What changed in this filing

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Item 9A. Controls and Procedures

2023-03-16 compared with 2022-03-11 · 411 added, 337 removed, 1012 unchanged (43% of the section changed)

67 unchanged sentences

Financial Statements

Report of Independent Registered Public Accounting Fir m ( PCAOB ID Number 248 )

Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 )

Consolidated Balance Sheets as of December 31, 202 2 and 202 1

Consolidated Statements of Operations for the years ended December 31, 202 2 and 202 1

Consolidated Statements of Comprehensive Loss for the years ended December 31, 202 1 and 20 20

Consolidated Statements of Comprehensive Income ( Loss ) for the years ended December 31, 202 2 and 20 2 1

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 202 2 and 202 1

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Form Filing Date Exhibit No.

Asset Purchase Agreement dated as of August 9, 2022 by and between KVH Industries, Inc., EMCORE Corporation and Delta Acquisition Sub, Inc.

8-K August 10, 2022 2.1

Amended and Restated Certificate of Incorporation, as amended 10-Q August 6,

Certificate of Designations of Series A Junior Participating Cumulative Preferred Stock of KVH Industries, Inc.

classifying and designating the Series A Junior Participating Cumulative Preferred Stock 8-A August 19, 2022 3.1

Amended and Restated Bylaws 10-Q November 1, 2017 3.2

Specimen certificate for the common stock 10-K March 2, 2018 4.1

Description of Capital Stock 8-K August 4, 2020 4.1

Stockholder Rights Agreement, dated as of August 18, 2022, between KVH Industries, Inc.

and Computershare Trusts Company, N.A., as Rights Agent 8-K August 19, 2022 4.1

Amendment No.

1 to Stockholder Rights Agreement, dated as of February 3, 2023, by and between KVH Industries, Inc.

and Computershare Trust Company, N.A.

8-K February 3, 2023 4.1

Description of Capital Stock X

Amended and Restated 1996 Employee Stock Purchase Plan DEF 14A April 25, 2016 App.

Amended and Restated 2016 Equity and Incentive Plan

DEF 14A April 29, 2020 App.

KVH Industries, Inc.

Amended and Restated 2016 Equity and Incentive Plan, as amended

DEF 14A May 2, 2022 App.

Form of Incentive Stock Option Agreement granted under the 2016 Equity and Incentive Plan 10-K March 9, 2017 10.5

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8-K May 6, 2020

Separation and Consulting Agreement dated as of March 6, 2022 between KVH Industries, Inc.

and Martin Kits van Heyningen 10-Q May 10, 2022 10.1

Executive Employment Agreement dated as of May 2, 2022 between KVH Industries, Inc.

Bruun 10-Q August 9, 2022 10.1

Amendment No.

1 dated as of October 11, 2022 to Executive Employment Agreement between KVH Industries, Inc.

Bruun 10-Q December 6, 2022 10.8

Executive Employment Agreement dated as of May 2, 2022 between KVH Industries, Inc.

Kuebel 10-Q August 9, 2022 10.2

Executive Employment Agreement dated as of May 2, 2022 between KVH Industries, Inc.

and Felise B.

Feingold 10-Q August 9, 2022 10.3

Executive Employment Agreement dated as of May 9, 2022 between KVH Industries, Inc.

and Robert J.

Balog 10-Q August 9, 2022 10.4

Cooperation Agreement, dated as of February 3, 2023, by and among KVH Industries, Inc., Black Diamond Capital Management, L.L.C., Stephen H.

Deckoff and the Investor Group Designees (as defined therein) 8-K February 3, 2023 10.1

List of Subsidiaries X

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Rule 1350 certification X

101.1 Interactive Data File regarding (a) our Consolidated Balance Sheets as of December 31, 2021 and 2020, (b) our Consolidated Statements of Operations for the years ended December 31, 2021 and 2020, (c) our Consolidated Statements of Comprehensive Loss for the years ended December 31, 2021 and 2020, (d) our Consolidated Statements of Stockholders' Equity for the years ended December 31, 2021 and 2020, (e) our Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020, and (e) the Notes to such Consolidated Financial Statements X

101.1 Interactive Data File regarding (a) our Consolidated Balance Sheets as of December 31, 2022 and 2021, (b) our Consolidated Statements of Operations for the years ended December 31, 2022 and 2021, (c) our Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2022 and 2021, (d) our Consolidated Statements of Stockholders' Equity for the years ended December 31, 2022 and 2021, (e) our Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021, and (e) the Notes to such Consolidated Financial Statements X

104.1 Cover Page Interactive Data File (embedded within the Inline XBRL document) X

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/ S / BRENT C.

Interim President and Chief Executive Officer

President, Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.

Name Title Date

BRUUN Interim President and Chief Executive Officer (Principal Executive Officer) March 11, 2022

KUEBEL Chief Financial Officer (Principal Financial Officer) March 11, 2022

/S/ JENNIFER L.

BAKER Vice President, Chief Accounting Officer (Principal Accounting Officer) March 11, 2022

BRUUN President, Chief Executive Officer and Director (Principal Executive Officer) March 16, 2023

KUEBEL Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) March 16, 2023

/S/ CATHY-ANN MARTINE-DOLECKI Chair of the Board of Directors March 16, 2023

Cathy-Ann Martine-Dolecki

/S/ DANELLE M.

BARRETT Director March 11, 2022

DODEZ Director March 16, 2023

HERNANDEZ Director March 16, 2023

KAGAN Director March 16, 2023

TOLLEY Director March 16, 2023

/S/ CHARLES R.

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We have audited the accompanying consolidated balance sheets of KVH Industries, Inc.

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

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We believe that our audits provide a reasonable basis for our opinion.

Critical audit matters

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Recognition of satellite connectivity services revenue

As described further in Note 1(e) to the financial statements, the Company's satellite connectivity services revenue, including broadband Internet, data and VoIP services, is recognized monthly based primarily on contracted fixed-fee schedules as well as any overages for minutes or megabytes of traffic processed.

As described further in Note 1(e) to the Company’s financial statements, the Company's satellite connectivity services revenue is recognized monthly based primarily on contracted fixed-fee schedules as well as any overages for minutes or megabytes of traffic processed.

We identified satellite connectivity services revenue as a critical audit matter.

The principal consideration for our determination that satellite connectivity service sales transactions are a critical audit matter is the complexity of the process used by management for recognizing revenue, given the diversity of data sources, and the number of systems involved, which includes third party systems.

This requires a high degree of audit subjectivity and effort in designing and performing audit procedures to evaluate whether the satellite connectivity services revenue is recognized properly.

Our audit procedures related to the satellite connectivity services revenue included the following, among others:

• We tested the design and operating effectiveness of controls related to management’s review and validation of data coming from third parties that is used as an input in revenue recognition as well as the controls over review of appropriate revenue recognition for this revenue stream.

• We performed detailed transaction testing over the occurrence and accuracy of a sample of the revenue recognized by validating usage data from third party reports which is utilized in customer billing.

• We obtained the billing service provider's SOC-1 report, bridge letter (as applicable), and Management's internal control review of the SOC-1 report.

We verified that Management had assessed key complementary user entity controls (“CUEC”s).

We inspected the SOC-1 report to verify that there were no failed controls, and that the opinion was unqualified.

In addition, we tested key controls that were responsive to the CUECs.

The principal considerations for our determination that satellite connectivity service revenue is a critical audit matter is the complexity of the processes used by management for recognizing revenue, given the diversity of data sources and the number of IT systems involved, including third party systems.

Auditing this revenue stream requires a high degree of auditor subjectivity and effort in designing and performing procedures to evaluate the appropriateness of the recorded revenue amounts.

Our audit procedures related to the recognition of satellite connectivity services revenue included the following, among others.

• We tested the design and operating effectiveness of controls related to management’s review and validation of data from third parties used as an input in recorded revenue amounts, as well as the controls over review of appropriate revenue recognition for this revenue stream.

• We obtained the attestation report on the design and operating effectiveness of controls at the third-party billing service provider, and tested controls over management’s review of the attestation report, including identification of controls at the Company which are responsive to the complementary user entity controls identified in the report.

We also tested the design and operating effectiveness of these complementary user entity controls.

• We tested the design and operating effectiveness of IT general controls over the IT system used to process and record the invoices for this stream.

• We selected a sample of invoices and evaluated those invoices for proper revenue recognition based on agreement to billing rates per the signed customer contract and usage data from third party service provider reports.

