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, 2000
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.)
50 Enterprise Center, Middletown, RI 02842
(Address of principal executive offices)
401 - 847 - 3327
(Registrant' 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. Yes X No __
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
July 12, 2000 Common Stock, par value $0.01 per, share 7,667,351
<PAGE>
KVH INDUSTRIES, INC. AND SUBSIDIARY
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets as of June 30, 2000 and
December 31, 1999 3
Consolidated Statements of Operations for the three and
six months ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the six
months ended June 30, 2000 and 1999 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 12
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
<PAGE>
Part I. Financial Information
Item 1. Financial Statements.
KVH INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, 2000 December 31, 1999
(Unaudited) (Audited)
----------------- ---------------------
Assets:
Current assets:
Cash and cash equivalents $ 765,403 2,047,838
Accounts receivable, net 4,799,288 3,362,390
Costs and estimated earnings
in excess of billings on uncompleted contracts 699,180 444,492
Inventories 3,766,870 3,672,269
Prepaid expenses and other deposits 382,165 292,793
Deferred income taxes 376,628 376,628
------------- -------------
Total current assets 10,789,534 10,196,410
------------- -------------
Property and equipment, net 6,886,101 7,227,778
Other assets, less accumulated amortization 772,785 839,113
Deferred income taxes 2,169,690 1,571,409
------------- -------------
Total assets $ 20,618,110 19,834,710
============= =============
Liabilities and stockholders' equity:
Current liabilities:
Current portion long term debt $ 75,961 75,643
Line of credit 508,547 --
Accounts payable 2,047,819 1,599,770
Accrued expenses 1,074,711 792,086
------------- -------------
Total current liabilities 3,707,038 2,467,499
------------- -------------
Long term debt 2,834,032 2,865,232
------------- -------------
Total liabilities 6,541,070 5,332,731
------------- -------------
Stockholders' equity:
Common stock 76,674 72,969
Additional paid-in capital 16,175,125 15,567,880
Accumulated deficit (2,174,759 ) (1,138,870 )
------------- -------------
Total stockholders' equity 14,077,040 14,501,979
------------- -------------
Total liabilities and stockholders' equity $ 20,618,110 19,834,710
============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
Item 1. Financial Statements.
KVH INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
Net sales $ 7,951,254 6,525,644 13,647,769 12,498,814
Cost of sales 5,051,034 4,283,824 8,869,310 8,053,582
------------- ------------- ------------- -------------
Gross profit 2,900,220 2,241,820 4,778,459 4,445,232
Operating expenses:
Research & development 1,015,841 1,040,299 2,090,283 1,909,840
Sales & marketing 1,622,368 1,241,469 3,040,756 2,394,200
Administration 564,327 482,776 1,092,061 1,051,959
------------- ------------- ------------- -------------
Loss from operations (302,316 ) (522,724 ) (1,444,641 ) (910,767 )
Other income (expense):
Other income (expense) 11,230 904 (116,557 ) 5,450
Interest expense, net (42,263 ) (14,173 ) (45,026 ) (14,273 )
Foreign currency gain (loss) 44,015 45,308 (32,976 ) 56,478
------------- ------------- ------------- -------------
Loss before income tax benefit (289,334 ) (490,685 ) (1,639,200 ) (863,112 )
Income tax benefit 119,692 183,565 603,311 410,375
------------- ------------- ------------- -------------
Net loss $ (169,642 ) (307,120 ) (1,035,889 ) (452,737 )
============= ============= ============= =============
Per share information:
Loss per share
Basic $ (0.02 ) (0.04 ) (0.14 ) (0.06 )
Diluted $ (0.02 ) (0.04 ) (0.14 ) (0.06 )
Number of shares used in per share calculation:
Basic 7,621,919 7,207,007 7,528,917 7,206,474
Diluted 7,621,919 7,207,007 7,528,917 7,206,474
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>
Item 1. Financial Statements.
