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 September 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 on October 25,
1996 was 6,910,833.
<PAGE>
KVH INDUSTRIES, INC. AND SUBSIDIARY
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets as of September 30, 1996 and
December 31, 1995 3
Consolidated Statements of Income for the
three and nine months ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows for the
nine months ended September 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
<PAGE>
Part I. Financial Information
Item 1. Financial Statements.
KVH INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
(Unaudited) (Audited)
Assets
Cash and cash equivalen $ 6,974,151 $ 895,677
Accounts receiva 5,989,634 2,187,916
Contract receiv 34,200 994,056
Costs and estimated earnings in
excess of billings on
uncompleted contracts 1,381,659 916,194
Inventories 3,163,774 1,753,172
Prepaid expenses and other deposits 181,106 156,675
Deferred income taxes 515,285 515,285
----------- ----------
Total current assets 18,239,809 7,418,975
----------- ----------
Property and equipment, net 3,170,175 423,842
Other assets, less accumulated amortization 35,720 64,946
Deferred income taxes 23,510 23,510
------------ -----------
Total assets $21,469,214 $ 7,931,273
============ ===========
Liabilities and stockholders' equity
Current liabilities:
Current lease obligation $ 47,653 $ 40,787
Accounts payable 2,383,662 958,507
Accrued expenses 968,303 335,896
Customer deposits 2,621,095 2,869,595
---------- ----------
Total current liabilit 6,020,713 4,204,785
---------- ----------
Obligations under capital leases,
excluding current installments 30,364 72,439
---------- ----------
Total liabilities 6,051,077 4,277,224
---------- ----------
Stockholders' equity:
Preferred stock 0 12,982
Common stock 69,108 16,160
Additional paid-in capital 14,768,985 4,473,045
Accumulated deficit 580,044 (848,138)
----------- -----------
Total stockholders' equity 15,418,137 3,654,049
------------ -----------
Total liabilities and stockholders' equity $21,469,214 $ 7,931,273
=========== ===========
See accompanying notes to financial statements.
<PAGE>
Item 1. Financial Statements.
KVH INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
Net sales $7,147,270 $3,278,670 $17,041,532 $9,127,400
Cost of goods sold 4,228,801 1,924,934 9,750,437 5,355,053
--------- --------- ---------- ---------
Gross profit 2,918,469 1,353,736 7,291,095 3,772,347
Operating expenses:
Research and development 433,890 321,513 1,717,908 687,200
Sales and marketing 628,249 585,882 2,272,171 1,612,901
General and administrativ 414,456 243,89 1,124,875 682,622
-------- ------- ---------- ----------
Income from operations 1,441,874 202,442 2,176,141 789,624
Other (income) deductions:
Interest (income)
expense, net (93,201) 14,998 (195,861) 42,422
Other (income)
expense, net 14,331 (752) 4,106 18,459
Foreign currency
(gain) loss 13,152 13,526 35,598 (7,325)
---------- --------- --------- ---------
Income before income taxes 1,507,592 174,670 2,332,298 736,068
Income tax expense 587,079 0 904,117 0
---------- --------- --------- --------
Net income $ 920,513 $ 174,670 $1,428,181 $ 736,068
========== ========== ========== ==========
Net income per share:
Primary $0.12 $0.03 $0.21 $0.13
====== ====== ====== =====
Fully diluted $0.12 $0.03 $0.21 $0.13
====== ====== ====== =====
Weighted average number of
common and common equivalent
shares outstanding:
Primary 7,530,231 5,710,177 6,847,102 5,710,177
=========== =========== =========== =========
Fully diluted 7,574,037 5,710,177 6,892,793 5,710,177
=========== =========== =========== =========
See accompanying notes to financial statements.
<PAGE>
Item 1. Financial Statements.