/s/ GRANT THORNTON LLP

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Current contract assets 1,243 1,230

Current assets held for sale — 15,841

Total current assets 131,203 87,830

Property and equipment, net 53,118 52,945

60,114 56,273

Intangible assets, net 404 1,287

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Deferred income tax asset 259 56

Non-current assets held for sale — 7,169

Total assets $ 200,530 $ 168,794

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Accrued product warranty costs 1,287 1,084

Current portion of long-term debt — 4,992

Contract liabilities 3,108 3,778

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Liability for uncertain tax positions 637 592

Current liabilities held for sale — 3,939

Total current liabilities 38,868 33,882

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Long-term contract liabilities 4,315 4,466

Long-term debt, excluding current portion — 1,935

Deferred income tax liability 55 215

Non-current liabilities held for sale — 8

Total liabilities $ 43,874 $ 39,817

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Additional paid-in capital 160,475 156,199

Accumulated deficit ( 12,165 ) ( 2,402 )

Retained earnings (accumulated deficit) 11,936 ( 12,165 )

Accumulated other comprehensive loss ( 4,110 ) ( 3,409 )

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General and administrative 24,656 28,794

Goodwill impairment charge — 8,732

Intangible asset impairment charge — 1,758

Total costs and expenses 144,532 153,506

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Other income, net 772 7,111

Loss before income tax (benefit) expense ( 9,871 ) ( 21,766 )

Income tax (benefit) expense ( 108 ) 174

Net loss $ ( 9,763 ) $ ( 21,940 )

Net loss per common share

Basic and diluted $ ( 0.54 ) $ ( 1.24 )

Loss from continuing operations before income tax expense ( 3,378 ) ( 11,654 )

Income tax expense (benefit) from continuing operations 546 ( 108 )

Net loss from continuing operations ( 3,924 ) ( 11,546 )

Income from discontinued operations, net of tax 28,025 1,783

Net Income (loss) $ 24,101 $ ( 9,763 )

Net loss from continuing operations per common share

Basic $ ( 0.21 ) $ ( 0.63 )

Diluted $ ( 0.21 ) $ ( 0.63 )

Net income from discontinued operations per common share

Basic $ 1.50 $ 0.10

Diluted $ 1.50 $ 0.10

Net income (loss) per common share

Basic $ 1.29 $ ( 0.54 )

Diluted $ 1.29 $ ( 0.54 )

Weighted average number of shares outstanding:

Basic and diluted 18,217 17,669

Basic 18,632 18,217

Diluted 18,632 18,217

See accompanying Notes to Consolidated Financial Statements.

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

Year Ended December 31,

Net loss $ ( 9,763 ) $ ( 21,940 )

Net Income (loss) $ 24,101 $ ( 9,763 )

Other comprehensive loss, net of tax:

Unrealized loss on available-for-sale securities ( 12 ) —

Foreign currency translation adjustment ( 689 ) ( 177 )

1 unchanged sentence

( 701 ) ( 177 )

Total comprehensive loss $ ( 9,940 ) $ ( 22,405 )

Total comprehensive income (loss) $ 23,400 $ ( 9,940 )

(1) Tax impact was nominal for all periods.

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Common Stock Additional

Capital Retained Earnings (Accumulated Deficit) Accumulated

Capital (Accumulated Deficit) Retained Earnings Accumulated

Comprehensive

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Issuance of common stock under employee stock purchase plan 26 — 215 — — — — 215

Acquisition of treasury stock — — — — — ( 36 ) ( 390 ) ( 390 )

Exercise of stock options and issuance of restricted stock awards, net of forfeitures 454 4 2,705 — — — — 2,709

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20,343 $ 203 $ 156,199 $ ( 12,165 ) $ ( 3,409 ) ( 1,433 ) $ ( 11,851 ) $ 128,977

Net loss — — — ( 9,763 ) — — — ( 9,763 )

Net income — — — 24,101 — — — 24,101

Other comprehensive loss — — — — ( 701 ) — — ( 701 )

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Exercise of stock options and issuance of restricted stock awards, net of forfeitures 247 3 675 — — — — 678

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

Balance at December 31, 2022 20,631 $ 206 $ 160,475 $ 11,936 $ ( 4,110 ) ( 1,433 ) $ ( 11,851 ) $ 156,656

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Cash flows from operating activities:

Net loss $ ( 9,763 ) $ ( 21,940 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Net income (loss) $ 24,101 $ ( 9,763 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Provision for doubtful accounts

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14,030 14,601

Impairment charge to goodwill and intangibles — 10,490

Deferred income taxes

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Compensation expense related to stock-based awards and employee stock purchase plan

Unrealized currency translation (gain) loss ( 112 ) 151

Unrealized currency translation gain ( 399 ) ( 112 )

Gain on sale of KVH Media Group Entertainment Limited ( 682 ) —

Gain on sale of inertial navigation business ( 30,763 ) —

PPP loan forgiveness — ( 6,979 )

1 unchanged sentence

Accounts receivable

( 506 ) ( 1,123 )

Prepaid expenses, other current assets, and current contract assets

( 1,096 ) 147

Other non-current assets and non-current contract assets

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Other long-term liabilities

Net cash provided by (used in) operating activities $ 2,909 $ ( 3,079 )

Net cash provided by operating activities $ 8,894 $ 2,909

Cash flows from investing activities:

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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 —

Proceeds from the sale of inertial navigation business 55,000 —

Purchases of marketable securities ( 55,723 ) ( 6 )

Maturities and sales of marketable securities 13,164 12,000

Net cash used in investing activities $ ( 6,708 ) $ ( 9,295 )

Net cash provided by (used in) investing activities $ 375 $ ( 6,708 )

Cash flows from financing activities:

Proceeds from PPP loan — 6,927

Proceeds from stock options exercised and employee stock purchase plan 972 2,939

Repurchase of common stock — ( 390 )

Payment of finance lease ( 264 ) ( 294 )

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Effect of exchange rate changes on cash and cash equivalents ( 297 ) ( 48 )

Net decrease in cash and cash equivalents ( 1,202 ) ( 5,787 )

Net increase (decrease) in cash and cash equivalents 9,680 ( 1,202 )

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

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KVH Industries, Inc.

(together with its subsidiaries, the Company or KVH) designs, develops, manufactures and markets mobile connectivity products and services for the marine and land markets, and inertial navigation products for both the commercial and defense markets.

KVH's reporting segments are as follows:

• the mobile connectivity segment and

• the inertial navigation segment

KVH’s mobile connectivity products enable customers to receive voice and Internet services, and live digital television via satellite services in marine vessels, recreational vehicles, buses and automobiles.

KVH sells and leases its mobile connectivity products through an extensive international network of dealers and distributors.

KVH also sells and leases products directly to end users.

KVH’s mobile connectivity service sales represent primarily sales earned from satellite voice and Internet airtime services.

KVH provides, for monthly fixed and usage fees, satellite connectivity services, including broadband Internet, data and VoIP services, to its TracPhone V-series customers.

AgilePlans, a mini-VSAT Broadband service offering, is a monthly subscription model providing global connectivity to commercial maritime customers, including hardware, installation, broadband Internet, Voice over Internet Protocol (VoIP), entertainment and training content and global support for a monthly fee with no minimum commitment.

KVH offers AgilePlans customers a variety of airtime data plans with varying data speeds and fixed data usage levels with overage charges per megabyte, which is similar to the plans that the Company offers to its other customers.

The Company recognizes the monthly subscription fee as service revenue over the service delivery period.

The Company retains ownership of the hardware that it provides to AgilePlans customers, who must return the hardware to KVH if they decide to terminate the service.

(together with its subsidiaries, the Company or KVH) designs, develops, manufactures and markets mobile connectivity products and services for the marine and land markets.

KVH’s satellite-only and hybrid products enable marine customers to receive data, Voice over Internet Protocol (VoIP), and value-added services via satellite, cellular, and shore-based Wi-Fi networks onboard commercial, leisure, and military/government vessels.

In addition, the Company’s in-motion television terminals permit customers to receive live digital television via regional satellite services in marine vessels, recreational vehicles, buses and automobiles.

KVH sells its products through an extensive international network of dealers and distributors.

KVH also sells and leases products to service providers and end users.

KVH’s service sales represent primarily revenue earned from satellite Internet airtime services.

KVH provides, for monthly fixed and per-usage fees, satellite connectivity encompassing broadband Internet and VoIP services, to its TracNet H-series and TracPhone V-series customers via KVH’s global high-throughput satellite (HTS) network.

Cellular airtime service increasingly supplements KVH’s satellite-only airtime revenue following the July 2022 launch of the KVH ONE hybrid network and TracNet H-series terminals.

This product and service combination integrates global satellite service with KVH-provided cellular service in more than 150 countries, along with shore-based Wi-Fi access.

AgilePlans, KVH’s connectivity as a service offering, is a monthly subscription model that provides global connectivity to commercial maritime customers.

The subscription includes the choice of satellite-only and hybrid terminals, airtime data service, VoIP, daily news, subsidized shipping and installation, and global support for a monthly fee with no minimum contract commitment.

KVH offers AgilePlans subscribers a variety of airtime data plans with varying data speeds and fixed data usage levels with per megabyte overage charges.

These airtime plans are similar to those the Company offers to customers who elect to purchase or lease a TracNet H-series or TracPhone V-series terminal.

The Company recognizes the monthly AgilePlans subscription fee as service revenue over the service delivery period.

The Company retains ownership of the hardware it provides to AgilePlans customers, who must return the hardware to KVH if they decide to terminate the service.

