FORM 10-Q
U.S. 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, 1998 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 Number)
incorporation or organization)
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
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 - 32,605,706 as of
May 8, 1998
This document consists of 12 pages
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(In thousands except per share amounts)
(Unaudited)
1998 1997
Net sales....................$21,525 $18,201
Cost of products sold.. ..... 10,803 10,051
Gross profit................. 10,722 8,150
Operating Expenses:
Selling, general and
administrative ............ 7,718 7,902
Research and development .. 2,510 1,512
Total operating expenses..... 10,228 9,414
Operating income (loss)...... 494 (1,264)
Interest and other expense,
net........................ 359 330
Income (loss) before provision
for income taxes........... 135 (1,594)
Income taxes/equivalent
provision (benefit)........ 101 (498)
Net income (loss)............$ 34 $(1,096)
Net income (loss) per
common share...............
Basic......................$ 0 $ ($.03)
Diluted......................$ 0 $ ($.03)
Weighted average shares used
in computing net income
(loss) per common share:
Basic...................... 32,606 32,387
Diluted...................... 32,606 32,740
See Notes to the Consolidated Financial Statements
CHYRON CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
(Unaudited)
ASSETS
March 31, December 31,
1998 1997
Current assets:
Cash and cash equivalents... $ 2,622 $ 2,968
Accounts and notes receivable. 19,258 21,125
Inventories................... 24,477 26,540
Prepaid expenses.............. 2,422 1,897
Deferred tax asset............ 4,458 4,301
Other......................... 342 283
Total current assets........ 53,579 57,114
Property and equipment.......... 13,239 12,373
Excess of purchase price over
net tangible assets acquired... 6,628 6,779
Investment in RT-SET............ 2,161 2,161
Software development costs...... 5,692 5,224
Deferred tax asset.............. 7,070 7,070
Other........................... 3,364 3,359
TOTAL ASSETS $91,733 $94,080
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses................... $13,005 $15,491
Current portion of long-term
debt ...................... 2,489 2,318
Capital lease obligations.... 513 350
Total current liabilities.. 16,007 18,159
Long-term debt................. 17,400 17,774
Capital lease obligations...... 36 317
Accrued pension expense......... 2,144 2,007
Other........................... 1,892 1,861
Total liabilities............. 37,479 40,118
Commitments and contingencies
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 -
32,605,706 shares at March 31, 1998
and December 31, 1997......... 326 326
Additional paid-in capital..... 44,016 44,016
Retained earnings.............. 9,271 9,237
Cumulative translation
adjustment.................... 641 383
Total shareholders' equity... 54,254 53,962
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY............$91,733 $94,080
See Notes to the Consolidated Financial Statements
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,1997 AND 1996
(In Thousands)
(Unaudited)
Three Months Ended
March 31,
CASH FLOWS FROM OPERATING ACTIVITIES 1998 1997
Net income/(loss)................. $ 34 $(1,096)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization..... 920 811
(Provision)/benefit of deferred
income taxes.................... (157) (662)
Changes in operating assets
and liabilities:
Accounts and trade notes
receivable...................... 2,183 2,493
Inventories..................... 1,669 (345)
Prepaid expenses ............... (496) (681)
Other assets.................... (62) 252
Accounts payable and accrued
expenses ..................... (2,765) 294
Other liabilities............... 168
Net cash provided by operating
activities..................... 1,494 1,066
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Axis Holdings
Incorporated..................... (368)
Acquisitions of property and
equipment........................ (551) (326)
Capitalized software development .. (763) (331)
Net cash used in investing
activities....................... (1,314) (1,025)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of term loan............... (500) (500)
Borrowings from (payment of)
revolving credit agreement, net... 115 (335)
Payments of capital lease
obligations...................... (136) (60)
Net cash used in financing
activities....................... (521) (895)
Effect of foreign currency rate
fluctuations on cash and cash
equivalents....................... (5) (4)
Change in cash and cash
equivalents..................... (346) (858)
Cash and cash equivalents at
beginning of year................ 2,968 4,555
Cash and cash equivalents at
end of period.................... $2,622 $3,697
Non-cash investing and financing activities:
On March 31, 1997, the Company acquired all the issued
and outstanding shares of Axis Holdings Incorporated.
The consideration, in addition to cash paid included the
issuance of 173,913 shares of Chyron Corporation common
stock valued at $750,000 and notes payable of $667,000.
See Notes to Consolidated Financial Statements
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, 1997.
In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered
necessary for a fair presentation have been included.
Operating results for the three months ended March 31,
1998 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998.
