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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
Commission file number: 0-28082
KVH Industries, Inc.
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Delaware 05-0420589
KVH Industries, Inc.
110 Enterprise Center
Middletown, RI. 02842
(401) 847 3327
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. Yes No X
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Date Class Outstanding shares
May 13, 1996 Common Stock, par value $0.01 per, share 6,786,553
KVH INDUSTRIES, INC. AND SUBSIDIARY
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets as of March 31, 1996 and
December 31, 1995 3
Consolidated Statements of Income for the
three months ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURES 10
Part I. Financial Information
Item 1. Financial Statements.
KVH INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March December
31, 1996 31, 1995
---------- ----------
(Unaudited) (Audited)
Assets
Current assets:
Cash and cash equivalents ........................ 590,488 895,677
Accounts receivable, net ......................... 2,321,279 2,187,916
Contract receivables ............................. 214,996 994,056
Costs and estimated earnings in
excess of billings on uncompleted contracts .... 837,547 916,194
Inventories ...................................... 2,365,422 1,753,172
Prepaid expenses and other deposits .............. 103,187 156,675
Deferred income taxes ............................ 405,069 515,285
Deferred registration costs ...................... 494,598 0
---------- ----------
Total current assets ........................... 7,332,586 7,418,975
---------- ----------
Property and equipment, net ...................... 871,211 423,842
Other assets, less accumulated amortization ...... 55,204 64,946
Deferred income taxes ............................ 17,576 23,510
---------- ----------
Total assets ................................. 8,276,577 7,931,273
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Current installments under capital leases ........ 39,517 40,787
Accounts payable ................................. 1,296,733 958,507
Accrued expenses ................................. 317,499 335,896
Customer deposits ................................ 2,719,595 2,869,595
---------- ----------
Total current liabilities .................... 4,373,344 4,204,785
Obligations under capital leases,
excluding current installments ................. 61,018 72,439
---------- ----------
Total liabilities ............................ 4,434,362 4,277,224
---------- ----------
Stockholders' equity
Preferred stock .................................. 12,982 12,982
Common stock ..................................... 16,164 16,160
Additional paid-in capital ....................... 4,473,639 4,473,045
Accumulated deficit .............................. (660,570) (848,138)
---------- ----------
Total stockholders' equity ..................... 3,842,215 3,654,049
---------- ----------
Total liabilities and stockholders' equity ... 8,276,577 7,931,273
========== ==========
See accompanying notes to consolidated financial statements.
Item 1. Financial Statements.
KVH INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended
March 31,
1996 1995
---------- ----------
Net sales .................................... 4,780,659 2,767,878
Cost of goods sold ........................... 2,692,389 1,537,386
---------- ----------
Gross profit ........................... 2,088,270 1,230,492
Operating expenses:
Research and development .................. 609,721 175,585
Sales and marketing ....................... 858,221 506,236
General and administrative ................ 316,135 200,230
---------- ----------
Income from operations ................. 304,193 348,441
Other deductions (income):
Interest expense, net ..................... 0 13,052
Other expense (income) .................... (1,251) (840)
Gain on foreign currency translation ...... (7,166) (14,855)
---------- ----------
Income before provision for income taxes 312,610 351,084
Provision for income taxes ................... 125,042 0
---------- ----------
Net income ............................. 187,568 351,084
========== ==========
Per share information:
Net income per common share ............... $ 0.03 $ 0.06
========== ==========
Weighted average number of shares outstanding 5,736,812 5,710,177
========== ==========
See accompanying notes to consolidated financial statements.
Item 1. Financial Statements.
