What changed in this filing

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Item 1. Financial Statements

2022-08-09 compared with 2022-05-10 · 202 added, 111 removed, 526 unchanged (37% of the section changed)

4 unchanged sentences

(in thousands, except share and per share amounts)

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

ASSETS (unaudited)

2 unchanged sentences

Marketable securities 5,157 13,147

Accounts receivable, net of allowance for doubtful accounts of $ 1,374 and $ 1,636 as of March 31, 2022 and December 31, 2021, respectively

Accounts receivable, net of allowance for doubtful accounts of $ 1,553 and $ 1,636 as of June 30, 2022 and December 31, 2021, respectively

33,408 33,648

33 unchanged sentences

Authorized 30,000,000 shares;

20,327,966 and 20,342,695 shares issued at March 31, 2022 and December 31, 2021, respectively;

and 18,895,272 and 18,910,001 shares outstanding at March 31, 2022 and December 31, 2021, respectively

20,503,438 and 20,342,695 shares issued at June 30, 2022 and December 31, 2021, respectively;

and 19,070,744 and 18,910,001 shares outstanding at June 30, 2022 and December 31, 2021, respectively

Additional paid-in capital 157,996 156,199

2 unchanged sentences

135,879 140,828

treasury stock at cost, common stock, 1,432,694 shares as of March 31, 2022 and December 31, 2021

treasury stock at cost, common stock, 1,432,694 shares as of June 30, 2022 and December 31, 2021

( 11,851 ) ( 11,851 )

6 unchanged sentences

(in thousands, except earnings per share amounts, unaudited)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2022 2021 2022 2021

Product $ 13,579 $ 17,269 $ 27,949 $ 35,701

26 unchanged sentences

(in thousands, unaudited)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2022 2021 2022 2021

Net loss $ ( 1,444 ) $ ( 5,673 ) $ ( 6,136 ) $ ( 9,701 )

2 unchanged sentences

Other comprehensive (loss) income, net of tax (1)

( 419 ) 41 ( 612 ) 264

Total comprehensive loss $ ( 1,863 ) $ ( 5,632 ) $ ( 6,748 ) $ ( 9,437 )

11 unchanged sentences

Shares Amount Shares Amount

Balance at March 31, 2022 20,328 $ 203 $ 157,142 $ ( 16,857 ) $ ( 3,602 ) ( 1,433 ) $ ( 11,851 ) $ 125,035

Net loss — — — ( 1,444 ) — — — ( 1,444 )

Other comprehensive loss — — — — ( 419 ) — — ( 419 )

Stock-based compensation — — 705 — — — — 705

Exercise of stock options and issuance of restricted stock awards, net of forfeitures 175 2 149 — — — — 151

Balance at June 30, 2022 20,503 $ 205 $ 157,996 $ ( 18,301 ) $ ( 4,021 ) ( 1,433 ) $ ( 11,851 ) $ 124,028

Common Stock Additional

Accumulated Deficit Accumulated

Comprehensive

Loss Treasury Stock Total

Stockholders’

Shares Amount Shares Amount

Balance at December 31, 2021 20,343 $ 203 $ 156,199 $ ( 12,165 ) $ ( 3,409 ) ( 1,433 ) $ ( 11,851 ) $ 128,977

5 unchanged sentences

Taxes accrued for net share settlement of options — — ( 131 ) — — — — ( 131 )

Balance at March 31, 2022 20,328 $ 203 $ 157,142 $ ( 16,857 ) $ ( 3,602 ) ( 1,433 ) $ ( 11,851 ) $ 125,035

Balance at June 30, 2022 20,503 $ 205 $ 157,996 $ ( 18,301 ) $ ( 4,021 ) ( 1,433 ) $ ( 11,851 ) $ 124,028

Common Stock Additional

4 unchanged sentences

Shares Amount Shares Amount

Balance at March 31, 2021 20,165 $ 202 $ 151,657 $ ( 6,430 ) $ ( 3,009 ) ( 1,433 ) $ ( 11,851 ) $ 130,569

Net loss — — — ( 5,673 ) — — — ( 5,673 )

Other comprehensive income — — — — 41 — — 41

Stock-based compensation — — 1,055 — — — — 1,055

Exercise of stock options and issuance of restricted stock awards, net of forfeitures 80 — 884 — — — — 884

Balance at June 30, 2021 20,245 $ 202 $ 153,596 $ ( 12,103 ) $ ( 2,968 ) ( 1,433 ) $ ( 11,851 ) $ 126,876

Common Stock Additional

Capital Accumulated Deficit Accumulated

Comprehensive Loss Treasury Stock Total

Stockholders’

Shares Amount Shares Amount

Balance at December 31, 2020 19,863 $ 199 $ 149,170 $ ( 2,402 ) $ ( 3,232 ) ( 1,433 ) $ ( 11,851 ) $ 131,884

3 unchanged sentences

Exercise of stock options and issuance of restricted stock awards, net of forfeitures 382 3 2,439 — — — — 2,442

Balance at March 31, 2021 20,165 $ 202 $ 151,657 $ ( 6,430 ) $ ( 3,009 ) ( 1,433 ) $ ( 11,851 ) $ 130,569

Balance at June 30, 2021 20,245 $ 202 $ 153,596 $ ( 12,103 ) $ ( 2,968 ) ( 1,433 ) $ ( 11,851 ) $ 126,876

See accompanying Notes to Unaudited Consolidated Financial Statements.

3 unchanged sentences

(in thousands, unaudited)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

7 unchanged sentences

Unrealized currency translation (gain) loss ( 361 ) 236

Gain on sale of KVH Media Group Entertainment Limited ( 631 ) —

Changes in operating assets and liabilities:

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Proceeds from sale of fixed assets — 100

Proceeds from the sale of KVH Media Group Entertainment Limited, net of cash sold 2,378 —

Purchases of marketable securities ( 10 ) ( 4 )

6 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents ( 276 ) ( 24 )

Net (decrease) increase in cash and cash equivalents ( 3,340 ) 1,391

Net decrease in cash and cash equivalents ( 981 ) ( 3,355 )

Cash and cash equivalents at beginning of period 11,376 12,578

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These consolidated interim financial statements do not include all disclosures associated with annual financial statements and accordingly should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2021 filed on March 11, 2022 with the Securities and Exchange Commission.