KVH INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Six months ending June 30,
2000 1999
------------- -------------
Cash flow from operations:
Net loss $ (1,035,889 ) (452,737 )
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:
Depreciation and amortization 584,669 460,562
Provision for deferred taxes (598,281 ) (413,529 )
Increase in accounts and contract receivables, net (1,436,898 ) (1,606,761 )
Decrease in income taxes receivable -- 1,062,494
(Increase) decrease in costs and
estimated earnings in excess of billings on uncompleted contracts (254,688 ) 535,550
Increase in inventories (94,601 ) (441,330 )
Increase in prepaid expenses and other deposits (89,372 ) (20,348 )
Increase in accounts payable 448,049 990,275
Increase in accrued expenses 282,625 120,389
------------- -------------
Net cash (used in) provided by operating activities (2,194,386 ) 234,565
------------- -------------
Cash flow from investing activities:
Capital expenditures (176,664 ) (606,804 )
------------- -------------
Cash flow from financing activities:
Proceeds from line of credit 508,547 --
Proceeds from long term debt -- 3,000,000
Repayments of long term debt (30,882 ) (23,650 )
Proceeds from exercise of stock options 610,950 63,612
------------- -------------
Net cash provided by financing activities 1,088,615 3,039,962
------------- -------------
Net (decrease) increase in cash and cash equivalents (1,282,435 ) 2,667,723
------------- -------------
Cash and cash equivalents at beginning of period 2,047,838 1,239,227
------------- -------------
Cash and cash equivalents at end of period $ 765,403 3,906,950
============= =============
Supplement disclosure of cash flow information:
Cash paid during the period for interest $ 55,102 14,173
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
Item 1. Financial Statements.
KVH INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
(Unaudited)
(1) The accompanying consolidated financial statements of KVH Industries,
Inc. and subsidiary (the "Company") for the three- and six-month periods ended
June 30, 2000 and 1999 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. The consolidated financial statements presented 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. 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 Annual Report on Form 10-K dated March 27, 2000, as filed with the
Securities and Exchange Commission, a copy of which is available from the
Company upon request. The results for the three and six months ended June 30,
2000, are not necessarily indicative of the operating results for the remainder
of the year.
(2) Inventories at June 30, 2000, and December 31, 1999, 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.
2000 1999
--------------- -------------
Raw materials $ 3,187,703 2,735,601
Work in process 173,607 350,128
Finished goods 405,560 586,540
------------ -------------
$ 3,766,870 3,672,269
============ =============
Defense project inventories are included in the balance sheet caption
"Costs and estimated earnings in excess of billings on uncompleted contracts."
Defense project inventories amounted to $356,217 and $163,044 at June 30, 2000
and December 31, 1999, respectively. Defense contracts provide for project costs
reimbursement as costs are incurred, through monthly invoicing of vouchers or
progress billings.
(3) On January 11, 1999, we entered into a mortgage loan in the amount of
$3,000,000 with a life insurance company. The mortgage term is 10 years, with a
principal amortization of 20 years at a fixed rate of interest of 7%. Due to the
difference in the term of the note and the amortization of principal, a balloon
payment is due on February 1, 2009, in the amount of $2,014,716.
(4) On March 27, 2000, we entered into a $5.0 million asset-based,
three-year, revolving loan facility with interest at the prime bank lending rate
plus 1%. Unused portions of the revolving credit facility accrue interest at an
annual rate of 50 basis points. The loan facility advances funds based upon an
asset availability formula that includes our eligible accounts receivable and
inventory. The availability formula sets aside a fixed amount of qualified
assets that may not be borrowed against. We may terminate the loan prior to the
full term, however, we would become liable for certain termination fees. At June
30, 2000, we had $1,225,552 available under the line of credit to be drawn upon
as needed.
