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, 1997
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
incorporation or organization) Identification 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 $.01 Par Value - 32,558,549 as of
May 9, 1997
This document consists of 11 pages
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(In thousands except per share amounts)
(Unaudited)
1997 1996
Net sales........................$ 18,201 $13,725
Cost of products sold............ 10,051 5,939
Gross profit..................... 8,150 7,786
Operating Expenses:
Selling, general and
administrative ................ 7,902 3,705
Research and development ...... 1,512 1,108
Total operating expenses......... 9,414 4,813
Operating (loss)income........... (1,264) 2,973
Interest and other expense, net.. 330 124
(Loss)income before provision
for income taxes............... (1,594) 2,849
Income taxes/equivalent (benefit)
provision....................... (498) 969
Net (loss) income................$ (1,096) $ 1,880
Net(loss) earnings per common
share...........................$ (.03) $ .06
Weighted average number of
common and common equivalent
shares outstanding............. 32,740 31,261
See Notes to the Consolidated Financial Statements
CHYRON CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
(unaudited)
ASSETS
March 31, December 31,
1997 1996
Current assets:
Cash and cash equivalents.........$ 3,697 $ 4,555
Accounts and notes receivable..... 22,550 25,237
Inventories....................... 23,425 23,502
Prepaid expenses.................. 1,541 865
Deferred tax asset................ 6,513 6,015
Other............................. 2,511 2,826
Total current assets............. 60,237 63,000
Property and equipment.............. 12,316 12,701
Excess of purchase price over net
tangible assets acquired.......... 6,638 6,439
Investment in RT-SET................ 2,161 2,161
Software development costs.......... 4,035 2,176
Deferred tax asset.................. 4,911 4,709
Other............................... 240 217
TOTAL ASSETS $90,538 $91,403
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses........................$15,839 $15,828
Current portion of long-term debt. 4,765 5,080
Capital lease obligations......... 200 225
Total current liabilities....... 20,804 21,133
Long-term debt...................... 15,157 15,163
Capital lease obligations........... 80 118
Other............................... 1,023 1,043
Total liabilities................. 37,064 37,457
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 -
32,558,549 shares at March 31, 1997
32,384,635 shares at December 31,
1996.............................. 326 324
Additional paid-in capital......... 43,875 43,124
Retained earnings.................. 8,901 9,997
Cumulative translation adjustment.. 372 501
Total shareholders' equity....... 53,474 53,946
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $90,538 $91,403
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)
CASH FLOWS FROM OPERATING ACTIVITIES 1997 1996
Net (loss)/income................... $(1,096) $ 1,880
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Depreciation and amortization ... 811 582
(Recognition) utilization of
deferred tax asset............... (662) 199
Changes in operating assets and
liabilities:
Accounts and trade notes receivable 2,493 812
Inventories....................... (345) (479)
Prepaid expenses ................. (681) (308)
Other............................. 252
Accounts payable and accrued
expenses ......................... 294 1,739
Management fee payable............ (1,000)
Reserve for West Coast
restructuring.................... (20)
Net cash provided by operating
activities....................... 1,066 3,405
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Axis Holdings
Incorporated...................... (368)
Acquisitions of property and equipment (326) (617)
Capitalized software development ... (331) (87)
Other............................... 35
Net cash (used in) investing
activities........................ (1,025) (669)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of capital lease
obligations....................... (60)
Proceeds from exercise of common
stock purchase warrants, net...... (60)
Proceeds from exercise of stock
options........................... 239
Borrowings from revolving credit
agreement......................... 2,403
Payment of term loan................ (500) (1,500)
Payments of revolving credit
agreements, net................... (335) (5,644)
Proceeds from new credit facility,
net............................... 5,644
Net cash (used in) provided by
financing activities.............. (895) 1,082
Effect of foreign currency rate
fluctuations on cash and cash
equivalents....................... (4)
Change in cash and cash equivalents. (858) 3,818
Cash and cash equivalents at
beginning of period................ 4,555 5,012
Cash and cash equivalents at end of
period............................. $ 3,697 $ 8,830
Noncash investing and financing activities:
On March 31, 1997, the Company acquired 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 Note 2 for further discussion.
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, 1996.