KVH INDUSTRIES, INC. & SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Three months ended
March 31,
1996 1995
-------- --------
Cash flows from operating activities:
Net income ............................................. 187,568 351,084
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization .......................... 44,994 37,370
Provision for deferred taxes ........................... 116,150 0
(Increase) decrease in accounts and contract receivables 645,697 (712,788)
Decrease in costs and estimated earnings in
excess of billings on uncompleted contracts .......... 78,647 319,001
Increase in inventories ................................ (612,250) (229,272)
(Increase) in prepaid expenses and
other deposits ....................................... 53,488 (36,368)
Increase in accounts payable ........................... 338,226 339,270
(Decrease) in accrued expenses ......................... (18,397) (41,267)
(Decrease) in customer deposits ........................ (150,000) 0
-------- --------
Net cash provided by operating activities .............. 684,123 27,030
-------- --------
Cash flows from investing activities:
Capital expenditures ................................... (482,620) (7,413)
-------- --------
Net cash used in investing activities: ................. (482,620) (7,413)
-------- --------
Cash flows from financing activities:
(Increase) in deferred registration costs .............. (494,598) 0
Net borrowings on note payable to bank ................. 0 9,591
Repayments of obligations under capital lease .......... (12,692) (7,715)
Exercise of stock options .............................. 598 0
-------- --------
Net cash provided by (used in) financing activities .... (506,692) 1,876
-------- --------
Net increase (decrease) in cash and cash equivalents ... (305,189) 21,493
Cash and cash equivalents at beginning of year ......... 895,677 191,438
======== ========
Cash and cash equivalents at end of year ............... 590,488 212,931
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest ............... 966 12,293
======== ========
See the accompanying notes to consolidated financial statements.
Item 1. Financial Statements.
KVH INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1996 and 1995
(Unaudited)
(1.) The accompanying consolidated financial statements of KVH Industries, Inc.
and subsidiary (the "Company") for the periods ended March 31, 1996 and March
31, 1995 have been prepared in accordance with generally accepted accounting
principles and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. These financial statements have not been audited by independent public
accountants, but include all adjustments (consisting of only normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial condition, results of operations and cash flows
for such periods.
The results of operations for the interim periods shown in this report are not
necessarily indicative of results for any future interim periods or for the
entire year. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. These consolidated financial statements do not include all
disclosures associated with annual financial statements and accordingly should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Registration Statement on Form S-1 filed with
the Securities and Exchange Commission (file number 333-01258) a copy of which
is available from the Company.
(2.) On March 28, 1996, the Company's registration statement for an initial
public offering of common stock was declared effective. An aggregate of
1,800,000 shares of common stock were issued by the Company on April 5, 1996
(after the close of the period covered by these financial statements) at an
initial public offering price of $6.50 per share. The following table sets forth
(i) the actual cash and stockholders' equity of the Company at March 31, 1996
and (ii) the pro forma as adjusted cash and stockholders' equity giving effect
to the stock offering and receipt of the estimated net proceeds therefrom and
conversion to common stock at the closing of the offering of all outstanding
shares of the Company's preferred stock.
At March 31, 1996
(In thousands)
Actual Pro forma as adjusted
Cash and cash equivalents .................... $ 590 $ 10,881
======== ========
Stockholders' equity:
Preferred stock ..................... $ 13 --
Common Stock ........................ 16 $ 67
Additional paid-in capital .......... 4,474 14,726
Accumulated deficit ................. (661) (661)
-------- --------
Total stockholders' equity ........ $ 3,842 $ 14,132
======== ========
(3.) Inventories (in thousands of dollars) at March 31, 1996 and December 31,
1995 include the costs of material, labor and factory overhead. Inventories are
stated at the lower of cost (first-in, first-out) or market and consist of the
following:
1996 1995
---- ----
Raw materials $1,869 $1,256
Work in process 114 101
Finished goods 382 396
---- ------
$2,365 $1,753
====== ======
Item 1. Financial Statements.
KVH INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1996 and 1995
(Unaudited)
(4.) On March 18, 1996 the Company entered into a purchase and sales agreement
to acquire a 75,000 square foot manufacturing and office facility. Property
plant and equipment includes a real estate deposit in the amount of $200,000 to
secure the purchase of that facility. The estimated cost of the completed
facility is approximately $3,000,000.
