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, 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
October 16, 2000 Common Stock, par value $0.01 per, share 7,682,780
<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, 2000 and
December 31, 1999 3
Consolidated Statements of Operations for the three and
nine months ended September 30, 2000 and 4
Consolidated Statements of Cash Flows for the nine
months ended September 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.
<TABLE>
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KVH INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<S> <C> <C>
September 30, 2000 December 31, 1999
(Unaudited) (Audited)
----------------- ---------------------
Assets:
Current assets:
Cash and cash equivalents $ 841,196 2,047,838
Accounts receivable, net 5,310,657 3,362,390
Costs and estimated earnings
in excess of billings on uncompleted contracts 686,149 444,492
Inventories 3,633,213 3,672,269
Prepaid expenses and other deposits 341,620 292,793
Deferred income taxes 363,462 376,628
------------- -------------
Total current assets 11,176,297 10,196,410
------------- -------------
Property and equipment, net 6,805,686 7,227,778
Other assets, less accumulated amortization 739,629 839,113
Deferred income taxes 2,169,690 1,571,409
------------- -------------
Total assets $ 20,891,302 19,834,710
============= =============
Liabilities and stockholders' equity:
Current liabilities:
Current portion long term debt $ 75,961 75,643
Line of credit 1,354,647 --
Accounts payable 1,288,927 1,599,770
Accrued expenses 1,240,827 792,086
------------- -------------
Total current liabilities 3,960,362 2,467,499
------------- -------------
Long term debt 2,816,294 2,865,232
------------- -------------
Total liabilities 6,776,656 5,332,731
------------- -------------
Stockholders' equity:
Common stock 76,827 72,969
Additional paid-in capital 16,194,340 15,567,880
Accumulated deficit (2,156,521 ) (1,138,870 )
------------- -------------
Total stockholders' equity 14,114,646 14,501,979
------------- -------------
Total liabilities and stockholders' equity $ 20,891,302 19,834,710
============= =============
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
Item 1. Financial Statements.
<TABLE>
<CAPTION>
KVH INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<S> <C> <C> <C> <C>
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
Net sales $ 7,461,492 4,781,389 21,109,261 17,280,203
Cost of sales 4,454,136 3,295,606 13,323,446 11,349,188
------------- ------------- ------------- -------------
Gross profit 3,007,356 1,485,783 7,785,815 5,931,015
Operating expenses:
Research & development 882,350 1,158,263 2,972,633 3,068,103
Sales & marketing 1,433,292 1,389,290 4,474,048 3,783,490
Administration 605,353 524,340 1,697,414 1,576,299
------------- ------------- ------------- -------------
Income (loss) from operations 86,361 (1,586,110 ) (1,358,280 ) (2,496,877 )
Other income (expense):
Other income (expense) (3,493 ) 5,200 (120,050 ) 10,650
Interest (expense), net ) (15,465 ) (111,918 ) (29,738 )
(66,892
Foreign currency gain (loss) 15,359 16,282 (17,617 ) 72,760
------------- ------------- ------------- -------------
Income (loss) before income tax 31,335 (1,580,093 ) (1,607,865 ) (2,443,205 )
expense (benefit)
Income tax expense (benefit) 13,097 (538,509 ) (590,214 ) (948,884 )
------------- ------------- ------------- -------------
Net income (loss) $ 18,238 (1,041,584 ) (1,017,651 ) (1,494,321 )
============= ============= ============= =============
Per share information:
Income per share
Basic $ 0.00 (0.14 ) (0.13 ) (0.21 )
Diluted $ 0.00 (0.14 ) (0.13 ) (0.21 )
Number of shares used in per share calculation:
Basic 7,677,043 7,262,510 7,578,471 7,223,215
Diluted 8,127,286 7,262,510 7,578,471 7,223,215
See accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
Item 1. Financial Statements.