Because KVH does not sell the hardware under AgilePlans, the Company does not recognize any product revenue when the hardware is deployed to an AgilePlans customer.

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however, any maintenance costs on the hardware is expensed in the period these costs are incurred.

Mobile connectivity service sales also include the distribution of commercially licensed entertainment, including news, sports, music, and movies to commercial and leisure customers in the maritime, hotel, and retail markets through the KVH Media Group.

KVH also earns monthly usage fees from third-party satellite connectivity services, including voice, data and Internet services, provided to its Inmarsat and Iridium customers who choose to activate their subscriptions with KVH.

Mobile connectivity service sales also include engineering services provided under development contracts, sales from product repairs, and extended warranty sales.

KVH's inertial navigation products offer precision fiber optic gyro (FOG)-based systems that enable platform and optical stabilization, navigation, pointing and guidance.

KVH’s inertial navigation products also include tactical navigation systems that provide uninterrupted access to navigation and pointing information in a variety of military vehicles, including tactical trucks and light armored vehicles.

KVH’s inertial navigation products are sold directly to U.S.

and foreign governments and government contractors, as well as through an international network of authorized independent sales representatives.

In addition, KVH's inertial navigation technology is used in numerous commercial products, such as navigation and positioning systems for various applications including autonomous platforms, precision mapping, dynamic surveying, train location control and track geometry measurement systems, industrial robotics and optical stabilization.

KVH’s inertial navigation service sales include product repairs, engineering services provided under development contracts and extended warranty sales.

Service sales also include the distribution of commercially licensed entertainment, including news, sports, and movies to commercial customers in the maritime and hotel markets through the KVH Media Group, along with supplemental value-added services.

In addition, KVH earns monthly usage fees from third-party satellite connectivity services, including VoIP, data and Internet services, provided to its Inmarsat and Iridium customers who choose to activate their subscriptions with KVH.

Service sales also include sales from product repairs and extended warranty sales.

KVH INDUSTRIES, INC.

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(in thousands, except per share amounts)

On August 9, 2022, the Company sold its inertial navigation business to EMCORE Corporation for gross proceeds of $ 55,000 , less specified deductions and a holdback of $ 1,000 and subject to a working capital adjustment.

The working finalized capital adjustment, which resulted in a payment of $ 96 to EMCORE, was recorded in the fourth quarter of 2022.

The holdback was released to the Company on August 17, 2022.

On August 9, 2022, the Company also 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 six months following the sale with two extension options of three months each.

The fee is comprised of both fixed monthly fees of approximately $ 100 as well as variable amounts for certain additional services with escalation increases on the fixed and variable rates for each extension option.

The Company does not have any continuing involvement in these operations other than short-term transition services, which are being recorded as an offset to general and administrative expenses in continuing operations.

As of December 31, 2022, the company recognized $ 923 of contra-expense associated with the Transition Services Agreement.

The Company determined that the sale met the requirements for reporting as discontinued operations in accordance with Accounting Standards Codification (ASC) 205-20.

Please see Note 16 for the discontinued operations disclosures.

(b) Principles of Consolidation

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All significant intercompany accounts and transactions have been eliminated in consolidation.

The 2022 consolidated financial statements reflect the sale of the inertial navigation business as discontinued operations.

See Note 16 for further information on the sale of the inertial navigation business.

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Small Business Administration’s forgiveness of the PPP loan during the third quarter of 2021.

The 2020 consolidated financial statements reflect a $ 10,490 goodwill and intangible impairment charge on the KVH Media Group reporting unit within the mobile connectivity segment.

See Note 1(k) and Note 9.

On an on-going basis, the Company evaluates its significant estimates, including those related to terminal values and other assumptions and estimates used to evaluate the recoverability of long-lived assets and goodwill and estimated fair values of long-lived assets, including goodwill, amortization methods and periods.

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The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances.

Management Transition and Restructuring

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 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 is being paid to Mr.

Kits van Heyningen over the 12 months following his retirement.

Approximately $ 90 is accrued as of December 31, 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.

Kits van Heyningen's stock option and restricted stock awards.

Please see Note 7 for further discussion.

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

The Company reduced its workforce by approximately 10 % and began incurring reduced expenses from these actions beginning in

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2022 and 2021

(in thousands, except per share amounts)

the second quarter of 2022.

For the year ended December 31, 2022, the Company incurred $ 1,844 in severance and health insurance costs and $ 327 in legal and advisory fees in connection with this restructuring.

The combined expense of $ 2,171 was included in the financial statement line items of the accompanying consolidated statements of operations as follows:

costs of product sales of $ 12 , costs of service sales of $ 58 , research and development of $ 365 , sales, marketing and support of $ 935 , and general and administrative expenses of $ 801 .

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

Please see Note 7 for further discussion.

During the third quarter of 2022, the Company restructured its foreign operations by closing its India and Cyprus offices and its Denmark warehouse to reduce costs.

Approximately $ 388 of severance payments, other employee benefits, and legal and advisory fees were incurred in connection with this restructuring for the year ended December 31, 2022.

Dispositions;

Termination of Credit Facility

On April 29, 2022, KVH Media Group Limited, the Company's wholly owned subsidiary, sold its subsidiary KVH Media Group Entertainment Limited for net cash proceeds of $ 2,378 .

This transaction did not meet the criteria for reporting as discontinued operations under ASC 205-20.

The Company recorded a gain on the sale of $ 682 , which is recorded in other income, net in the accompanying consolidated statements of operations.

See Note 9 for the reduction of goodwill and intangibles associated with the KVH Media Group reporting unit as it relates to the sale of this subsidiary.

On August 9, 2022, the Company sold its inertial navigation business to EMCORE Corporation.

Please see Notes 16 for further discussion.

On August 9, 2022, the Company also terminated its senior secured credit facility agreement (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.

Executive Employment Agreements

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 terminated the executive’s employment without cause (as defined in the agreement) or the executive terminated his or her employment for good reason (as defined in the agreement), 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 continued to serve as an employee through December 31, 2022 (the “Retention Date”), the Company would pay the executive a retention bonus equal to 75 % of the executive’s base salary on the agreement date, and the Company would accelerate the vesting of the executive’s equity awards that would otherwise have vested in the twelve months after the Retention Date.

Bruun, Roger A.

Kuebel, Felise Feingold and Robert Balog continued to serve as an employee as of December 31, 2022.

Please see Note 7 for further discussion regarding the equity compensation modifications.

On October 11, 2022, the Company entered into an amendment to the employment agreement with Mr.

Bruun that, among other things, increased his annual base salary to $ 448 per year, retroactive to July 1, 2022, increased his target annual incentive compensation for the second half of 2022 to 80 % of his base salary (without changing his target annual incentive compensation for the first half of 2022), extended his Retention Date from December 31, 2022 to December 31, 2023, which effectively extended the period during which Mr.

Bruun must remain employed by the Company in order to earn his retention bonus, and modified the amount of the retention bonus from 75 % of his base salary in effect on May 2, 2022 to 75 % of the highest base salary in effect for Mr.

Bruun on or before the date he becomes entitled to receive the retention bonus or the “Partial Retention Bonus” (as defined in the employment agreement).

The amendment did not modify the terms of the employment agreement relating to acceleration of vesting of certain equity awards if Mr.

Bruun remains employed by the Company through December 31, 2022.

As of December 31, 2022, the Company accrued approximately $ 867 for the executive employment agreements.

In addition to the amendment to Mr.

Bruun’s employment agreement, the Compensation Committee also granted Mr.

Bruun a restricted stock award and non-statutory stock options, which together had an aggregate grant date fair value of

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2022 and 2021

(in thousands, except per share amounts)

approximately $ 100 .

The restricted stock award and the non-statutory stock options have terms that are materially consistent with the previously disclosed terms of similar grants to the Company’s executive officers.

(d) Concentration of Credit Risk and Single Source Suppliers

17 unchanged sentences

The failure of a supplier, including a subcontractor, to deliver on schedule could delay or interrupt the Company’s delivery of products and thereby materially adversely affect the Company’s revenues and operating results.

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(e) Revenue Recognition

5 unchanged sentences

The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors, including the customer’s historical payment pattern or, in the case of a new customer, published credit and financial information pertaining to the customer.

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2) Identify the performance obligations in the contract

15 unchanged sentences

Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised product or service to a customer.

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(in thousands, except per share amounts)

Product sales

1 unchanged sentence

Revenue related to shipping and handling is recognized when the products are shipped and the associated costs are accrued for based on the Company’s election to account for shipping and handling activities as a fulfillment of the promise to transfer the products and not as a combined promise.

For certain inertial navigation product sales, customer acceptance or inspection may be required before control of the goods is transferred to the customer.

For those sales, revenue is recognized after notification of customer acceptance and the goods have been delivered to the carrier for shipment.

In certain circumstances customers may request a bill-and-hold arrangement.

Under these bill-and-hold arrangements, revenue is recognized when the Company has fulfilled all of its performance obligations, the units are segregated for the specific customer only, and the goods are ready for physical transfer to the customer in accordance with their defined contract delivery schedule.

