UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q



QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

|For the Quarterly Period Ended September 30, 2004     
|------------------------------------------------------
|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 incorporation or organization) |  | (IRS Employer Identification No.)
|5 Hub Drive, Melville, New York                                |  | 11747                            
|(Address of principal executive offices)                       |  | (Zip Code)                       
|(631) 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).



|Yes |  | No | X | 
|--- |  | -- | - | 



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 - 40,783,934 as of October 31, 2004



This document consists of 20 pages



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CHYRON CORPORATION







INDEX







|PART I  | FINANCIAL INFORMATION                                                | Page
|------- | -------------------------------------------------------------------- | ----
|        |                                                                      |     
|Item 1. | Financial Statements                                                 |     
|        | Consolidated Balance Sheets as of September 30, 2004 (unaudited) and |     
|        | December 31, 2003                                                    | 3   
|        |                                                                      |     
|        | Consolidated Statements of Operations and Comprehensive              |     
|        | Income (Loss) (unaudited) for the Three Months ended                 |     
|        | September 30, 2004 and 2003                                          | 4   
|        |                                                                      |     
|        | Consolidated Statements of Operations and Comprehensive              |     
|        | Income (Loss) (unaudited) for the Nine Months ended                  |     
|        | September 30, 2004 and 2003                                          | 5   
|        |                                                                      |     
|        | Consolidated Statements of Cash Flows (unaudited) for the Nine       |     
|        | Months ended September 30, 2004 and 2003                             | 6   
|        |                                                                      |     
|        | Notes to Consolidated Financial Statements (unaudited)               | 7   
|        |                                                                      |     
|Item 2. | Management's Discussion and Analysis of Financial Condition          |     
|        | and Results of Operations                                            | 12  
|        |                                                                      |     
|Item 3. | Quantitative and Qualitative Disclosure About Market Risk            | 18  
|        |                                                                      |     
|Item 4. | Controls and Procedures                                              | 19  
|        |                                                                      |     
|PART II | OTHER INFORMATION                                                    |     
|        |                                                                      |     
|Item 1. | Legal Proceedings                                                    | 19  
|        |                                                                      |     
|Item 6. | Exhibits and Reports on Form 8-K                                     | 19  
|        |                                                                      |     

2

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CHYRON CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)

|                                                               | Unaudited     |             
|-------------------------------------------------------------- | ------------- | ------------
|                                                               | September 30, | December 31,
|ASSETS                                                         | 2004          | 2003        
|Current assets:                                                |               |             
|Cash and cash equivalents                                      | $1,975        | $6,968      
|Accounts receivable, net                                       | 4,199         | 3,454       
|Inventories, net                                               | 3,002         | 1,714       
|Marketable securities                                          | -             | 288         
|Prepaid expenses and other current assets                      | 735           | 667         
|Total current assets                                           | 9,911         | 13,091      
|                                                               |               |             
|Property and equipment, net                                    | 710           | 630         
|Other assets                                                   | 128           | 454         
|TOTAL ASSETS                                                   | $10,749       | $14,175     
|                                                               |               |             
|LIABILITIES AND SHAREHOLDERS' DEFICIT                          |               |             
|                                                               |               |             
|Current liabilities:                                           |               |             
|Accounts payable and accrued expenses                          | $3,886        | $3,674      
|Deferred revenue                                               | 995           | 806         
|Pension liability                                              | 347           | 643         
|Capital lease obligations                                      | 4             | 11          
|Total current liabilities                                      | 5,232         | 5,134       
|                                                               |               |             
|Convertible debentures                                         | 5,153         | 8,677       
|Pension liability                                              | 1,679         | 1,712       
|Other liabilities                                              | 233           | 233         
|Total liabilities                                              | 12,297        | 15,756      
|                                                               |               |             
|Commitments and contingencies                                  |               |             
|                                                               |               |             
|Shareholders' deficit:                                         |               |             
|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 -  40,783,934 at September 30, 2004 and |               |             
|40,687,466 at December 31, 2003                                | 408           | 407         
|Additional paid-in capital                                     | 71,838        | 71,795      
|Accumulated deficit                                            | (73,798)      | (74,006)    
|Accumulated other comprehensive income                         | 4             | 223         
|Total shareholders' deficit                                    | (1,548)       | (1,581)     
|TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT                    | $10,749       | $14,175     







