SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended June 30, 1996
Commission file number: 0-28082
KVH Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware 05-0420589
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Enterprise Center, Middletown, RI. 02842
(Address of principal executive offices)
Registrant's telephone number, including area code (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 X No
The number of outstanding shares of the Registrant's Common
Stock as of July 31, 1996 was 6,815,498.
KVH INDUSTRIES, INC. AND SUBSIDIARY
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets as of June 30, 1996 and
December 31, 1995 3
Consolidated Statements of Income for the
three and six months ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 11
Part I. Financial Information
Item 1. Financial Statements.
KVH INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1996 1995
(Unaudited) (Audited)
Assets
Cash and cash equivalents .............. $ 8,411,628 $ 895,677
Accounts receivable, net ............... 3,571,289 2,187,916
Contract receivables ................... 84,347 994,056
Costs and estimated earnings in
excess of billings on uncompleted contract 295,127 916,194
Inventories ............................ 2,660,919 1,753,172
Prepaid expenses and other deposits .... 263,273 156,675
Deferred income taxes .................. 515,285 515,285
------------ ------------
Total current assets ................. 15,801,868 7,418,975
------------ ------------
Property and equipment, net ............ 2,919,696 423,842
Other assets, less accumulated amortization 45,462 64,946
Deferred income taxes .................. 23,510 23,510
------------ ------------
Total assets ......................... $ 18,790,536 $ 7,931,273
============ ============
Liabilities and stockholders' equity
Current liabilities:
Current lease obligation ............... $ 47,653 $ 40,787
Accounts payable ....................... 1,242,672 958,507
Accrued expenses ....................... 578,488 335,896
Customer deposits ...................... 2,621,095 2,869,595
------------ ------------
Total current liabilities ............ 4,489,908 4,204,785
------------ ------------
Obligations under capital leases,
excluding current installments ........ 40,047 72,439
------------ ------------
Total liabilities .................... 4,529,955 4,277,224
------------ ------------
Stockholders' equity
Preferred stock ........................ 0 12,982
Common stock ........................... 68,155 16,160
Additional paid-in capital ............. 14,532,897 4,473,045
Accumulated deficit .................... (340,471) (848,138)
------------ ------------
Total stockholders' equity ........... 14,260,581 3,654,049
------------ ------------
Total liabilities and stockholders' equity $ 18,790,536 $ 7,931,273
============ ============
See accompanying notes to financial statements.
Item 1. Financial Statements.
KVH INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
..... Three monthsSix months ended:
..... June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
Net sales .................... $5,113,602 $3,080,851 $9,894,261 $5,848,730
Cost of goods sold ........... 2,829,248 1,892,733 5,521,637 3,431,119
--------- --------- --------- ---------
Gross profit ................. 2,284,354 1,188,118 4,372,624 2,417,611
Operating expenses:
Research and development .... 674,297 190,102 1,284,018 365,687
Sales and marketing ......... 785,701 520,783 1,643,923 1,027,019
General and administrative .. 394,284 238,493 710,419 438,720
-------- -------- -------- --------
Income from operations ....... 430,072 238,740 734,264 586,185
Other (income) deductions:
Interest (income) expense, .. (102,660) 15,212 (102,660) 27,424
Other (income) expense, net . (8,975) 19,211 (10,226) 19,211
Foreign currency (gain) loss. 29,612 (5,996) 22,446 (21,851)
-------- -------- -------- --------
Income before income taxes 512,095 210,313 824,704 561,401
Income tax expense ........... 191,996 0 317,038 0
-------- -------- -------- --------
Net income .................. $320,099 $210,313 $507,666 $561,401
======== ======== ======== ========
Net income per share:
Primary .............. $ 0.04 $ 0.04 $ 0.08 $ 0.10
======== ======== ======== ========
Fully diluted ......... $ 0.04 $ 0.04 $ 0.08 $ 0.10
======== ======== ======== ========
Weighted average number of common and common equivalent shares outstanding:
Primary 7,404,464 5,710,177 6,470,208 5,710,177
=========== ========== =========== =========
Fully diluted 7,408,232 5,710,177 6,496,153 5,710,177
=========== ========= =========== =========
See accompanying notes to financial statements.