The results for the three months ended March 31, 2022 are not necessarily indicative of operating results for the remainder of the year.

The results for the three and six months ended June 30, 2022 are not necessarily indicative of operating results for the remainder of the year.

Significant Estimates and Assumptions and Other Significant Non-Recurring Transactions

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On March 7, 2022, the Company announced that its President and Chief Executive Officer, Martin Kits van Heyningen, was retiring from his executive and Board roles after more than 40 years of service and assuming a consulting position with the Company.

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

For the three months ended March 31, 2022, the Company accrued approximately $ 539 in consulting fess associated with a maximum of 50 hours of transition services through March 2023, which will be paid to Mr.

Bruun, its then Chief Operating Officer, was appointed as its interim President and Chief Executive Officer.

Subsequently, on June 15, 2022, he was appointed as its President and Chief Executive Officer and as a Class II member of the Board of Directors.

As of March 31, 2022, the Company accrued approximately $ 539 in consulting fees associated with a maximum of 50 hours of transition services through March 2023, which will be paid to Mr.

Kits van Heyningen over the next 12 months.

The associated expense is included in general and administrative expenses in the accompanying consolidated statements of operations.

In addition, the Company agreed to a separation payment of $ 201 , which was inclusive of any amount which he may have otherwise earned under the executive bonus plan for 2021.

This amount is still accrued as of March 31, 2022.

Approximately $ 405 is accrued as of June 30, 2022.

In addition, the Company agreed to a separation payment of $ 201 , which was inclusive of any amount which he may have otherwise earned under the executive bonus plan for 2021, which was paid in April 2022.

The associated expenses were included in general and administrative expenses in the accompanying consolidated statements of operations.

There were also modifications to Mr.

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In March 2022, the Company also restructured its operations to reduce costs and better pursue a more focused strategy.

The Company reduced its workforce by approximately 10 % and expects reduced expenses from these actions beginning in the second quarter of 2022.

For the three months ended March 31, 2022, the Company incurred $ 1,392 in severance and health insurance costs and $ 327 in legal and advisory fees, of which $ 913 was paid as of March 31, 2022.

The Company reduced its workforce by approximately 10 % and began incurring reduced expenses from these actions beginning in the second quarter of 2022.

For the three months ended June 30, 2022, the Company incurred $ 426 in severance payments and other employee benefit costs for employees which had a severance date of June 30, 2022 and December 31, 2022 (as amended), of which $ 64 was paid as of June 30, 2022.

For the six months ended June 30, 2022, the Company incurred $ 1,818 in severance and health insurance costs and $ 327 in legal and advisory fees.

The combined expense of $ 2,145 was included in the financial statement line items of the accompanying consolidated statements of operations as follows:

costs of product sales of $ 17 , costs of service sales of $ 55 , research and development of $ 392 , sales, marketing and support of $ 894 , and general and administrative expenses of $ 787 .

We expect to incur an additional $ 467 in severance payments for employees which have a severance date of June 30, 2022.

There were also modifications to impacted employee's stock option and restricted stock awards.

The Company expects to incur an additional $ 155 in severance payments and other employee benefit costs through December 31, 2022 arising from this restructuring.

The Company also modified impacted employee's stock option and restricted stock awards.

Please see Note 5 for further discussion.

On April 29, 2022, KVH Media Group Limited, the Company's wholly owned subsidiary, sold its subsidiary KVH Media Group Entertainment Limited, which was in the KVH Media Group reporting unit of the Company's mobile connectivity segment, for net cash proceeds of $ 2,378 .

This transaction did not meet the criteria as a discontinued operation under ASC 205-20.

The Company recorded a gain on the sale of approximately $ 630 , which is recorded in other income, net in the accompanying consolidated statements of operations.

See Note 14 for the reduction of goodwill and intangibles associated with the KVH Media Group reporting unit as it relates to the sale of this subsidiary.

In May 2022, the Company entered into executive employment agreements with each of Brent C.

Bruun, Roger A.

Kuebel, Felise Feingold and Robert Balog in order to retain their services and provide them with certain benefits in the event that the Company terminates the executive’s employment without cause (as defined in the agreement) or the executive terminates his or her employment for good reason (as defined in the agreement) (either such termination, a “Qualifying Termination”), including following a change of control.

The terms of the agreements are substantially identical except as to title, salary, target bonus and reporting responsibilities.

The agreements provide that, if the executive continues to serve as an employee through December 31, 2022 (the “Retention Date”), the Company will pay the executive a retention bonus equal to 75 % of the executive’s base salary on the agreement date, and the Company will accelerate the vesting of the executive’s equity awards that would otherwise have vested in the twelve months after the Retention Date.

Please see Note 5 for further discussion regarding the equity compensation modifications.

If a Qualifying Termination occurs before December 31, 2022, the executive will receive a pro rata portion of the retention bonus.

If in connection with such a termination the executive becomes entitled to receive the change in control severance payments and benefits, the executive will also become entitled to receive the full retention bonus, and the Retention Date will be the later of the date of such change in control or such termination of employment.

For the three months ended June 30, 2022, the Company accrued approximately $ 263 for the executive employment agreements.

(3) Accounting Standards Issued and Not Yet Adopted

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(4) Marketable Securities

Marketable securities as of March 31, 2022 and December 31, 2021 consisted of the following:

March 31, 2022 Amortized

Marketable securities as of June 30, 2022 and December 31, 2021 consisted of the following:

June 30, 2022 Amortized

Money market mutual funds $ 5,157 $ — $ — $ 5,157

3 unchanged sentences

Total marketable securities designated as available-for-sale $ 13,147 $ — $ — $ 13,147

Interest income from marketable securities was $ 1 and $ 2 during the three months ended March 31, 2022 and 2021, respectively.