KVH INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
September 30,
1996 1995
Cash flows from operating activities:
Net income $ 1,428,181 $ 734,114
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 142,788 100,902
(Increase) in accounts receivable (2,841,862) (987,455)
(Increase) decrease in costs and
estimated earningsin excess of
billings on uncompleted contracts (465,465) 677,579
(Increase) in inventories (1,410,602) (788,376)
(Increase) in prepaid expenses
and other deposits (24,431) (77,082)
Increase in accounts payable 1,425,155 (215,365)
Increase (decrease) in accrued expenses 632,407 (52,190)
Increase (decrease) in customer deposits (248,500) 3,076,000
------------ ----------
Net operating cash provided by operating
activities (1,362,329) 2,468,127
----------- ----------
Cash flows from investing activities:
Capital expenditures (2,859,895) (154,785)
----------- ---------
Net cash (used in) investing activities (2,859,895) (154,785)
----------- ---------
Cash flows from financing activities:
(Repayments) incurrence of
obligations under capital lease (35,209) 4,027
Issuance of capital stock,
exercise of warrants and stoc 10,335,907 8,624
----------- ---------
Net cash provided by financing activities 10,300,698 12,651
----------- ---------
Net increase in cash and cash equivalents 6,078,474 2,325,993
Cash and cash equivalents at beginning of year 895,677 191,438
----------- ----------
Cash and cash equivalents at end of period $ 6,974,151 $ 2,517,431
============= ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 8,916 $ 45,403
========== =========
See accompanying notes to financial statements.
<PAGE>
Item 1. Financial Statements.
KVH INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 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
September 30, 1996 and results of operations for the three and nine months ended
September 30, 1996 and September 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 nine
months ended September 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 September 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 $2,795 $1,256
Work in progress 149 101
Finished Goods 220 396
------- -------
Total $3,164 $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 Company expects
to occupy the renovated facility in the first quarter of 1997. The addition of a
second facility will increase the Company's available facility 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 of income taxes have been
accrued for financial reporting purposes in 1996. Income tax expense for the
three-and nine month periods ended September 30, 1996 were calculated using an
estimated annual effective tax rate of 40%.
The effective tax rate for the three and nine months ended September 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 fully 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
$920,513 and $0.12 per share as compared with $174,670 and $0.03 per share for
the three months ended September 30, 1996 and 1995 respectively. Net income for
the third quarter of 1996 increased by $745,843 or 427% over the third quarter
of 1995. Net income and earnings per share were $1,428,181 and $0.21 per share
as compared with $736,068 and $0.13 per share for the nine months ended
September 30, 1996 and 1995 respectively. Net income and earnings per share for
the three and nine months ended September 30, 1996 were negatively affected by
the provision for income taxes resulting from the full utilization of net
operating loss income tax carryforwards in 1995 and a 21% increase in the
weighted average number of shares outstanding resulting from the Company's
initial public offering in April of 1996.
Net Sales - Net sales for the three month period ended September 30, 1996 grew
to $7,147,270 or a 118% increase when compared with third quarter 1995 net sales
of $3,278,670. Net sales growth was comprised of communications products such as
the TracPhone which is supplied to American Mobile Satellite Corporation and
navigation products such as the TacNav military land navigation system which is
supplied to the governments of Sweden, Canada, Saudi-Arabia and the United
States. Quarterly product growth was somewhat offset by a planned decline in
engineering development net sales of $695,635 or 70% when compared with the
third quarter of 1995. The planned decline in lower margin engineering
development revenues results form the transition of military land navigation
systems from customer-funded engineering development sales to manufactured
product shipments that yield higher product gross margins.
Net sales through nine months ended September 30, 1996 was $17,041,532, an
increase of 87% when compared with net sales of $9,127,400 in the comparable
period of 1995. Net sales growth year to date represents the success of new
product introductions such as the TracPhone stabilized antenna platform used for
mobile marine based satellite communications systems and the TacNav tactical
military land navigation system used in armored vehicles.