Item 1. Financial Statements.
KVH INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30,
1996 1995
Cash flows from operating activities:
Net income ....................................... $ 507,666 $ 561,401
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization .................... 90,207 67,268
(Increase) in accounts receivable ................ (473,664) (883,638)
Decrease in costs and estimated earnings in excess of
billings on uncompleted contracts ............... 621,067 681,165
(Increase) in inventories ........................ (907,747) (430,671)
(Increase in prepaid expenses and other deposits (106,598) (77,021)
Increase in accounts payable ..................... 284,165 137,866
Increase (decrease) in accrued expenses .......... 242,592 (67,021)
Increase (decrease) in customer deposits ......... (248,500) 250,000
------------ ----------
Net operating cash provided by operating
activities ...................................... 240,349 9,188
Cash flows from investing activities:
Capital expenditures ............................. (2,566,576) (114,147)
------------ ----------
Net cash (used in) investing activities .......... (2,566,576) (114,147)
------------ ----------
Cash flows from financing activities:
(Repayments) incurrence of obligations under capital
lease ........................................... (25,526) 15,467
Issuance of capital stock, exercise of warrants and
stock options ................................... 10,098,865 7,500
------------ ----------
Net cash provided by financing activities ........ 10,073,339 22,967
------------ ----------
Net increase in cash and cash equivalents ........ 7,515,951 149,169
Cash and cash equivalents at beginning of year ... 895,677 191,438
------------ ----------
Cash and cash equivalents at end of period ....... $ 8,411,628 $ 340,169
============ ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 5,176 $ 30,016
========== =========
See accompanying notes to financial statements.
Item 1. Financial Statements.
KVH INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1996 and 1995
(Unaudited)
(1.) The unaudited interim financial statements presented herein have been
prepared in accordance with generally accepted accounting principles and with
the instructions to Form 10-Q and Regulation S-X pertaining to interim financial
statements. The financial statements reflect all adjustments (consisting of
normal recurring adjustments and accruals) which, in the opinion of management,
are considered necessary for a fair presentation of financial position at June
30, 1996 and results of operations for the three and six months ended June 30,
1996 and June 30, 1995. 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) declared
effective March 28, 1996, a copy of which is available from the Company. The
results of operations for the three and six months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the full year
ending December 31, 1996.
(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 in April, 1996 at an
initial public offering price of $6.50 per share.
(3.) Inventories at June 30, 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:
(in thousands of dollars)
1996 1995
Raw materials $1,898 $1,256
Work in progress 173 101
Finished Goods 590 396
-------- --------
Total $2,661 $1,753
======== ========
(4.) On May 10, 1996 the Company purchased a 75,000 square foot manufacturing
and office facility adjacent to the Company's existing operations for
$2,000,000. The Company is in the process of renovating the facility to
accommodate engineering, manufacturing and office areas. The Company estimates
the cost of renovation at approximately $1,200,000 and that the space will be
ready for occupancy in the fourth quarter of 1996. The new facility will
increase the Company's total floor area to over 100,000 square feet and is
expected to be sufficient to accommodate the Company's operating needs for the
next three years.
(5.) Through December 31, 1995 the Company had available net operating loss
carry-forwards 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 and as a consequence taxes have been recorded for
financial reporting purposes in 1996. Income tax expense for the three-and six
month periods ended June 30, 1996 were calculated using an estimated annual
effective tax rate of 40%.