<PAGE>
KVH INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
(Unaudited)
(5) Net loss per common share. The computation of the loss per share for
the six-month periods ended June 30, 2000 and 1999 excludes the effect of
potential common stock, as the effect would be anti-dilutive. Following is a
reconciliation of the weighted-average number of shares outstanding used in the
computation of the basic loss per common share:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Data in thousands, except per share data
For three months ended For six months ended
June 30, June 30,
2000 1999 2000 1999
------------ ----------- ----------- -----------
Calculation of earnings per share - basic
Net loss $ (170 ) (307 ) (1,036 ) (453 )
============ =========== =========== ===========
Shares:
Common shares outstanding 7,622 7,207 7,529 7,206
============ =========== =========== ===========
Net loss per common share - basic $ (0.02 ) (0.04 ) (0.14 ) (0.06 )
============ =========== =========== ===========
Calculation of earnings per share - diluted
Net loss $ (170 ) (307 ) (1,036 ) (453 )
============ =========== =========== ===========
Shares:
Common shares outstanding 7,622 7,207 7,529 7,206
Additional shares assuming conversion of
stock options and warrants
Average common and equivalent shares
outstanding 7,622 7,207 7,529 7,206
============ =========== =========== ===========
Net loss per common share - diluted $ (0.02 ) (0.04 ) (0.14 ) (0.06 )
============ =========== =========== ===========
</TABLE>
tem 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
"SafeHarbor" statement under the Private Securities Litigation Reform Act of
1995.
With the exception of historical information, the matters discussed in this
Quarterly Report on Form 10-Q include certain forward-looking statements that
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those stated. These forward-looking statements reflect
management's opinions only as of the date hereof, and KVH Industries, Inc.
assumes no obligation to update this information. Risks and uncertainties
include, but are not limited to, those discussed in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
erations - Forward Looking Statements - `Risk Factors.'" Shareholders of the
Company are cautioned not to place undue reliance on forward-looking statements
made in the Quarterly Report on Form 10-Q. This report should be read in
conjunction with the consolidated financial statements and notes included in the
Company's Annual Report on Form 10-K dated March 27, 2000. These reports are
filed with the Securities and Exchange Commission and copies are available from
the Company upon request or through the Company's web site at www.kvh.com.
Results of Operations
Overview - KVH Industries, Inc., is an international leader in the
development and manufacture of innovative, mobile, high-bandwidth satellite
communications systems, navigation products, and fiber optic sensors. Our
primary markets include:
- mobile broadband satellite communications;
- tactical navigation; and
- fiber optic OEMs.
As a leading provider of mobile satellite communication systems, our
award-winning products link people on the move around the world to satellite
television, telephone, and Internet data services. We are also developing a
mobile broadband satellite Internet system based upon our proven, in-motion
satellite antenna technology. We supply tactical navigation systems to U.S.,
NATO, and allied armed forces, and our product family is the most widely
fielded, GPS-aided military navigation system in the world, providing a critical
link to digital battlefield management and tactical Internet systems for
virtually every vehicle in the modern mobile military. Our proprietary fiber
optic technology enhances the precision and durability of our own systems, and
is the basis for precise, cost-effective products for a range of OEM
applications.
Mobile Broadband Satellite Communications
A key component of our communications products is our proprietary
three-axis, fully stabilized antenna, which maintains satellite contact with
geostationary satellites when a vessel or vehicle platform is in motion. The
antennas use a KVH digital gyro compass and inclinometer to measure precisely
the pitch, roll and yaw of an antenna platform in relation to the earth. That
data is used by our proprietary stabilization and control software and on-board
microprocessors to compute the antenna movement necessary to maintain satellite
contact and then transmit precise motor control instructions to aim the antenna.
We have designed our antennas to permit rapid initial acquisition of the
satellite signal without operator intervention. The primary focus of current
development efforts is on creating a system that can provide mobile users with
two-way, broadband Internet capabilities.
Our TracVision DBS antenna system product line provides mobile television
and data reception on boats and land vehicles. TracVision systems for marine use
are compatible with both Digital Video Broadcasting (DVB) and Digital Satellite
System (DSS) services. Land TracVision systems deliver DSS services to
on-the-move or stationary recreational and sports utility vehicles, motor
coaches, vans, and long-haul trucks. Our Tracphone(R) systems deliver voice, fax
and data to pleasure and commercial marine vessels via the mini-M satellite
constellation operated by Inmarsat (the International Maritime Satellite
Organization).