<TABLE>
<CAPTION>
KVH INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<S> <C> <C>
Nine months ending September 30,
2000 1999
------------- -------------
Cash flow from operations:
Net loss $ (1,017,651 ) (1,494,321 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 860,073 736,324
Provision for deferred taxes (585,115 ) (950,688 )
Increase in accounts and contract receivables, net (1,948,267 ) (250,632 )
Decrease in income taxes receivable -- 1,062,494
(Increase) decrease in costs and
estimated earnings in excess of billings on uncompleted contracts (241,657 ) 77,390
Decrease (increase) in inventories 39,056 (252,499 )
(Increase) decrease in prepaid expenses and other deposits (48,827 ) 13,273
(Decrease) increase in accounts payable (330,823 ) 1,039,178
Increase (decrease) in accrued expenses 448,741 (29,012 )
------------- -------------
Net cash used in operating activities (2,824,470 ) (48,493 )
------------- -------------
Cash flow from investing activities:
Capital expenditures (338,497 ) (937,017 )
------------- -------------
Cash flow from financing activities:
Proceeds from line of credit 1,354,647 --
Proceeds from long term debt -- 3,000,000
Repayments of long term debt (28,640 ) (41,388 )
Proceeds from exercise of stock options 630,318 64,016
------------- -------------
Net cash provided by financing activities 1,956,325 3,022,628
------------- -------------
Net (decrease) increase in cash and cash equivalents (1,206,642 ) 2,037,118
------------- -------------
Cash and cash equivalents at beginning of period 2,047,838 1,239,227
------------- -------------
Cash and cash equivalents at end of period $ 841,196 3,276,345
============= =============
Supplement disclosure of cash flow information:
Cash paid during the period for interest $ 111,918 15,465
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
Item 1. Financial Statements.
KVH INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
(Unaudited)
(1) The accompanying consolidated financial statements of KVH Industries, Inc.
and subsidiary (the "Company") for the three- and nine-month periods ended
September 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 nine months ended September
30, 2000, are not necessarily indicative of the operating results for the
remainder of the year.
(2) Inventories at September 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 $ 2,954,987 2,735,601
Work in process 141,708 350,128
Finished goods 536,518 586,540
------------ -------------
$ 3,633,213 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 $444,319 and $163,044 at September 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
September 30, 2000, we had $2,447,900 available under the line of credit to be
drawn upon as needed.
<PAGE>
KVH INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
(Unaudited)
(5) Net loss per common share. The computation of the loss per share for the
nine-month periods ended September 30, 2000 and 1999 excludes the effect of
potential common stock issued upon exercise of stock options, 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 nine months ended
September 30, September 30,
2000 1999 2000 1999
------------ ----------- ----------- -----------
Calculation of earnings per share - basic
Net income ( loss) $ 18 (1,042 ) (1,018 ) (1,494 )
============ =========== =========== ===========
Shares:
Common shares outstanding 7,677 7,262 7,578 7,223
============ =========== =========== ===========
Net income (loss) per common share - basic $ 0.00 (0.14 ) (0.13 ) (0.21 )
============ =========== =========== ===========
Calculation of earnings per share - diluted
Net income (loss) $ 18 (1,042 ) (1,018 ) (1,494 )
============ =========== =========== ===========
Shares:
Common shares outstanding 7,677 7,262 7,578 7,223
Additional shares assuming conversion of
stock options and warrants 450 -- -- --
------------ ----------- ----------- -----------
Average common and equivalent shares
outstanding 8,127 7,262 7,578 7,223
============ =========== =========== ===========
Net income (loss) per common share - diluted $ 0.00 (0.14 ) (0.13 ) (0.21 )
============ =========== =========== ===========
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
"Safe Harbor" 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
Operations - 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
Company Overview
KVH Industries, Inc., is an international leader in developing and manufacturing
innovative, mobile, high-bandwidth satellite communications systems, navigation
products, and fiber optic sensors.
Mobile Broadband Satellite Communications
The company's award-winning mobile satellite communications systems have
established KVH as a market leader. Our TracVision(R) and Tracphone(R) product
families connect people on the move to satellite television, telephone, and
Internet data services. Platforms using our TracVision satellite television
antennas include pleasure and commercial marine craft as well as moving or
stationary recreational and sports utility vehicles, motor coaches, vans, and
long-haul trucks. Our Tracphone systems equip pleasure and commercial marine
vessels with two-way voice, fax, and email with almost worldwide coverage via
the mini-M satellite constellation operated by Inmarsat (the International
Maritime Satellite Organization).
Tactical Navigation
In addition to a line of digital marine compasses for the commercial and
recreational markets, we supply tactical land navigation systems to U.S. and
allied armed forces around the globe. Our TACNAV(TM) product family is the most
widely fielded, GPS-assisted 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.
Fiber Optic Products
Over the past three years, we have completed the development of an array of
fiber optic sensors and successfully brought them to market. In addition to
using our proprietary fiber optic gyro technology to enhance the precision and
durability of our own systems, our fiber optic technology is now being used to
meet the growing demand for precise, cost-effective sensors in robotics,
high-voltage current sensors, telecommunications networks, and other OEM
applications.