The Company’s standard payment terms for product sales are generally Net 30.

2 unchanged sentences

The Company establishes reserves for potential sales returns, credits, and allowances, and evaluates, on a monthly basis, the adequacy of those reserves based upon historical experience and expectations for the future.

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December 31, 2022 and 2021

(in thousands, except per share amounts)

Contract assets held by the Company include deferred costs related to performance under long-term contracts, including product and supporting costs associated to revenue previously billed to the client.

Contract liabilities consist of advance payments and billings in excess of revenue recognized and are reported as deferred revenue in the consolidated balance sheets.

The Company classifies any billings in excess of revenue recognized as deferred revenue as current or non-current based on the timing of when revenue is expected to be recognized.

Contracts with multiple performance obligations

The Company sells products and services through arrangements that in certain instances bundle VSAT equipment, satellite connectivity and other services.

The Company sells products and services through arrangements that in certain instances bundle equipment, satellite connectivity and other services.

For these arrangements, the Company has determined that the performance obligations are not distinct in the context of the contracts with certain customers.

1 unchanged sentence

Satellite connectivity and media content service sales

Directly sold and re-sold satellite connectivity service for voice, data and Internet is recognized monthly based primarily on contracted fixed-fee schedules as well as any overages for minutes or megabytes of traffic processed.

The Company has evaluated whether it obtains control of the services that are being transferred to the customer in assessing gross revenue reporting as principal verse net revenue reporting as agent for its satellite connectivity service sales and its payments to the applicable service providers.

Directly sold and re-sold satellite connectivity service for VoIP, data and Internet is recognized monthly based primarily on contracted fixed-fee schedules as well as any overages for minutes or megabytes of traffic processed.

The Company has evaluated whether it obtains control of the services that are being transferred to the customer in assessing gross revenue reporting as principal versus net revenue reporting as agent for its satellite connectivity service sales and its payments to the applicable service providers.

Based on the Company's assessment of the indicators, the Company has determined that gross revenue reporting as a principal is appropriate.

8 unchanged sentences

All associated regulatory service fees and costs are recorded net in the consolidated financial statements.

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December 31, 2021 and 2020

(in thousands, except per share amounts)

The Company sells prepaid airtime services in the form of prepaid cards.

6 unchanged sentences

The accounting estimates related to the recognition of satellite connectivity and media content service sales require the Company to make assumptions about future billing adjustments for disputes with subscribers as well as unauthorized usage.

The Company recognizes the monthly subscription fee as service revenue over the service delivery period.

Under AgilePlans, the Company retains ownership of the hardware that it provides to these customers, who must return the hardware to KVH if they decide to terminate the service.

Because KVH does not sell the hardware under AgilePlans, the Company does not recognize any product revenue when the hardware is deployed to an AgilePlans customer.

Inertial navigation service sales

The Company engages in contracts for development, production, and services activities related to standard product modification or enhancement.

The Company considers the nature of these contracts and the types of products and services provided when determining the proper accounting for a particular contract.

Customer and government-agency contracted engineering service and sales under development contracts are recognized primarily during the periods in which the Company performs the service or development efforts in accordance with the agreement.

Services performed under these types of contracts include engineering studies, surveys, building construction, prototype development, and program management.

Performance is determined principally by comparing the accumulated labor hours incurred to date with management’s estimate of the total labor hours to complete the contracted work.

Incurred labor hours represent work performed, which corresponds with and best depicts the transfer of control to the customer.

This continuous transfer of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay the Company for costs incurred plus a reasonable profit and take control of any work in process.

The Company establishes billing terms at the time project deliverables and milestones are agreed.

Unbilled revenue recognized in excess of the amounts invoiced to clients are classified within the accompanying consolidated balance sheets as “accounts receivable” as the Company's right to consideration is unconditional.

In accounting for the related service revenue, the Company has applied the practical expedient allowed under ASC 606-10-55-18 to recognize

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December 31, 2022 and 2021

(in thousands, except per share amounts)

rental revenues in proportion to the amount of the right to invoice.

The Company recognizes the subscription fee monthly as service revenue over the service delivery period.

Product service sales

4 unchanged sentences

Sales-type leases

Revenue is recognized on sales-type leases primarily from the TracPhone mini-VSAT products.

Revenue is recognized on sales-type leases primarily from the TracPhone VSAT products.

In accordance with ASC 842, the Company records the leases at a price typically equivalent to normal selling price and in excess of the cost or carrying amount.

3 unchanged sentences

“[a] contract is or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.”

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December 31, 2021 and 2020

(in thousands, except per share amounts)

Many of our lease agreements contain renewal options which are recognized if it is determined that the Company is reasonably certain to renew the lease at inception or when a triggering event occurs.

7 unchanged sentences

(g) Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, which include cash equivalents, investments, accounts receivable, accounts payable and accrued expenses, approximate their fair values due to the short maturity of these instruments.

The carrying amounts of the Company’s financial instruments, which include cash equivalents, marketable securities, accounts receivable, accounts payable and accrued expenses, approximate their fair values due to the short maturity of these instruments.

See Note 2 for more information on the fair value of the Company’s marketable securities.

The carrying amount of the Company’s debt, and capital lease approximates fair value based on currently available quoted rates of similarly structured debt facilities.

See Note 5 for more information on the fair value of the Company’s debt and line of credit and Note 16 for the Company's finance lease.

The carrying amount of capital leases approximate fair value based on currently available quoted rates of similarly structured debt facilities.

See Note 15 for the Company's finance lease.

(h) Cash, Cash Equivalents, and Marketable Securities

3 unchanged sentences

As of December 31, 2022 and 2021, all of the Company’s marketable securities have been designated as available-for-sale and are carried at their fair value with unrealized gains and losses included in accumulated other comprehensive loss in the accompanying consolidated balance sheets.

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December 31, 2022 and 2021

(in thousands, except per share amounts)

The Company reviews investments in debt securities for other than temporary impairment whenever the fair value of an investment is less than amortized cost and evidence indicates that an investment’s carrying amount is not recoverable within a reasonable period of time.

15 unchanged sentences

and motor vehicles, 5 years.

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December 31, 2021 and 2020

(in thousands, except per share amounts)

(k) Goodwill, Intangible Assets and other Long-Lived Assets

5 unchanged sentences

Any impairment charges would be based on the quantitative analysis.

As a result of the 2020 annual impairment test, the Company recorded goodwill impairment charges of $ 8,732 and intangible asset impairment charges of $ 1,758 related to its KVH Media Group reporting unit.

Prior to 2020, the Company had not recorded or incurred goodwill impairment charges.

For the October 1, 2020 test, due to the uncertainty that the global pandemic presented during 2020, the Company determined that it should perform a quantitative analysis of goodwill impairment.

The Company performed this full quantitative analysis in the fourth quarter of 2020 in conjunction with its annual budgeting and long-term planning cycle.

The revenues and cash flows of KVH Media Group have been significantly impacted by the global reduction in travel since the start of the pandemic.

With the assistance of valuation specialists, the Company utilized an income approach and market approach to estimate the fair value of its reporting units, based on assumptions the Company believed to be reasonable.

As an additional corroborative test of the reasonableness of those assumptions, the Company completed a reconciliation of its market capitalization and overall enterprise value to the fair value of all of its reporting units as of October 1, 2020.

The Company estimated that, as of October 1, 2020, the fair value of the mobile broadband reporting unit exceeded its carrying value by 18 %;

however, the carrying value of the KVH Media Group reporting unit exceeded its fair value by $ 10,156 , which signified that an impairment had occurred and identified a triggering event to review the other long-lived assets for impairment.

In accordance with ASC 360-10, Property, Plant and Equipment – Impairment or Disposal of Long-Lived Assets (ASC 360), with regard to its long-lived assets, the Company performed an undiscounted cash flow analysis and concluded that the carrying value of the asset group was not recoverable.

Accordingly, the Company then performed an analysis to estimate the fair value of the other long-lived assets and recognized an impairment charge of $ 1,758 , against the distribution rights intangible asset, the amount by which the carrying value of the asset group’s other long-lived assets exceeded their estimated fair value, and a reduction in the associated deferred tax liability of $ 334 .

As a result, the Company recognized an impairment charge to KVH Media Group’s goodwill in the amount of $ 8,732 , the remaining amount by which the carrying value exceeded its fair value.

For the October 1, 2022 test, the Company performed a qualitative assessment of goodwill impairment (Step 0) and concluded that for the mobile broadband reporting unit, it was more likely than not that, for this reporting unit, the fair value exceeded the carrying value.

25 unchanged sentences

As of December 31, 2022 and 2021, the Company had accrued product warranty costs of $ 1,287 and $ 1,084 , respectively.

The following table summarizes product warranty activity during 2021 and 2020:

The followin g table summarizes product warranty activity during 2022 and 2021:

Beginning balance $ 1,084 $ 1,725

6 unchanged sentences

(o) Research and Development

Expenditures for research and development, including customer-funded research and development, are expensed as incurred.