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, 1997 are not
necessarily indicative of the results that may be
expected for the year ending December 31, 1997.
2. INVESTMENT IN AXIS HOLDINGS INCORPORATED
On March 31, 1997, the Company acquired 100% of the
capital stock of Axis Holdings Incorporated ("Axis")
located in Los Angeles, California. Axis develops
software in professional video and audio tools created
specifically for use on the Microsoft Windows NT
Operating System. The purchase consisted of $368,000 in
cash paid and professional fees, $667,000 in notes and
173,913 restricted shares of Chyron common stock valued
at $750,000.
As stated in the purchase agreement the principal portion
of the note is to be paid in two successive annual
installments. Installment payment amounts are contingent
upon Axis achieving certain revenue targets. Installments
of $350,000 and $317,000 are due on March 31, 1998 and
March 31, 1999, respectively, provided that the targeted
shipments of the primary product associated with the Axis
division are realized on or before March 15, 1998. If
the Company does not achieve its target the installment
payment will be $250,000 and $417,000 due on March 31,
1998 and March 31, 1999, respectively. Interest is to be
paid at the rate of 6% per year and is due with the
annual installments.
Additionally, payments equal to 20% of cumulative net
profits on the Axis product line, in excess of $1
million, will be payable to the sellers. The period for
the calculation of cumulative net profits is March 31,
1997 through December 31, 1999. Payments due for each
year will be made on or before April 30, of the next
succeeding year.
The acquisition was accounted for as a purchase in
accordance with APB 16. Accordingly, the costs of the
acquisition were allocated to the net assets acquired
based on their estimated fair values. The majority of
the purchase price was capitalized as software
development costs and will be amortized over the
estimated economic life of the products, commencing when
each product is available for general release.
3. RESTATEMENT AND RECLASSIFICATION
On January 24, 1997, the Company's shareholders ratified
a one-for-three reverse stock split. Net income (loss)
per share, weighted average number of common and common
equivalent shares outstanding, common stock issued and
outstanding, additional paid-in-capital and all other
common stock transactions presented in these consolidated
financial statements have been restated to reflect the
one-for-three reverse stock split. In addition, certain
prior year amounts have been reclassified to conform to
current year presentation.
4. 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
$7,276,000, 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. Actual unaudited consolidated
operating results for the three months ended March 31,
1997 and proforma unaudited consolidated operating
results for the three months ended March 31, 1996
assuming the acquisition had been made as of January 1,
1996, respectively, are summarized below (in thousands
except per share amounts).
Actual Proforma
March 31, March 31,
1997 1996
Net sales $18,201 $24,091
Net (loss) income $(1,096) $ 2,318
(Loss) earnings per share $ (.03) $ .07
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 date, or of future results of
operations of the consolidated entities.
5. ACCOUNTS AND NOTES RECEIVABLE
Trade accounts and notes receivable are stated net of an
allowance for doubtful accounts of $2,738,000 and
$2,850,000 at March 31, 1997 and December 31, 1996,
respectively.
6. INVENTORIES
Inventories consist of the following (in thousands):
March 31, December 31,
1997 1996
Finished goods $10,299 $12,879
Work-in-process 5,493 5,271
Raw material 7,633 5,352
$23,425 $23,502
7. NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards
Board ("FASB") issued Statement on Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share." This
accounting standard is effective for financial statements
issued for fiscal years beginning after December 15, 1997
and requires restatement of all prior-period earnings per
share data presented. Adoption of SFAS 128 will not have
a material impact on the calculation of earnings per
share for the periods presented.
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 March 31, 1997 and
1996
Sales for the quarter ended March 31, 1997 increased to
$18.2 million, an increase of $4.5 million, or 32.7%,
over the $13.7 million reported for the first quarter of
1996. This increase was attributable to the inclusion of
the Company's subsidiary, Pro-Bel, which was acquired
April 12, 1996. Chyron sales showed an increase in the
Max, Maxine, and Codi lines, and a decrease in the
iNFiNiT product line for the quarter ended 1997 versus
1996. Overall sales for Chyron declined by over 20%.
Gross profit increased to $8.1 million for the quarter
ended March 31, 1997. The increase of $364,000, or 4.7%,
over the $7.8 million reported for the first quarter of
1996 was attributable to the increase in sales for the
first quarter of 1997. Gross margins as a percentage of
sales decreased to 44.8% in 1997 versus 56.7% in 1996
mainly as a result of the change in the product mix and
the decrease in the volume of Chyron graphics sales. The
inclusion of Pro-Bel products, which historically have
had lower gross margins than Chyron's historic gross
margins, also contributed to the decrease in gross margin
as compared to the prior year.
