What changed in this filing

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Item 1A. Risk Factors

2022-03-11 compared with 2021-03-03 · 98 added, 112 removed, 331 unchanged (39% of the section changed)

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Risks related to our financial performance

We have a history of losses and are uncertain when we may regain profitability.

We recorded substantial losses from continuing operations in each of the last three fiscal years.

We expect to incur substantial losses in the near future as we confront the impact of the COVID-19 pandemic on our business, as we continue to bear the expenses of maintaining two satellite networks during the transition of our mini-VSAT customers to our HTS network, as we increase satellite capacity to handle our growing subscriber base, as we continue to shift our business from a model based primarily on product sales to a model based primarily on recurring revenue, and as we continue to invest in research and development to improve our existing products and develop new products, including our photonic chip-based fiber optic gyro.

We expect to invest substantially in the development of our photonic chip-based fiber optic gyro in an effort to take advantage of opportunities we may have in the autonomous vehicle and other markets.

We expect that, as we increase our investments in these and other areas, including, for example, our Internet of Things (IoT) product, our losses will grow.

In order to regain profitability, we must successfully complete the transition of our mini-VSAT customers to our HTS network and continue to introduce new and improved products in order to maintain and improve our competitive position and generate revenue.

We have a history of losses, and regaining profitability may take longer than we anticipate or may not be achievable.

We recorded substantial losses from continuing operations in each of the last three fiscal years (notwithstanding the income we recognized in 2021 from the forgiveness of the PPP Loan).

We may continue to incur losses as we increase satellite capacity to handle our growing subscriber base, as we continue to shift our business from a model based primarily on product sales to a model based primarily on recurring revenue, as we confront the impact of the COVID-19 pandemic, especially regarding the global chip shortage and supply chain constraints, on our business and as we continue to invest in research and development to improve our existing products and develop new products.

In order to regain profitability, we must grow our airtime subscriber base (including recruiting or replacing customers of our legacy network that have yet to subscribe to our HTS service), reduce our costs, and continue to introduce new and improved products in order to maintain and improve our competitive position and generate revenue.

Our inability to accomplish any of these goals could have a material adverse effect on our revenues, profitability and cash flow, and we cannot assure you when, or whether, we will regain profitability.

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If this occurs, the market price of our common stock could fall significantly.

Our results of operations in any quarter can fluctuate for many reasons, including the impact of the COVID-19 pandemic;

changes in demand for our products and services, the timing and size of individual orders from military customers, which may be delayed or canceled for various reasons;

Our results of operations in any quarter can fluctuate for many reasons, including changes in demand for our products and services;

the timing and size of individual orders from military customers, which may be delayed or canceled for various reasons;

delays in order fulfillment, including as a result of shortages of components and raw materials;

the mix of products and services we sell, including the mix of fixed rate and metered contracts for airtime services;

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unanticipated charges or expenses, such as increases in warranty claims;

expenses incurred in responding to stockholder activism;

general economic climate;

and seasonality of pleasure boat and recreational vehicle usage.

In light of our current and anticipated investments in research and development and the expansion of our HTS network, we expect that our operating expenses in upcoming quarters may increase significantly over the amounts we incurred in prior comparable quarters.

seasonality of pleasure boat and recreational vehicle usage;

and the impact of the COVID-19 pandemic and resulting supply chain disruptions.

A large portion of our expenses, including expenses for network infrastructure, facilities, equipment, and personnel, are relatively fixed.

Accordingly, if our net sales decline or do not grow as much or as quickly as we anticipate, we might be unable to maintain or improve our operating margins.

Accordingly, if our net sales decline or do not grow as much or as quickly as we anticipate, we might be unable

to maintain or improve our operating margins.

Any failure to achieve anticipated net sales could therefore significantly harm our operating results for a particular fiscal period.

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In 2020, our annual impairment test resulted in an impairment charge of $10.5 million in our KVH Media reporting unit.

Even after recording this impairment, our consolidated balance sheet continues to include $8.8 million of goodwill and other intangible assets, of which $4.4 million relates to KVH Media Group.

There can be no assurance that our remaining goodwill and other intangible assets will not be further impaired, especially if the global COVID-19 pandemic continues to impact the markets in which we participate.

Even after recording this impairment, our consolidated balance sheet at December 31, 2021 includes $7.9 million of goodwill and other intangible assets, of which $3.5 million relates to KVH Media Group.

Our annual impairment analysis in the fourth quarter of 2021 did not identify any further impairments.