Interest income from marketable securities was $ 9 and $ 2 during the three months ended June 30, 2022 and 2021, respectively, and $ 10 and $ 4 during the six months ended June 30, 2022 and 2021, respectively.

(5) Stockholder's Equity

1 unchanged sentence

The Company recognizes stock-based compensation in accordance with the provisions of ASC Topic 718, Compensation-Stock Compensation .

Stock-based compensation expense was $ 859 and $ 924 , excluding $ 22 and $ 8 of compensation charges related to our Amended and Restated 1996 Employee Stock Purchase Plan, or the ESPP, for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, there was $ 2,713 of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted-average period of 2.12 years.

As of March 31, 2022, there was $ 2,756 of total unrecognized compensation expense related to restricted stock awards, which is expected to be recognized over a weighted-average period of 1.99 years.

Stock-based compensation expense was $ 701 and $ 1,033 , excluding $ 4 and $ 22 of compensation charges related to our Amended and Restated 1996 Employee Stock Purchase Plan, or the ESPP, for the three months ended June 30, 2022 and 2021, respectively, and $ 1,560 and $ 1,957 , excluding $ 26 and $ 30 of compensation charges related to ESPP, for the six months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, there was $ 3,286 of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted-average period of 2.79 years.

As of June 30, 2022, there was $ 3,499 of total unrecognized compensation expense related to restricted stock awards, which is expected to be recognized over a weighted-average period of 2.85 years.

Stock Options

During the three months ended March 31, 2022, upon the net exercise of 230 stock options, the Company issued 23 shares of common stock, 14 shares were surrendered to the Company to satisfy minimum tax withholding obligations, and 193 shares were cancelled.

Additionally, during the three months ended March 31, 2022, no stock options were granted and 170 stock options expired, were canceled or were forfeited.

During the three months ended March 31, 2021, 496 stock options were granted.

During the three months ended June 30, 2022, the Company issued 18 shares of common stock upon the exercise of stock options and received $ 149 as payment for the exercise price.

No shares were surrendered to the Company to satisfy minimum tax withholding obligations.

Additionally, during the three months ended June 30, 2022, 398 stock options were granted and 159 stock options expired, were canceled or were forfeited.

During the six months ended June 30, 2022, upon the net exercise of 248 stock options, the Company issued 41 shares of common stock and received $ 149 as payment for the exercise price, 14 shares were surrendered to the Company to satisfy minimum tax withholding obligations, and 193 shares were cancelled.

Additionally, during the six months ended June 30, 2022, 398 stock options were granted and 329 stock options expired, were canceled or were forfeited.

During the six months ended June 30, 2021, 496 stock options were granted.

The Company has estimated the fair value of each option grant on the date of grant using the Black-Scholes option-pricing model.

The weighted average assumptions utilized to determine the fair value of options granted during the three months ended March 31, 2021 are as follows:

Three Months Ended March 31,

The weighted average assumptions utilized to determine the fair value of options granted during the six months ended June 30, 2022 are as follows:

Six Months Ended June 30,

Risk-free interest rate 2.97 % 0.92 %

2 unchanged sentences

Dividend yield 0 % 0 %

During the three months ended March 31, 2022, there were accelerated vesting and extended exercised term modifications of stock options as it related to the retirement of Mr.

During the six months ended June 30, 2022, there were accelerated vesting and extended exercise term modifications of stock options as it related to the retirement of Mr.

Kits van Heyningen, which resulted in a reduction of approximately $ 85 in compensation cost.

During the three months ended March 31, 2022, there were accelerated vesting term modifications of stock options for employees terminated as part of the Company's restructuring, which resulted in a reduction of approximately $ 81 in compensation cost.

As of March 31, 2022, there were 1,727 options outstanding with a weighted average exercise price of $ 10.23 per share and 771 options exercisable with a weighted average exercise price of $ 10.36 per share.

During the three and six months ended June 30, 2022, there were accelerated vesting term modifications of stock options for employees terminated as part of the Company's restructuring, which resulted in a reduction of approximately $ 81 in compensation cost.

During the three months ended June 30, 2022, there were accelerated vesting term modifications of stock options for executive employment agreements, which resulted in an acceleration of compensation expense of approximately $ 48 .

As of June 30, 2022, there were 1,948 options outstanding with a weighted average exercise price of $ 9.83 per share and 858 options exercisable with a weighted average exercise price of $ 10.39 per share.

Restricted Stock

During the three months ended March 31, 2022, no shares of restricted stock were granted and 60 shares of restricted stock were forfeited.

Additionally, during the three months ended March 31, 2022, 68 shares of restricted stock vested, of which no shares of common stock were surrendered to the Company as payment by employees in lieu of cash to satisfy minimum tax withholding obligations in connection with the vesting of restricted stock.

As of March 31, 2022, there were 362 shares of restricted stock outstanding that were still subject to service-based vesting conditions.

During the three months ended March 31, 2022, there were accelerated vesting term modifications of restricted stock as it related to the retirement of Mr.

During the three months ended June 30, 2022, 183 shares of restricted stock were granted with a weighted average grant date fair value of $ 8.29 per share and 26 shares of restricted stock were forfeited.

Additionally, during the three months ended June 30, 2022, 79 shares of restricted stock vested, of which no shares of common stock were surrendered to the Company as payment by employees in lieu of cash to satisfy minimum tax withholding obligations in connection with the vesting of restricted stock.

During the six months ended June 30, 2022, 183 shares of restricted stock were granted with a weighted average grant date fair value of $ 8.29 per share and 86 shares of restricted stock were forfeited.

Additionally, during the six months ended June 30, 2022, 147 shares of restricted stock vested, of which no shares of common stock were surrendered to the Company as payment by employees in lieu of cash to satisfy minimum tax withholding obligations in connection with the vesting of restricted stock.