Gross Profit - Third quarter gross profit as a percentage of sales remained
unchanged from the prior year at 41% of net sales. Third quarter 1996 gross
margin was impacted by lower margin TacNav system components that are procured
for the customer on a "pass-through" basis providing the Company with a minimal
mark-up over the components costs. Gross margin grew to 43% of net sales in the
first nine months of 1996 from 41% of net sales for the comparable period of
1995. Year to date gross margin improvement represents a transition from lower
margin customer-funded engineering development sales to higher margin
manufactured product sales.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Operating Expenses - Research and development expense increased by $112,377 or
35% in the third quarter of 1996 when compared with the third quarter of 1995
and increased $1,303,708 or 150% in the first nine months of 1996 compared with
the first nine months of 1995, primarily as a result of a transition away 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 $42,367 or 7% in the
third quarter of 1996 when compared with the third quarter of 1995 and increased
$659,270 or 41% in the first nine months of 1996 when compared with the
comparable period of 1995, due to increases in sales support costs such as
outside sales representative commissions, advertising and travel expense
required to support increased sales volumes. General and administrative expense
increased by $170,557 or 70% in the third quarter of 1996 when compared with the
third quarter of 1995 and increased $442,253 or 65% in the first nine 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 quarterly and nine month decrease in other deductions resulted
primarily from interest income which off set other expense charges. Third
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 $587,079 in the third quarter of
1996 when compared with the third quarter of 1995 and increased $904,117 for the
first nine 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
financial reported operating results include a provision for income tax expense.
Liquidity and Capital Resources - Working capital increased by $9,004,906 in the
third 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 public offering. Cash and cash equivalents were $6,974,151 and
$895,677 on September 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 - Net property and equipment increased approximately
$2,746,333 through the first nine months of 1996 as compared with net property
and equipment at December 31, 1995. Fixed assets increases 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.
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 September 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.
<PAGE>
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 Nine Months
Ended September 30, 1996 and 1995.
2. Exhibit 27 - Financial Data Schedule: Nine Months Ended September 30, 1996.
3. No reports on Form 8-K were filed during the quarter for which this report
was filed.
<PAGE>
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: October 25, 1996
Exhibit 11
KVH INDUSTRIES, INC.
COMPUTATION OF NET EARNINGS PER SHARE
(in thousands, except per share data)
(Unaudited)
For the three months ended: For the nine months ended:
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
Primary earnings per share:
Net Earnings $ 921 $ 175 $ 1,428 $ 736
Weighted average number of
common shares outstanding 6,907 4,861 6,167 4,861
Additional shares assuming
conversion of:
Stock options and warrants 623 849 680 849
--- --- --- ---
Average common shares and
equivalents outstanding 7,530 5,710 6,847 5,710
----- ----- ----- -----
Net earnings per common share $0.12 $0.03 $0.21 $0.13
====== ====== ====== =====
Fully diluted earnings per share:
Net Earnings $ 921 $ 175 $ 1,428 $ 736
Shares:
Weighted average number
of common shares outstanding 6,907 4,861 6,167 4,861
Additional shares assuming
conversion of:
Stock options and warrants 667 849 726 849
--- --- --- ---
Average common shares and
equivalents outstanding 7,574 5,710 6,893 5,710
======= ======== ======= =======
Net earnings per common share $0.12 $0.03 $0.21 $0.13
====== ====== ====== ======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule September 30, 1996
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,974,151
<SECURITIES> 0
<RECEIVABLES> 6,100,662
<ALLOWANCES> 111,028
<INVENTORY> 3,163,774
<CURRENT-ASSETS> 18,239,809
<PP&E> 4,707,489
<DEPRECIATION> 1,537,314
<TOTAL-ASSETS> 21,469,214
<CURRENT-LIABILITIES> 6,020,713
<BONDS> 0
0
0
<COMMON> 69,108
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 21,469,214
<SALES> 17,041,532
<TOTAL-REVENUES> 17,041,532
<CGS> 9,750,437
<TOTAL-COSTS> 9,750,437
<OTHER-EXPENSES> 5,114,954
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,916
<INCOME-PRETAX> 2,332,298
<INCOME-TAX> 904,117
<INCOME-CONTINUING> 1,428,181
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,428,181
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