See Notes to Consolidated Financial Statements

3

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CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS 
AND COMPREHENSIVE INCOME (LOSS)
THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(In thousands, except per share amounts)

(Unaudited)

|                                                        | 2004    | 2003    
|------------------------------------------------------- | ------- | --------
|Net revenue:                                            |         |         
|Product revenues                                        | $5,548  | $2,837  
|Services                                                | 744     | 891     
|Total net revenue                                       | 6,292   | 3,728   
|                                                        |         |         
|Cost of sales                                           | 2,504   | 1,722   
|                                                        |         |         
|Gross profit                                            | 3,788   | 2,006   
|                                                        |         |         
|Operating expenses:                                     |         |         
|Selling, general and administrative                     | 2,634   | 1,672   
|Research and development                                | 820     | 661     
|                                                        |         |         
|Total operating expenses                                | 3,454   | 2,333   
|                                                        |         |         
|Operating profit (loss)                                 | 334     | (327)   
|                                                        |         |         
|Interest expense                                        | 98      | 527     
|Interest income                                         | (3)     | (3)     
|Other (income) expense, net                             | (87)    | 614     
|                                                        |         |         
|Income (loss) from continuing operations                | 326     | (1,465) 
|                                                        |         |         
|Loss from discontinued operations                       | -       | (707)   
|                                                        |         |         
|Net income (loss)                                       | $ 326   | $(2,172)
|                                                        |         |         
|Net income (loss) per common share - basic and diluted: |         |         
|Continuing operations                                   | $  0.01 | $(0.04) 
|Discontinued operations                                 | -       | (0.01)  
|                                                        | $  0.01 | $(0.05) 
|                                                        |         |         
|Weighted average shares outstanding:                    |         |         
|Basic                                                   | 40,782  | 39,720  
|Diluted                                                 | 41,519  | 39,720  
|                                                        |         |         
|Comprehensive income (loss):                            |         |         
|Net income (loss)                                       | $  326  | $(2,172)
|Other comprehensive income:                             |         |         
|Foreign currency translation gain                       | 2       | 3       
|Unrealized gain on securities available for sale        | -       | 156     
|                                                        |         |         
|Total comprehensive income (loss)                       | $ 328   | $(2,013)



See Notes to Consolidated Financial Statements

4

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CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(In thousands, except per share amounts)
(Unaudited)

|                                                        | 2004    | 2003    
|------------------------------------------------------- | ------- | --------
|Net revenue:                                            |         |         
|Product revenues                                        | $14,612 | $11,233 
|Services                                                | 2,292   | 2,784   
|Total net revenue                                       | 16,904  | 14,017  
|                                                        |         |         
|Cost of sales                                           | 6,604   | 6,265   
|                                                        |         |         
|Gross profit                                            | 10,300  | 7,752   
|                                                        |         |         
|Operating expenses:                                     |         |         
|Selling, general and administrative                     | 7,568   | 5,310   
|Research and development                                | 2,564   | 1,882   
|                                                        |         |         
|Total operating expenses                                | 10,132  | 7,192   
|                                                        |         |         
|Operating income                                        | 168     | 560     
|                                                        |         |         
|Interest expense                                        | 343     | 1,541   
|Interest income                                         | (39)    | (10)    
|Other (income) expense, net                             | (344)   | 806     
|                                                        |         |         
|Income (loss) from continuing operations                | 208     | (1,777) 
|                                                        |         |         
|Loss from discontinued operations                       | -       | (725)   
|                                                        |         |         
|Net income (loss)                                       | $ 208   | $(2,502)
|                                                        |         |         
|Net income (loss) per common share - basic and diluted: |         |         
|Continuing operations                                   | $0.01   | $(0.04) 
|Discontinued operations                                 | -       | (0.02)  
|                                                        | $0.01   | $(0.06) 
|                                                        |         |         
|Weighted average shares outstanding:                    |         |         
|Basic                                                   | 40,751  | 39,650  
|Diluted                                                 | 41,535  | 39,650  
|                                                        |         |         
|Comprehensive loss:                                     |         |         
|Net income (loss)                                       | $  208  | $(2,502)
|Other comprehensive income (loss):                      |         |         
|Foreign currency translation gain                       | 4       | 99      
|Unrealized (loss) gain on securities available for sale | (223)   | 209     
|                                                        |         |         
|Total comprehensive loss                                | $ (11)  | $(2,194)