As of June 30, 2022, there were 440 shares of restricted stock outstanding that were still subject to service-based vesting conditions.

During the six months ended June 30, 2022, there were accelerated vesting term modifications of restricted stock as it related to the retirement of Mr.

Kits van Heyningen, which resulted in an acceleration in compensation expense of approximately $ 186 .

During the three months ended March 31, 2022, there were accelerated vesting term modifications of restricted stock for employees terminated as part of the Company's restructuring, which resulted in an acceleration in compensation expense of approximately $ 57 .

As of March 31, 2022, the Company had no unvested outstanding options and no outstanding shares of restricted stock that were subject to performance-based or market-based vesting conditions.

During the three and six months ended June 30, 2022, there were accelerated vesting term modifications of restricted stock for employees terminated as part of the Company's restructuring, which resulted in an acceleration in compensation expense of approximately $ 57 for the three months ended June 30, 2022 and approximately $ 125 for the six months ended June 30, 2022.

During the three months ended June 30, 2022, there were accelerated vesting term modifications of restricted stock for executive employment agreements, which resulted in an acceleration in compensation expense of approximately $ 66 .

As of June 30, 2022, the Company had no unvested outstanding options and no outstanding shares of restricted stock that were subject to performance-based or market-based vesting conditions.

(b) Employee Stock Purchase Plan

The Company's ESPP affords eligible employees the right to purchase common stock, via payroll deductions, through various offering periods at a purchase price equal to 85 % of the fair market value of the common stock on the first or last day of the offering period, whichever is lower.

During the three months ended March 31, 2022 and 2021, 22 and 0 shares were issued under the ESPP plan, respectively.

The Company recorded compensation charges related to the ESPP of $ 22 and $ 8 for the three months ended March 31, 2022 and 2021, respectively.

During the three and six months ended June 30, 2022, 0 and 22 shares were issued under the ESPP plan, respectively.

During the three and six months ended June 30, 2021, no shares were issued under the ESPP plan.

The Company recorded compensation charges related to the ESPP of $ 4 and $ 22 for the three months ended June 30, 2022 and 2021, respectively, and $ 26 and $ 30 for the six months ended June 30, 2022 and 2021, respectively.

The following table presents stock-based compensation expense, including under the ESPP, in the Company's consolidated statements of operations for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

The following table presents stock-based compensation expense, including under the ESPP, in the Company's consolidated statements of operations for the three and six months ended June 30, 2022 and 2021:

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Cost of product sales $ 61 $ 70 $ 135 $ 116

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General and administrative 426 562 904 1,100

(d) Accumulated Other Comprehensive Loss (AOCI)

$ 705 $ 1,055 $ 1,586 $ 1,987

(d) Accumulated Other Comprehensive Loss (AOCL)

Comprehensive loss includes net loss and unrealized gains and losses from foreign currency translation.

The components of the Company’s comprehensive loss and the effect on earnings for the periods presented are detailed in the accompanying consolidated statements of comprehensive loss.

The balances for the three months ended March 31, 2022 and 2021 are as follows:

The balances for the three months ended June 30, 2022 and 2021 are as follows:

Foreign Currency Translation Total Accumulated Other Comprehensive Loss

Balance, December 31, 2021 $ ( 3,409 ) $ ( 3,409 )

Balance, March 31, 2022 $ ( 3,602 ) $ ( 3,602 )

Other comprehensive loss ( 419 ) ( 419 )

Net other comprehensive loss ( 419 ) ( 419 )

Balance, June 30, 2022 $ ( 4,021 ) $ ( 4,021 )

Foreign Currency Translation Total Accumulated Other Comprehensive Loss

Balance, March 31, 2021 $ ( 3,009 ) $ ( 3,009 )

Other comprehensive income 41 41

Net other comprehensive income 41 41

Balance, June 30, 2021 $ ( 2,968 ) $ ( 2,968 )

The balances for the six months ended June 30, 2022 and 2021 are as follows:

Foreign Currency Translation Total Accumulated Other Comprehensive Loss

Balance, December 31, 2021 $ ( 3,409 ) $ ( 3,409 )

Other comprehensive loss ( 612 ) ( 612 )

Net other comprehensive loss ( 612 ) ( 612 )

Balance, June 30, 2022 $ ( 4,021 ) $ ( 4,021 )

Foreign Currency Translation Total Accumulated Other Comprehensive Loss

Balance, December 31, 2020 $ ( 3,232 ) $ ( 3,232 )

Other comprehensive income 264 264

Net other comprehensive income 264 264

Balance, March 31, 2021 $ ( 3,009 ) $ ( 3,009 )

Balance, June 30, 2021 $ ( 2,968 ) $ ( 2,968 )

(6) Net Loss per Common Share

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Diluted net income per share incorporates the dilutive effect of common stock equivalent options, warrants and other convertible securities, if any, as determined with the treasury stock accounting method.

For the three months ended March 31, 2022 and 2021, since there was a net loss, the Company excluded all 1,861 and 520 , respectively, in outstanding stock options and non-vested restricted shares from its diluted loss per share calculation, as inclusion of these securities would have reduced the net loss per share.

For the three and six months ended June 30, 2022, since there was a net loss, the Company excluded all 2,035 and 1,802 , respectively, in outstanding stock options and non-vested restricted shares from its diluted loss per share calculation, as inclusion of these securities would have reduced the net loss per share.

For the three and six months ended June 30, 2021, since there was a net loss, the Company excluded all 986 and 763 , respectively, in outstanding stock options and non-vested restricted shares from its diluted loss per share calculation, as inclusion of these securities would have reduced the net loss per share.

A reconciliation of the basic and diluted weighted average common shares outstanding is as follows:

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2022 2021 2022 2021

Weighted average common shares outstanding—basic 18,564 18,174 18,507 18,057

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Inventories, net are stated at the lower of cost and net realizable value using the first-in first-out costing method.

Inventories as of March 31, 2022 and December 31, 2021 include the costs of material, labor, and factory overhead.