The effective tax rate for the three and six months ended June 30, 1996 differs
from the federal statutory rate of 34% primarily due to state tax expense net of
federal tax benefit. The Company believes that its net deferred tax assets will
more likely than not be realized, based upon estimated future taxable 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 were
$320,099 or $0.04 per share (after taking into effect the increase in the
weighted average number of shares outstanding that resulted from the Company's
initial public offering in April 1996) and $210,313 or $0.04 per share for the
three months ended June 30, 1996 and 1995 respectively. Net income for the
second quarter of 1996 increased by $109,786 or 52% over the second quarter of
1995. Net income and earnings per share were $507,666 or $0.08 per share and
$561,401 or $0.10 per share for the six months ended June 30, 1996 and 1995
respectively. Net income and earnings per share for the six months ended June
30, 1995 were positively affected by a one time contract settlement relating to
a customer-funded engineering development and by the absence of any provision
for income taxes. Excluding the positive impacts of the one time contract
settlement and the absence of tax expense, net income for the six months ended
June 30, 1995 would have been $183,000 or $0.03 per share.
Net Sales - Net sales for the three month period ended June 30, 1995 grew to
$5,113,602 or a 66% increase when compared with second quarter 1995 net sales of
$3,080,851. Second quarter 1996 product revenues increased to $4,846,382 or a
133% increase compared with second quarter 1995 revenues of $2,078,684. Lower
margin engineering development revenues declined to $267,220 in the second
quarter of 1996 from $1,002,167 in the second quarter of 1995. The shift away
from engineering development revenues to higher margin product revenues reflects
the Company's completion of the TacNav military land navigation system that was
primarily funded by the governments of Canada, the United States and Sweden.
Military land navigation product revenues grew to $2,380,903 in the second
quarter of 1996, a 509% increase when compared with second quarter 1995 revenues
of $391,030. The growth in military land navigation revenues resulted from
shipments to the United States Army Bradley Fighting Vehicle program, the
Canadian RECCE program, the Saudi Arabian Light Armored Vehicle program and the
Swedish CV-90 program. Communications product revenues grew to $901,820 in the
second quarter of 1996, a 346% increase when compared with second quarter 1995
revenues of $202,000. Communications revenue growth resulted from shipments to
American Mobile Satellite Corporation and Mitsubishi Electronics Corporation.
The American Mobile Satellite delivery is a significant milestone marking the
shipment of the first 100 TracPhone turnkey satellite telephone systems. The
Tracphone shipment is the first shipment of products to fulfill the American
Mobile Satellite contract that amounts to over $10 million dollars. . Net sales
for the six month period ended June 30, 1996 increased to $9,894,261 a 69%
growth over the comparable 1995 net sales of $5,848,730.
Gross Profit - Gross profit increased by $1,096,236 or 92% in the second quarter
of 1996 when compared with the second quarter of 1995 due to increased sales
volumes and improved product gross margins. Gross profit as a percentage of net
sales was 45% in the second quarter of 1996 and 39% in the second quarter of
1995. Gross margin grew to 44% of net sales in the first six months of 1996 as
opposed to 41% of net sales for the comparable period of 1995. This improvement
represents a shift away from lower margin engineering development sales.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Operating Expenses - Research and development expense increased by $484,195 or
255% in the second quarter of 1996 when compared with the second quarter of 1995
and increased $918,331 or 251% in the first six months of 1996 primarily as a
result of a shift in the Company's research and development efforts from
customer-funded research and development (accounted for as cost of sales) to
Company-funded research and development (accounted for as research and
development expense). Sales and marketing expense increased $264,918 or 51% in
the second quarter of 1996 when compared with the second quarter of 1995 and
increased $616,904 or 60% in the first six months of 1996, due to increases in
variable selling support costs such as sales commissions, as well as marketing
media expense and travel expense, associated with increased sales volumes.
General and administrative expense increased by $155,791 or 65% in the second
quarter of 1996 when compared with the second quarter of 1995 and increased
$271,699 or 62% in the first six months of 1996, primarily as a result of new
hires to support the company's growth and increased legal, audit and insurance
expenses that result from the Company's status as a publicly traded company.
Other (Income) Deductions - Other (income) deductions is made up of interest
(income) expense net, other (income) expense net, and foreign currency (gain)
loss. The year to year decrease in other deductions resulted primarily from
increased second quarter 1996 interest income of $137,083, which off set other
expense charges in both the second quarter and the first six months of 1996.