Revenue and related development costs from customer-funded research and development are as follows:

Year Ended December 31,

Customer-funded service sales $ 363 $ 2,043

Customer-funded costs included in costs of service sales $ 803 $ 2,935

Expenditures for research and development are expensed as incurred.

(p) Advertising Costs

5 unchanged sentences

Revenue and other expense elements are recorded at rates that approximate the rates in effect on the transaction dates.

Foreign currency exchange gains and losses are recognized within “ Other income, net ” in the accom panying consolidated statements of operations.

For the years ended December 31, 2021 and 2020, the Company recorded a total of net foreign currency exchange losses in its accompanying consolidated statements of operations of $ 3 and $ 48 , respectively, which is comprised of both realized and unrealized foreign currency exchange gains and losses.

Foreign currency exchange gains and losses are recognized within “other income, net” in the accompanying consolidated statements of operations.

For the years ended December 31, 2022 and 2021, the Company recorded a total of net foreign currency exchange gains (losses) in its accompanying consolidated statements of operations of $ 517 and $( 3 ), respectively, which is comprised of both realized and unrealized foreign currency exchange gains and losses.

The financial statements of the Company’s foreign subsidiaries located in the United Kingdom, Brazil, Norway, Cyprus, India and Japan use the foreign subsidiaries’ respective local currencies as the functional currency.

The Company translates the assets and liabilities of these foreign subsidiaries at the exchange rates in effect at year-end.

Net sales, costs and expenses are translated using average exchange rates in effect during the year.

Gains and losses from foreign currency translation are credited or charged to accumulated other comprehensive loss included in stockholders' equity in the accompanying consolidated balance sheets.

KVH INDUSTRIES, INC.

3 unchanged sentences

(in thousands, except per share amounts)

The Company translates the assets and liabilities of these foreign subsidiaries at the exchange rates in effect at year-end.

Net sales, costs and expenses are translated using average exchange rates in effect during the year.

Gains and losses from foreign currency translation are credited or charged to accumulated other comprehensive loss included in stockholders' equity in the accompanying consolidated balance sheets.

(r) Income Taxes

14 unchanged sentences

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

For the years ended December 31, 2021 and 2020 since there was a net loss, the Company excluded all 747 and 1,566 shares, 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 years ended December 31, 2022 and 2021 since there was a net loss from continuing operations, the Company excluded all 1,359 and 747 shares, 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:

13 unchanged sentences

(u) Operating Segments

The Company operates in two segments, the mobile connectivity and inertial navigation segments.

The Company operates in one reportable segment as a result of the sale of its inertial navigation business on August 9, 2022.

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker in making decisions regarding resource allocation and assessing performance.

The Company’s chief operating decision maker is its President, Chief Executive Officer and Chairman of the Board.

The Company’s chief operating decision maker is its President, Chief Executive Officer and Director.

The Company operates in a number of major geographic areas, including internationally.

Revenues are generated from international locations, primarily consisting of Canada, European countries, both inside and outside the European Union, as well as Africa, Asia/Pacific, the Middle East, and South America (see Note 12, " Segment Reporting ").

Revenues are generated from international locations, primarily consisting of Singapore, Canada, European Union countries and other European countries, countries in Africa, Asia/Pacific and the Middle East, and India (see Note 12, " Segment Reporting ").

(v) Recently Issued Accounting Standards

2 unchanged sentences

Prior to their effective date, the Company evaluates the pronouncements to determine the potential effects of adoption on our consolidated financial statements.

Standard Implemented

ASC Update No.

In December 2019, the FASB issued ASC Update No.

2019-12, Income Taxes (Topic 740) .

The update is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

The purpose of Update No.

2019-12 is to remove certain exceptions for recognizing deferred taxes for investments and simplify the accounting for income taxes in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group.

It amends the requirements relating to the accounting for "hybrid" tax regimes.

2019-12 did not have a material impact on the Company's financial position or results of operations.

Standards to be Implemented

5 unchanged sentences

2019-10, ASC Update No.

2019-11, ASC Update No.

2020-02, ASC Update No.

2022-02 and ASC Update No.

15 unchanged sentences

Targeted Transition Relief .

The amendments in the update ease the transition for entities adopting ASC Update 2016-13 and increase the

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December 31, 2021 and 2020

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comparability of financial statement information.

The amendments in the update ease the transition for entities adopting ASC Update 2016-13 and increase the comparability of financial statement information.

With the exception of held-to-maturity debt securities, the amendments allow entities to irrevocably elect to apply the fair value option to financial instruments that were previously recorded at amortized cost basis within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost .

3 unchanged sentences

The amendments in this update change some effective dates for certain new accounting standards including those pertaining to Topic 326 discussed above, for certain types of entities.

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(in thousands, except per share amounts)

In November 2019, the FASB issued ASC Update No.

8 unchanged sentences

2020-02 is to clarify the scope and interpretation of the standard.

As a smaller reporting entity, the effective date for Topic 326 will be the fiscal year beginning after December 15, 2022.

In March 2022, the FASB issued ASC update 2022-02, Financial Instruments – Credit Losses (Topic 326) – Troubled Debt Restructurings and Vintage Disclosures .

The vintage disclosure portion of this guidance is applicable to the Company, which requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20.

Gross write-off information must included the amortized cost basis of financing receivables by credit-quality indicator and class of financing receivable by year of origination.

As a smaller reporting company, the effective date for Topic 326 will be the fiscal year beginning after December 15, 2022.

The adoption of Update Nos.

2016-13, 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, and 2022-02 is not expected to have a material impact on the Company's financial position or results of operations.

In January 2017, the FASB issued ASC Update No.

2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment .

The purpose of Update No.

2017-04 is to eliminate Step 2 from the goodwill impairment test and instead an entity should perform its annual, or interim, goodwill impairment quantitative test by comparing the fair value of a reporting unit with its carrying amount.

An entity will then recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, to the extent of the amount of goodwill allocated to that reporting unit.

As a smaller reporting company, the effective date for Topic 350 will be the fiscal year beginning after December 15, 2022.

The adoption of Update No.

2017-04 is not expected to have a material impact on the Company's financial position or results of operations.

There are no other recent accounting pronouncements issued by the FASB that the Company expects would have a material impact on the Company's financial statements.

3 unchanged sentences

Money market mutual funds $ 30,977 $ — $ — $ 30,977

United States treasuries 24,715 — ( 12 ) 24,703

Total marketable securities designated as available-for-sale $ 55,692 $ — $ ( 12 ) $ 55,680

1 unchanged sentence

Money market mutual funds $ 13,147 $ — $ — $ 13,147

United States treasuries 4,999 — — 4,999

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

29 unchanged sentences

(5) Debt and Line of Credit

Long-term debt consists of the following:

PPP loan $ — $ 6,927

Total long-term debt — 6,927

Less amounts classified as current — 4,992

Long-term debt, excluding current portion $ — $ 1,935

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December 31, 2021 and 2020

(in thousands, except per share amounts)

Paycheck Protection Program Loan

3 unchanged sentences

Interest on the loan accrued from the funding date, but was deferred.

In August 2021, the Company applied for forgiveness of the full amount of the PPP Loan.

In August 2021, the Company applied for forgiveness of the full amount of the PPP Loan and related interest.

On September 24, 2021, the Company received notification from the Lender that, on September 19, 2021, the SBA had determined that the PPP Loan forgiveness application was approved, and the PPP Loan, including all accrued interest thereon, was paid in full by the SBA.

The forgiveness of the PPP Loan including all interest accrued of $ 6,979 is recognized in other income, net in the accompanying consolidated statements of operations for the year ended December 31, 2021.

Line of Credit

Effective October 30, 2018, the Company entered into an amended and restated three-year senior secured credit facility agreement (the 2018 Credit Agreement) with Bank of America, N.A., as Administrative Agent, and the lenders named from time to time as parties thereto (the 2018 Lenders), which included a reducing revolving credit facility (the 2018 Revolver) of up to $ 20,000 initially and reducing to $ 15,000 on December 31, 2019, to be used for general corporate purposes.

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 December 31, 2021, 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 December 31, 2021, the Company was only able to draw on $ 10,900 of the $ 15,000 facility due to covenant restrictions.

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.

The Consolidated Leverage Ratio could not exceed 2.50 :1.00 through December 31, 2020 and may not exceed 2.00 :1.00 after December 31, 2020.

The Consolidated Fixed Charge Coverage Ratio may not be less than 1.25 :1.00.

On July 30, 2020, the Company amended the 2018 Credit Agreement to reflect the incurrence of the PPP Loan.

Under the amended facility, the principal and interest on the PPP Loan were not included in the maximum Consolidated Leverage Ratio or the minimum Consolidated Fixed Charge Coverage Ratio calculations except as to any portion of the PPP Loan that is not ultimately forgiven.

In September 2021, the PPP Loan was forgiven in full.