Inventories as of June 30, 2022 and December 31, 2021 include the costs of material, labor, and factory overhead.

Components of inventories consist of the following:

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$ 30,981 $ 24,640

During the second quarter of 2022, the Company recorded an inventory reserve of $ 1,572 relating to a specialized component in its TACNAV product line.

This component was originally purchased in anticipation of an order from a long-standing customer;

however, that order never materialized.

The Company has had a number of potential opportunities for the

sale of this component, but at this time the remaining opportunities appear limited and given the age of the component the Company determined to book a reserve for the component’s full value.

(8) Property and Equipment

Property and equipment, net, as of March 31, 2022 and December 31, 2021 consist of the following:

Property and equipment, net, as of June 30, 2022 and December 31, 2021 consist of the following:

2022 December 31,

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$ 60,714 $ 60,114

Depreciation expense was $ 3,373 and $ 3,074 for the three months ended March 31, 2022 and 2021, respectively.

Depreciation expense was $ 3,466 and $ 3,333 for the three months ended June 30, 2022 and 2021, respectively, and $ 6,839 and $ 6,407 for the six months ended June 30, 2022 and 2021, respectively.

Certain revenue-generating hardware assets are utilized by the Company in the delivery of the Company's airtime services, media and other content.

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Warranty and related costs are reflected within sales, marketing and support in the accompanying consolidated statements of operations.

As of March 31, 2022 and December 31, 2021, the Company had accrued product warranty costs of $ 1,286 and $ 1,179 , respectively.

As of June 30, 2022 and December 31, 2021, the Company had accrued product warranty costs of $ 1,398 and $ 1,179 , respectively.

The following table summarizes product warranty activity during 2022 and 2021:

Three Months Ended

Six Months Ended

Beginning balance $ 1,179 $ 1,812

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The Company's obligations under the 2018 Credit Agreement are secured by substantially all of its assets and the pledge of equity interests in certain of its subsidiaries.

As of March 31, 2022, no amounts were outstanding under the 2018 Revolver.

As of June 30, 2022, no amounts were outstanding under the 2018 Revolver.

Borrowings under the 2018 Revolver are subject to the satisfaction of various conditions precedent at the time of each borrowing, including the continued accuracy of the Company’s representations and warranties and the absence of any default under the 2018 Credit Agreement.

As of March 31, 2022, the Company was only able to drawn on $ 12,400 of the $ 15,000 facility due to covenant restrictions.

As of June 30, 2022, the full balance of the $ 15,000 facility was available for borrowing.

The 2018 Credit Agreement contained two financial covenants, a maximum Consolidated Leverage Ratio and a minimum Consolidated Fixed Charge Coverage Ratio, each as defined in the 2018 Credit Agreement.

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In addition, Bank of America became the sole lender under the 2018 Credit Agreement.

The Company was in compliance with these financial covenants as of March 31, 2022.

The Company was in compliance with these financial covenants as of June 30, 2022.

The 2018 Credit Agreement imposes certain other affirmative and negative covenants, including without limitation covenants with respect to the payment of taxes and other obligations, compliance with laws, performance of material contracts, creation of liens, incurrence of indebtedness, investments, dispositions, fundamental changes, restricted payments, changes in the nature of the Company’s business, transactions with affiliates, corporate and accounting changes, and sale and leaseback arrangements.

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The mobile connectivity segment primarily manufactures and distributes a comprehensive family of mobile satellite antenna products and services that provide access to television, the Internet and voice services while on the move.

Product sales within the mobile connectivity segment accounted for 16 % of the Company's consolidated net sales for both the three months ended March 31, 2022 and 2021.

Service sales of mini-VSAT Broadband airtime service accounted for 58 % and 51 % of the Company's consolidated net sales for the three months ended March 31, 2022 and 2021, respectively.

Product sales within the mobile connectivity segment accounted for 16 % and 19 % of the Company's consolidated net sales for the three months ended June 30, 2022 and 2021, respectively, and 16 % and 17 % of the Company's consolidated net sales for the six months ended June 30, 2022 and 2021, respectively.

Service sales of mini-VSAT Broadband airtime service accounted for 62 % and 53 % of the Company's consolidated net sales for the three months ended June 30, 2022 and 2021, respectively, and 60 % and 52 % of the Company's consolidated net sales for the six months ended June 30, 2022 and 2021, respectively.

The inertial navigation segment manufactures and distributes a portfolio of digital compass and fiber optic gyro (FOG)-based systems that address the rigorous requirements of military and commercial customers and provide reliable, easy-to-use and continuously available navigation and pointing data.

The principal product categories in this segment include the FOG-based inertial measurement units (IMUs) for precision guidance, FOGs for tactical navigation as well as pointing and stabilization systems, and digital compasses that provide accurate heading information for demanding applications, security, automation and access control equipment and systems.

Sales of FOG-based guidance and navigation systems within the inertial navigation segment accounted for 17 % and 14 % of the Company's consolidated net sales for the three months ended March 31, 2022 and 2021, respectively.

TACNAV product sales accounted for 2 % and 12 % of the Company's consolidated net sales for the three months ended March 31, 2022 and 2021, respectively

Sales of FOG-based guidance and navigation systems within the inertial navigation segment accounted for 15 % and 17 % of the Company's consolidated net sales for the three months ended June 30, 2022 and 2021, respectively, and 16 % of the Company's consolidated net sales for both the six months ended June 30, 2022 and 2021.

No other single product class accounts for 10% or more of the Company's consolidated net sales.

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Revenues from international locations primarily include Canada, European Union countries, and other European countries, as well as countries in Africa, Asia/Pacific, the Middle East, and India.

Revenues are based upon customer location and internationally represented 64 % and 62 % of consolidated net sales for the three months ended March 31, 2022 and 2021, respectively.

Sales to Singapore customers represented 12 % and 10 % of the Company's consolidated net sales for the three months ended March 31, 2022 and 2021, respectively.

