FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996 Commission File Number 1-9014
Chyron Corporation
(Exact name of registrant as specified in its charter)
New York 11-2117385
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
5 Hub Drive, Melville, NY 11747
(Address of principal executive offices) (Zip Code)
(516) 845-2000
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by a check mark whether the Registrant has filed all
documents and reports required to be filed by Section 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Common Stock $.01 Par Value - 96,761,913 as of
May 1, 1996
This document consists of 10 pages
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(In thousands except per share amounts)
(Unaudited)
1996 1995
Net sales............................. $ 13,725 $ 11,437
Costs and expenses:
Manufacturing ...................... 5,939 5,075
Selling, general and administrative. 3,705 3,589
Research and development ........... 1,108 980
Management fee...................... 232
Total costs and expenses ............. 10,752 9,876
Operating income ..................... 2,973 1,561
Interest expense, net................. (124) (153)
Income before provision for income
taxes............................... 2,849 1,408
Income taxes/equivalent provision..... 969 528
Net income............................ 1,880 880
Retained earnings/(accumulated
deficit)-beginning of period....... 1,343 (6,133)
Retained earnings/(accumulated
deficit)-end of period.............. $ 3,223 $(5,253)
Earnings per common share............. $ .02 $ .01
Weighted average number of common
and common equivalent shares
outstanding......................... 92,445 89,844
See Notes to Consolidated Financial Statements
ITEM 1. FINANCIAL STATEMENTS
CHYRON CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
(unaudited)
ASSETS
March 31, December 31,
1996 1995
Current assets:
Cash and cash equivalents................... $ 8,830 $ 5,012
Accounts and notes receivable............... 13,155 13,967
Inventories................................. 12,124 11,645
Prepaid expenses............................ 886 578
Deferred tax asset.......................... 6,258 6,457
Total current assets...................... 41,253 37,659
Property and equipment...................... 3,646 3,300
Investment in RT-SET........................ 1,950
Software development costs.................. 1,582 1,716
Deferred tax asset.......................... 1,403 1,403
Other assets................................ 219 254
TOTAL ASSETS................................ $50,053 $44,332
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses....... $ 9,859 $ 8,120
Management fee payable................... 1,000
Reserve for West Coast restructuring..... 138 158
Capital lease obligations................ 166 160
Total current liabilities................ 10,163 9,438
Loans payable............................... 5,644 4,741
Capital lease obligations................... 194 170
Total liabilities..................... 16,001 14,349
Commitments
Shareholders' equity:
Preferred stock, par value without designation
Authorized - 1,000,000 shares, Issued - none
Common stock, par value $.01
Authorized - 150,000,000 shares
Issued and outstanding -
93,615,708 shares at March 31, 1996,
90,071,394 shares at December 31, 1995.... 936 901
Additional paid-in capital................ 29,893 27,739
Retained earnings......................... 3,223 1,343
Total Shareholders' equity............... 34,052 29,983
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.. $50,053 $44,332
See Notes to the Consolidated Financial Statements.
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(In Thousands)
(Unaudited)
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................. $ 1,880 $ 880
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization .......... 582 442
Income tax equivalent provision......... 199 516
Changes in operating assets and liabilities:
Accounts and trade notes receivable..... 812 (118)
Inventories............................. (479) (472)
Prepaid expenses ....................... (308) 180
Accounts payable and accrued expenses... 1,739 738
Management fee payable.................. (1,000)
Deferred revenue........................ 37
Reserve for West Coast restructuring.... (20) (735)
Net cash provided by operating activities.. 3,405 1,468
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment...... (617) (202)
Capitalized software development .......... (87) (46)
Other...................................... 35 (7)
Net cash (used in) investing activities.... (669) (255)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of capital lease obligations...... (60) (63)
Proceeds from exercise of common stock
purchase warrants, net................... 239 8
Borrowings from revolving credit agreement. 903
Payments of revolving credit agreement..... (5,644)
Net proceeds from new credit facility...... 5,644
Net cash provided by (used in) financing
activities.............................. 1,082 (55)
Change in cash and cash equivalents........ 3,818 1,158
Cash and cash equivalents at beginning of
period................................... 5,012 1,555
Cash and cash equivalents at end of period. $ 8,830 $2,713
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest................................... $ 166 $ 122
Income..................................... $ 100 $ 18
Noncash investing and financing activities:
During January 1996, the Company entered into capital lease obligations
totaling $90,000 for the purchase of equipment.