However, there can be no assurance that our remaining goodwill and other intangible assets will not be further impaired, especially if the global COVID-19 pandemic continues to impact the markets in which our Media Group operates.

Risks related to our operations

Our future performance will depend in part on the success of our management transition.

On March 7, 2022, we announced that our President and Chief Executive Officer, Martin Kits van Heyningen, was retiring from his executive and Board roles after more than 40 years of service.

Bruun, our Chief Operating Officer, has been appointed as our interim President and Chief Executive Officer.

The Board of Directors engaged an executive search firm to identify a new Chief Executive Officer.

Kits van Heyningen will no longer participate in the day-to-day management of our business, we will not have the full benefit of his long experience, expertise and familiarity with our customers and suppliers and the industries in which we participate.

If we are not successful in implementing our management transition, it could be viewed negatively by our customers, employees or investors and have an adverse impact on our business.

Further, these changes will increase our dependency on other members of our executive management team who remain with us.

Our executive officers are at-will employees, competition is intense for executive management, and they could terminate their employment with us at any time.

We do not maintain key-person life insurance on any of our personnel.

Accordingly, the loss of one or more of our executive officers or key employees could have a material adverse effect on our business.

If we cannot effectively manage changes in our business and continue to attract and retain skilled personnel, our business may suffer.

We are highly dependent on the efforts and abilities of qualified personnel at all levels, including our senior management team and other key technical, operational, managerial and sales and marketing personnel, each of whom brings a valuable set of skills that would be difficult to replace.

If we fail to retain and attract the necessary personnel, we may be unable to achieve our business objectives and may lose our competitive position, which could lead to a significant decline in net sales.

We recently announced a change in our strategic priorities, whereby we plan to focus on our core businesses, implement greater discipline in our new product initiatives and reduce costs.

We may not achieve the anticipated benefits and cost savings from this restructuring.

As part of this change, we announced a reduction in force of approximately 10% to realign our workforce to match our strategic priorities.

The workforce reduction will result in the reallocation and combination of certain roles and responsibilities across the organization.

Moreover, the reduction in force may yield unintended consequences and costs, such as attrition beyond the intended reduction in force, the distraction of employees and reduced employee morale, and could adversely affect our reputation as an employer.

We expect to incur severance and other expenses in connection with the reduction in force, which will reduce our earnings at least in the near term.

The current job market for our personnel is very competitive, resulting in increased compensation, and we face challenges in seeking to retain our continuing personnel and attract new personnel to fulfill our unmet needs.

Prior to the reduction in force, we experienced increased turnover among our employees.

Replacing key personnel may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully execute our business strategy, and we cannot assure you that we will be able to identify or employ qualified personnel for any such position on acceptable terms, if at all.

In order to retain and attract qualified personnel, we may need to pay higher compensation than we currently expect, which would make it more difficult to achieve our goal of returning to profitability.

Further, if we are unable to adjust our operating expenses on a timely basis in response to changes in our operations, our results of operations may be harmed.

To manage changes in our business effectively, we must, among other things, match our manufacturing facilities and capacity to demand for our products and services;

secure appropriate satellite capacity to match changes in demand for airtime services;

effectively manage our inventory and working capital;

ensure robust cybersecurity protection of company and customers data and systems;

and ensure that our procedures and internal controls are revised and updated to remain appropriate for our realigned workforce and the size and scale of our business operations.

Restructuring activities could disrupt our business and affect our results of operations.

We recently announced a restructuring to re-align our workforce to match strategic and financial objectives and optimize resources for long-term growth, including a reduction in force.

We also implemented a management transition, and our new management may take similar steps in the future to generate operating synergies, to achieve our target operating model and financial objectives, or to reflect more closely changes in the strategic direction of our business.

We may also choose to make strategic divestitures.

Any of these changes could be disruptive to our business, including our research and development and product launch efforts, and could result in significant expense, including losses on any divestiture, accounting charges for inventory and technology-related write-offs and workforce reduction costs, and significant transaction costs, including for potential transactions that do not proceed.

Substantial expense or charges resulting from restructuring activities or divestitures could adversely affect our results of operations and use of cash in the periods in which we take these actions.

Any divestiture could also result in the retention of liabilities and expenses that are not assumed by the acquirer or the loss of operating income from the divested operations, either of which could negatively impact profitability after any divestiture.

We must generate a certain level of sales of the TracPhone V-HTS series products and our mini-VSAT Broadband service in order to maintain or improve our service gross margins.