See Notes to Consolidated Financial Statements

5

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CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(In thousands)
(Unaudited)

|                                                               | 2004    | 2003    
|-------------------------------------------------------------- | ------- | --------
|CASH FLOWS FROM OPERATING ACTIVITIES                           |         |         
|Net income (loss)                                              | $  208  | $(2,502)
|Adjustments to reconcile net income (loss) to cash (used in)   |         |         
|provided by operating activities:                              |         |         
|Loss from discontinued operations, net                         | -       | 725     
|Depreciation and amortization                                  | 229     | 500     
|Non-cash settlement of interest liability                      | 235     | 1,100   
|Amortization of debt issue costs                               | 98      | 291     
|Gain on sale of securities                                     | (224)   | -       
|Other                                                          | 54      | 835     
|Changes in operating assets and liabilities, net of effects of |         |         
|disposition:                                                   |         |         
|Accounts receivable                                            | (745)   | 1,890   
|Inventories                                                    | (1,338) | 724     
|Prepaid expenses and other assets                              | (223)   | (523)   
|Accounts payable and accrued expenses                          | 445     | (1,061) 
|Other liabilities                                              | (328)   | 151     
|Net cash (used in) provided by operating activities            | (1,589) | 2,130   
|                                                               |         |         
|CASH FLOWS FROM INVESTING ACTIVITIES                           |         |         
|Acquisitions of property and equipment                         | (309)   | (137)   
|Receipt of escrow proceeds from sale of Pro-Bel                | 415     | -       
|Proceeds from sale of securities                               | 289     | -       
|Net cash provided by (used in) investing activities            | 395     | (137)   
|                                                               |         |         
|CASH FLOWS FROM FINANCING ACTIVITIES                           |         |         
|Payments of term loan                                          | (3,792) | (1,350) 
|Payments on revolving credit agreements, net                   | -       | (1,375) 
|Payments of capital lease obligations                          | (7)     | (12)    
|Net cash used in financing activities                          | (3,799) | (2,737) 
|                                                               |         |         
|Net cash provided by discontinued operations                   | -       | 560     
|                                                               |         |         
|Change in cash and cash equivalents                            | (4,993) | (184)   
|Cash and cash equivalents at beginning of period               | 6,968   | 1,217   
|Cash and cash equivalents at end of period                     | $1,975  | $1,033  





See Notes to Consolidated Financial Statements

6

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





1. BASIS OF PRESENTATION



General



In the opinion of management of Chyron Corporation (the "Company" or "Chyron"), the accompanying unaudited consolidated interim financial statements reflect all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of September 30, 2004 and the consolidated results of its operations and its cash flows for the periods ended September 30, 2004 and 2003.  The results of operations for such interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. In addition, management is required to make estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Also, during interim periods, certain costs and expenses are allocated among periods based on an estimate of time expired, benefit received, or other activity associated with the periods. Accordingly, actual results could differ from those estimates. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2003.  The December 31, 2003 figures included herein were derived from such audited consolidated financial statements.  Certain reclassifications have been made to the 2003 financial statements to conform to the 2004 method of presentation.



Nature of Business



On November 6, 2003 we sold all of the stock of our wholly-owned subsidiary Chyron UK Holdings Limited, including the operating subsidiary Pro-Bel Limited. In effect, this eliminated the entire operations of the Signal Distribution and Automation segment and only the Graphics business remains. The 2003 Statements of Operations and Cash Flows have been restated to reflect this segment as a discontinued operation. For the nine month period ended September 30, 2003, revenues and the net loss attributable to the Signal Distribution and Automation segment were $15.5 million and $0.7 million, respectively. As a result, the Company is now focused completely on its core competency, the development of real-time graphics solutions for our worldwide professional video and TV broadcast customers.