On February 29, 1996, the Company acquired a 19% interest in RT-SET
Ltd. in exchange for 2.4 million shares of Chyron common stock. See
Note 2 to the Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial
statements have been prepared in accordance with
generally accepted accounting principles for interim
financial reporting. Accordingly, they do not
include all of the information and footnotes
required by generally accepted accounting principles
for complete financial statements. These statements
should be read in conjunction with the consolidated
financial statements and footnotes thereto included
in the Company's annual report on Form 10-K for the
year ended December 31, 1995.
In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered
necessary for a fair presentation have been
included. Operating results for the three months
ended March 31, 1996 are not necessarily indicative
of the results that may be expected for the year
ending December 31, 1996.
2. INVESTMENT IN RT-SET
On February 29, 1996, the Company effectively
purchased an option to acquire a 19% interest in RT-
SET, Ltd. ("RT-SET"), located in Tel Aviv, Israel.
RT-SET develops, markets and sells real time virtual
studio set software and proprietary communications
hardware that operate on Silicon Graphics systems.
In form, Chyron purchased shares of RT-SET
Convertible Preferred Stock in exchange for 2.4
million shares of Chyron restricted common stock.
In accordance with the purchase agreement, the 2.4
million shares of Chyron common stock were to be
held in escrow, and released in tranches of one-
third and two thirds, subject to certain conditions.
As of March 31, 1996, the first of these conditions
had been met, which resulted in the release of
800,000 shares of Chyron restricted common stock to
RT-SET. Upon the satisfaction of the remaining
conditions, the remaining 1,600,000 escrowed shares
will be released. If the conditions are not met,
the shares of Chyron restricted common stock held in
escrow will be returned to the Company.
Accordingly, the transaction has been recorded as
the purchase of a right to acquire a 19% interest in
RT-SET. RT-SET shall retain the voting rights with
respect to the escrowed shares, while such shares
are held by the escrow agent. The acquisition was
recorded at the estimated fair value of the Chyron
restricted common stock released from escrow. In
addition, Chyron was granted certain call option
rights which, when exercised, will result in the
Company owning up to a 51% interest in RT-SET.
Chyron and RT-SET will jointly market and distribute
RT-SET products and Chyron will provide
infrastructure for installation, service and support
functions.
3. ACCOUNTS AND NOTES RECEIVABLE
Trade accounts and notes receivable are stated net
of an allowance for doubtful accounts of $2,805,000
and $3,134,000 at March 31, 1996 and December 31,
1995, respectively.
4. INVENTORIES
Inventories at March 31, 1996 and December 31, 1995,
respectively consist of the following (in
thousands):
Finished goods $ 4,295 $ 3,345
Work-in-process 5,225 5,250
Raw material 2,604 3,050
$ 12,124 $11,645
7. LOANS PAYABLE
On March 28, 1996 and April 16, 1996, the Company
entered into agreements with a bank to obtain a
revolving credit facility of $10 million and a term
loan of $8 million, respectively. The entire
facility is secured by the Company's properties and
assets. Borrowings are limited to amounts computed
under a formula for eligible accounts receivable and
inventory. Additionally, an over-advance is
available above the borrowing formula in an amount
not to exceed $3 million. Interest on the revolving
credit facility is equal to Prime or adjusted LIBOR
plus 175 basis points (8.25% at March 31, 1996) and
is payable monthly. The revolving portion of the
facility will mature on March 28, 1999. The term
loan is payable in quarterly installments of
$500,000, commencing June 1, 1996. Interest on the
term loan is equal to Prime or adjusted LIBOR plus
200 basis points (8.25% at April 16, 1996) and is
payable monthly. The term portion of the facility
matures April 16, 2000. The Company had $5.6
million outstanding under the revolving credit
facility at March 31, 1995.