No other individual foreign country represented 10% or more of the Company's consolidated net sales for the three months ended March 31, 2022 and 2021.

As of March 31, 2022 and December 31, 2021, the long-lived tangible assets related to the Company’s international subsidiaries were less than 10% of the Company’s long-lived tangible assets.

Net sales and operating income (loss) for the Company's reporting segments and the Company's loss before income tax expense (benefit) for the three months ended March 31, 2022 and 2021 were as follows:

Three Months Ended

Revenues are based upon customer location and internationally represented 63 % and 60 % of consolidated net sales for the three months ended June 30, 2022 and 2021, respectively, and 63 % and 61 % of consolidated net sales for the six months ended June 30, 2022 and 2021, respectively.

Sales to Singapore customers represented 13 % and 10 % of the Company's consolidated net sales for the three months ended June 30, 2022 and 2021, respectively.

No other individual foreign country represented 10% or more of the Company's consolidated net sales for the three months ended June 30, 2022 and 2021.

Sales to Singapore customers represented 13 % and 10 % of the Company's consolidated net sales for the six months ended June 30, 2022 and 2021, respectively.

No other individual foreign country represented 10% or more of the Company's consolidated net sales for the six months ended June 30, 2022 and 2021.

As of June 30, 2022 and December 31, 2021, the long-lived tangible assets related to the Company’s international subsidiaries were less than 10% of the Company’s long-lived tangible assets.

Net sales and operating income (loss) for the Company's reporting segments and the Company's loss before income tax expense (benefit) for the three and six months ended June 30, 2022 and 2021 were as follows:

Three Months Ended Six Months Ended

June 30, June 30,

2022 2021 2022 2021

Mobile connectivity $ 34,553 $ 33,755 $ 67,704 $ 64,262

9 unchanged sentences

Loss before income tax expense (benefit) $ ( 1,209 ) $ ( 5,595 ) $ ( 5,572 ) $ ( 9,776 )

Depreciation expense and amortization expense for the Company's reporting segments for the three months ended March 31, 2022 and 2021 were as follows:

Three Months Ended

Depreciation expense and amortization expense for the Company's reporting segments for the three and six months ended June 30, 2022 and 2021 were as follows:

Three Months Ended Six Months Ended

June 30, June 30,

2022 2021 2022 2021

Depreciation expense:

24 unchanged sentences

Assets and liabilities measured at fair value are based on the valuation techniques identified in the table below.

The following tables present financial assets and liabilities at March 31, 2022 and December 31, 2021 for which the Company measures fair value on a recurring basis, by level, within the fair value hierarchy:

March 31, 2022 Total Level 1 Level 2 Level 3 Valuation

The following tables present financial assets and liabilities at June 30, 2022 and December 31, 2021 for which the Company measures fair value on a recurring basis, by level, within the fair value hierarchy:

June 30, 2022 Total Level 1 Level 2 Level 3 Valuation

Money market mutual funds $ 5,157 $ 5,157 $ — $ — (a)

7 unchanged sentences

The Company's non-financial assets, such as goodwill, intangible assets, and other long-lived assets resulting from business combinations, are measured at fair value using income approach valuation methodologies at the date of acquisition and subsequently re-measured if indications of impairment exist.

There was no impairment of the Company's non-financial assets noted as of March 31, 2022.

There was no impairment of the Company's non-financial assets noted as of June 30, 2022.

The Company does not have any liabilities that are recorded at fair value on a non-recurring basis.

(14) Goodwill and Intangible Assets

The following table sets forth the changes in the carrying amount of goodwill for the three months ended March 31, 2022:

The following table sets forth the changes in the carrying amount of goodwill for the six months ended June 30, 2022:

Balance at December 31, 2021

Sale of KVH Media Group Entertainment Limited ( 1,038 )

Foreign currency translation adjustment ( 219 )

Balance at March 31, 2022

Balance at June 30, 2022

Intangible Assets

The changes in the carrying amount of intangible assets during the three months ended March 31, 2022 are as follows:

The changes in the carrying amount of intangible assets during the six months ended June 30, 2022 are as follows:

Balance at December 31, 2021

1 unchanged sentence

Intangible assets acquired in asset acquisition 28

Sale of KVH Media Group Entertainment Limited ( 352 )

Foreign currency translation adjustment ( 80 )

Balance at March 31, 2022

Balance at June 30, 2022

Intangible assets arose from the acquisition of KVH Media Group (acquired as Headland Media Limited) in May 2013.

1 unchanged sentence

The intangible assets were recorded in pounds sterling and fluctuations in exchange rates cause these amounts to increase or decrease from time to time.

As a result of the sale of KVH Media Group Entertainment Limited in April 2022, the Company determined the goodwill and intangible assets associated with this business based on an income approach which estimated the fair value of the reporting unit before and after the sale, and included such amounts in the determination of the gain on sale of the subsidiary.

In January 2017, the Company completed the acquisition of certain subscriber relationships from a third party.

2 unchanged sentences

Under the asset purchase agreement, the purchase price includes a component of contingent consideration under which the Company is required to pay a percentage of recurring revenues received from the acquired subscriber relationships through 2026 up to a maximum annual payment of $ 114 .

As of March 31, 2022, the carrying value of the intangible assets acquired in the asset acquisition was $ 422 .

As of June 30, 2022, the carrying value of the intangible assets acquired in the asset acquisition was $ 436 .

As the acquisition did not represent a business combination, the contingent consideration arrangement is recognized only when the contingency is resolved and the consideration is paid or becomes payable.

The amounts payable under the contingent consideration arrangement, if any, will be included in the measurement of the cost of the acquired subscriber relationships.

An additional $ 14 and $ 16 of consideration was earned under the contingent consideration arrangement during the three months ended March 31, 2022 and 2021, respectively.

An additional $ 28 and $ 32 of consideration was earned under the contingent consideration arrangement during the six months ended June 30, 2022 and 2021, respectively.

Acquired intangible assets are subject to amortization.