The net proceeds of the sale of $10.5 million were used to
pay down a portion of our indebtedness, with the balance retained for working
capital purposes. As of November 13, 2003, we repaid in full the remaining
balance of outstanding indebtedness with our U.S. bank and terminated our
borrowing arrangement. On December 31, 2003, we used $2.5 million to pay off our
Senior Subordinated Notes that matured on such date. On December 31, 2003, we
closed on an exchange offer with certain holders of Series A and B Subordinated
Convertible Debentures (the "Series A and B Debentures") whereby approximately
18.3% of debentures totaling $1.95

7

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million were exchanged for discounted cash payments of $1.04
million and 853,816 shares of common stock. On February 27, 2004, the Company
closed on a second exchange offer with a majority of the remaining Series A and
B Debenture holders whereby $8.8 million (balance on January 31, 2004, including
accrued interest) of debentures were exchanged for $3.8 million in cash and
newly issued Series C and D Debentures totaling $4.6 million.



We provide graphics products to the broadcast industry for use in digital television. Our future growth and success will depend to a significant degree on the continued growth of various markets that use our products. We operate in a rapidly changing environment and must remain responsive to changes as they occur. In the event that revenues fall significantly below forecasted revenues we believe we have the ability to reduce or delay certain expenditures, including some capital purchases, and reduce headcount, according to our contingency plan so that we will have sufficient cash resources through the next fifteen months. However, there can be no assurance that we will be able to adjust our costs in sufficient time to respond to revenue shortfalls, should that occur.



In preparing contingency plans for a lower level of sales than we are currently forecasting, and in recognition that $2.65 million of principal and accrued interest mature on December 31, 2005, we have re-examined our cost structure and prepared a contingent restructuring plan that recommends, in the event it is necessary, to reduce spending in staffing, travel, marketing expenses, professional fees, equipment, and bonuses, among other items. However, there can be no assurance we would be able to execute the plans in adequate time to provide a significant immediate or short-term benefit and if implemented, could have an adverse effect on our ability to conduct business.



We believe that cash on hand and net cash to be generated in the business will be sufficient to meet our cash needs for the next fifteen months, if we are able to achieve our planned results of operations.  However, there can be no assurance we will be able to achieve our plan.



Net Income Per Share



For the three and nine month periods ending September 30, 2004 common stock equivalents of 8.6 million shares were not included in the computation of diluted net income per common share because their effect would have been antidilutive.



2. MARKETABLE SECURITY



During the first quarter of 2003 we evaluated our investment in equity securities of vizrt Ltd. (symbol VIZ - traded on the Prime Standard segment of the Frankfurt Stock Exchange). Due to market values that were below our cost for a period of time, we determined that the decline in market value was other than temporary and wrote this security down to its then fair value. Accordingly, an impairment loss of $0.2 million, which is included in other expense, was charged to earnings in the first quarter of 2003.



In the fourth quarter of 2003, the market value of this security increased and we sold a portion of our investment and realized a gain of $0.06 million. Also at December 31, 2003, included in other comprehensive income, was an unrealized gain of $0.2 million.

8

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In the first quarter of 2004, we sold the remaining balance of our investment and realized a gain of $0.2 million which is included in other income, net.



3. OTHER CURRENT ASSETS



Included in other current assets is $0.4 million (0.23 million GBP, valued at the exchange rate in effect at September 30, 2004 and discounted to present value) representing the final payment from the sale of Chyron UK Holdings Limited which is due in April 2005.