2. REVENUE RECOGNITION
In the first quarter of 1998, the Company adopted
Statement of Position SOP 97-2, "Software Revenue
Recognition." The adoption of 97-2 did not have a
material affect on the results of operations in the
first quarter of 1998.
3. RESTATEMENT AND RECLASSIFICATION
In 1997, the Financial Accounting Standards Board
issued Statement No. 128 "Earnings per Share", which
was effective for the year ended December 31, 1997.
Accordingly, all prior period amounts have been
restated to reflect this new statement. In addition,
certain prior year amounts have been reclassified to
conform to current year presentation.
4. ACCOUNTS AND NOTES RECEIVABLE
Trade accounts and notes receivable are stated net of
an allowance for doubtful accounts of $3,154,000 and
$3,124,000 at March 31, 1998 and December 31, 1997,
respectively.
5. INVENTORIES
Inventories consist of the following (in thousands):
March 31, December 31,
1998 1997
Finished goods $13,101 $12,346
Work-in-process 7,891 9,303
Raw material 3,485 4,891
$24,477 $26,540
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS
From time to time, including in this Quarterly Report
on Form 10-Q, the Company may publish forward-looking
statements relating to such matters as anticipated
financial performance, business prospects,
technological developments, changes in the industry,
new products, research and development activities and
similar matters. The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for such
forward-looking statements. In order to comply with
the terms of the safe harbor, the Company notes that a
variety of factors could cause the Company's actual
results to differ from the anticipate results or other
expectations expressed in the Company's forward-looking
statements. The risks and uncertainties that may
affect the operations, performance, development and
results of the company's business include, without
limitation, the following: product concentration in a
mature market, dependence on the emerging digital
market and the industry's transition to DTV and HDTV,
rapid technological changes, highly competitive
environment, new product introductions, seasonality,
fluctuations in quarterly operating results, expansion
into new markets and the Company's ability to implement
successfully its acquisition and alliance strategy.
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, 1998 and
1997
Sales for the quarter ended March 31, 1998 were $21.5
million, an increase of $3.3 million, or 18.3%, over
the $18.2 million reported for the first quarter of
1997. This increase was a result of increases in sales
of the Company's Pro-Bel product line which showed an
over 500% growth domestically and 9% growth
internationally for the comparable periods. Chyron
sales showed a modest increase over the prior year.
Gross profit increased to $10.7 million for the quarter
ended March 31, 1998. The increase of $2.6 million, or
31.6%, over the $8.2 million reported for the first
quarter of 1997 was attributable in part to the
increase in sales for the first quarter of 1998. Gross
margins as a percentage of sales increased to 49.8% in
1998 versus 44.9% in 1997 mainly as a result of the
change in the product mix. Chyron sales, although
showing only slight increases for the comparative
periods, included more volume of the high end iNFiNit
graphic system and software products for the first
quarter of 1998. Additionally, Pro-Bel sales included
an increased level of software product for 1998 as
compared to the prior year. Both of these items led to
increased gross profit for the first quarter of 1998.
Selling, general and administrative (SG&A) expenses
decreased by $183,000 or 2.3%, to $7.7 million compared
to $7.9 million for the first quarter of 1997. Slight
increases were incurred at both Chyron and Pro-Bel
which are a direct result of the increases in sales
volume. Additional increases were incurred due to
sales and marketing efforts for the Company's new
"Concerto" product line. These increases were offset
by the inclusion in the prior year amount of $675,000
of non-recurring costs attributable to the termination
of the planned secondary offering of the Company's
common stock. Exclusive of this non-recurring charge,
SG&A as a percentage of sales remained relatively
consistent for the comparable periods.
Research and development (R&D) costs increased during
the first quarter 1998 compared to the same period in
1997 by $1.4 million. Increases were incurred at both
Chyron and Pro-Bel as the Company has focused its
attention on new product development to address a
recent FCC ruling requiring broadcasters to utilize
digital advanced television transmission beginning in
1998. Additional increases were incurred related to
the continued development of the "Concerto" product
line. These increases were offset by net capitalized
software costs which increased $383,000 for the three
months ended March 31, 1998 versus the same period in
1997.
The Company showed income before income taxes of
$135,000 compared to a loss of $1.6 million for the
same period in the prior year. This income was a
direct result of increased sales and gross profit for
the first quarter of 1998 versus the comparable period
in 1997, offset by increases in R&D expenses described
above.
The Company provided for income taxes in the amount of
$101,000 for the first quarter of 1998 compared to a
tax benefit of $498,000 for 1997. The income taxes are
primarily attributable to the income of $135,000 before
taxes for 1998 versus loss of $1.6 million before taxes
for 1997.
Liquidity and Capital Resources
At March 31, 1998, the Company had cash on hand of $2.6
million and working capital of $37.6 million.