Selling, general and administrative (SG&A) expenses
increased by $4.2 million, or 113%, to $7.9 million
compared to $3.7 million for the first quarter of 1996.
The increase for the period is due mainly to the
consolidation of Pro-Bel and the additional depreciation
and goodwill amortization as a result of the application
of the purchase accounting method on the acquired assets.
In addition, the Company expensed $675,000 of non
recurring costs attributable to a planned secondary
offering of the Company's common stock, which was
terminated by the Company due to the market valuation of
the stock.
Research and development (R&D) expenses increased for the
first quarter 1997 compared to 1996 by $403,000, or
36.4%. This increase is mainly attributable to the
acquisition of Pro-Bel. R&D exclusive of Pro-Bel
declined for the period by $114,000 mainly due to a
decrease in net amortization of capitalized software.
Other expenses, which include interest income and expense
and transaction gains and losses, increased to $206,000,
or 166%, compared to $124,000 for the first quarter of
1996. This increase is mainly a result of acquired debt
related to the purchase of Pro-Bel. The purchase
required the Company to enter into various agreements
with a bank, issue promissory notes to the shareholders
of Pro-Bel and assume Pro-Bel's existing bank debt. This
increase was offset by a transaction gain recognized on
foreign currency items of approximately $60,000 for the
first quarter of 1997.
The Company incurred a loss before income taxes of $1.6
million compared to income of $2.8 million for the same
period in the prior year. This loss was attributable
mainly to the decrease in sales of Chyron graphics
products and the gross margin erosion as a result of the
product mix coupled with increases in SG&A for the
period, which included $675,000 of non-recurring costs
attributable to a planned secondary offering as discussed
above. Increases in other expenses for the period also
contributed to the decrease in income before taxes over
the prior year period.
The Company recognized a $498,000 tax benefit for the
first quarter of 1997 compared to income taxes of
$969,000 for 1996. The tax benefit is primarily
attributable to the loss of $1.6 million before taxes for
1997 versus income of $2.8 million before taxes for 1996.
Liquidity and Capital Resources
On January 1, 1997, Pro-Bel entered into an agreement
with Barclays Bank PLC to obtain borrowing facilities
totaling 3.0 million pounds sterling ($4,920,000
converted at the March 31, 1997 exchange rate). The
facility is payable on demand and matures December 31,
1997. This facility replaced former bank facilities
which expired on December 31, 1996.
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.
On April 12, 1996, the Company issued promissory notes to
the shareholders of Pro-Bel for 3.5 million pounds
sterling ($5.7 million converted at the March 31, 1997
exchange rate). The notes are secured by an irrevocable
letter of credit form a bank and limits amounts available
under the revolving credit facility described above. The
notes are due on or before April 15, 1998.
On March 31, 1997, the Company issued promissory notes to
the shareholders of Axis for $667,000. The notes are
payable in two annual installments beginning March 31,
1998.
At March 31, 1997, the Company's current ratio was 2.89
to 1 and its working capital was $39,433,000.
At March 31, 1997, the Company had operating lease
commitments for equipment, factory and office space
totaling $12,176,100 of which $976,051 is payable within
one year.
PART II. OTHER INFORMATION
ITEMS 1., 2., 3. Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
On January 24, 1997, at a special meeting of
shareholders, the Company's shareholders' ratified a one-
for-three reverse stock split of its common stock which
was effective February 10, 1997. 77,162,761 shares were
voted for the proposal, 2,876,490 shares were voted
against the proposal, and 169,212 shares abstained.
ITEM 5., 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 12, 1997 /s/Michael Wellesley-Wesley
(Date) Michael Wellesley-Wesley
Chairman of the Board and
Chief Executive Officer
May 12, 1997 /s/ Patricia Lampe
(Date) Patricia Lampe
Chief Financial Officer
and Treasurer