As a result of our mini-VSAT Broadband network infrastructure, our cost of service sales includes certain costs that do not generally vary directly in proportion with the volume of service sales, and we have almost no ability to reduce these fixed costs in the short term.

As a result of our mini-VSAT Broadband network infrastructure, our cost of service sales includes certain costs that generally do not vary directly in proportion with the volume of service sales, and we have limited ability to reduce these fixed costs in the short term.

These costs have increased significantly each year as we have further expanded our network to accommodate additional subscriber demand and/or coverage areas, and we expect that this trend will continue in 2022 and beyond, particularly as we expand our HTS network.

If sales of our TracPhone V-HTS series products and the mini-VSAT Broadband service, including through our AgilePlans subscription model, do not generate the level of revenue that we expect or if those revenues decline, our service gross margins may continue to decline.

The failure to improve our mini-VSAT Broadband service gross margins and unit or subscriber sales would have a material adverse effect on our overall profitability.

The operation of our HTS and legacy satellite networks is causing us to incur significant additional operating costs that adversely affect our operating profit.

In November 2017, we launched our HTS communications service that uses Intelsat’s Global IntelsatOne Flex managed services and SKY-Perfect JSAT capacity.

We also continue to operate our legacy global network of leased satellite transponders and terrestrial teleports in cooperation with ViaSat, Inc.

The operation of both the HTS network and the legacy network has resulted and will continue to result in significant additional operating costs.

Our arrangement with ViaSat is currently scheduled to expire in 2021.

We expect that the arrangement with ViaSat and related satellite operators will be phased out by the end of 2021, but the reliability of the existing satellite network will need to be maintained during the entirety of the wind-down period.

Our focus on the HTS network creates potential risks with respect to the continued operation of our legacy satellite communications network and our contractual arrangement with ViaSat and satellite operators.

We expect to terminate our legacy satellite network by the end of 2021, which may result in a loss of business from customers who are unable or unwilling to convert to our HTS network.

Our maritime airtime services networks generated approximately $81.4 million of revenue in 2020.

At the end of 2020, approximately 38% of our maritime airtime subscribers relied on our legacy airtime network.

We intend to provide various incentives to these customers, such as free or discounted upgrade kits and terminals, to entice them to convert their service to our HTS network by the end of 2021.

Our inability to convert our legacy satellite customers to our HTS network could result in the loss of revenue.

In addition, the costs that we may need to incur to convert our legacy maritime airtime customers to our HTS network may be significant.

There can be no assurance that we will retain our legacy airtime customers when we terminate our legacy network at the end of 2021 or that the costs we incur to convert these customers result in profitability either in the short term or the long term.

Our ability to compete in the maritime airtime services market will be impaired if we are unable to provide sufficient service capacity to meet customer demand.

We currently offer our mini-VSAT Broadband service in the Americas, Europe, the Middle East, Africa, Asia-Pacific, and Australian and New Zealand waters.

We currently offer our mini-VSAT Broadband service in the Americas, Europe, the Middle East, Africa, Asia-Pacific, Indian, and Australian and New Zealand waters.

We may need to expand capacity in existing coverage areas to support our subscriber base.

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We have single dedicated manufacturing facilities for each of our mobile connectivity and inertial navigation product categories, and any significant disruption to a facility will impair our ability to deliver our products.

We currently manufacture all of our mobile connectivity products at our manufacturing facility in Middletown, Rhode Island, and the majority of our inertial navigation products at our facility in Tinley Park, Illinois.

We currently manufacture all of our mobile connectivity products at our manufacturing facility in Middletown, Rhode Island, and all of our inertial navigation products at our facility in Tinley Park, Illinois.

Some of our production processes are complex, and we may be unable to respond rapidly to the loss of the use of either production facility.

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If short-term demand for our products exceeds our manufacturing capacity, our inability to fulfill orders in a timely manner could also lead to customer or dealer dissatisfaction, loss of sales and damage to our reputation.

Acquisitions may disrupt our operations or adversely affect our results.

We evaluate opportunities to acquire other businesses as they arise.

The expenses we incur evaluating and pursuing acquisitions could have a material adverse effect on our results of operations.

Acquisitions and strategic relationships may disrupt our operations or adversely affect our results.

We evaluate opportunities to acquire other businesses and pursue other strategic relationships as they arise.

The expenses we incur evaluating and pursuing acquisitions and strategic relationships could have a material adverse effect on our results of operations.

If we acquire a business, we may be unable to manage it profitably or successfully integrate its operations with our own.

