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 June 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 - 96,771,913 as of
August 1, 1996
This document consists of 14 pages
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(In thousands except per share amounts)
(Unaudited)
1996 1995
Net sales......................... $ 22,532 $ 13,061
Costs and expenses:
Manufacturing .................. 11,131 5,755
Selling, general and
administrative ................. 6,755 4,423
Research and development ....... 1,191 1,057
Management fee.................. 232
Total costs and expenses ......... 19,077 11,467
Operating income ................. 3,455 1,594
Interest expense, net............. 298 124
Income before provision for
income taxes..................... 3,157 1,470
Income taxes/equivalent provision. 1,248 263
Net income........................ $ 1,909 $ 1,207
Earnings per common share......... $ .02 $ .01
Weighted average number of common
and common equivalent shares
outstanding..................... 98,237 90,249
See Notes to Consolidated Financial Statements
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(In thousands except per share amounts)
(Unaudited)
1996 1995
Net sales............................... $ 36,257 $ 24,498
Costs and expenses:
Manufacturing ........................ 17,070 10,830
Selling, general and administrative .. 10,461 8,012
Research and development ............. 2,299 2,037
Management fee........................ 464
Total costs and expenses ............... 29,830 21,343
Operating income ....................... 6,427 3,155
Interest expense, net................... 422 277
Income before provision for income
taxes.................................. 6,005 2,878
Income taxes/equivalent provision....... 2,216 791
Net income.............................. 3,789 2,087
Retained earnings/(accumulated deficit) -
beginning of period................... 1,343 (6,133)
Retained earnings/(accumulated deficit) -
end of period......................... $ 5,132 $ (4,046)
Earnings per common share............... $ .04 $ .02
Weighted average number of common and
commonequivalent shares outstanding... 95,581 90,077
See Notes to Consolidated Financial Statements
ITEM 1. FINANCIAL STATEMENTS
CHYRON CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
(unaudited)
ASSETS
June 30, December 31,
1996 1995
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Current assets:
Cash and cash equivalents................ $ 2,101 $ 5,012
Accounts and notes receivable............ 23,444 13,967
Inventories.............................. 21,762 11,645
Prepaid expenses......................... 1,472 578
Deferred tax asset....................... 6,024 6,457
Total current assets..................... 54,803 37,659
Property and equipment..................... 11,044 3,300
Goodwill................................... 7,985
Investment in RT-SET....................... 2,145
Software development costs................. 1,870 1,716
Deferred tax asset......................... 1,403 1,403
Other assets............................... 2,004 254
TOTAL ASSETS............................... $81,254 $44,332
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.... $18,818 $ 8,120
Management fee payable................... 1,000
Current portion of long-term debt........ 4,431
Other liabilities........................ 629 158
Capital lease obligations................ 291 160
Total current liabilities............. 24,169 9,438
Long-term debt............................. 13,968 4,741
Capital lease obligations.................. 190 170
Total liabilities..................... 38,327 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 -
96,771,913 shares at June 30, 1996,
90,071,394 shares at December 31, 1995... 968 901
Additional paid-in capital............... 36,749 27,739
Retained earnings........................ 5,132 1,343
Cumulative translation adjustment........ 78
Total shareholders' equity.............. 42,927 29,983
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY. $81,254 $44,332
See Notes to the Consolidated Financial Statements
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(In Thousands)
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES 1996 1995
Net income $ 3,789 $ 2,087
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization ....... 1,521 887
Utilization of deferred tax asset.... 485 733
Changes in operating assets and
liabilities:
Accounts and trade notes receivable.. (1,757) (189)
Inventories.......................... (2,702) (632)
Prepaid expenses .................... (726) 322
Accounts payable and accrued expenses. 737 1,212
Management fee payable................ (1,000)
Other liabilities..................... 201 (1,157)
Net cash provided by operating
activities............................. 548 3,263
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions............................. (7,031)
Acquisitions of property and equipment... (972) (515)
Capitalized software development ........ (436) (109)
Cumulative translation adjustment........