4. INVENTORIES



Inventory, net is comprised of the following (in thousands):





|                 | September 30, | December 31,
|---------------- | ------------- | ------------
|                 | 2004          | 2003        
|                 |               |             
|Finished goods   | $   725       | $   568     
|Work-in-progress | 545           | 307         
|Raw materials    | 1,732         | 839         
|                 | $3,002        | $1,714      



5. EQUITY BASED COMPENSATION



We account for our stock compensation plans in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and its related interpretations, which requires that compensation cost be recognized on the date of grant for stock options issued based on the difference, if any, between the fair market value of our stock and the exercise price. Under this intrinsic value method prescribed under APB 25 there was no compensation expense recognized for the three and nine month periods ended September 30, 2004 and 2003. We have adopted the disclosure requirements of SFAS 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" which allows entities to continue to apply the provisions of APB 25 for transactions with employees and provides pro-forma earnings disclosures for employee stock grants as if the fair value based method of accounting in SFAS No. 123 had been applied to these stock grants. The following table illustrates the effect on net income (loss) and net income (loss) per common share if the fair value method had been applied (in thousands except per share amounts):

9

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|                                          | Three Months        | Nine Months        
|----------------------------------------- | ------------------- | -------------------
|                                          | Ended
September 30, | Ended
September 30,
|                                          | 2004                | 2003               
|                                          |                     |                    
|Net income (loss)                         | $  326              | $(2,172)           
|Total stock-based compensation expense    |                     |                    
|determined under fair value based method, |                     |                    
|net of related tax effects                | (81)                | (134)              
|Pro forma net income (loss)               | $245                | $(2,306)           
|Net income (loss) per common share:       |                     |                    
|Basic and diluted - as reported           | $0.01               | $(0.05)            
|Basic and diluted - pro forma             | $0.01               | $(0.06)            



6. SUBORDINATED CONVERTIBLE DEBENTURES



On February 27, 2004, we utilized a portion of the proceeds from the sale of Chyron UK Holdings Limited to close on an exchange offer to reduce our outstanding indebtedness. In the offer, Series A and B Debentures of $8.8 million were exchanged for $3.8 million in cash, $2.3 million for new Series C Subordinated Convertible Debentures ("Series C Debentures") and $2.3 million for new Series D Subordinated Convertible Debentures ("Series D Debentures"). The Series C Debentures bear interest annually at 7%, payable in kind, will mature December 31, 2005 and can be converted to common stock at a per share conversion price of $1.50. The Series D Debentures bear interest annually at 8%, payable in kind, will mature December 31, 2006 and carry a per share conversion price of $0.65. All holders of Series C and Series D Debentures are beneficial owners of 5% or more of our common stock. In accordance with SFAS No. 15, no gain was recorded on this transaction. Rather, the gain will be deferred and interest expense related to the Series D Debentures will be adjusted prospectively in a manner to create a constant effective rate of interest of approximately 3%.



7. CREDIT FACILITY



In May 2004, the Company entered into a line of credit agreement with a new U.S. bank. The new agreement provides the Company with a $2.5 million working capital line of credit which extends through April 15, 2005.  Under the agreement, the Company has the ability to borrow on a revolving credit basis based on levels of eligible accounts receivable. Interest on borrowings under the line is payable at prime +2%, where prime is a minimum of 4%, and we are required to maintain certain levels of tangible net worth. During 2004, there has been no outstanding indebtedness with any banking institution.



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8. BENEFIT PLANS



The net periodic benefit cost is as follows:



|                                   | Three Months Ended | Nine Months Ended
|---------------------------------- | ------------------ | -----------------
|                                   | September 30,      | September 30,    
|                                   | 2004               | 2003             
|                                   |                    |                  
|Service cost                       | $  80              | $  97            
|Interest cost                      | 53                 | 50               
|Expected return on plan assets     | (39)               | (37)             
|Amortization of prior service cost | (8)                | (12)             
|Amortization of prior gain         | 20                 | (19)             
|                                   | $106               | $79              



During the quarter ended September 30, 2004, we made contributions of $0.5 million to the Pension Plan. We expect to contribute $0.3 million over the next twelve months.