Moreover, we may be unable to realize the strategic, financial, operational and other benefits we anticipate, and any acquisition may increase our operating expenses.

Further, our approach to acquisitions may involve a number of special financial and business risks, such as entry into new and unfamiliar lines of business or markets, which may present challenges or risks that we did not anticipate;

Moreover, we may be unable to realize the strategic, financial, operational and other benefits we anticipate, and any acquisition or strategic relationship may increase our operating expenses.

Further, our approach to acquisitions and strategic relationships may involve a number of special financial and business risks, such as entry into new and unfamiliar lines of business or markets, which may present challenges or risks that we did not anticipate;

entry into new or unfamiliar geographic regions, including exposure to additional tax and regulatory regimes;

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diversion of our management’s time, attention, and resources;

loss of key acquired personnel;

loss of key personnel;

increased costs to improve or coordinate managerial, operational, financial, and administrative systems, including internal control over financial reporting;

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and losses arising from impairment charges associated with goodwill or intangible assets.

If we cannot effectively manage changes in our rate of growth, our business may suffer.

We have previously expanded our operations to pursue existing and potential market opportunities, and we are continuing to expand our international operations.

For example, we expanded our service offerings through acquisitions in 2014 and in 2013.

This growth placed a strain on our personnel, management, financial and other resources and increased our operating expenses.

If we are unable to adjust our operating expenses on a timely basis in response to changes in revenue cycles, our results of operations may be harmed.

To manage changes in our rate of growth effectively, we must, among other things, match our manufacturing facilities and capacity to demand for our products and services;

secure appropriate satellite capacity to match changes in demand for airtime services;

successfully attract, train, motivate and manage appropriate numbers of employees for manufacturing, sales, and customer support activities;

effectively manage our inventory and working capital;

and ensure that

our procedures and internal controls are revised and updated to remain appropriate for the size and scale of our business operations.

If we are unable to hire and retain the skilled personnel we need to expand our operations, our business will suffer.

To meet our growth objectives, we must attract and retain highly skilled technical, operational, managerial and sales and marketing personnel.

If we fail to attract and retain the necessary personnel, we may be unable to achieve our business objectives and may lose our competitive position, which could lead to a significant decline in net sales.

We face significant competition for these skilled professionals.

Our success depends on the services of our executive officers.

Our future success depends to a significant degree on the skills and efforts of Martin Kits van Heyningen, our co-founder, President, Chief Executive Officer, and Chairman of the Board, and of Brent Bruun, our Chief Operating Officer and Interim Chief Financial Officer.

If we lost the services of Mr.

Kits van Heyningen or Mr.

Bruun, our business and operating results could be seriously harmed.

We also depend on the ability of our other executive officers to work effectively as a team.

The loss of one or more of our executive officers could impair our ability to manage our business effectively.

Risks related to our dependence on technology and third parties

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Our satellite antenna products include the equipment necessary to utilize satellite services.

We do not own the satellites that directly provide two-way satellite communications or the terrestrial networks that interconnect our facilities with the satellite teleports that communicate with the satellites.

We do not own the satellites that provide two-way satellite communications or the terrestrial networks that interconnect our facilities with the satellite teleports that communicate with the satellites.

We currently offer satellite television products compatible with the DIRECTV and DISH Network services in the United States, the Bell TV service in Canada, the Sky Mexico service in Mexico, the Sky UK service in the United Kingdom, Canal+ service in France and Movistar service in Spain and various other regional satellite TV services in other parts of the world.

SES, Eutelsat, Sky Perfect-JSAT, Telesat, EchoStar, Intelsat and Star One currently provide the satellite capacity to support the mini-VSAT Broadband service and our TracPhone V-IP and V-HTS series products.

Intelsat and Sky Perfect-JSAT currently provide the satellite capacity to support the mini-VSAT Broadband service and our TracPhone and V-HTS series products.

In addition, we have agreements with various teleports and Internet service providers around the globe to support the mini-VSAT Broadband service.

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If customers become dissatisfied with the programming, pricing, service, availability or other aspects of any of these satellite services, or if any one or more of these services becomes unavailable for any reason, we could suffer a substantial decline in sales of our satellite products.

There may be no alternative service provider available in a particular geographic area, and our modem or other technology may not be compatible with the technology of any alternative service provider that may be available.

There may be no alternative satellite service provider available to us in a particular geographic area, and our modem or other technology may not be compatible with the technology of any alternative service provider that may be available.

Even if available, delays caused by switching our technology to another service provider, if available, and qualifying this new service provider could materially harm our customer relationships, business, financial condition and operating results.