(5.) The Company had available net operating loss carry-forwards through
December 31, 1995 for both tax return and financial reporting purposes. In 1995
the full benefit of the net operating loss carry-forward deduction was realized
for financial reporting purposes, based upon the Company's expectation that it
will have future taxable income in 1996 and beyond in order to realize the
benefit of these future tax deductions. In 1996 net operating loss carry-forward
will be available for tax return purposes only.
Income tax provisions for the three-month periods ended March 31, 1996 and 1995
have been calculated at estimated annual effective tax rates of 40% and 0.0%
respectively. The effective tax rate for the three months ended March 31, 1996
and 1995 differ from the federal statutory rate of 34% primarily due to state
taxes net of federal tax benefit and the application of net operating loss
carryforwards against 1995 taxable income. The Company believes that the net
deferred tax assets are more likely than not to be realized because of current
income projections.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This report may contain forward-looking statements which involve risks or
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors which might cause
such differences include, but are not limited to, those discussed under "Risk
Factors" in the Company's Registration Statement on Form S-1, File No.
333-01258, declared effective March 28, 1996, a copy of which is available from
the Company.
NET INCOME AND EARNINGS PER SHARE - Net income and earnings per share for the
three months ended March 31, 1996 and 1995 were $187,568 or $0.03 per share and
$351,084 or $0.06 per share respectively. Net income for the first quarter ended
March 31, 1995 was positively affected by a contract settlement relating to a
customer-funded development project and by the absence of any provision for
income taxes, due to the availability of loss carryforwards that have since been
fully utilized. Excluding the impact of the contract settlement and tax-loss
carry-forward, net income for the quarter ended March 31, 1995 would have been
$57,000 or $0.01 per share.
NET SALES - Net sales grew to $4,780,659 or a 73% increase when compared with
first quarter 1995 revenues of $2,767,878. Over 80% of the increase in product
shipments resulted from new products such as: TracVision (a marine mobile
satellite direct television antenna system), ASAP (an actively stabilized
antenna pedestal for use in marine mobile voice and data communications
applications) and TacNav (a land mobile navigation system for use on military
armored vehicles). The largest segment of sales growth was communications
products that accounted for increased revenues of $1,074,805 or 629% over the
first quarter of 1995. The first quarter 1996 communications revenue growth
resulted from shipments to: Mitsubishi Electronics Corporation and Westinghouse
Corporation. Military land navigation product revenues grew to $2,265,406, a 57%
increase when compared with first quarter 1995 military land navigation revenues
of $1,446,276. The growth in military land navigation revenues in the first
quarter of 1996 resulted form shipments to: the United States Army Bradley
Fighting Vehicle program, the Canadian RECCE program and the Saudi Arabian Light
Armored Vehicle program. Marine navigation products increased to $1,269,448 or
10% in the first quarter of 1996 when compared with first quarter 1995 revenues
of $1,150,603. Marine navigation revenue growth was less than expected, due
primarily to the late award of European Union ("EU") product certifications. In
the absence of EU product certifications the Company was forced to withhold
European shipments for six weeks resulting in the loss of European marine
navigation revenues. The Company's products were EU certified mid-way through
the first quarter and shipments have resumed at anticipated volumes.
GROSS PROFIT - Gross profit increased $857,778 or 70% in the first quarter of
1996 when compared with the first quarter of 1995 due to the Company's increase
in net sales. Gross profit as a percentage of net sales was 44% in both 1996 and
1995.
OPERATING EXPENSES - Research and development expense increased by $434,136 or
247% in the first quarter when compared with the first quarter of 1995,
primarily as a result of a shift in the Company's research and activities from
customer-funded research and development programs (that are accounted for as
cost of sales) toward company-funded research and development programs (that are
accounted for as research and development expense). Customer-funded research and
development costs of sales decreased to $205,670 in the first quarter of 1996
compared with $560,292 in the corresponding period of 1995. Combined
expenditures of customer-funded and company-funded research and development in
the first quarter of 1996 increased by $79,513 or 11% when compared with the
first quarter of 1995. Sales and marketing expense increased $351,985 or 70% in
the first quarter of 1996 when compared with the first quarter of 1995, due to
increases in variable selling support costs such as sales commissions, media
expense and travel expense, attributed to increased sales volumes. General and
administrative expense increased by $115,905 or 58% in the first quarter of 1996
when compared with the first quarter of 1995, primarily as a result of new hires
to support the company's growth.