On October 29, 2021, the Company amended the 2018 Credit Agreement to maintain the $ 15,000 2018 Revolver, extend the maturity date of the 2018 Revolver to October 28, 2022, eliminate the Consolidated Fixed Charge Coverage Ratio financial covenant, add a minimum trailing four-quarter Consolidated Adjusted EBITDA financial covenant of $ 3,000 , modify the definition of Consolidated Adjusted EBITDA, modify the interest rate margins and certain lender fees, and transition the interest rate provisions based on LIBOR to the Bloomberg Short Term Bank Yield Index.

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

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.

KVH INDUSTRIES, INC.

3 unchanged sentences

(in thousands, except per share amounts)

Line of Credit

On August 9, 2022, the Company terminated its senior secured credit facility agreement (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.

(6) Commitments and Contingencies

3 unchanged sentences

2023 $ 41,082

Thereafter 33

Total minimum payments $ 48,371

3 unchanged sentences

In the normal course of business, the Company enters into unconditional purchase order obligations with its suppliers for inventory and other operational purchases.

Outstanding and unconditional purchase order obligations were $ 26,371 as of December 31, 2021, which the Company expects to fulfill in 2022.

The Company did not have any off-balance sheet commitments, guarantees, or standby repurchase obligations as of December 31, 2021.

Outstanding and unconditional purchase order obligations were $ 15,841 as of December 31, 2022, of which the Company expects to fulfill $ 15,048 in 2023 and $ 793 in 2024.

Except for certain satellite service capacity obligations that are not considered operating or financing leases under ASC 842, the Company did not have any off-balance sheet commitments, guarantees, or standby repurchase obligations as of December 31, 2022.

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(in thousands, except per share amounts)

(7) Stockholders’ Equity

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

Stock-based compensation expense, excluding compensation charges related to our employee stock purchase plan, or the ESPP, was $ 4,053 and $ 3,414 for the years ended December 31, 2021 and 2020, respectively.

The Company is authorized to grant stock options, restricted stock awards and other stock-based awards under its Amended and Restated 2016 Equity and Incentive Plan (the 2016 Plan) with respect to up to 4,800 shares of common stock, an increase of 1,800 shares reserved for issuance under the previous 2016 Plan as approved by our shareholders on June 10, 2020.

Stock-based compensation expense was $ 3,320 and $ 4,053 , excluding $ 104 and $ 56 of compensation charges related to our Amended and Restated 1996 Employee Stock Purchase Plan, or the ESPP, for the years ended December 31, 2022 and 2021, respectively.

The Company is authorized to grant stock options, restricted stock awards and other stock-based awards under its Amended and Restated 2016 Equity and Incentive Plan (the 2016 Plan) with respect to up to 6,080 shares of common stock (excluding rollover shares), an increase of 1,280 shares reserved for issuance under the previous 2016 Plan as approved by our shareholders on June 8, 2022.

Options have generally been granted with an exercise price equal to the fair market value of the common stock on the date of grant and have generally provided for vesting in equal annual amounts over four years beginning on the first anniversary of the date of the grant.

5 unchanged sentences

The Compensation Committee of the Board of Directors administers the equity compensation plans, approves the individuals to whom awards will be granted and determines the number of shares and other terms of each award.

Outstanding options under the Company's equity compensation plans at December 31, 2021 expire from March 2022 through March 2026.

Outstanding options under the Company's equity compensation plans at December 31, 2022 expire from June 2023 through October 2027.

None of the Company’s outstanding options includes performance-based or market-based vesting conditions as of December 31, 2022.

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(in thousands, except per share amounts)

(a) Employee Stock Options

11 unchanged sentences

Dividend yield 0 % 0 %

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(in thousands, except per share amounts)

The changes in outstanding stock options for the year ended December 31, 2022 and 2021 are as follows:

27 unchanged sentences

2,127 $ 9.93 2.68 $ 931

During 2022, upon the net exercise of 307 stock options, the Company issued 100 shares of common stock, 14 shares were surrendered to the Company to satisfy minimum tax withholding obligations, and 193 shares were cancelled.

The total aggregate intrinsic value of options exercised was $ 387 and $ 914 in 2022 and 2021, respectively.

As of December 31, 2022, there was $ 2,525 of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted-average period of 2.43 years.

In 2022 and 2021, the Company recorded compensation charges of $ 1,023 and $ 1,740 , respectively, related to stock options.

Compensation costs for options subject only to service conditions that vest ratably are recognized on a straight-line basis over the requisite service period for the entire award.

During 2022 and 2021, cash received under stock option plans for exercises was $ 664 and $ 2,709 , respectively.

During 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 $ 317 in compensation cost.

During 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 $ 26 in compensation cost.

During 2022, there were accelerated vesting term modifications of stock options for executive employment agreements, which resulted in an acceleration of compensation expense of approximately $ 182 .

During 2022, there were accelerated vesting term modifications of stock options for employees transitioned as part of the sale of the Company's inertial navigation business, which resulted in a reduction of compensation expense of approximately $ 46 , included in discontinued operations.

KVH INDUSTRIES, INC.

3 unchanged sentences

(in thousands, except per share amounts)

As of December 31, 2021, there was $ 3,599 of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted-average period of 2.42 years.

In 2021 and 2020, the Company recorded compensation charges of $ 1,740 and $ 1,401 , respectively, related to stock options.

Compensation costs for options subject only to service conditions that vest ratably are recognized on a straight-line basis over the requisite service period for the entire award.

During 2021 and 2020, cash received under stock option plans for exercises was $ 2,709 and $ 880 , respectively.

(b) Restricted Stock

8 unchanged sentences

In 2022 and 2021, the Company recorded compensation charges of $ 2,297 and $ 2,313 , respectively, related to restricted stock awards.

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

Kits van Heyningen, which resulted in a reduction in compensation expense of approximately $ 83 .

During 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 $ 134 .

During 2022, there were accelerated vesting term modifications of restricted stock for executive employment agreements, which resulted in an acceleration in compensation expense of approximately $ 189 .

During 2022, there were accelerated vesting term modifications of restricted stock for employees transitioned as part of the sale of the Company's inertial navigation business, which resulted in an acceleration in compensation expense of approximately $ 287 , included in discontinued operations.

Restricted stock activity under the 2006 Plan and the 2016 Plan for 2022 is as follows:

6 unchanged sentences

Under the Company's Amended and Restated 1996 Employee Stock Purchase Plan (ESPP), an aggregate of 1,650 shares of common stock have been reserved for issuance, of which 821 shares remain available as of December 31, 2021.

Under the Company's ESPP, an aggregate of 1,650 shares of common stock have been reserved for issuance, of which 780 shares remain available as of December 31, 2022.

The ESPP covers all of the Company’s employees.

19 unchanged sentences

$ 3,424 $ 4,109

(e) Accumulated Other Comprehensive Loss (AOCI)

Comprehensive loss includes net income (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.

Foreign Currency Translation Total Accumulated Other Comprehensive Loss

(e) Accumulated Other Comprehensive Loss (AOCL)

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

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

Foreign Currency Translation Unrealized Loss on Available for Sale Marketable Securities Total Accumulated Other Comprehensive Loss

Balance, December 31, 2020

14 unchanged sentences

(8) Income Taxes

Income tax (benefit) expense for the years ended December 31, 2021 and 2020 attributable to loss from operations is presented below.

Income tax expense (benefit) for the years ended December 31, 2022 and 2021 attributable to loss from continuing operations is presented below.

Current Deferred Total

1 unchanged sentence

Federal $ 404 $ — $ 404

State ( 13 ) — ( 13 )

Foreign 500 ( 345 ) 155

4 unchanged sentences

$ 71 $ ( 179 ) $ ( 108 )

Actual income tax (benefit) expense differs from the “expected” income tax (benefit) expense computed by applying the United States Federal statutory income tax rate of 21% for both 2021 and 2020 to loss before tax (benefit) expense, as follows:

Actual income tax expense (benefit) differs from the “expected” income tax expense (benefit) computed by applying the United States Federal statutory income tax rate of 21% for both 2022 and 2021 to loss from continuing operations before tax (benefit) expense, as follows:

Year Ended December 31,

7 unchanged sentences

Non-deductible compensation under 162(m) 7 35

Prior Period Prepaid Tax 276 —

Foreign Withholding Taxes 139 —

Foreign tax rate differential ( 3 ) 58

4 unchanged sentences

PPP loan forgiveness — ( 1,455 )

Impairment of goodwill and intangibles — 1,834

Sale of KVH Media Group Entertainment Limited ( 206 ) —

Prior period adjustments — ( 117 )

Other 10 ( 8 )

Income tax (benefit) expense $ ( 108 ) $ 174

Income tax expense (benefit) $ 546 $ ( 108 )

KVH INDUSTRIES, INC.

