for the three months ended December 31,
      2010 resulted in a gross profit decrease of
  1.68%.


·
            Change
      in warranty repair reserve to reflect changes in estimate based on actual
      experience resulted in gross profit increase of
  1.17%


·
            Lower
      production  and production related costs such as building
      overhead, packaging costs, freight costs and labor costs at a third party
      facility resulted in a gross profit increase of
  0.50%.





Selling,
general and administrative expenses





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





Three months ended December 31,Dollar Costs
                  
                  
                  Percentage of SalesIncrease
                  
                  
                  
                  
                  
                  
                  
                  
                  Increase2010
                  
                  
                  2009
                  
                  
                  (Decrease)
                  
                  
                  2010
                  
                  
                  2009
                  
                  
                  (Decrease)Sales
      and marketing-HCW
                  
                  $
                  2,510,330
                  
                  
                  $
                  2,900,815
                  
                  
                  $
                  (390,485
                  )
                  
                  
                  19.52
                  %
                  
                  
                  16.23
                  %
                  
                  
                  3.29
                  %Sales
      and marketing-PCTV
                  
                  
                  97,398
                  
                  
                  
                  124,713
                  
                  
                  
                  (27,315
                  )
                  
                  
                  0.76
                  %
                  
                  
                  0.70
                  %
                  
                  
                  0.06
                  %Technical  support
                  
                  
                  110,718
                  
                  
                  
                  121,173
                  
                  
                  
                  (10,455
                  )
                  
                  
                  0.86
                  %
                  
                  
                  0.68
                  %
                  
                  
                  0.18
                  %General
      and administrative-HCW
                  
                  
                  747,422
                  
                  
                  
                  835,677
                  
                  
                  
                  (88,255
                  )
                  
                  
                  5.81
                  %
                  
                  
                  4.67
                  %
                  
                  
                  1.14
                  %General
      and administrative-PCTV
                  
                  
                  56,184
                  
                  
                  
                  92,980
                  
                  
                  
                  (36,796
                  )
                  
                  
                  0.44
                  %
                  
                  
                  0.52
                  %
                  
                  
                  -0.08
                  %Amortization
      of intangible assets
                  
                  
                  188,709
                  
                  
                  
                  188,709
                  
                  
                  
                  -
                  
                  
                  
                  1.47
                  %
                  
                  
                  1.06
                  %
                  
                  
                  0.41
                  %Stock
      compensation
                  
                  
                  63,943
                  
                  
                  
                  68,456
                  
                  
                  
                  (4,513
                  )
                  
                  
                  0.50
                  %
                  
                  
                  0.38
                  %
                  
                  
                  0.12
                  %Total
                  
                  $
                  3,774,704
                  
                  
                  $
                  4,332,523
                  
                  
                  $
                  (557,819
                  )
                  
                  
                  29.36
                  %
                  
                  
                  24.24
                  %
                  
                  
                  5.12
                  %





Selling,
general and administrative expense for the first quarter of fiscal 2011
decreased $557,819 from the same period as last year as follows.





Sales and
marketing expenses for HCW and PCTV decreased $417,800, driven primarily by a
$140,198 decrease in expenses attributable to the decrease in the Euro exchange
rate compared to the U.S. dollar, $317,670 decrease in sales related expenses,
mainly commission and co-op advertising expenses, offset by an increase of
$77,822 in sales offices expenses.





The
decrease in Technical Support was primarily due to lower personnel costs.
The  decrease in HCW and PCTV general and administrative expenses of
$125,051 was due primarily to lower professional fees for legal and accounting
services of $73,121 and lower PCTV general and administrative expenses of
$36,796, mainly for termination of service related  contracts and
lower communication and professional fees.





Research
and  development expenses





Research
and development expense for the three months ended December 31, 2010 decreased
$73,292 from the three months ended December 31, 2009 as follows:


HCW
                  
                  
                  PCTV
                  
                  
                  TotalResearch
      and development expense-HCW
                  
                  $
                  28,193
                  
                  
                  $
                  0
                  
                  
                  $
                  28,193Research
      and development expense-PCTV
                  
                  
                  0
                  
                  
                  
                  (100,217
                  )
                  
                  
                  (100,217
                  )Stock
      compensation expense
                  
                  
                  (1,268
                  )
                  
                  
                  0
                  
                  
                  
                  (1,268
                  )Total
      research and development expense
                  
                  $
                  26,925
                  
                  
                  $
                  (100,217
                  )
                  
                  $
                  (73,292
                  )




The PCTV
decrease in research and development expenses was due to lower personnel costs
and lower program costs.  The increase in HCW research and development
costs was due to higher personnel costs.




16




Tax
provision




Our tax
provision for the three months ended December 31, 2010 and 2009 is as
follows:





Three months ended December31,2010
                  
                  
                  2009Tax  expense  on international  operations
                  
                  $
                  37,331
                  
                  
                  $
                  41,226State
      taxes
                  
                  
                  10,000
                  
                  
                  
                  10,000Deferred
      tax expense
                  
                  
                  199,726
                  
                  
                  
                  -Tax
      provision
                  
                  $
                  247,057
                  
                  
                  $
                  51,226




Summary
of operations





We
recorded a net loss of $738,220 for the three months ended December 31, 2010,
which resulted in basic and diluted net income per share of $0.07 on weighted
average basic and diluted shares of 10,083,417, compared to a net loss of
$334,551 for the three months ended December 31, 2009, which resulted in basic
and diluted net loss per share of $0.03 on weighted average basic and diluted
shares of 10,059,808.