Tactical Navigation
For the military market, our TACNAV sensor product line ranges from a
simple GPS-compatible compass system with a single commander's display to a
complete, integrated system that provides full tactical navigation and targeting
capabilities and includes up to three separate commander's, gunner's and
driver's displays. TACNAV FOG combines the proven performance of TACNAV TLS
systems with the high accuracy of a KVH fiber optic sensor. We also sell
sensor-based products for navigation applications in the marine market. Compass
systems utilize our digital fluxgate heading sensor to sample the surrounding
magnetic field and output precise heading data. These signals are relayed to an
on-board microprocessor, where filtering and averaging algorithms that we
developed translate the output to stable heading information. Our proprietary
software continuously and automatically compensates for the effects of magnetic
interference.
Fiber Optic OEMs
In addition to integrating our FOG technology into the KVH high-end TACNAV
system, we sell fiber optic products to commercial OEMs for a variety of
applications. Key applications include measuring electrical power flow,
robotics, positive train control and precision agriculture. The basic component
of FOG sensors is E.Core(tm), a proprietary optical fiber that we manufacture.
<PAGE>
Net profit and loss results - We completed the three-month period ended
June 30, 2000, with a net loss of $169,642 or $0.02 a share, which compares to
the 1999 second-quarter loss of $307,120 or $.04 a share. The improvement in
year-to-year net results is due to a combination of revenue increases from both
the communications and fiber optic product lines and a decline in spending as a
percentage of revenues.
Net losses for the six-month periods ended June 30, 2000 and 1999, were
$1,035,889 or $0.14 a share and $452,737 or $.06 a share, respectively. The
increase in six-month losses was primarily due to events in the first quarter
2000, which included a notable decline in military navigation sales.
Net sales - Net sales increased 22% to $7,951,254 in the 2000 second
quarter from $6,525,644 in the comparable 1999 quarter. Communication sales
increased 47% to $4,709,100 from $3,202,904 in 1999 due to significant increases
in land mobile satellite television products and our new DVD-compatible marine
satellite television products. Navigation sales were $3,242,154, a slight
decrease from $3,322,740 in 1999. While military sales decreased to $1,109,548
from $1,573,682 in the 1999 second quarter, they represent an increase over the
previous 2000 quarter of nearly 400% and the beginning of a rebound in our
defense revenues. A shift in our product mix continues, with communications and
navigation sales comprising, respectively, 59% and 41% in 2000 compared to 49%
and 51% in 1999. The decline in military sales was partially offset by a 159%
increase in FOG sales in 2000 from 1999.
Total revenues for the 2000 six-month period grew 9% to $13,647,769 from
$12,498,814 in 1999. Communications revenues for the six months increased 57% to
$8,858,412 from $5,636,113 in 1999. Six-month navigation sales decreased to
$4,789,357 from $6,862,701 in 1999, primarily due to low military sales in the
first quarter.
Gross profit - Gross profit is comprised of revenues less the cost of
materials, direct labor, manufacturing overheads and warranty costs. As a
percentage of net sales, gross profit in the 2000 quarter was up 2% over 1999
due to reductions in direct product costs. Gross profit for the six-month
periods increased to $4,778,459 in 2000 from $4,445,232 in 1999, or 35% and 36%,
respectively, as a percentage of sales. Improvements are largely due to
second-quarter sales gains in our fiber optic and communications markets, and
the impact of lower direct product costs.
Operating expenses - Operating expenses increased to $3,202,536 in the 2000
quarter from $2,764,544 in 1999. As a percentage of sales, operating expenses
declined to 40% from 42% in the 1999 second quarter. Expenses for research and
development declined slightly to $1,015,841 from $1,040,299 in 1999 due to
increased customer funding of R&D expenditures, a trend we anticipate will
continue throughout 2000. As a percentage of revenues, R&D expense decreased to
13% in 2000 from 16% in 1999. Sales and marketing expenses increased to
$1,622,368 from $1,241,469 due to ongoing costs of launching new products and
staff growth, but remained nearly flat as a percentage of revenues.
