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 September 30, 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 - 97,094,302 as of
November 8, 1996
This document consists of 14 pages
<PAGE>
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(In thousands except per share amounts)
(Unaudited)
1996 1995
Net sales................................ $ 20,632 $14,099
Costs and expenses:
Manufacturing ......................... 9,817 6,091
Selling, general and administrative ... 5,890 4,637
Research and development .............. 1,452 1,027
Management fee......................... 232
West Coast restructuring recapture..... (552)
Total costs and expenses ................ 17,159 11,435
Operating income ........................ 3,473 2,664
Other expense, net....................... 450 171
Income before provision for income taxes. 3,023 2,493
Income taxes/equivalent provision........ 1,189 686
Net income............................... $ 1,834 $ 1,807
Earnings per common share................ $ .02 $ .02
Weighted average number of common and common
equivalent shares outstanding.......... 98,750 91,408
See Notes to Consolidated Financial Statements
<PAGE>
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(In thousands except per share amounts)
(Unaudited)
1996 1995
Net sales.............................. $ 56,889 $ 38,596
Costs and expenses:
Manufacturing ....................... 26,887 16,920
Selling, general and administrative . 16,351 12,648
Research and development ............ 3,751 3,065
Management fee....................... 695
West Coast restructuring recapture... (552)
Total costs and expenses .............. 46,989 32,776
Operating income ...................... 9,900 5,820
Other expense, net..................... 872 449
Income before provision for income
taxes................................ 9,028 5,371
Income taxes/equivalent provision...... 3,405 1,477
Net income............................. 5,623 3,894
Retained earnings/(accumulated deficit)
- beginning of period................ 1,343 (6,133)
Retained earnings/(accumulated deficit)
- end of period...................... $ 6,966 $ (2,239)
Earnings per common share.............. $ .06 $ .04
Weighted average number of common and common
equivalent shares outstanding........ 96,558 90,597
See Notes to Consolidated Financial Statements
<PAGE>
CHYRON CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
(unaudited)
ASSETS
September 30, December 31,
1996 1995
Current assets:
Cash and cash equivalents......... $ 3,078 $ 5,012
Accounts and notes receivable..... 20,206 13,967
Inventories....................... 24,123 11,645
Prepaid expenses.................. 794 578
Deferred tax asset................ 5,821 6,457
Other............................. 633
Total current assets........... 54,655 37,659
Property and equipment.............. 12,766 3,300
Excess of purchase price over net
assets acquired................... 7,205
Investment in RT-SET................ 2,161
Software development costs.......... 1,915 1,716
Deferred tax asset.................. 1,403 1,403
Other assets........................ 1,746 254
TOTAL ASSETS $81,851 $44,332
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses......................... $16,253 $ 9,120
Current portion of long-term debt. 4,716
Capital lease obligations......... 264 160
Other............................. 99 158
Total current liabilities....... 21,332 9,438
Long-term debt...................... 14,977 4,741
Capital lease obligations........... 148 170
Total liabilities................. 36,457 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 -
97,094,302 shares at September
30, 1996
90,071,394 shares at
December 31, 1995................ 971 901
Additional paid-in capital........ 37,268 27,739
Retained earnings................. 6,966 1,343
Cumulative translation adjustment. 189
Total shareholders' equity...... 45,394 29,983
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $81,851 $44,332
See Notes to the Consolidated Financial Statements
<PAGE>
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(In Thousands)
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES 1996 1995
Net income.................................$ 5,623 $ 3,894
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization ......... 2,001 1,481
Utilization of deferred tax asset...... 688 1,342
Changes in operating assets and liabilities:
Accounts and trade notes receivable.... 914 (1,463)
Inventories............................ (4,748) (4,944)
Prepaid expenses ...................... (48) 586
Accounts payable and accrued expenses.. (2,020) 5,345
Management fee payable................. (1,000)
Other liabilities...................... (59) (1,908)
Net cash provided by operating activities. 1,351 4,333
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Pro-Bel and Investment in
RT-SET.................................. (7,226)
Acquisitions of property and equipment.... (1,358) (656)
Capitalized software development ......... (705) (190)
Other..................................... (608) 82
Net cash (used in) investing activities... (9,897) (764)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of capital lease obligations..... (179) (69)
Proceeds from exercise of common stock
purchase warrants, net................... 239 323
Proceeds from exercise of stock options... 542
Payments of revolving credit agreement.... (5,644) (4,500)
Proceeds from new credit facility, net.... 11,654 6,128
Other..................................... (52)
Net cash provided by financing activities. 6,612 1,830
Change in cash and cash equivalents....... (1,934) 5,399
Cash and cash equivalents at beginning
of period................................ 5,012 1,555
Cash and cash equivalents at end of
period.................................. $ 3,078 $ 6,954
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 4 to the
Consolidated Financial Statements.