New Technology in Mobile Broadband Communications and Fiber Optics
We are currently in the development stages of two new technologies that
complement and expand our existing product lines and target markets. The first
of these projects is the creation of photonic fiber and next-generation optical
networking components. Our photonic fiber will enable us to build high-speed
external modulators capable of speeds in excess of 100 GHz and costing
substantially less to manufacture than optical chip-based solutions. This same
photonic fiber technology may also serve as the platform for a variety of other
new optical networking components, such as amplifiers, tunable Bragg fiber
gratings, and simple optical switches.
The second project is the development of ultra-low profile satellite antennas
that will provide access to high-speed, two-way Internet services and satellite
television signals aboard automobiles and other vehicles. Our intent is to build
first a low-profile antenna suitable for use aboard sport utility vehicles,
mini-vans, and other vehicles. Our long-term objective is to develop a photonic
phased-array antenna that will be suitable in form, fit, function, and cost for
mass-market automotive applications.
In both of these cases, we are still in the early stages of development and both
projects carry a significant risk of failure. We estimate that we will not know
if our photonic fiber approach has merit until mid-2001. We also estimate that
our low-profile antenna development will require at least twelve months of
design effort before it can be released to the marketplace
Summary of Operations
Net profit and loss -- We completed the three-month period ended September 30,
2000, with net income of $18,238 or $0.00 per share, a 102% improvement over the
1999 third-quarter loss of $1,041,584 or $.14 per share. The improvement in
quarterly net earnings was primarily due to communication and military revenue
increases and increased customer-funded research and development that offset
increases in both marketing and administration costs.
Net losses for the nine-month periods ended September 30, 2000 and 1999,
were $1,017,651 or $0.13 a share and $1,494,321 or $.21 a share, respectively.
Year-to-date profit improvement of $476,670 or 32% was due to strong
communication sales coupled with product cost improvements. The added gross
profit resulting from increased sales and declining product costs was offset by
investments in fiber optic research and sales costs associated with new product
introductions.
Net sales -- Net sales increased 56% to $7,461,492 in this year's third quarter
from $4,781,389 in the comparable 1999 period. Communication sales increased 25%
to $3,570,452 from $2,861,615 in 1999 due to continuing strong sales of our land
mobile satellite television products. Total navigation sales rose 102 % to
$3,891,040 from $1,919,774 in 1999, due to military sales gains of $1,585,750 or
245% over the prior year. Growth in military sales resulted from a large
non-recurring order that shipped in the quarter.
For the nine-month period, total revenues increased 22% to $21,109,261
from $17,280,203 in 1999. Significant growth in mobile satellite television
product sales throughout the current year resulted in a 46% increase in
communications revenues to $12,428,864 from $8,488,854 in 1999. Growth of
communication sales offset a navigation year-to-date sales decline of $110,952
that resulted from an anticipated decrease in first quarter military sales.
Looking ahead, we anticipate continued long-term growth in our
communications product area as we develop and introduce smaller, low profile
satellite antennas. Military sales are expected to add significantly to this
year's fourth quarter results and we are optimistic as we forecast continued
military order growth in 2001. Our military sales outlook must be tempered by
the timing of military orders, which are difficult to predict due to the wide
range of difficulties that can arise in the government procurement process.
Fiber optic product sales are expanding rapidly as they exit the development
phase. We anticipate accelerating FOG sales growth in the coming quarter driven
by sales of open-loop gyros for military applications. We believe that
longer-term growth of FOG products will result from new product offerings such
as our fiber optic current sensor that is used to help manage large electrical
power grids. In addition, if our product concept proves successful, we
anticipate that the successful development of photonic fiber for use in
high-speed fiber optic network applications has the potential to dramatically
increase FOG sales. All of our new product developments carry significant risks
and we can not provide assurance that we will succeed in these development
activities.
Gross profit -- Gross profit is comprised of revenues less the cost of
materials, direct labor, manufacturing overheads and warranty costs. Gross
profit for the third quarter rose 102% to $3,007,356 or 40% of sales from
$1,485,783 or 31% of sales in 1999. Improvement in quarterly gross profit
resulted from increased high-margin military shipments, continuing growth of
communications products and improved communication product costs that offset the
impact of negative FOG product margins. FOG revenues continued to fall short of
fully absorbing fixed manufacturing overheads, resulting in a product margin
loss of $271,490 or 4% when expressed as a percentage of total sales.