3 unchanged sentences

(in thousands, except per share amounts)

Loss before income tax (benefit) expense determined by tax jurisdiction, are as follows:

Loss from continuing operations before income tax expense (benefit) determined by tax jurisdiction, are as follows:

Year Ended December 31,

24 unchanged sentences

Total deferred tax liabilities ( 4,040 ) ( 974 )

Net deferred tax liability $ ( 159 ) $ ( 345 )

Net deferred tax asset (liability) $ 204 $ ( 159 )

Deferred income tax asset $ 259 $ 56

15 unchanged sentences

In assessing the realizability of its net deferred tax assets, the Company considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

As of December 31, 2021, the Company concluded that a net increase of $ 4,648 of the valuation allowance was appropriate.

The change was the result of an increase in domestic tax credits, net operating loss balances, and property and equipment differences due to depreciation.

As of December 31, 2022, the valuation decreased by $ 4,448 .

The change was primarily the result of the utilization of domestic tax credits and net operating losses to offset the gain on discontinued operations as well as the movement in other temporary items.

As part of the Company’s analysis, the Company evaluated, among other factors, its recent history of generating tax losses and its near-term forecasts of future taxable income or losses.

4 unchanged sentences

The Company's policy is to recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense.

The aggregate changes in the total gross amount of unrecognized tax benefits are as follows:

The aggregate changes in the total gross amount of unrecognized tax benefits, excluding penalties and interest, are as follows:

Year Ended December 31,

18 unchanged sentences

(9) Goodwill and Intangible Assets

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

Intangibles arising from the acquisition made prior to 2013 were amortized on a straight-line basis over an estimated useful life of 7 years.

Intangibles arising from the acquisition of KVH Media Group are being amortized on a straight-line basis over the estimated useful life of:

(i) 10 years for acquired subscriber relationships and (ii) 15 years for distribution rights.

Due to the impairment of distribution rights during the Company's 2020 annual impairment test, the estimated useful life of distribution rights was reduced from 15 years to 1 year.

The intangibles arising from the KVH Media Group acquisition were recorded in pounds sterling and fluctuations in exchange rates cause these amounts to increase or decrease from time to time.

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

These intangible assets are being amortized on a straight-line basis over the estimated useful life of 10 years for acquired subscriber relationships.

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.

24 unchanged sentences

Amortization expense related to intangible assets was $ 499 and $ 1,027 for years ended December 31, 2022 and 2021, respectively, and was categorized as general and administrative expense.

As of December 31, 2021, the total weighted average remaining useful lives of the definite-lived intangible assets was 1.5 years and the weighted average remaining useful lives by the definite-lived intangible asset category are as follows:

As of December 31, 2022, the total weighted average remaining useful lives of the definite-lived intangible assets was 1.2 and the weighted average remaining useful lives by the definite-lived intangible asset category are as follows:

KVH INDUSTRIES, INC.

7 unchanged sentences

Years ending December 31, Amortization

Thereafter 10

Total amortization expense $ 404

2 unchanged sentences

Amortization expense ( 499 )

Intangibles assets acquired in asset acquisition 62

Intangible assets acquired in asset acquisition 54

Sale of KVH Media Group Entertainment Limited ( 352 )

Foreign currency translation adjustment ( 86 )

1 unchanged sentence

Goodwill is recorded when the consideration for an acquisition exceeds the fair value of net tangible and identifiable intangible assets acquired.

All of the Company's goodwill as of December 31, 2021 relates to its mobile connectivity reportable segment.

No ne of the Company's goodwill is deductible for tax purposes.

1 unchanged sentence

Balance at December 31, 2021 $ 6,570

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

Foreign currency translation adjustment ( 224 )

6 unchanged sentences

The Company’s contributions vest over a five-year period from the date of hire.

During a five and half month period in 2020, as a result of the uncertainty caused by the COVID-19 pandemic, the Company paused matching contributions.

The Company matching contributions were $ 486 and $ 711 for the years ended December 31, 2022 and 2021, respectively.

11 unchanged sentences

The following table summarizes net sales from contracts with customers for the years ended December 31, 2022 and 2021:

Mobile connectivity product, transferred at point in time $ 27,490 $ 25,140

Mobile connectivity product, transferred over time 2,522 2,723

Mobile connectivity service 103,899 91,590

Inertial navigation product 36,858 36,756

Inertial navigation service 998 2,524

Product, transferred at point in time $ 24,482 $ 27,490

Product, transferred over time 2,488 2,522

Service 111,908 103,899

Total net sales $ 138,878 $ 133,911

Revenue recognized during the years ended December 31, 2022 and 2021 from amounts included in contract liabilities at the beginning of the fiscal year was approximately $ 2,177 and $ 2,281 , 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.

For mobile connectivity service sales, the delivery of the Company’s performance obligations are transferred to the customer, and associated revenue is recognized, over time.

For inertial navigation 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.

For inertial navigation service sales, the Company's performance obligations are generally transferred to customers, and associated revenue is recognized, over time.

For 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 VSAT contracts which are transferred to customers over time.

For service sales, the delivery of the Company’s performance obligations are transferred to the customer, and associated revenue is recognized, over time.

Business and Credit Concentrations

Concentrations of risk with respect to trade accounts receivable are generally limited due to the large number of customers and their dispersion across several geographic areas.

Although the Company does not foresee that credit risk associated with these receivables will deviate from historical experience, repayment is dependent upon the financial stability of those individual customers.

The Company establishes allowances for potential bad debts and evaluates, on a monthly basis, the adequacy of those reserves based upon historical experience and its expectations for future collectability concerns.

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 years ended December 31, 2021 or 2020 or accounts receivables as of December 31, 2021 or 2020.

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

No single customer accounted for 10% or more of consolidated net sales for the years ended December 31, 2022 or 2021.

Two customers accounted for approximately 16 % and 12 % of accounts receivable at December 31, 2022.

Two customers accounted for approximately 16 % and 14 % of accounts receivable at December 31, 2021.

One customer accounted for 66 % and 54 % of long-term accounts receivable included in other non-current assets on the consolidated balance sheets related to sales-type leases at December 31, 2022 and December 31, 2021, respectively.

Customer Contract Balances

The following table provides the balance sheet location and amounts of contract assets, or unbilled accounts receivable, and contract liabilities, or deferred revenue, from contracts with customers as of December 31, 2022 and 2021:

Contract Balance Type Balance Sheet Location 2022 2021

Current portion of deferred costs Current contract assets $ 1,243 $ 1,230

Non-current portion of deferred costs Non-current contract assets 3,033 3,104

Current portion of deferred revenues Contract liabilities* 1,743 1,720

Non-current portion of deferred revenues Long-term contract liabilities 4,315 4,466

*Management notes that the remaining “Contract liabilities” balance not included in the above table (as of December 31, 2022 and 2021 is $ 1,365 and $ 2,058 , respectively) relates to deferred income unaffiliated with the Company’s primary revenue streams.

These values are therefore excluded from the contract assets and contract liabilities from contracts with customers.

KVH INDUSTRIES, INC.

3 unchanged sentences

(in thousands, except per share amounts)

There were no material changes to contract asset balances for the year ended December 31, 2022 as a result of changes in estimates or impairments.

The change in the contract liability balance from December 31, 2021 to December 31, 2022 was primarily due to recognition of revenues in the current year related to prior year upfront support billings.

(12) Segment Reporting

The Company's reportable segments are mobile connectivity and inertial navigation.

The financial results of each segment are based on revenues from external customers, costs of revenue and operating expenses that are directly attributable to the segment and an allocation of costs from shared functions.

These shared functions include, but are not limited to, facilities, human resources, information technology, and engineering.

Allocations are made based on management’s judgment of the most relevant factors, such as head count, number of customer sites, or other operational data that contribute to the shared costs.

Certain corporate-level costs have not been allocated as they are not directly attributable to either segment.

These costs primarily consist of broad corporate functions, including executive, legal, finance, and costs associated with corporate actions.

Segment-level asset information has not been provided as such information is not reviewed by the chief operating decision-maker for purposes of assessing segment performance and allocating resources.

There are no significant inter-segment sales or transactions.

The Company's performance is impacted by the levels of activity in the marine and land mobile markets and defense sectors, among others.

The Company operates as one reportable segment as a result of the sale of its inertial navigation business on August 9, 2022.

The Company's performance is impacted by the levels of activity in the marine and land mobile markets, among others.

Performance in any particular period could be impacted by the timing of sales to certain large customers.

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 approximately 17 % and 18 % of our consolidated net sales for 2021 and 2020, respectively.

Sales of mini-VSAT Broadband airtime service accounted for approximately 54 % and 51 % of our consolidated net sales for 2021 and 2020, 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 approximately 16 % of consolidated net sales for both 2021 and 2020.

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

Product sales accounted for 19 % and 22 % of our consolidated net sales for 2022 and 2021, respectively.

Service sales of VSAT airtime service accounted for approximately 74 % and 69 % of our consolidated net sales for 2022 and 2021, respectively.

The balance of service sales are comprised of distribution of commercially licensed entertainment, product repairs, and extended warranty sales.

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

The Company operates in a number of major geographic areas, including internationally.

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

Revenues are based upon customer location and internationally represented 62 % and 58 % of consolidated net sales for 2022 and 2021, respectively.