Other.................................... (155) 45
Net cash (used in) investing activities.. (8,594) (579)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of capital lease obligations.... (110) (45)
Proceeds from exercise of common stock
purchase warrants, net.................. 239 32
Proceeds from exercise of stock options.. 20
Payments of revolving credit agreement... (5,644) (4,500)
Proceeds from new credit facility, net.. 10,630 4,459
Other.................................... 35
Net cash provided by (used in) financing
activities.............................. 5,135 (19)
Change in cash and cash equivalents...... (2,911) 2,665
Cash and cash equivalents at beginning
of period............................... 5,012 1,555
Cash and cash equivalents at end of
period..................................$ 2,101 $ 4,220
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 of pounds sterling
3.5 million ($5,349,000). See Note 3 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 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 six
months ended June 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 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 manufacturers 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 $8,154,989 million, which has
been accounted for as goodwill and 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 six months ended June
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).
June 30, June 30,
1996 1995
Net Sales $46,251 $34,716
Net Income $ 3,852 $ 2,167
Earnings per share $ .04 $ .02
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 $4,047,000
and $3,134,000 at June 30, 1996 and December 31,
1995, respectively.
6. INVENTORIES
Inventories consist of the following (in thousands):
June 30, December 31,
1996 1995
Finished goods $8,838 $ 3,345
Work-in-process 5,934 5,250
Raw material 6,990 3,050
$21,762 $11,645
7. LONG-TERM DEBT
Long term debt consists of the following (in
thousands):
June 30, December 31,
1996 1995
Term loan, maturing
April 16, 2000 (a) $7,500 $
Revolving credit
facility, maturing
March 28, 1999 (a) 1,230
Revolving credit
facility, maturing
April 27, 1997 (b) 4,741
Commercial mortgage
term loan, maturing
March 28, 2010 (c) 1,964
Promissory notes,
payable on or before
April 15, 1998 (d) 5,349
Trade finance facility,
maturing
December 31, 1996 (e) 956
Overdraft facility,
maturing
December 31, 1996 (f) 1,400
18,399 4,741
Less amounts due
in one year (4,431)
$13,968 $ 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 June 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 June 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 (6 3/16% at June 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 is equal to LIBOR
(6.5% at June 30, 1996) 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 pounds sterling. The facility
is secured by the Company's accounts receivable.
Interest is equal to the bank's base rate plus 2%
(7.75% at June 30, 1996) on advances against
accounts receivable payable in pounds sterling, and
equal to the Barclays Bank PLC currency call loan
rate plus 2% (7.75% at June 30, 1996) on advances
against foreign accounts receivable. Interest is
payable quarterly, in arrears.
(f) On February 1, 1996, Pro-Bel entered into an
agreement with a bank to obtain an overdraft
facility of 750,000 pounds sterling. Interest is
equal to the bank's base rate plus 2.5% (8.25% at
June 30, 1996) and is payable quarterly commencing
in March 1996. The facility has a sublimit for
overdraft on Pro-Bel's wholly owned subsidiary
Trilogy Broadcast Limited of 160,000 pounds
sterling. This facility is payable upon written
demand by the bank and any undrawn portion may be
cancelled by the bank at any time.
Aggregate maturities of long term debt in the next
five years are as follows (in thousands):
1997 $4,431
1998 7,424
1999 3,310
2000 1,585
2010 90
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS
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 JUNE 30, 1996
AND 1995
Sales increased 72.5% to $22.5 million in 1996
mainly as a result of the inclusion of Pro-Bel's
sales for the quarter which contributed to over 50%
of the increase. Chyron's core products, the
Infinit!, Max and Maxine, also contributed to the
sales growth over the prior year.
Gross margin increased to $11.4 million as a result
of the 72.5% increase in sales. Gross margins
decreased to 50.6% in 1996 compared to 55.9% in 1995
primarily as a result of the inclusion of Pro-Bel
products which historically yield lower gross
margins than Chyron products. The Chyron products
gross margin held steady with past periods.
Selling, general and administrative (SG&A) expenses
increased by $2.3 million, or 52.7%, but decreased a
percentage of sales from 33.9% in 1995 to 30.0% in
1996. The increase for the period is due mainly to
the consolidation of Pro-Bels and the additional
depreciation and goodwill amortization as a result
of the application of the purchase accounting method
on the acquired assets. The decrease as a
percentage of sales was primarily due to the
incurrence in 1995 of $443,000 of non-recurring
legal and investment banking fees. The decrease is
also a result of continued cost control instituted
by the Company, offset by increases due to the
increase in sale volume for the period.