At December 31, 1995, the Company had $4.7 million
outstanding with another financial institution under
a secured revolving credit facility. Interest was
payable monthly at the prime rate plus 2% per annum
(8.5% at December 31, 1995). The facility was due
to expire on April 27, 1997, but was replaced by the
aforementioned banking facility.
6. SUBSEQUENT EVENTS
On April 12, 1996, the Company completed the
acquisition of the issued and outstanding shares of
Pro-Bel Limited ("Pro-Bel"), located in the United
Kingdom. Pro-Bel manufactures and distributes video
signal and switching equipment and systems. The
consideration consisted of $6.9 million in cash,
$5.3 million in Notes and 3,146,205 shares of
restricted Chyron common stock. The transaction
will be accounted for as a purchase.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
OVERVIEW
This discussion should be read in conjunction with
the Consolidated Financial Statements including the
Notes thereto:
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1996
AND 1995
Sales increased 20% to $13.7 million in 1996 mainly
as a result of a 15.2% increase in the Company's
upperline products; the Infinit!, Max, and Maxine.
Increases were also seen in the Company's Codi
products, which showed a 52.8% improvement over the
prior year.
Gross margin increased to $7.8 million as a result
of the 20% increase in sales. Gross margins
increased to 56.7% in 1996 compared to 55.6% in 1995
which is a direct result of enhanced productivity in
the factory.
Selling, general and administrative expenses
increased by $116,000 or 3%, which was primarily due
to the writeoff of certain capitalized financing
costs related to the former credit facility held by
the Company and the establishment of an overseas
sales office. Additional increases were seen due to
increases in costs related to the 20% increase in
sales. These increases were offset by cost cutting
measures instituted by the Company as is seen by the
decrease in SGA as a percentage of sales from 31% in
1995 to 27% in 1996.
Research and development (R&D) expenses increased in
1996 by $128,000 or 13%. This increase is mainly
due to additional expenditures for new product
development to address emerging markets targeted by
the Company, as well as the development of new
features for the Company's existing product lines.
R&D includes the amortization of software
development costs, which increased $62,000 due to
the release of new options in 1996 for the Company's
character generator product lines.
Net interest expense decreased $29,000 or 19% due
mainly to increases in earnings on the Company's
cash equivalents. This increase was partially
offset by increases in interest expense related to
the Company's capital lease obligations.
Income before income taxes improved $1.4 million or
102% due to the increases in sales volume and gross
margins coupled with cost savings measures
instituted by the Company that decreased selling,
general and administrative expense as a percentage
of sales as described above. The increase in income
before income taxes is also due to elimination of
the management fee, which resulted from the
termination of the agreement by the Company in
December 1995.
LIQUIDITY AND CAPITAL RESOURCES
On March 28, 1996 and April 16, 1996, the Company
entered into agreements with a bank to obtain a
revolving credit facility of $10 million and a term
loan of $8 million, respectively. The revolving
portion of the facility matures 3 years from
closing, while the term portion matures 4 years from
closing. The entire facility is secured by the
Company's properties and assets. This facility
replaced the $10,000,000 secured credit facility
which was due to expire on April 27, 1997. In April
1996, a portion of this new credit facility was used
to fund the acquisition of Pro-Bel Ltd.
At March 31, 1996, the Company's current ratio was
4.06 and its working capital was $31,090,000.
At March 31, 1996, the Company had operating lease
commitments for equipment and factory and office
space totaling $3.9 million of which $795,000 is
payable within one year.
PART II. OTHER INFORMATION
ITEMS 1., 2., 3., 4. AND 5. Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: Not applicable.
(b) Reports on Form 8-K:
(1) On April 26, 1996, the Company filed a report on
Form 8-K related to the acquisition of Pro-Bel
Limited. This report is incorporated by reference.
(2) On March 14, 1996, the Company filed a report on
Form 8-K related to the investment of 19% in RT-Set,
Ltd. This report is incorporated by reference.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHYRON CORPORATION
(Registrant)
May 10, 1996 /s/ Michael Wellesley-Wesley
Michael Wellesley-Wesley
Chairman of the Board and
Chief Executive Officer
May 10, 1996 /s/Patricia Lampe
Patricia Lampe
Chief Financial Officer
and Treasurer
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