In connection with the acquisition of Axis, the Company
issued promissory notes to the shareholders of Axis for
$667,000. The amount of installment payments was
contingent upon the Axis division realizing certain
revenue targets. $250,000 of such notes was paid from
Chyron's operating cash flow on March 31, 1998, with
the remaining $417,000 being due on March 31, 1999.
The Company's promissory notes to the former
shareholders of Pro-Bel for 3.5 million pounds sterling
($5.9 million, converted at March 31, 1998 exchange
rate) were paid on April 15, 1998. The funds to pay
the notes were drawn from the Company's facility with
Fleet Bank described below.
On March 28, 1996 and April 16, 1996, the Company
entered into agreements with Fleet Bank (formerly
NatWest Bank) to obtain a revolving credit facility of
$10.0 million and a term loan of $8.0 million,
respectively. The entire facility is secured by
certain of the Company's assets. Borrowings are
limited to amounts computed under a formula for
eligible accounts receivable and inventory. Interest
on the revolving credit facility is equal to adjusted
LIBOR plus 175 basis points or prime (8.50% at March
31, 1998) 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
and is payable monthly. At December 31,1997, the
Company did not comply with certain financial covenants
and, accordingly, had obtained waivers for periods up
to and including March 30, 1998 and amendments with
respect to such covenants from its lender for periods
up to and including April 16, 2000, the maturity date
of the term loan. Currently management is negotiating
an increase in the revolving credit facility with the
Bank. The revolving credit facility is scheduled to
expire on March 28, 1999. Management intends to renew
such facility prior to the expiration date.
Pro-Bel has a commercial mortgage term loan with
Barclay's Bank Plc. ("Barclays"). The loan is secured
by a building and property located in the United
Kingdom. Interest is equal to LIBOR plus 2% (9.63% at
March 31, 1998). The loan (including interest) is
payable in quarterly installments of 80,600 pounds
sterling ($137,000 converted at the March 31, 1998
exchange rate).
On January 13, 1998, Pro-Bel entered into an agreement
with Barclays whereby Barclays agreed to provide an
overdraft facility of up to 4.0 million pounds sterling
($6,780,000 converted at the March 31, 1998 exchange
rate) through December 31, 1998 to Pro-Bel, and its
subsidiaries. The overdraft facility provides for
interest at 1.5% per annum over the bank's base rate
(8.75% at March 31, 1998). Interest is payable
quarterly in arrears. This facility replaces the
overdraft facility of up to 3.0 million pounds sterling
in place at December 31, 1997. All monies under the
facility are repayable upon written demand. Management
intends to renew this facility on or about December 31,
1998. Total borrowings are limited to amounts computed
under multiple formulas of eligible accounts receivable
and inventory.
On December 20, 1996, Pro-Bel entered into an agreement
with a bank to obtain an overdraft facility of up to
3.0 million pounds sterling through December 31, 1997,
subsequently extended to January 12, 1998 ($4,943,000
converted at the December 31, 1997 exchange rate).
Total borrowings were limited to amounts computed under
a formula for eligible accounts receivable. Interest
was equal to the bank's base rate plus 1.5% (8.75% at
December 31, 1997) and was payable in arrears. The
facility was payable upon written demand by the bank
and any undrawn portion was cancellable by the bank at
any time. This facility was replaced by the facility
with Barclays, described above, dated January 13, 1998.
At March 31, 1998, the Company had operating and
capital lease commitments totaling $12.9 million and
$.7 million, respectively, of which $1.2 million and
$.4 million, respectively, is payable within one year.
Such lease commitments were for equipment, factory and
office space and are expected to be paid out of
operating cash flows of the Company.
The Year 2000
The Company has taken actions to make its system
products and infrastructure year 2000 compliant. The
current budget includes an allocation of $400,000 for a
new integrated information system at Pro-Bel.
Management believes based on available information that
aside from the amounts described above, additional year
2000 issues are immaterial and that the Company will be
able to handle the year 2000 transition, without any
material adverse effects on its business operations,
products or financial prospects.
PART II. OTHER INFORMATION
ITEMS 1., 2., 3., 4. Not applicable.
ITEM 5. Other Information
The Company from time to time is involved in routine
legal matters incidental to its business. In the
opinion of management, the ultimate resolution of such
matters will not have a material adverse effect on the
Company's financial position, results of operations or
liquidity.
ITEM 6. Not applicable.
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 11, 1998 /s/ Edward Grebow
(Date) Edward Grebow
President and
Chief Executive Officer
May 11, 1998 /s/ Patricia Lampe
(Date) Patricia Lampe
Chief Financial Officer
and Treasurer
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