Gross profit for the nine-month periods increased to $7,785,815 in 2000
from $5,931,015 in 1999, or 37% and 34%, respectively, when expressed as a
percentage of sales. Year-to-date gross profit improvement is largely due to
consistent growth in mobile communications sales throughout 2000 and third
quarter gains in military sales. Year-to-date FOG sales failed to fully absorb
fixed manufacturing overheads resulting in a product margin loss of $594,777,
almost 3% when expressed as a percentage of total sales. We anticipate gross
profit to increase in this year's fourth quarter as forecast FOG sales increases
are expected to provide positive margins. Higher margin military orders are
expected to accelerate in the fourth quarter, which will add to the positive
impact of FOG margin improvement. Longer term, gross profit improvement will be
dependent on continued FOG sales growth, expansion of military orders, a
continuation of our current positive communications sales trends and our ability
to manage our manufacturing spending as we increase production volumes.
Operating expenses -- Quarterly operating expenses decreased by $150,898 or 5%,
to $2,920,995 from $3,071,893 in 1999 due to increased customer-funding of
research efforts. Customer funded research is accounted for as revenue and the
associated costs are transferred out of the research and development cost
category, into cost of sales, reducing research and development expense. Third
quarter funded research was associated with military contracts and government
research grants. Selling and administrative costs increased $125,015, as
variable-selling costs grew in proportion with increased sales volumes and
administration costs rose due to higher than anticipated professional fees.
In the nine-month period, operating expenses increased in absolute dollars
by $716,203 or 8% to $9,144,095 in the current year from $8,427,892 in 1999, but
declined as a percentage of revenues to 43% from 49% in the prior year.
Year-to-date spending increases were due to variable selling expenses growing
proportionately with increased sales and the added costs of introducing new
products. Looking ahead, we anticipate a continuation of customer-funded
engineering that will decrease our research and development expenses, while
selling expenses are anticipated to increase as we introduce new products.
Should we decide to accelerate our long-term product development initiatives
that are discussed in this narrative, we will incur significant cost increases
in both research and development and marketing and sales costs over the next
twelve months.
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.
Interest (expense) income, net - Interest expense results from our mortgage loan
and our bank line of credit. Prior year interest income resulted from the income
derived by the investment of excess funds in short-term fully guaranteed
government securities.
Foreign currency gain (loss) - Foreign currency gains and losses result from the
translation of our Danish subsidiary assets, liabilities and operating results
from Danish krone into United States dollars. The relative strength of the
dollar versus the krone determines translation gains and losses.
Income taxes - The third-quarter income tax expense reflects the tax associated
with the current quarter operating profit. Our effective income tax rate for
2000 has been established at 38% of the operating result after adjustment for
certain items. Our effective income tax rate may change during the remainder of
2000 if operating results differ significantly from current operating
projections.
Liquidity and capital resources
Working capital amounted to $7,215,935 at September 30, 2000. Cash and cash
equivalents were $841,196 and $2,047,838, respectively, at September 30, 2000
and December 31, 1999. The trend in operating results is anticipated to improve
through the fourth quarter of this year due to continued sales growth and cost
initiatives we have undertaken. We believe current operating trends will rapidly
improve our working capital position and increase our availability under our
$5,000,000 revolving credit facility.
We believe that existing cash balances and funds available under our bank
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. We are currently assessing the feasibility of two major
product development projects, which, if undertaken, will require significant
funds. Should we move ahead with either project we will actively begin to raise
funds through customer funding, corporate partnering, sale of equity or a
combination of these sources.
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.
Inflation
The Company believes that inflation has not had a material effect on
its results of operations.
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
experience 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.
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 company's growth is largely dependent upon the timely introduction
of new product offerings. Should we fail to complete product developments
in a timely fashion, our sales growth could slow and we could lose our
leadership position in our selected markets. Advanced product research and
development outcomes are difficult to predict and we may fail to achieve
our product research objectives. Although we have significant experience in
developing new products, there can be no assurance that we can successfully
execute our long-term product development strategy, or can we predict that
our long-term product development strategy will successfully compete with
future technology advances.
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. The Company believes
that these ordinary claims will not have a material effect on operations or
capital resources.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters voted upon by our security holders during the quarter
for which this report was filed.
Item 6. Exhibits and reports on Form 8-K.
1. Exhibit 27 - Financial Data Schedule: Nine Months Ended September 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
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Richard C. Forsyth
(Chief Financial and Accounting Officer)
Date: October 20, 2000