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Risks related to economic conditions and trade relations

Our revenues, results of operations and financial condition have been, and may continue to be, adversely impacted by economic turmoil, political events, macroeconomic conditions, credit tightening and associated declines in consumer and enterprise spending, and by the continuation of the COVID-19 pandemic.

Our revenues, results of operations and financial condition have been, and are expected to be, adversely impacted by economic turmoil, political events, macroeconomic conditions, credit tightening and associated declines in consumer and enterprise spending, and by the continuation of the COVID-19 pandemic, including related supply chain issues.

Economic conditions in the various geographic markets we serve have experienced significant turmoil over the last several years, including downturns related to the COVID-19 pandemic, slow economic activity, tight credit markets, inflation and deflation concerns, low consumer confidence, limited capital spending, adverse business conditions, war and refugee crises in the Middle East and Europe, terrorist attacks, the departure of the United Kingdom from the European Union, changes in government priorities, trade wars, a government shutdown, gridlock from a divided Congress, and liquidity concerns.

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Other organizations and individuals continue to take additional steps to avoid or reduce infection, including limiting travel and implementing work-at-home policies.

These measures have significantly

disrupted normal business operations both in and outside of affected areas and complying with them has increased our costs.

These measures have significantly disrupted normal business operations both in and outside of affected areas, and complying with them has increased our costs.

Travel restrictions and safety precautions have also limited our ability to service and install our equipment.

Although we are unable to predict the ongoing impact of the pandemic, our mobile communications business in particular largely depends on travel.

The operations of our KVH Media Group have been particularly impacted due in part to the global reduction in travel resulting from the pandemic.

The operations of our KVH Media Group were particularly impacted due in part to the global reduction in travel resulting from the pandemic.

We anticipate that, until the pandemic is contained, governmental, individual, business and other organizational measures to limit the spread of the virus will continue to adversely affect our revenues, results of operations and financial condition, perhaps materially.

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Our customers’ businesses could be further disrupted, and our revenues could continue to be adversely affected.

Additionally, global economic disruptions like the COVID-19 pandemic could negatively impact our supply chain and cause delays in the delivery of raw materials, components and other supplies that we need to conduct our operations.

The extent to which the pandemic will continue to impact our business will depend on many factors beyond our control, including the speed of contagion, the development and implementation of effective preventative measures and vaccines, the scope of governmental and other restrictions on travel and other activity, and public reactions to these factors.

Additionally, global economic disruptions like the COVID-19 pandemic have negatively impacted, and could continue to negatively impact, our supply chain and continue to cause delays in the delivery of raw materials, components and other supplies that we need to conduct our operations and generate revenue.

The extent to which the pandemic will continue to impact our business will depend on many factors beyond our control, including the speed of contagion, the appearance of new variants, the development and implementation of effective preventative measures and vaccines, the scope of governmental and other restrictions on travel and other activity, and public reactions to these factors.

There can be no assurances that government programs to maintain or improve economic conditions, including stimulus and other aid programs intended to combat the impact of the pandemic, will be effective.

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Ongoing or new trade wars or other governmental action related to tariffs or international trade agreements or policies could reduce demand for our products and services, increase our costs, reduce our profitability, adversely impact our supply chain or otherwise have a material adverse effect on our business and results of operations.

Changes in foreign currency exchange rates negatively affect our financial condition and results of operations.

Changes in foreign currency exchange rates may negatively affect our financial condition and results of operations.

Because of the scope of our foreign sales and foreign operations, we face significant exposure to movements in exchange rates for foreign currencies, particularly the pound sterling and the euro.

During 2019 and 2020, the U.S.

dollar strengthened slightly against certain foreign currencies, which adversely affected revenues reported in U.S.

For example, during 2020, the U.S.

dollar strengthened

slightly against certain foreign currencies, which adversely affected revenues reported in U.S.

dollars and decreased the reported value of our assets in foreign countries.

dollar continues to strengthen (as has recently occurred relative to the pound sterling), our revenues denominated in foreign currencies but reported in U.S.

dollars, as well as the reported value of our assets in foreign countries, would be commensurately lower.

We also have intragroup receivables and liabilities, such as loans, that can generate significant foreign currency effects.

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dollar strengthens, the relative cost of these products and services to customers located in foreign countries would increase, which could adversely affect export sales.

In addition, most of our financial obligations, including payments under our outstanding debt obligations, must be satisfied in U.S.

In addition, most of our financial obligations must be satisfied in U.S.