Second-quarter administration costs increased to $564,327 from $482,776 due to
higher-than-anticipated professional fees.
In the six-month periods ended June 30, 2000 and 1999, operating expenses
were $6,223,100 and $5,355,999, respectively. Research and development expense
rose slightly to $2,090,283 from $1,909,840 and remained constant as a
percentage of revenues. The six-month increase in sales and marketing expense to
$3,040,756 from $2,394,200, a 3% increase as a percentage of sales, was related
to costs for introducing new products. Six-month administration costs were
relatively flat at $1,092,061 and $1,051,959.
Other income (expense) - Other income (expense) is made up of interest
income and expense, other income and expense and foreign currency translation
gains and losses.
Income tax benefit - The second-quarter income tax benefit reflects the
realization of the tax benefit associated with our current quarter's loss. Our
effective income tax rate has been established at 38% of the operating loss
after adjustment for certain items. Our effective income tax rate may change
during the remainder of 2000 if operating results differ significantly from the
current operating projections.
<PAGE>
Liquidity and capital resources
Working Capital
Working capital decreased by $646,415 in 2000 from December 31, 1999. Cash
and cash equivalents were $765,403 and $2,047,838, respectively, at June 30,
2000 and December 31, 1999.
Capital expenditures
Fixed asset purchases amounted to $176,664 in the 2000 second quarter.
Fixed asset acquisitions are primarily computer-related equipment.
We anticipate that our operating costs will decrease in proportion to our
sales volumes, generating positive cash from operations going forward. Fixed
manufacturing overhead spending is expected to decline as a percent of revenues
as FOG sales volumes increase, and we plan to reduce research and development
costs by offsetting internal costs with increased customer funding. We believe
that existing cash balances and funds available under our revolving credit
facility will be sufficient to meet our anticipated working capital requirements
for 2000. If we decide to expand more rapidly, to broaden or enhance products
more rapidly, to acquire businesses or technologies or to make other significant
expenditures to remain competitive, then we may need to raise additional funds.
Other Matters
Recent Accounting Pronouncements
In June 2000, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities -- an Amendment of
FASB Statement No. 133." The Statement addresses a number of issues, including
the Derivatives Implementation Group process, causing implementation
difficulties for numerous entities that apply SFAS No. 133. SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. We do not expect SFAS 133 or SFAS 138
to have a material impact on our financial condition, results of operations or
cash flows.
In March 2000, the FASB issued Financial Accounting Standards Board
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation." The interpretation clarifies certain matters concerning the
application of APB Opinion No. 25 and is generally effective beginning July 1,
2000. We do not currently believe either of the above pronouncements will have a
material impact on our financial condition or results of operations.
Year 2000
After evaluating the impact of the year 2000 issue as it relates to our
navigation and communications products, we have concluded that they are not
affected by year 2000 operating issues. We also assessed our software and
computer systems to be sure they are year 2000 compliant. Based on usage to
date, our systems are year 2000 compliant.
Inflation
The Company believes that inflation has not had a material effect on its
results of operations.
<PAGE>
Forward Looking Statements - "Risk Factors"
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains forward-looking statements that are subject to a
number of risks and uncertainties that could affect our financial results. In a
broad perspective, our products target industries that are subject to
volatility, risks and uncertainties. The communications industry is experiencing
rapid growth fueled by strong worldwide demand and buffeted by competing formats
and rapid, unpredictable technology changes. The defense industry historically
experiences variability in supply and demand related to international
conditions, national politics, budget decisions and technology changes, all of
which are difficult or impossible to predict. Competition in the OEM sensor
market is both dense and intense.