The following table summarizes acquired intangible assets at March 31, 2022 and December 31, 2021, respectively:

The following table summarizes acquired intangible assets at June 30, 2022 and December 31, 2021, respectively:

Gross Carrying Amount Accumulated Amortization Net Carrying Value

March 31, 2022

June 30, 2022

Subscriber relationships $ 7,631 $ 7,067 $ 564

11 unchanged sentences

$ 11,231 $ 9,944 $ 1,287

Amortization expense related to intangible assets was $ 194 and $ 276 for the three months ended March 31, 2022 and 2021, respectively.

Amortization expense related to intangible assets was $ 125 and $ 280 for the three months ended June 30, 2022, respectively, and $ 319 and $ 556 for the six months ended June 30, 2022 and 2021, respectively.

Amortization expense was categorized as general and administrative expense.

As of March 31, 2022, the total weighted average remaining useful lives of the definite-lived intangible assets was 1.3 years.

Estimated future amortization expense remaining at March 31, 2022 for intangible assets acquired was as follows:

As of June 30, 2022, the total weighted average remaining useful lives of the definite-lived intangible assets was 3.3 years.

Estimated future amortization expense remaining at June 30, 2022 for intangible assets acquired was as follows:

Years ending December 31,

4 unchanged sentences

Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset, or asset group, to the future undiscounted cash flows expected to be generated by the asset, or asset group.

There were no events or changes in circumstances during the first quarter of 2022 which indicated that an assessment of the impairment of goodwill and intangible assets was required.

There were no events or changes in circumstances during the six months ended June 30, 2022 which indicated that an assessment of the impairment of goodwill and intangible assets was required.

(15) Revenue from Contracts with Customers (ASC 606)

2 unchanged sentences

Disaggregation of Revenue

The following table summarizes net sales from contracts with customers for the three months ended March 31, 2022 and 2021:

Three Months Ended

The following table summarizes net sales from contracts with customers for the three and six months ended June 30, 2022 and 2021:

Three Months Ended Six Months Ended

June 30, June 30,

2022 2021 2022 2021

Mobile connectivity product, transferred at point in time $ 5,976 $ 7,292 $ 12,083 $ 13,380

4 unchanged sentences

Total net sales $ 41,837 $ 43,363 $ 82,931 $ 85,655

Revenue recognized during the three months ended March 31, 2022 and 2021 from amounts included in contract liabilities at the beginning of the period was $ 452 and $ 773 , respectively.

Revenue recognized during the three months ended June 30, 2022 and 2021 from amounts included in contract liabilities at the beginning of the period was $ 621 and $ 696 , respectively.

Revenue recognized during the six months ended June 30, 2022 and 2021 from amounts included in contract liabilities at the beginning of the period was $ 1,073 and $ 1,469 , respectively.

For mobile connectivity product sales, the delivery of the Company’s performance obligations are generally transferred to the customer, and associated revenue is recognized, at a point in time, with the exception of certain mini-VSAT contracts which are transferred to customers over time.

7 unchanged sentences

The Company performs ongoing credit evaluations of the financial condition of its customers and generally does not require collateral.

No single customer accounted for 10% or more of consolidated net sales for the three months ended March 31, 2022 or 2021 or accounts receivable at March 31, 2022 or December 31, 2021.

No single customer accounted for 10% or more of consolidated net sales for the six months ended June 30, 2022 or 2021 or accounts receivable at June 30, 2022 or December 31, 2021.

Certain components from third parties used in the Company’s products are procured from single sources of supply.

1 unchanged sentence

(16) Income Taxes

The Company’s effective tax rate for the three months ended March 31, 2022 was ( 7.5 )% compared with 3.7 % for the corresponding period in the prior year.

The Company’s effective tax rate for the three and six months ended June 30, 2022 was ( 19.4 )% and ( 10.1 )%, respectively, compared with ( 1.4 )% and 0.8 % for the corresponding period in the prior year.

The effective income tax rate is based on estimated income for the year, the estimated composition of the income in different jurisdictions and discrete adjustments, if any, in the applicable periods, including retroactive changes in tax legislation, settlements of tax audits or assessments, and the resolution or identification of tax position uncertainties.

For the three months ended March 31, 2022 and 2021, the effective tax rates were lower than the statutory tax rate primarily due to the Company maintaining a valuation allowance reserve on its US deferred tax assets and to the composition of income from foreign jurisdictions taxed at lower rates.

As of March 31, 2022 and December 31, 2021, the Company had reserves for uncertain tax positions of $ 608 and $ 592 , respectively.

There were no material changes during the three months ended March 31, 2022 to the Company’s reserve for uncertain tax positions.

The Company estimates that it is reasonably possible that the balance of unrecognized tax benefits as of March 31, 2022 may decrease $ 19 in the next twelve months as a result of a lapse of statutes of limitations and settlements with taxing authorities.

For the three and six months ended June 30, 2022 and 2021, the effective tax rates were lower than the statutory tax rate primarily due to the Company maintaining a valuation allowance reserve on its US deferred tax assets, the composition of income from foreign jurisdictions taxed at lower rates and foreign withholding taxes on payments to the U.S.

As of June 30, 2022 and December 31, 2021, the Company had reserves for uncertain tax positions of $ 624 and $ 592 , respectively.

There were no material changes during the six months ended June 30, 2022 to the Company’s reserve for uncertain tax positions.

The Company estimates that it is reasonably possible that the balance of unrecognized tax benefits as of June 30, 2022 may decrease $ 19 in the next twelve months as a result of a lapse of statutes of limitations and settlements with taxing authorities.

The Company’s tax jurisdictions include the United States, the United Kingdom, Denmark, Cyprus, Norway, Brazil, Singapore, Japan and India.

2 unchanged sentences

The Company has operating leases for office facilities, equipment, and satellite service capacity and related equipment.

Lease expense was $ 544 and $ 977 for the three months ended March 31, 2022 and 2021, respectively.