On April 12, 1996, the Company acquired the issued
and outstanding shares of Pro-Bel Limited. The
consideration in addition to cash included
3,146,205 shares of Chyron common stock valued at
$6,868,000 and notes payable valued at
$5,349,000. See Note 3 to the Consolidated
Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements
have been prepared in conformity 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 and nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for
the year ending December 31, 1996.
2. TRANSLATION OF FOREIGN CURRENCIES
The functional currency for the Company's foreign operations is
the applicable local currency. The translation from the
applicable foreign currency to U.S. dollars is performed for
asset and liability accounts using period-end exchange rates
and for revenue and expense accounts using a weighted average
exchange rate during the period. The gains or losses resulting
from such translation are recorded in the cumulative
translation adjustment account which is included in
shareholders' equity. Gains or losses from foreign currency
transactions are included in other income as they occur.
3. ACQUISITION OF PRO-BEL LIMITED
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 valued at $6.9 million.
The acquisition of Pro-Bel was accounted for as a purchase.
Accordingly, the purchase price was allocated to the net assets
acquired based upon their estimated fair values. The excess of
purchase price over the estimated fair value of net assets
acquired amounted to $7,532,000, which is being amortized over
12 years using the straight line method.
The accompanying consolidated statements of operations include
the operating results of Pro-Bel since the date of the
acquisition. Proforma unaudited consolidated operating results
of the Company and Pro-Bel for the nine months ended September
30, 1996 and 1995, assuming the acquisition had been made as of
January 1, 1996 and 1995, respectively, are summarized below
(in thousands except per share amounts).
September September
30, 1996 30, 1995
Net Sales $ 67,313 $ 58,533
Net Income $ 5,581 $ 2,589
Earnings
per share $ .06 $ .03
<PAGE>
These pro forma results have been prepared for comparative
purposes only and include adjustments as a result of applying
purchase accounting and conversion to generally accepted
accounting principles in the United States, such as additional
depreciation expense and cost of goods sold due to the step-up
in the basis of fixed assets and inventory, respectively,
goodwill amortization, a decrease in research and development
due to the capitalization of software development costs and
increased interest expense on acquisition debt adjusted for tax
effect. The pro forma financial information is not necessarily
indicative of the operating results that would have occurred if
the acquisition had taken place on the aforementioned dates, or
of future results of operations of the consolidated entities.
4. 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
June 30, 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, if and when exercised, will result in the Company
owning up to a 51% interest in RT-SET.
5. ACCOUNTS AND NOTES RECEIVABLE
Trade accounts and notes receivable are stated net of an
allowance for doubtful accounts of $5,617,000 and $3,134,000 at
September 30, 1996 and December 31, 1995, respectively.