9. GEOGRAPHIC INFORMATION



As a result of the disposal of the Signal Distribution and Automation division in November 2003, only the Graphics business remains, and whose operating information is reported in the Statements of Operations for the periods ended September 30, 2004 and 2003. The details of the Graphics business geographic sales are as follows (in thousands):





|              | Three Months Ended | Nine Months Ended
|------------- | ------------------ | -----------------
|              | September 30,      | September 30,    
|              | 2004               | 2003             
|              |                    |                  
|United States | $5,654             | $3,128           
|Germany       | 317                | 47               
|Other         | 321                | 553              



10. RECENT ACCOUNTING PRONOUNCEMENTS



In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities - an interpretation of ARB No. 51," which addresses consolidation of variable interest entities. FIN 46 expands the criteria for consideration in determining whether a variable interest entity should be consolidated by a business entity, and requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. This interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after March 15, 2004, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The adoption of FIN 46 did not have any impact on the Company's Consolidated Financial Statements.



11

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On October 13, 2004, the FASB concluded that Statement of Financial Accounting Standards No. 123R, "Share-Based Payment" ("Statement 123R"), which would require all companies to expense compensation cost for all share-based payments (including employee stock options) based on their fair value, would be effective for public companies (except small business issuer as defined in SEC Regulation S-B) for interim or annual periods beginning after June 15, 2005.  Retroactive application of the requirements of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("Statement 123"), not Statement 123R, to the beginning of the fiscal year that includes the effective date would be permitted, but not required.  Note 5 - "Equity Based Compensation" sets forth the pro forma effect on net income (loss) and net income (loss) per common share assuming we had applied the fair value recognition provisions of Statement 123.



Item 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS



From time to time, including in this Quarterly Report on Form 10-Q, we 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, we note that a variety of factors could cause our actual results to differ from the anticipated results or other expectations expressed in our forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of our 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, consumer acceptance of DTV and HDTV, resistance within the broadcast or cable industry to implement DTV and HDTV technology, use and improvement of the Internet, new technologies that could render certain Chyron products to be obsolete, a highly competitive environment, competitors with significantly greater financial resources, new product introductions by competitors, seasonality, fluctuations in quarterly operating results, ability to maintain adequate levels of working capital, viability of the OTC Bulletin Board as a trading platform, and expansion into new markets. Additional factors affecting future results, and which are described in more detail in our Annual Report on Form 10-K for the year ended December 31, 2003, include:



- We cannot assure you that we will maintain profitability because we have a history of losses.
- Our future operating results are likely to fluctuate and therefore may fail to meet expectations, which could cause our stock price to decline.
- If we fail to successfully develop, introduce and sell new products, we may be unable to compete effectively in the future.
- If we are unable to keep up with rapid change in our industry, our business will not grow.
- We expend substantial resources in developing and selling our products, and we may be unable to generate significant revenue as a result of these efforts.
- Our customers may cancel or change their product plans after we have expended substantial time and resources in the design of their products.
- If the digital video market does not grow, we will be unable to increase our revenues.

12

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- We will be unable to compete effectively if we fail to anticipate product opportunities based upon emerging technologies and standards and fail to develop products that incorporate these technologies and standards.
- We may not successfully develop strategic relationships that may be important to our business.
- We operate in a highly competitive environment and industry and we may lack resources needed to capture increased market share.
- We may encounter periods of industry-wide surface mount components shortage, resulting in pricing pressure and a risk that we could be unable to fulfill our customers' requirements.
- We depend upon one supplier for the software license of our Aprisa product.
- We depend on a limited number of suppliers of surface mount components.
- If we fail to adequately forecast demand for our products, we may incur product shortages or excess product.
- Problems in manufacturing our products, especially our new products, may increase the costs of our manufacturing process.
- We may be unable to grow our business if the markets in which we sell our products do not grow.
- Our business will suffer if our systems fail or become unavailable.
- In order to maintain profitability, we will need to maintain our gross profit margins through a combination of avoiding declines in the prices of our products and continuing to control our costs of goods sold.
- We depend upon third party dealers to market and sell our products and they may discontinue sale of our products, fail to give our products priority or be unable to successfully market, sell and support our products.
- Problems associated with international business operations could subject us to risks from financial, operational and political situations, and affect our ability to manufacture and sell our products.
- We may be unable to accurately predict quarterly results which could adversely affect the trading price of our stock.
- We may be unable to successfully grow our business if we fail to compete effectively with others to attract and retain key personnel.
- We may not be able to protect our proprietary technology and may be sued for infringing on the rights of others.
- We may not be able to successfully implement our contingency plan upon a decline in revenues.
- We are uncertain of our ability to obtain additional financing or refinance existing obligations for our future needs, and liquidity issues have and may continue to increase our cost of capital.
- The TV broadcast industry has historically expected substantial marketing expenses.
- We sell hardware and software service agreements to our customers that may become onerous because of product problems or the age of our products.
- Our warranties on products may prove insufficient and could cause us unexpected costs.
- If a new law or regulation is created pertaining to the telecommunications and television industries it could cause our customers to suffer and impede our ability to increase profits.
- Our principal stockholders have significant voting power and may vote for actions that may not be in the best interests of our stockholders.