Our exposures to changes in foreign currency exchange rates may change over time as our business practices evolve and could result in increased costs or reduced revenue and could adversely affect our cash flow.

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Fluctuating commercial sales of our inertial navigation products are also making it harder to predict our future revenues.

For example, TACNAV product sales increased $6.1 million, or 125%, from 2019 to 2020, while sales of our FOG products remained flat between 2019 and 2020.

For example, TACNAV product sales decreased $2.9 million, or 27%, from 2020 to 2021, while sales of our FOG products increased $3.0 million, or 12%, from 2020 and 2021.

Investors should not expect that any periodically high rates of growth will be repeated in future quarters;

given the substantial fluctuations in quarterly sales, we could similarly experience substantial reductions in revenue from time to time.

Sales of our FOG systems and TACNAV products generally consist of a few large orders, and the delay or cancellation of a single order will substantially reduce our net sales.

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KVH products sold to these customers are purchased through orders that can generally range in size from several hundred thousand dollars to several million dollars.

For example, we received an order for $10.0 million of TACNAV products in July 2020, an order for $4.0 million of FOG products in October 2019 and orders for $6.7 million and $3.5 million of TACNAV products and services in September 2019 and April 2017, respectively.

For example, we received an order for $7.9 million of FOG products in August 2021, an order for $10.0 million of TACNAV products in July 2020, an order for $4.0 million of FOG products in October 2019 and an order for $6.7 million of TACNAV products and services in September 2019.

Orders of this size are often unpredictable and difficult to replicate.

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Competition may limit our ability to sell our mobile connectivity products and services and inertial navigation products.

The mobile connectivity markets and defense navigation and inertial navigation markets are very competitive, and we expect this competition to intensify.

We may not be able to compete successfully against current and future competitors, which could

impair our ability to sell our products and services.

For example, improvements in the performance of lower-cost gyros by competitors could jeopardize sales of our FOGs and FOG-based systems.

The mobile connectivity and inertial navigation markets are very competitive, and we expect this competition to intensify.

We may not be able to compete successfully against current and future competitors, which could impair our ability to sell our products and services.

For example, improvements in the performance of lower-cost gyros by competitors, as well as various industry certification requirements, could jeopardize sales of our FOGs and FOG-based systems.

As our market share in the mobile satellite communication market has grown, competition has intensified significantly, most notably from companies that seek to compete primarily on price.

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Further, some of the companies that we depend on to supply us with capacity on satellite communications networks may vertically integrate by introducing their own products and services to compete with ours, which might motivate them to stop providing satellite network capacity to us, or to make it available only on less favorable terms.

In the marine market for satellite TV equipment, we compete primarily with Intellian, Cobham SATCOM, Orbit Communication Systems, Raymarine (Intellian made), KNS, and Sea King (King Controls).

In the marine market for voice, fax, data, and Internet communications equipment, we compete primarily with Intellian, Cobham SATCOM, Orbit Communication Systems, Jotron AS, KNS Inc., Inmarsat, AddValue, and Iridium Satellite LLC.

In the marine market for high-speed voice, fax, data, and Internet services, we compete primarily with Inmarsat, Marlink, Speedcast, Network Innovations, Global Eagle Entertainment and Isotropic Network.

In the marine market for satellite TV equipment, we compete primarily with Intellian, Cobham SATCOM and Raymarine (Intellian made).

In the marine market for voice, fax, data, and Internet communications equipment, we compete primarily with Intellian and Cobham SATCOM.

In the marine market for high-speed voice, fax, data, and Internet services, we compete primarily with Inmarsat, Marlink and Network Innovations.

We also face competition from providers of low-speed data services, which include Inmarsat, Globalstar LP, and Iridium Satellite LLC.

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In the markets for media content, the KVH Media Group competes primarily with Swank Motion Pictures and NewspaperDirect Inc.

In the inertial navigation markets, we compete primarily with Honeywell International Inc., Northrop Grumman Corporation, Goodrich Aerospace, IAI, Fizoptica, SAGEM, and Systron Donner Inertial.

In the inertial navigation markets, we compete primarily with Honeywell International Inc., Northrop Grumman Corporation, Emcore and Safran.

Many of our competitors are well-established companies that have substantially greater financial, managerial, technical, marketing, personnel and other resources than we do, which may help them to compete more effectively against us.

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We currently compete against companies that offer established maritime Ku-band VSAT service using, in some cases, antennas 1-meter in diameter or larger.