OTHER DEDUCTIONS (INCOME) - Other deductions, (income) is made up of interest
expense net, other expense, other income, and foreign currency translation
gains. The year to year change in other deductions resulted primarily from
increased interest income, which off-set interest expense charges in the first
quarter of 1996.
INCOME TAXES - Income tax expense increased by $125,042 in the first quarter of
1996 when compared with the first quarter of 1995 in which no provision for
taxes was recorded. The Company had available net operating loss carry-forwards
through December 31, 1995 for both tax return and financial reporting purposes.
In 1995 the full benefit of the net operating loss carry-forward deduction was
realized for financial reporting purposes, based upon the Company's expectation
that it will have future taxable income in 1996 and beyond in order to realize
the benefit of these future tax deductions. In 1996 net operating loss
carry-forwards will be available for tax return purposes only.
LIQUIDITY AND CAPITAL RESOURCES - Working capital decreased by $254,948 in the
first quarter of 1996 due to a build up of long-lead inventory items to support
military orders that are scheduled for shipment later in 1996 and deferred
registration costs associated with the Company's initial public offering. Cash
and cash equivalents were $590,488 and $895,677 on March 31, 1996 and December
31, 1995 respectively.
On March 28, 1996, the Company's registration statement for an initial public
offering of common stock was declared effective. An aggregate of 1,800,000
shares of common stock were issued by the Company on April 5, 1996 (after the
close of the period covered by these financial statements) at an initial public
offering price of $6.50 per share that resulted in approximately $10.3 million
dollars in net proceeds. The Company believes that cash generated from
operations, amounts available under its credit facility and the net proceeds of
the initial public offering will be sufficient to fund its necessary operations
and planned capital expenditures for at least the next twelve months.
CAPITAL EXPENDITURES - Fixed assets increased approximately $482,620 in the
first quarter of 1996 as compared with December 31, 1995. The increase in fixed
assets reflects: tooling for communications products and a deposit to purchase a
manufacturing and office facility. The Company believes that the facility will
cost approximately $3,000,000 prior to occupancy in late 1996.
NEW ACCOUNTING STANDARDS - Effective January 1, 1996 the Company adopted
Financial Accounting Standards Board Statements No. 121 "Accounting for the
Impairment of Long Lived Assets and for Long Lived Assets to be Disposed of" and
No. 123 "Accounting for Stock-Based Compensation" ("FAS 123"). The adoption of
these standards had no impact on the financial position or the results of
operations of the Company for the period ended March 31, 1996. Under FAS 123,
the Company has elected not to adopt the new accounting method and will continue
to account for its stock-based compensation under the existing provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Accordingly, the Company will provide pro-forma disclosures of net
income and earnings per share for the year ended December 31, 1996, assuming FAS
123 had been adopted.
Part II. Other Information
Item 1. Legal Proceedings.
None
Item 6. Exhibits and reports on Form 8-K.
1. Exhibit 11 - Computation of Earnings Per Common Share: Three Months Ended
March 31, 1996 and 1995.
2. No reports on Form 8-K were filed during the quarter for which this report
was filed.
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.
KVH Industries, Inc.
By:_____________________________________________________
Richard C. Forsyth Chief Financial and Chief Accounting Officer
Date: May 13, 1996
Exhibit 11
KVH INDUSTRIES INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
(Unaudited)
For the three
months ended
March 31,
1996 1995
----- -----
Net Earnings ............................................... 187 351
Shares:
Weighted average number of common shares outstanding ..... 1,616 1,616
Additional shares assuming conversion of:
Convertible preferred stock ............................ 3,245 3,245
Stock options and warrants .............................. 876 849
===== =====
Average common shares outstanding and equivalents ....... 5,737 5,710
===== =====
Net earnings per common share .............................. $0.03 $0.06