1 unchanged sentence

No other individual foreign country represented 10% or more of the Company's consolidated net sales for 2022.

No individual foreign country represented 10% or more of the Company's consolidated net sales for 2020.

Sales to Singapore customers represented 13 % of the Company's consolidated net sales for 2021.

No other individual foreign country represented 10% or more of the Company's consolidated net sales for 2021.

As of December 31, 2022 and 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 and were deemed not material.

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2021 and 2020

(in thousands, except per share amounts)

Net sales and operating income (loss) for the Company's reporting segments and the Company's loss before income tax (benefit) expense for the years ended December 31, 2021 and 2020 were as follows:

For the year ended December 31,

Mobile connectivity $ 133,911 $ 119,453

Inertial navigation 37,856 39,280

Consolidated net sales $ 171,767 $ 158,733

Operating income (loss):

Mobile connectivity (1)

$ 2,749 $ ( 10,071 )

Inertial navigation 1,649 4,799

Subtotal 4,398 ( 5,272 )

Unallocated, net ( 22,344 ) ( 17,665 )

Loss from operations ( 17,946 ) ( 22,937 )

Net interest and other income 8,075 1,171

Loss before income tax (benefit) expense $ ( 9,871 ) $ ( 21,766 )

(1) Includes an impairment charge of $ 10,490 for the KVH Media Group reporting unit within the mobile connectivity segment for the year ended December 31, 2020.

Depreciation expense and amortization expense for the Company's segments are presented in the table that follows for the periods presented:

For the year ended December 31,

Depreciation expense:

Mobile connectivity $ 11,322 $ 8,726

Inertial navigation 1,569 1,325

Unallocated 683 608

Total consolidated depreciation expense $ 13,574 $ 10,659

Amortization expense:

Mobile connectivity $ 1,027 $ 1,004

Inertial navigation — —

Unallocated — —

Total consolidated amortization expense $ 1,027 $ 1,004

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2021 and 2020

(in thousands, except per share amounts)

(13) Share Buyback Program

On October 4, 2019, the Company's Board of Directors authorized a share repurchase program pursuant to which the Company was authorized to purchase up to 1,000 shares of the Company’s common stock.

The program expired on October 4, 2020.

Under the repurchase program, the Company, at management’s discretion, was authorized to repurchase shares on the open market from time to time, in privately negotiated transactions or block transactions, or through an accelerated repurchase agreement.

In January 2020, the Company repurchased 36 shares of common stock in open market transactions at a cost of approximately $ 390 .

The total amount the Company repurchased under the repurchase program since the inception of the October 4, 2019 repurchase program was 151 shares of common stock for an approximate cost of $ 1,690 .

There were no repurchase programs outstanding during 2021.

(13) Fair Value Measurements

12 unchanged sentences

The valuation techniques are:

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2022 and 2021

(in thousands, except per share amounts)

(a) Market approach—prices and other relevant information generated by market transactions involving identical or comparable assets.

2 unchanged sentences

Money market mutual funds $ 30,977 $ 30,977 $ — $ — (a)

United States treasuries 24,703 24,703 — — (a)

December 31, 2021 Total Level 1 Level 2 Level 3 Valuation

Money market mutual funds $ 13,147 $ 13,147 $ — $ — (a)

United States treasuries $ 4,999 $ 4,999 $ — $ — (a)

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2021 and 2020

(in thousands, except per share amounts)

The carrying amount of certain financial instruments approximates fair value due to their short-term, highly liquid nature.

3 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 an impairment exists.

During 2020, the Company recorded an impairment charge of $ 10,490 to goodwill and intangible assets.

There was no additional impairment of the Company's non-financial assets noted as of December 31, 2021.

There was no impairment of the Company's non-financial assets noted during the twelve months prior to December 31, 2022.

See Note 1(k) and Note 9 for additional details.

3 unchanged sentences

The Company is not a party to any lawsuit or proceeding that, in management's opinion, is likely to materially harm the Company's business, results of operations, financial condition, or cash flows.

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2022 and 2021

(in thousands, except per share amounts)

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

1 unchanged sentence

Short-term operating lease costs was $ 182 and $ 237 for the years ended December 31, 2022 and 2021, respectively.

Sublease income was $ 134 for both the years ended December 31, 2021 and 2020.

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

Years ending December 31,

2027 and thereafter 78

Total undiscounted lease payments $ 2,280

7 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 December 31, 2021, the gross costs and accumulated depreciation associated with this lease are included in revenue generating

As of December 31, 2022, the gross costs and accumulated depreciation associated with this lease are included in revenue generating assets and amounted to $ 1,268 and $ 891 , respectively.

The obligations under financing leases are stated at the present value of minimum lease payments.

The property and equipment held under this financing lease are amortized on a straight‑line basis over the seven-year estimated useful life of the asset, since the lease meets the bargain purchase option criteria .

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

Depreciation expense for the remaining capital assets was $ 181 for both the years ended December 31, 2022 and 2021.

KVH INDUSTRIES, INC.

3 unchanged sentences

(in thousands, except per share amounts)

assets and amounted to $ 1,268 and $ 710 , respectively.

The obligations under financing leases are stated at the present value of minimum lease payments.

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

Depreciation expense for the remaining capital assets was $ 181 for both the years ended December 31, 2021 and 2020.

The future undiscounted lease payments under this financing lease as of December 31, 2022 are:

6 unchanged sentences

Weighted-average discount rate - finance leases 1.53 %

The Company enters into leases with certain customers primarily for the TracPhone mini-VSAT systems.

The Company enters into leases with certain customers primarily for the TracPhone VSAT systems.

These leases are classified as sales-type leases as title of the equipment transfers to the customer at the end of the lease term.

15 unchanged sentences

(in thousands, except per share amounts)

In 2021, the Company entered into three-year leases for its TracPhone mini-VSAT systems, in which ownership of the hardware does not transfer to the lessee by the end of the lease term.

The Company entered into three-year leases for its TracPhone VSAT systems, in which ownership of the hardware does not transfer to the lessee by the end of the lease term.

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

4 unchanged sentences

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

Total $ 1,091

(17) Subsequent Events

On March 6, 2022, the Company's President and Chief Executive Officer, Martin Kits van Heyningen retired from his executive and Board roles after more than 40 years of service.

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

Bruun, the Company’s Chief Operating Officer, has been appointed as its interim President and Chief Executive Officer.

In March 2022, the Company also restructured its operations to reduce costs and better reflect a more focused strategy, which resulted in an approximately 10 % reduction in its workforce.

(16) Discontinued Operations

During the third quarter of 2022, the Company sold its inertial navigation business.

The Company determined that the sale met the requirements for reporting as discontinued operations in accordance with Accounting Standards Codification (ASC) 205-20.

Please see Note 1 for further discussion.

The following table presents a reconciliation of the carrying amounts of major classes of assets and liabilities of the discontinued operations to the amounts presented separately in the Company's consolidated balance sheet:

December 31, 2021

Accounts receivable, net $ 5,882

Inventories, net 8,807

Prepaid expenses and other current assets 1,152

Current assets held for sale $ 15,841

Property and equipment, net 7,169

Non-current assets held for sale $ 7,169

Accounts payable 1,764

Accrued compensation and employee-related expenses 914

Accrued other 955

Accrued product warranty costs 95

Contract liabilities 211

Current liabilities held for sale $ 3,939

Other long-term liabilities 8

Non-current liabilities held for sale $ 8

Net assets held for sale 19,063

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2022 and 2021

(in thousands, except per share amounts)

The following table presents a reconciliation of the major financial line items constituting the results for discontinued operations to the net income from discontinued operations, net of tax, presently separately in the Company's consolidated statements of operations (through August 9, 2022, the date the inertial navigation business was sold):

Product $ 16,042 $ 36,858

Service 679 998

Net sales 16,721 37,856

Costs, expenses and other income, net:

Costs of product sales 12,732 22,859

Costs of service sales 457 1,025

Research & development 3,147 6,696

Sales, marketing and support 3,035 5,627

Other income, net 81 134

(Loss) income from discontinued operations before income tax expense ( 2,569 ) 1,783

Gain on sale of discontinued operations before tax expense 30,763 —

Total income from discontinued operations before tax expense $ 28,194 $ 1,783

Income tax expense on discontinued operations 169 —

Net income from discontinued operations, net of taxes $ 28,025 $ 1,783

Net income from discontinued operations per common share

Basic and diluted $ 1.50 $ 0.10

Weighted average number of common shares outstanding:

Basic and diluted $ 18,632 $ 18,217

The following table presents supplemental cash flow information of the discontinued operations:

Cash (used in) provided by operating activities—discontinued operations $ ( 3,853 ) $ 3,416

Cash used in investing activities—discontinued operations $ ( 307 ) $ ( 824 )

The following table presents non-cash expenses from discontinued operations:

Depreciation $ 622 $ 1,569

Compensation expense related to stock-based awards and employee stock purchase plan $ 475 $ 580

Provision for doubtful accounts $ 47 $ 28

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 9A. Controls and Procedures