While we are unaware of any company offering a 37-cm VSAT solution comparable to our TracPhone V3-HTS, we are encountering regional competition from companies offering 60-cm VSAT systems and services, which are comparable in size to our TracPhone V7-HTS.

While we are unaware of any company offering a 37-cm VSAT solution comparable to our TracPhone V3-HTS or V30, we are encountering regional competition from companies offering 60-cm VSAT systems and services, which are comparable in size to our TracPhone V7-HTS.

Likewise, our TracPhone V11-HTS, at 1.1-meters in diameter, is approximately 85% smaller and lighter than competing C-band maritime VSAT systems, which use antennas in excess of 2.4-meters in diameter to provide similar global services.

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We compete against Inmarsat's Fleet Xpress service, a global Ka-band mobile VSAT service that Inmarsat claims is faster and has a lower price per megabit than existing Ku-band services.

This service may continue to adversely impact sales of our mini-VSAT Broadband service and related equipment.

service may continue to adversely impact sales of our mini-VSAT Broadband service and related equipment.

Our arrangement to use the IntelsatOne Flex service for our HTS network is not exclusive, and competitors’ use of this service could also adversely impact sales.

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Any interruption in supply could impair our ability to deliver our products until we identify and qualify a new source of supply, which could take several weeks, months or longer and could increase our costs significantly.

For example, the global chip shortage and supply chain constraints resulting from the COVID-19 pandemic have impacted our ability to deliver products in a timely manner and have increased our cost of sales due to rising prices for materials.

In the fourth quarter of 2021, we estimate that raw material costs exceeded our expectations by approximately $0.4 million, and that orders for approximately $2.0 million could not be filled due to component shortages.

We may not be able to pass along any or all of these cost increases to our customers, and customers may not wait for our products to become available.

These disruptions in our supply chain could continue or worsen, which could continue to delay delivery of our products and services and adversely affect our revenue and results of operations in future periods.

Suppliers might change or discontinue key components, which could require us to modify our product designs.

For example, we previously experienced changes in the chemicals used to coat our optical fiber, which changed its characteristics and necessitated design modifications.

Regulations requiring government contractors to implement processes to avoid counterfeit parts may require us to find new sources of materials or components if a supplier cannot meet those requirements.

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Reliance on foreign manufacturing and/or raw material supply has lengthened our supply chain and increased the risk that a disruption in that supply chain could have a material adverse effect on our operations and financial performance.

Changes in the competitive environment, supply chain issues, and the transition to our HTS network may require inventory write-downs.

Changes in the competitive environment, customer demand, supply chain issues, and the transition to new products may require inventory write-downs.

From time to time, we have recorded significant inventory charges and/or inventory write-offs as a result of substantial declines in customer demand.

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Research and development in our industry is inherently complex and uncertain, and our current and anticipated research and development projects may not achieve the results we seek.

Our research and development expenses decreased 1% from 2019 to 2020, and the financial resources that we can devote to our research and development efforts may be insufficient to achieve our goals.

The financial resources that we can devote to our research and development efforts may be insufficient to achieve our goals.

Our efforts may not result in any viable products or may result in products whose performance, features, price or availability may not be attractive to customers or that we cannot manufacture and sell profitably.

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Risks related to indebtedness

An anticipated audit of our Paycheck Protection Program loan may result in, among other things, a determination that we are not entitled to forgiveness of the loan or that we were not entitled to receive the loan, in which case we would have to repay the loan, with interest, and may face penalties and harm to our reputation.

In early May 2020, we received a $6.9 million loan from Bank of America, N.A.

under the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act.

The loan is described in more detail in Note 5 to our accompanying consolidated financial statements.

The loan has a term of two years, and upon application to the Small Business Administration, or SBA, all or a portion of the loan may be forgiven, depending on our use of proceeds and other factors.

Under the CARES Act, loan forgiveness is available for certain payroll costs, rent payments, mortgage interest and utilities, if stated conditions are met.

While we believe we have used the proceeds of the loan for purposes eligible for forgiveness, we cannot provide any assurance that we will be eligible for any loan forgiveness, that we will apply for forgiveness, or that any amount of the loan will be forgiven, in which case we must repay the loan with interest.

The previous Secretary of the U.S.

Department of the Treasury stated that all Paycheck Protection Program loans over $2.0 million would be audited;

accordingly, we expect that our loan and any application we file for forgiveness will be reviewed carefully.

In order to apply for the loan, we were required to certify, among other things, that the then-current economic uncertainty made the loan request necessary to support our ongoing operations.