Short-term operating lease costs were $ 55 and $ 57 for the three months ended March 31, 2022 and 2021, respectively.

Sublease income was $ 35 and $ 34 for the three months ended March 31, 2022 and 2021, respectively.

Maturities of lease liabilities as of March 31, 2022 under operating leases having an initial or remaining non-cancelable term of one year or more are as follows:

Lease expense was $ 537 and $ 927 for the three months ended June 30, 2022 and 2021, respectively, and was $ 1,081 and $ 1,904 for the six months ended June 30, 2022 and 2021, respectively.

Short-term operating lease costs were $ 43 and $ 58 for the three months ended June 30, 2022 and 2021, respectively, and were $ 98 and $ 115 for the six months ended June 30, 2022 and 2021, respectively.

Sublease income was $ 34 and $ 33 for the three months ended June 30, 2022 and 2021, respectively, and was $ 69 and $ 67 for the six months ended June 30, 2022 and 2021, respectively.

Maturities of lease liabilities as of June 30, 2022 under operating leases having an initial or remaining non-cancelable term of one year or more are as follows:

Remainder of 2022 $ 988

8 unchanged sentences

During the first quarter of 2021, the terms of this lease were adjusted and the Company discontinued use of two satellite hubs and was released from the related payment obligation in exchange for additional satellite service capacity.

As of March 31, 2022, the gross cost and accumulated amortization associated with this lease for the remaining satellite hub is included in revenue generating assets and amounted to $ 1,268 and $ 755 , respectively.

As of June 30, 2022, the gross cost and accumulated amortization associated with this lease for the remaining satellite hub is included in revenue generating assets and amounted to $ 1,268 and $ 800 , respectively.

The obligation under capital leases are stated at the present value of minimum lease payments.

1 unchanged sentence

Amortization of assets held under financing leases is included within depreciation expense.

Depreciation expense for the remaining capital assets was $ 45 for both the three months ended March 31, 2022 and 2021.

The future minimum lease payments under this financing lease as of March 31, 2022 are:

Depreciation expense for the remaining capital assets was $ 46 for both the three months ended June 30, 2022 and 2021 and was $ 91 for both the six months ended June 30, 2022 and 2021.

The future minimum lease payments under this financing lease as of June 30, 2022 are:

Remainder of 2022 $ 132

12 unchanged sentences

The sales-type leases do not have unguaranteed residual assets.

The current portion of the net investment in these leases was $ 3,813 as of March 31, 2022 and the non-current portion of the net investment in these leases was $ 6,119 as of March 31, 2022.

The current portion of the net investment in these leases was $ 3,678 as of June 30, 2022 and the non-current portion of the net investment in these leases was $ 5,565 as of June 30, 2022.

The current portion of the net investment in the leases is included in accounts receivable, net of allowance for doubtful accounts on the accompanying consolidated balance sheets and the non-current portion of the net investment in these leases is included in other non-current assets on the accompanying consolidated balance sheets.

Interest income from sales-type leases was $ 207 and $ 231 during the three months ended March 31, 2022 and 2021, respectively.

The future undiscounted cash flows from these leases as of March 31, 2022 are:

Interest income from sales-type leases was $ 193 and $ 221 during the three months ended June 30, 2022 and 2021, respectively, and was $ 400 and $ 452 during the six months ended June 30, 2022 and 2021, respectively.

The future undiscounted cash flows from these leases as of June 30, 2022 are:

Remainder of 2022 $ 2,430

4 unchanged sentences

As a result, and in light of other factors indicated in ASC 842, these leases are classified as operating leases.

As of March 31, 2022, the gross costs and accumulated depreciation associated with these operating leases are included in revenue generating assets and amounted to $ 1,735 and $ 236 , respectively.

As of June 30, 2022, the gross costs and accumulated depreciation associated with these operating leases are included in revenue generating assets and amounted to $ 1,803 and $ 325 , respectively.

They are depreciated on a straight-line basis over a five-year estimated useful life.

Depreciation expense for these assets was $ 82 for the three months ended March 31, 2022.

Lease revenue recognized was $ 126 for the three months ended March 31, 2022.

As of March 31, 2022, minimum future lease payments to be recognized on the operating leases are as follows:

Depreciation expense for these assets was $ 89 and $ 171 for the three and six months ended June 30, 2022, respectively.

Lease revenue recognized was $ 133 and $ 259 for the three and six months ended June 30, 2022, respectively.

As of June 30, 2022, minimum future lease payments to be recognized on the operating leases are as follows:

Remainder of 2022 $ 269

Total $ 1,156

(18) Subsequent Events

On April 29, 2022, KVH Media Group Limited, the Company's wholly owned subsidiary, closed on a stock sale of its subsidiary KVH Media Group Entertainment Limited, which is in the KVH Media Group reporting unit of its mobile connectivity segment for net proceeds of approximately $ 2,500 .

This transaction did not meet the criteria as an asset held for sale or a discontinued operation under ASC 205-20.

On August 9, 2022, the Company entered into an Asset Purchase Agreement with EMCORE Corporation to sell to EMCORE the Company’s inertial navigation business for gross proceeds of $ 55,000 , less specified deductions and a holdback of $ 1,000 and subject to a working capital adjustment.

The sale was completed simultaneously with the execution and delivery of the Asset Purchase Agreement.

Simultaneously with the execution of the Asset Purchase Agreement, the Company entered into a Transition Services Agreement with EMCORE, pursuant to which the Company agreed to provide certain transition services to support the continued operation of the inertial navigation business for a specified period of time following the sale.

The inertial navigation business did not meet the ASC 205-20 criteria to be classified as held for sale as of June 30, 2022.

On August 9, 2022, the Company also terminated the 2018 Credit Agreement and the related security and pledge agreements with Bank of America, N.A., as Administrative Agent.

At the time of termination, no borrowings were outstanding under the 2018 Credit Agreement.

With the termination of this agreement, all associated liens were released.

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-Q

Item 1. Financial Statements