Specific internal risk factors that could affect our financial stability
include:
For some time now, we have been experiencing long delays in finalizing
military contracts. The resulting lack of revenues has been a large factor in
reducing our gross margins and increasing our quarterly net losses. While sales
began to recover in the second quarter and a number of project bids are in
process, we cannot guarantee that we will receive orders or that significant
delays will not continue. Since our military systems are designed for very
specific applications, we do not have sufficient military product breadth to
provide us with consistent high-margin revenues when periodic purchasing
fluctuations occur.
If one or more of our third-party suppliers do not provide us with key
components, then we may not be able to deliver our products to our customers in
a timely manner and we may incur substantial costs to obtain these components
from alternate sources. Currently, we rely on single source suppliers for a
number of essential components for our systems. An interruption in supply from
these sources or an unexpected termination of the manufacture of our key
components would disrupt production and adversely affect our ability to deliver
products to our customers. Unexpected terminations of supplies would require us
to shift to other suppliers, which could delay product shipments since we do not
produce these components in-house.
Our product dependency upon the Global Positioning System (GPS) and the
satellites, antennas, technologies and services of companies such as GM Hughes
Electronics, PanAmSat Corp., Gilat Satellite Networks, Inmarsat Holdings Ltd.,
Motorola Inc., DIRECTV, and EchoStar Communications Corp. makes their risks our
risks. We have no means of providing communications and navigation services
should these capabilities external to KVH fail. In addition, our new product
designs anticipate advances by these companies that may take longer than
anticipated or not occur. Greater broadband access, for instance, may not be
available if new satellites from Hughes and other companies malfunction, have
launch failures, or are delayed past currently scheduled dates beginning in
2001.
The learning curve for the new fiber optic technology we acquired in 1997
has been much longer than we anticipated, and we are still working to integrate
FOGs into some product lines and to establish KVH as a player in the OEM
markets. While we have begun selling FOG-integrated TACNAV systems and FOGs to
OEMs, we cannot predict if or when revenues will offset fixed fiber optic
manufacturing costs.
Variations in our operating results and product failures could affect the
trading price of our Common Stock, which has been subject to wide fluctuations.
A decrease in our market capitalization could affect our ability to secure loans
that are necessary for us to continue developing and marketing new products.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings.
In the ordinary course of business, KVH is a party to legal proceedings and
claims. In addition, from time to time we have contractual disagreements with
certain customers concerning our products and services.
In February 2000, we filed a lawsuit against Datron/Transco Inc. that
alleged that Datron/Transco Inc. infringed upon KVH's United States Letters
Patent No. 5,835,057. Datron responded to the complaint in March 2000 and filed
a counterclaim against KVH. Based upon new information provided by Datron since
the suit was filed, we determined that Datron's DBS 4500 does not infringe our
patent, and on July 28, 2000, KVH and Datron agreed to terminate litigation.
Item 4. Submission of Matters to a Vote of Security Holders.
Our Annual Meeting of Stockholders was held May 24, 2000, for the purpose
of electing two Class I directors. There were 7,598,094 shares issued,
outstanding and eligible to vote as of the March 31, 2000, record date. We
solicited proxies for the meeting and 6,319,839 shares, or 83.2 percent of the
eligible voting shares, were tabulated. Nominee's for the two Class I directors
as listed in the Proxy Statement were elected with the following votes:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nominee for Term Shares Shares Exceptions/
Class 1 Director Expiration Voted For Abstained Non-votes
----------------------- ------------- ------------ ------------- -------------
Mark S. Ain 2003 6,298,439 21,400 1,278,255
Stanley K. Honey 2003 6,298,439 21,400 1,278,255
</TABLE>
Two Class II directors, Arent H. Kits van Heyningen and Charles R. Trimble,
are serving until their terms expire in 2001. Three Class III directors, Martin
A. Kits van Heyningen, Robert W. B. Kits van Heyningen and Werner Trattner, are
serving until their terms expire until 2002.
Item 6. Exhibits and reports on Form 8-K.
1. Exhibit 27 - Financial Data Schedule: Six Months Ended June 30, 2000.
2. 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: /s/ Richard C. Forsyth
Richard C. Forsyth
(Chief Financial and Accounting Officer)
Date: August 3, 2000