We made this certification in good faith after our management and our Board of Directors reviewed our history of losses, our financial situation, our expectations regarding the impact of the pandemic on our business, and our access to alternative forms of capital, and we believe that we satisfied all eligibility criteria for the loan.

The certification we were required to provide did not contain any objective criteria and is subject to interpretation.

However, the SBA issued guidance stating that it is unlikely that a public company with substantial market value and access to capital markets would be able to make the required certification in good faith.

If, despite our good-faith belief that we satisfied all eligibility requirements for the loan, we are later determined to have been ineligible to receive the loan or to have violated any laws or regulations in connection with the loan, such as the False Claims Act, we may be required

to repay the loan in full and may be subject to civil, criminal and administrative penalties.

Our receipt of the loan may result in adverse publicity and damage to our reputation, and any review or audit of the loan or any legal claims could consume significant financial and management resources.

Our credit facility contains financial and restrictive covenants that we may not satisfy, and that, if not satisfied, could result in the acceleration of any outstanding indebtedness and limit our ability to borrow additional funds.

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Although no amounts were outstanding under the agreements governing our secured credit facility as of December 31, 2021, the agreements subject us to various financial and other affirmative and negative covenants with which we must comply on an ongoing or periodic basis.

These include covenants pertaining to a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio and covenants requiring the mandatory prepayment of amounts outstanding under the revolver under specified circumstances.

These include financial covenants pertaining to a maximum consolidated leverage ratio and a minimum trailing four-quarter consolidated adjusted EBITDA of $3.0 million and covenants requiring the mandatory prepayment of amounts outstanding under the revolver under specified circumstances.

The agreements also subject us to various restrictions on our ability to engage in certain activities, such as raising capital or acquiring businesses.

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We have foreign offices in Denmark, the United Kingdom, Singapore, Japan, Norway, Cyprus and the Philippines, as well as a subsidiary in Brazil that manages local sales.

Nonetheless, substantially all of our personnel and operations, particularly for our mobile connectivity equipment business and our inertial navigation business, are located in the United States.

Nonetheless, substantially all of our personnel and operations for both our mobile connectivity equipment business and our inertial navigation business are located in the United States.

Our limited international operations may impair our ability to compete successfully in international markets and to meet the service and support needs of our customers in countries where we have little to no infrastructure.

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In addition, many of the countries where our customers use our products and services have licensing and regulatory requirements for the importation and use of satellite communications and reception equipment, including the use of such equipment in territorial waters, the transmission of satellite signals on certain radio frequencies, the transmission of voice over Internet services using such equipment, and, in some cases, the reception of certain video programming services.

These laws and regulations are changing continuously, making compliance complex.

These laws and regulations are continually changing, making compliance complex.

We incur significant costs identifying and maintaining compliance with applicable licensing and regulatory requirements.

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Our company and our customers can use our services to collect, use and store personal, confidential and sensitive information regarding the content and manner of usage of our services by them, their employees and maritime crews.

Federal, state and foreign governments have adopted and are proposing new and more stringent laws and regulations regarding the collection, use, storage and transfer of information, such as the European Union’s General Data Protection Regulation (“GDPR”), which took effect in May 2018.

The costs of compliance with, and other burdens imposed by, such laws and regulations may limit the use and adoption of our services and reduce overall demand.

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Domestic and international legislative and regulatory initiatives may harm our ability, and the ability of our customers, to process, handle, store, use and transmit information, which could reduce demand for some of our services, increase our costs and force us to change our business practices.

For example, the invalidation of the Privacy Shield may affect our ability to collect, use and transfer personal information of EU individuals outside of the EU.

These laws and regulations are still evolving, are likely to be in flux and may be subject to uncertain interpretation for the foreseeable future.

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Although we believe our tax estimates are reasonable, the ultimate tax outcome may differ materially from our estimates and may materially affect our income tax benefit or expense, net loss or income, and cash flows in the period in which such determination is made.

As of December 31, 2020, we had gross uncertain tax positions of $1.7 million, consisting of a $1.1 million reduction to deferred tax assets and $0.6 million as a liability for uncertain tax positions.

As of December 31, 2021, we had gross uncertain tax positions of $1.9 million, consisting of a $1.3 million reduction to deferred tax assets and a $0.6 million liability for uncertain tax positions.

Deferred tax assets are recognized for the expected future tax consequences of temporary differences between the carrying amount for financial reporting purposes and the tax bases of assets and liabilities, and for net operating losses and tax credit carry forwards.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors