Note 8 - Business Combination | 9 Months Ended |
Sep. 30, 2014 |
Business Combinations [Abstract] | ' |
Business Combination Disclosure [Text Block] | ' |
8. BUSINESS COMBINATION AND OTHER ACQUISITIONS |
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On May 22, 2013, Chyron and Hego completed the Business Combination whereby a wholly-owned subsidiary of Chyron acquired all of the issued and outstanding shares of Hego for a total purchase price of $24.6 million. The Company and Hego entered into the Business Combination to create a market leading company in the fields of TV graphics, data visualization and production services for 'Live' and on line news and sports production. |
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The total purchase price of $24.6 million is comprised of 12.2 million shares of the Company's common stock valued at $16.6 million, contingent consideration of shares of the Company's common stock (the "Earn-Out Shares") valued at an estimated $7.5 million and $0.5 million in cash and other consideration. The $7.5 million represents the value of the Earn-Out Shares based on a probability-based model measuring the likelihood of achieving certain revenue milestones as detailed below, and has been recorded as a liability in the balance sheet. In connection with FASB ASC 805, Business Combinations, the fair value of the contingent consideration was established at the date of the Business Combination and included in the total purchase price at fair value. The contingent consideration is then adjusted to the then current fair value as an increase or decrease to earnings in each reporting period. This adjustment has had a material impact on the Company's financial position and results of operations and will continue to impact the Company until all contingencies have been settled. In the three and nine months ended September 30, 2014 charges of $3.8 million and $4.2 million, respectively, have been recorded in order to adjust the contingent consideration to $9.9 million, its current fair value at September 30, 2014, in the level 3 category. Based on the revenue milestones, additional shares are likely to be issued as follows: |
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Revenue milestones | | Additional shares | | | | | |
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$15.5 million in 2013 | | | 2,772,599 | | | | | |
$16.0 million in 2014 | | | 1,584,339 | | | | | |
$16.5 million in 2015 | | | 1,742,775 | | | | | |
Total | | | 6,099,713 | | | | | |
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Or, alternatively, if $33.0 million for 2013 and 2014 combined | | | 6,099,713 | | | | | |
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At December 31, 2013, the 2013 revenue milestone was achieved and 2,772,599 additional shares were issued in March 2014 at a stock price of $2.34 per share. At September 30, 2014, the 2013 and 2014 combined revenue milestone of $33.0 million was achieved and 3,327,114 additional shares were issued in November 2014 at a stock price of $2.88. |
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On April 30, 2014 the Company completed its acquisition of Norway-based Zxy Sport Tracking AS (“Zxy”). Pursuant to the terms of the Share Purchase Agreement with Zxy (the “SPA”), the Company acquired 67% of the issued and outstanding shares of Zxy for a total purchase price of $5.5 million. Pursuant to the terms of the SPA, the Company issued 1,374,545 shares of ChyronHego Common Stock (“Common Stock”) at a value of $3.3 million and issued 549,818 warrants at a value of $0.7 million, based on a Black-Scholes valuation model. The warrants give the holders the right to purchase one share of Common Stock at a price of $2.75 for a three year period from closing. |
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In addition, stockholders of Zxy will be entitled to an earn-out, payable in cash, in an amount equal to 15% of the net revenues from all sales of Zxy products and services from the closing date through December 31, 2018, up to $3.0 million. If and when $3.0 million in such revenues has been achieved, the earn-out rate shall be reduced to 7.5% for the remainder of the earn-out period. The stockholders are entitled to a guaranteed minimum earn-out amount of $110,000 in each of 2014, 2015 and 2016. The earn-out was valued at $1.5 million based on a discounted model measuring the likelihood of achieving certain revenue levels. |
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The following table summarizes the estimated allocation of the purchase price which is preliminary and subject to adjustment following the completion of the valuation process (in thousands): |
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Net fair value of assets acquired | | $ | 628 | | | | | |
Intangible assets | | | 2,600 | | | | | |
Goodwill | | | 3,783 | | | | | |
| | | 7,011 | | | | | |
Deferred tax liability | | | (702 | ) | | | | |
Amounts attributable to minority shareholders | | | (836 | ) | | | | |
| | $ | 5,473 | | | | | |
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The goodwill resulting from the Zxy acquisition reflects a transponder-based sports tracking technology that the Company believes will strengthen its position in the sports analysis market across both the sports broadcast and professional sports markets. The Company believes that this preliminary estimate of goodwill will not be deductible for tax purposes. |
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The components and estimated useful lives of intangible assets acquired are stated below. Amortization is provided on a straight line method over the following estimated useful lives (dollar amounts in thousands): |
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Definite-lived intangibles: | | | | | Estimated Useful Life (in years) | | | |
Proprietary technology | | $ | 2,300 | | 15 | | | |
Tradename | | | 300 | | 15 | | | |
| | $ | 2,600 | | | | | |
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On July 1, 2014, the Company completed its acquisition of Norway based Metaphor AS ("Metaphor") and its wholly owned subsidiaries WeatherOne AS and WeatherOne Limited (collectively referred to as "WeatherOne"). The acquisition of Metaphor and WeatherOne is referred to as the WeatherOne Transaction. |
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In accordance with the share purchase agreement for the acquisition of Metaphor and WeatherOne, the Company issued 1,126,228 shares of Common Stock at a value of $2.4 million, 337,870 warrants at a value of $0.3 million, based on a Black-Scholes valuation model, and $0.6 million in cash. The warrants give the holders the right to purchase one share of Common Stock at a price of $2.78 per share for a three-year period. |
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The following table summarizes the estimated allocation of the purchase price which is preliminary and subject to adjustment following the completion of the valuation process (in thousands): |
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Net fair value of assets acquired | | $ | 1,245 | | | | | |
Intangible assets | | | 900 | | | | | |
Goodwill | | | 1,440 | | | | | |
| | | 3,585 | | | | | |
Deferred tax liability | | | (244 | ) | | | | |
| | $ | 3,341 | | | | | |
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The goodwill resulting from the WeatherOne Transaction reflects a weather forecast solution for broadcast and digital media that the Company believes will strengthen its product offering. The Company believes that this preliminary estimate of goodwill will not be deductible for tax purposes. |
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The components and estimated useful lives of intangible assets acquired are stated below. Amortization is provided on a straight line method over the following estimated useful lives (dollar amounts in thousands): |
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Definite-lived intangibles: | | | | | Estimated Useful Life (in years) | | | |
Proprietary technology | | $ | 400 | | 15 | | | |
Supplier relationships | | | 400 | | 15 | | | |
Tradename | | | 100 | | 15 | | | |
| | $ | 900 | | | | | |
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Below are the unaudited proforma results of operations for the nine months ended September 30, 2014 and 2013 as if the Company had acquired Zxy and WeatherOne on January 1, 2013. Such proforma results are not necessarily indicative of the annual results of operations that would have been achieved if the acquisitions occurred on the date assumed, nor are they necessarily indicative of future consolidated results of operations (in thousands except per share data): |
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| | 2014 | | | 2013 | |
Net revenues | | $ | 44,495 | | | $ | 34,106 | |
Net loss | | | (2,892 | ) | | | (4,430 | ) |
Net loss per share - basic and diluted | | $ | (0.08 | ) | | $ | (0.17 | ) |
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