6. INVENTORIES
Inventories consist of the following (in thousands):
September 30, September 30,
1996 1995
Finished goods $8,811 $ 3,345
Work-in-process 7,860 5,250
Raw material 7,452 3,050
$24,123 $11,645
<PAGE>
7. LONG-TERM DEBT
Long term debt consists of the following (in thousands):
September 30, December 31,
1996 1995
Term loan, maturing
April 16, 2000 (a) $7,000 $
Revolving credit facility, maturing
March 28, 1999 (a) 2,730
Revolving credit facility, maturing
April 27, 1997 (b) 4,741
Commercial mortgage term loan, maturing
March 28, 2010 (c) 1,973
Promissory notes, payable on or before
April 15, 1998 (d) 5,349
Trade finance facility, maturing
December 31, 1996 (e) 915
Overdraft facility, maturing
December 31, 1996 (f) 1,726
19,693 4,741
Less amounts due in one year (4,716)
$14,977 $4,741
(a) 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
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 adjusted LIBOR plus 175
basis points or prime (8.25% at September 30, 1996) and is
payable monthly. The term loan is payable in quarterly
installments of $500,000, commencing June 1, 1996. Interest on
the term loan is equal to adjusted LIBOR plus 200 basis points
or prime (8.25% at September 30, 1996) and is payable monthly.
(b) At December 31, 1995, the Company had $4.7 million
outstanding with a financial institution under a secured
revolving credit facility. Interest was payable monthly
at the prime rate (8.5% at December 31, 1995) plus 2% per
annum. The facility was due to expire on April 27, 1997, but
was replaced by the banking facility described in (a) above in
conjunction with the financing of the acquisition of Pro-Bel.
(c) Pro-Bel has a commercial mortgage term loan with a bank.
The loan is secured by a building and property located in the
United Kingdom. Interest is equal to LIBOR (5.98% at September
30, 1996) plus 2%. The loan (including interest) is payable in
quarterly installments of 80,600 pounds sterling.
(d) On April 12, 1996, the Company issued promissory notes to
the shareholders of Pro-Bel for $5.3 million (3.5 million
pounds sterling) in conjunction with the acquisition (See Note
4). The promissory notes are secured by an irrevocable letter
of credit from a bank. The amount of this irrevocable letter
of credit is included as an outstanding borrowing in the
formula used to calculate borrowing availability for the
facilities described in (a) above. Interest through April 15,
1997 is equal to LIBOR as of April 15, 1996 (6.46%) and is
payable quarterly. The notes are due on or before April 15,
1998 and are subordinated to any obligations to a bank or
financial institution currently existing or subsequently
entered into. The notes can be prepaid without interest or
penalty subsequent to November 1, 1996.
(e) On February 1, 1996, Pro-Bel entered into an agreement
with a bank to obtain a trade finance facility of 750,000
sed by $1.9 million, or
130.5%, primarily as a result of the income tax benefit
realized on the 1994 West Coast restructuring. The increase is
also due to increased income before income taxes for the 1996
period.
Liquidity and Capital Resources
On February 1, 1996, Pro-Bel, entered into several agreements
with a bank to obtain borrowing facilities totaling 1.5 million
pounds sterling. One of the facilities is secured by Pro-Bel's
outstanding accounts receivable. These facilities replaced
former bank facilities which had expired, and are used for
working capital.
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.
On April 12, 1996, the Company issued promissory notes to the
shareholders of Pro-Bel for $5.3 million (3.5 million pounds
sterling). The notes are secured by an irrevocable letter of
credit from a bank and limit amounts available under the
revolving credit facility described above. The notes are due
on or before April 15, 1998.
At September 30, 1996, the Company's current ratio was 2.56 to
1 and its working capital was $33,323,000.
At September 30, 1996, the Company had operating lease
commitments for equipment and factory and office space totaling
$12.4 million of which $1.3 million is payable within one year.
<PAGE>
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.
(3) On June 21, 1996, the Company filed a report on Form 8-
K/A, which amended the report of Form 8-K filed on April 26,
1996, to include the financial exhibits which are automatically
granted a 60 day extension for filing, related to the
acquisition of Pro-Bel Limited. This report is incorporated by
reference.
<PAGE>
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)
November 8, 1996 /s/Michael Wellesley-Wesley
(Date) Michael Wellesley-Wesley
Chairman of the Board and
Chief Executive Officer
November 8, 1996 /s/ Patricia Lampe
(Date) Patricia Lampe
Chief Financial Officer
and Treasurer
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<RECEIVABLES> 20,206
<ALLOWANCES> 0
<INVENTORY> 24,123
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<PP&E> 12,766
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0
0
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