Technology StocksKVH Industries, Inc.

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To: Sector Investor who wrote (702)2/8/2001 7:52:26 AM
From: Sector Investor
   of 7013
Tables only in fixed font

Consolidated Balance Sheets
December 31, 2000 and 1999

2000 1999
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 5,411,460 2,047,838
Accounts receivable, net 6,553,976 3,362,390
Costs and estimated earnings
in excess of billings
on uncompleted contracts 419,145 444,492
Inventories 3,600,660 3,672,269
Prepaid expenses and
other deposits 346,518 292,793
Deferred income taxes 637,799 376,628
Total current assets 16,969,558 10,196,410
Property and equipment, net 6,580,375 7,227,778
Other assets, less
accumulated amortization 706,473 839,113
Deferred income taxes 2,238,430 1,571,409
Total assets $ 26,494,836 19,834,710

Liabilities and stockholders' equity:
Current liabilities:
Current portion long-term debt $ 81,111 75,643
Borrowings against bank line
of credit 598,865 --
Accounts payable 1,478,198 1,599,770
Accrued expenses 1,164,790 792,086
Customer deposits 1,195,091 --
Total current liabilities 4,518,055 2,467,499
Long-Term Debt 2,784,121 2,865,232
Total liabilities 7,302,176 5,332,731
Stockholders' equity:
Common stock 86,191 72,969
Additional paid-in capital 21,186,459 15,567,880
Accumulated deficit (2,079,990) (1,138,870)
Total stockholders' equity 19,192,660 14,501,979
Total liabilities and
stockholders' equity $ 26,494,836 19,834,710

Consolidated Statements of Operations

Three months ended Twelve months ended
December 31, December 31,
2000 1999 2000 1999

Net sales $ 8,844,466 5,542,226 29,953,727 22,822,429
Cost of
sold 5,296,992 3,685,062 18,620,438 15,034,250
profit 3,547,474 1,857,164 11,333,289 7,788,179

& development 929,521 1,131,267 3,902,154 4,199,370
Sales &
marketing 1,848,133 1,687,741 6,322,181 5,471,231
Administration 523,057 535,569 2,220,471 2,111,868

profit (loss) 246,763 (1,497,413) (1,111,517) (3,994,290)

Other income
expense, net (72,387) (9,155) (192,437) (40,236)
income (21,805) 10,499 (133,723) 19,805
(Loss) gain
on foreign
translation (45,463) 9,116 (63,080) 63,644

Income (loss)
before income
tax expense
(benefit) 107,108 (1,507,873) (1,500,757) (3,951,077)

Income tax
(benefit) 30,577 (304,939) (559,637) (1,253,822)

Net income
(loss) $ 76,531 $(1,202,934) (941,120) (2,697,255)

Per share
Net income
(loss) per
common share
- basic $ 0.01 (0.17) (0.12) (0.37)
Net income
(loss) per
common share
- diluted $ 0.01 (0.17) (0.12) (0.37)

Weight average
number of
Basic 7,778,364 7,264,460 7,628,166 7,234,961
Diluted 8,197,506 7,264,460 7,628,166 7,234,961

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To: Sector Investor who wrote (703)2/8/2001 1:08:57 PM
From: Greg h2o
   of 7013
well, what do you think, sector? listened to the cc, and became more interested in the company. i guess i'm wondering if the street (if needham issues coverage) is ready for another whiz-bang gizmo company that looks like it will fall back into unprofitability. that being said, anyone is likely better off not listening to the street, anyway. i did like the fact they are planning to be in boston tomorrow and it sounds as though they'll be on the road off and on for a couple of months meeting with potential investors.... that can't hurt.

the photonic fiber story is definitely one of interest and it sounds as though they may look for partnership or sale of that project. Dr. Dalton working more closely on that project should add interest. i missed what he said about an announcement at the upcoming Optical Fiber Comm Conference... did you catch that?

thanks for your input as i'm not quite up to speed on this company, yet.