Options
to purchase 1,537,442 and 1,522,394 shares of common stock, at prices from $0.89
to $7.45 and from $1.05 to $8.75, were outstanding for the three months ended
December 31, 2010 and 2009, respectively, but were not included in the
computation of diluted earnings per share because they were
anti-dilutive.




Seasonality





As our
sales are primarily to the consumer market, we have experienced certain seasonal
revenue trends. Historically, our peak sales quarter due to holiday season sales
is our first fiscal quarter (October to December), followed by our second fiscal
quarter (January to March). In addition, our international sales, mostly in the
European market, were 54% of sales for fiscal year ended September 30, 2010 and
52%  for the fiscal year ended September 30, 2009.  Part of
our third and fourth quarters (April through June and July to 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.





Liquidity
and capital resources





Our cash,
working capital and stockholders’ equity position as of December 31, 2010 and
September 30, 2010 is set forth below:


December 31, 2010
                  
                  
                  September 30, 2010Cash
                  
                  $
                  7,286,019
                  
                  
                  $
                  7,057,904Working
      Capital
                  
                  
                  4,671,132
                  
                  
                  
                  4,777,442Stockholders’
      Equity
                  
                  
                  9,484,989
                  
                  
                  
                  9,980,642





The
Company had cash and cash equivalents as of December 31, 2010 of $7,286,019, an
increase of $228,115 from September 30, 2010.


17




The
increase in cash was due to was:




Operating
                      
                      
                      Investing
                      
                      
                      FinancingActivities
                      
                      
                      Activities
                      
                      
                      Activities
                      
                      
                      TotalSources of cash:Decrease
      in  accounts receivable
                      
                      $
                      1,696,257
                      
                      
                      $
                      0
                      
                      
                      $
                      0
                      
                      
                      $
                      1,696,257Proceeds
      from employee stock purchases
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      3,677
                      
                      
                      
                      3,677Total
      sources of cash
                      
                      
                      1,696,257
                      
                      
                      $
                      0
                      
                      
                      
                      3,677
                      
                      
                      
                      1,699,934Less cash used for:Increase
      in inventory
                      
                      $
                      (1,032,798
                      )
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      (1,032,798
                      )Net
      loss adjusted for non cash items
                      
                      
                      (245,524
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (245,524
                      )Increase  in
      prepaid expenses and other current assets
                      
                      
                      (86,338
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (86,338
                      )Decrease  in  accounts
      payable and accrued expenses
                      
                      
                      (62,716
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (62,716
                      )Effect
      of exchange rates on cash
                      
                      
                      (23,636
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (23,636
                      )Capital
      equipment purchases
                      
                      
                      -
                      
                      
                      
                      (20,807
                      )
                      
                      
                      -
                      
                      
                      
                      (20,807
                      )Total  cash
      usage
                      
                      
                      (1,451,012
                      )
                      
                      
                      (20,807
                      )
                      
                      
                      -
                      
                      
                      
                      (1,471,819
                      )Net
      cash increase
                      
                      $
                      245,245
                      
                      
                      $
                      (20,807
                      )
                      
                      $
                      3,677
                      
                      
                      $
                      228,115




Net cash
provided by operating activities was due to a decrease in accounts receivable of
$1,696,257.   The decrease in accounts receivable was primarily
due to timing of sales. Offsetting the cash increase were increases in inventory
of $1,032,798, the net loss adjusted for non cash items of $245,524, increases
in prepaid expenses of $86,338 and a decrease in accounts payable and accrued
expenses of $62,716.  The increase in inventory was for parts
purchased for products that are expected to be built in the second fiscal
quarter.





Cash of
$20,807 was used in investing activities for the purchase of fixed
assets.  Cash of $3,677 from financing activities came from exercise
of incentive stock options.





Our cash
requirements for the next twelve months will include, among other things, the
cash needed to fund our operating and working capital needs.  With the
proper execution of our business and operating plan, we believe that our cash
and cash equivalents as of December 31, 2010 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.




Future
contractual obligations





The
following table shows our contractual obligations related to lease obligations
as of December 31, 2010:





Payments due by periodTotal
                  
                  
                  Less than 1 year
                  
                  
                  1-3 years
                  
                  
                  3 to 5 yearsOperating
      lease obligations
                  
                  $
                  901,735
                  
                  
                  $
                  591,826
                  
                  
                  $
                  280,440
                  
                  
                  $
                  29,469




18




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.




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.




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 to ensure 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 required disclosure.





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 December 31,
2010.





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.




19




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, history of operating losses an  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, 2010 and
this  Form 10-Q for the three months ended December 31,
2010.  Copies of these filings are available at
www.sec.gov.





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
      200231.2
            
            Certification
      of the 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
      200232
            
            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





(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, 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:   February 11,
      2011
                            By
                            /s/Kenneth PlotkinKENNETH  PLOTKINChief
      Executive Officer, Chairman of theBoard,
      President (Principal Executive
Officer)





Date:   February 11,
      2011
                By
                /s/Gerald TucciaroneGERALD
      TUCCIARONETreasurer,
      Chief Financial Officer,(Principal
      Financial Officer and PrincipalAccounting
      Officer) and Secretary




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