Research and development (R&D) expenses increased in
1996 by $134,000, or 12.7%, mainly due to the
inclusion of Pro-Bel's R&D expenditures for the
period. R&D expenses for Chyron exclusive of Pro-
Bel decreased from the same period in the prior year
principally due to more R&D being undertaken
internally versus outside consultants under the
direction of the new V.P. of Strategic Planning and
to an increase in amounts capitalized by $200,000
related to new product development currently
underway.
Net interest expense increased $174,000, or 140.3%,
to the increase in outstanding debt over the same
period in the prior year. In conjunction with the
acquisition of Pro-Bel, the Company entered into
various agreements with a bank, issued promissory
notes to the shareholders of Pro-Bel and assumed
Pro-Bel's existing bank debt.
Income before income taxes improved $1.7 million, or
114.8%, due to the increases in sales volume and
gross margin dollars coupled with cost savings
measures instituted by the Company.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 AND
1995
Sales increased 48%, or $11.7 million, primarily as
a result of the inclusion of Pro-Bel's sales which
contributed to over 30% of the increase in sales.
Sales of Chyron's core products, the Infinit!, Max
and Maxine, also showed continued growth.
Gross margin increased to $19.1 million as a result
of the 48% increase in sales. Gross margins as a
percentage of sales were 52.9% in 1996 compared to
55.8% in 1995. The decrease is caused by the
inclusion of the Pro-Bel product lines which
historically have lower margins. The margin for the
Chyron line of products held steady with prior
periods.
SG&A expenses increased $2.4 million, or 30.6%, for
the period, but decreased as a percentage of sales
from 32.7% in 1995 to 28.9% in 1996. The increase
in SG&A is primarily due to the inclusion of Pro-
Bel's operations for the period and the accounting
for the acquisition under the purchase method
resulting in goodwill amortization and increased
depreciation as well as increased cost as a direct
result of increased sales volume. The decrease as a
percentage of sales is primarily due to the
incurrence in the prior year of $443,000 of one-time
legal and investment banking fees coupled with a
focus on cost control measures by the Company.
These decreases for Chyron were offset by a $116,000
charge in the first quarter of the year related to
the former credit facility held by the Company and
establishment of an overseas sales office.
R&D expenses increased for the 1996 period by
$262,000, or 12.9%, over the prior year. The
increase is primarily due to the inclusion of Pro-
Bel R&D expenditures for the period. R&D related to
Chyron's product lines decreased for the period due
to an increase in amounts capitalized by $242,000
and due to more R&D is being undertaken internally
under the direction of the new V.P. of Strategic
Planning.
Net interest expense increased by $145,000, or
52.3%, for the six month period ended June 30, 1996
over the comparable 1995 period. In conjunction
with the acquisition of Pro-Bel, the Company entered
into various agreements with a bank, issued
promissory notes to the shareholders of Pro-Bel, and
assumed Pro-Bel's existing bank debt.
Income before income taxes improved $3.1 million, or
108.7%, over the prior year due to the contributions
of Pro-Bel's operations coupled with
decreases in SG&A. The increase was also due to the
elimination of the management fee, which was
$464,000 for the six months ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
On February 1, 1996, Pro-Bel, entered into several
agreements with a bank to obtain 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 will be used to
fund capital and operating expenses in conjunction
with the planned expansion of Pro-Bel's business.
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 June 30, 1996, the Company's current ratio was
2.3 to 1 and its working capital was $30,634,000.
At June 30, 1996, the Company had operating lease
commitments for equipment and factory and office
space totaling $11.6 million of which $991,000 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.
(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.
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)
August 14, 1996 /s/Michael Wellesley-Wesley
(Date) Michael Wellesley-Wesley
Chairman of the Board and
Chief Executive Officer
August 14, 1996 /s/ Patricia Lampe
(Date) Patricia Lampe
Chief Financial Officer
and Treasurer