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To: Greg h2o who wrote (704)2/8/2001 2:13:46 PM
From: akmike
   of 7013
It looks to me like here is a business with a 40 mil. revenue base in the core (with 40% gross margins) which is profitable and growing and capitalized in the market for about 70 mil. The current sensor alone should be capable of producing that much in revenues in 2002, growing at a faster pace, with better gross margins, and (with the business model of partnering which they have pursued) with very little in terms of sales, marketing, and administrative expenses to carry. What is the current sensor business worth? (probably quite a bit more than 70 mil., I suspect)
Trying to put a value on the photonic fiber segment of the business is a more esoteric exercise, but exciting in terms of potential.
I view the broadband antenna initiative as a natural extension of the core business and don't think there is anything in the current price for that either.
I believe that the acknowledgment that time-to-market issues for the new initiatives is causing an acceleration in R & D expense, which in turn could temporarily take the company into the red, will cause some investors to lose patience or just to believe that their funds will be better somewhere else for a period of time. IMO this will present a last chance to accumulate in the single digits. I don't think that the slippage into the red will be very deep or last very long. I would expect that EBITDA will be positive for 2001 and earnings significantly positive thereafter.

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To: akmike who wrote (705)2/8/2001 2:44:05 PM
From: Greg h2o
   of 7013
thanks, mike.... hey, don't jump the gun on the 40% gross margins.... i listened to the call... that's what they're hoping to have by year-end. <G>

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To: Greg h2o who wrote (706)2/8/2001 2:51:36 PM
From: Sector Investor
   of 7013
No, Greg,

They had 40% margins the last two quarters. Their target is 50%. I think they just said they will be around 40% all year. The delay by their partner on the current sensor is probably the reason there.

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To: Sector Investor who wrote (707)2/8/2001 3:49:32 PM
From: Greg h2o
   of 7013
i must have misunderstood what they said in the notes say they had 38% gross for the trailing year (which i just checked, and that's correct) and expect to be >40% by this fiscal year-end.

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To: Greg h2o who wrote (708)2/8/2001 3:55:14 PM
From: Sector Investor
   of 7013
Both statements are consistent. 38% for the year and 40% the last two quarters.

They will be 40% or above in 2001 and higher in 2002.

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To: Greg h2o who wrote (708)2/8/2001 3:56:04 PM
From: akmike
   of 7013
They did say that but they did have over 40% for the last 2 qtrs., so it isn't much of a stretch to get to over 40 for the whole year in 01. (especially since they also said that FOG capacity utilization will double in 01!)

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To: Sector Investor who wrote (709)2/8/2001 4:07:38 PM
From: Greg h2o
   of 7013
ok, thanks for the clarification. now, if the market would just settle down a little, i'll be in KVHI with you guys (at least a little bit). would like to pick up a little tomorrow since they'll be in boston. will be interesting to see if the stock gets a lift from their meetings.

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To: Greg h2o who wrote (711)2/8/2001 6:25:41 PM
From: Sector Investor
   of 7013
You may have a good opportunity.

Some people may be put off by the accelerated development raising R&D to the point where they may be only marginally profitable in '01.

However, anyone who knows what is happening with 40Gbps components knows the current generation technology doesn't work due to basic Physics limitations. KVHI says they have a technology that will work not only at 40Gbps, but at over 100Gbps as well. Plus, because they don't need Electro-Optic chips, their production process is very straight forward and easiliy manageable, and they will have MAJOR cost advantages over competitors.

If it takes a few quarters of flat earnings, that is really a small price to pay.

What they are doing affects LMNE, JDSU and all the other component companies. What works at the 10Gbps level needs new processes at 40Gbps and higher. It is not a stretch at all to see LMNE interested in what KVHI is developing. I can easily see a strategic partnership here, as (for example) if LMNE is spending $millions for THEIR R&D (to end up with a higher cost process) they might as well help KVHI develop and secure access to lower cost components over THEIR competitors.

Hey Noam, the early bird gets the worm!

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