Second quarter 1996 interest income results from the investment of a portion of
Company's initial public offering proceeds in interest bearing short term
government securities.
Income Taxes - Income tax expense increased by $191,996 in the second quarter of
1996 when compared with the first quarter of 1995 and increased $317,039 for the
first six months of 1996 when compared with the comparable period of the prior
year. No provision for income taxes was recorded in 1995 as the entire benefit
of the Company's net operating loss carry-forward deduction was fully realized
for financial reporting purposes in 1995. In 1996 net operating loss
carry-forwards are available for tax return purposes only, consequently 1996
operating results include a provision for income tax expense.
Liquidity and Capital Resources - Working capital increased by $8,097,770 in the
second quarter of 1996 due to receipt of the proceeds of the Company's initial
public offering in April, 1996. In May 1996 the Company purchased an operating
facility in the amount of $2,000,000 using a portion of the proceeds of the
Company's initial offering. Cash and cash equivalents were $8,411,628 and
$895,677 on June 30, 1996 and December 31, 1995 respectively.
On June 28, 1996 the Company entered into a bank revolving line of credit in the
amount of $2,500,000 to replace the bank line of credit that expired on that
date. The revolving line of credit is collateralized by all of the Company's
assets. The Company has not drawn upon the loan facility. The new loan agreement
expires on June 30, 1998.
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 in April, 1996 at an initial
public offering price of $6.50 per share that resulted in approximately $9.9
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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Capital Expenditures - Property and equipment increased approximately $2,566,576
in the second quarter of 1996 as compared with December 31, 1995. The increase
in fixed assets reflects the purchase of a manufacturing and office facility in
the amount of $2,000,000 as well as the procurement of production tooling
related to communications products. The Company believes that the cost of
renovating the facility will approximate an additional $1,200,000 prior to
occupancy in fourth quarter of 1996.
Other Matters - 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 June 30, 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 and Six
Months Ended June 30, 1996 and 1995.
2. Exhibit 27 - Financial Data Schedule: Six Months Ended June 30, 1996.
3. 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 Accounting Officer
Date: July 31, 1996
Exhibit 11
KVH INDUSTRIES, INC.
COMPUTATION OF NET EARNINGS PER SHARE
(in thousands, except per share data)
(Unaudited)
For the three For the six
months ended: months ended:
June 30, June 30,
1996 1995 1996 1995
-------- -------- ------- --------
Primary earnings per share:
Net income $ 320 $ 209 $ 508 $ 560
-------- -------- ------- -------
Shares:
Weighted average number of
common shares outstanding 6,724 4,861 5,793 4,861
Additional shares assuming
conversion of:
Stock options and warrants 680 849 677 849
-------- -------- ------- -------
Average common shares and
equivalents outstanding 7,404 5,710 6,470 5,710
-------- -------- ------- -------
Net earnings per common share $ 0.04 $ 0.04 $ 0.08 $ 0.10
======== ======== ======= =======
Fully diluted earnings per share:
Net income $ 320 $ 209 $ 508 $ 560
-------- -------- ------- -------
Shares:
Weighted average number of
common shares outstanding 6,724 4,861 5,793 4,861
Additional shares assuming
conversion of:
Stock options and warrants 684 849 703 849
-------- -------- ------- -------
Average common shares and
equivalents outstanding 7,408 5,710 6,496 5,710
-------- -------- ------- -------
Net earnings per common share $ 0.04 $ 0.04 $ 0.08 $ 0.10
======== ======== ======= =======
5
6-MOS
DEC-31-1996
JUN-30-1996
8,411,628
0
3,719,978
148,689
2,660,919
15,801,868
2,990,418
70,722
18,790,536
4,489,908
0
0
0
68,155
0
18,790,536
9,894,261
9,894,261
5,521,637
5,521,637
3,638,360
0
5,176
824,704
317,038
507,666
0
0
0
507,666
.08
.08