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- We have not issued dividends on our common stock for over thirteen years and do not anticipate doing so in the foreseeable future.
- The price of our common stock may be volatile.
- An increase in the number of shares of our common stock outstanding could reduce the price of our common stock.
- We have various mechanisms in place to discourage takeover attempts, which may reduce or eliminate your ability to sell your shares for a premium in a change of control transaction.
- It may be difficult to sell your shares and the value of your investment may be reduced because our common stock has experienced low trading volumes on the OTC Bulletin Board and currently lacks public market research analyst coverage.



Results of Operations



This discussion should be read in conjunction with the Consolidated Financial Statements including the Notes thereto.



Comparison of the Three and Nine Months Ended September 30, 2004 and 2003



Revenues for the quarter ended September 30, 2004 were $6.3 million, an increase of $2.6 million, or 70% from the $3.7 million reported for the third quarter of 2003. Revenues for the nine months ended September 30, 2004 were $16.9 million, an increase of $2.9 million or 21% from the $14.0 million reported for the first nine months of 2003.



Revenues derived from U.S. customers were $5.7 million in the third quarter of 2004 as compared to $3.1 million in the third quarter of 2003.  Revenues derived from international customers were $0.6 million in the third quarter of 2004 and 2003. Year-to-date revenues in the U.S. were $13.7 million in 2004 and $12.7 million in 2003. Year-to-date international revenues were $3.2 million in 2004 and $1.3 million in 2003. The increase in year-to-date 2004 international revenues  reflects the results of an international sales force specifically dedicated to graphics products. In connection with the sale of our Pro-Bel division, we established a small, but experienced team that possesses specific knowledge of graphics products, is based internationally and is focused on the worldwide marketplace. Year-to-date international revenues in 2004 were also enhanced by $0.5 million due to receipt of an order from an affiliate of a major European broadcaster. Revenues in 2004 in the U.S. have increased as a result of the rollout of Duet HyperX systems which can be configured as HD, SD or a combination of both, offering a highly flexible and scalable migration path.



Gross margins for the third quarter of 2004 increased to 60% from 54% in the comparable quarter in 2003. Gross margins for the nine month periods in 2004 and 2003 were 61% and 55%, respectively. Factors contributing to the improvement in margins were an increase in software sales which carry a higher margin, lower material costs, and the elimination of costs of approximately $0.2 million, relating to amortization and inventory reserves that were incurred in the nine month period in 2003 that were not required in 2004.





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Selling, general and administrative (SG&A) expenses increased by $0.9 million, to $2.6 million in the quarter ended September 30, 2004 compared to $1.7 million in the third quarter of 2003. SG&A expenses increased by $2.3 million, to $7.6 million in the first nine months of 2004 compared to $5.3 million for the first nine months of 2003. During 2003, for the period that we owned Pro-Bel, there existed cost sharing arrangements related to sales and marketing expenses, trade shows and other corporate expenses that benefited both organizations. Effective with the sale of this division in November 2003, Chyron has to absorb the full cost of any of these expenses that remain. The net impact in the three and nine month periods in 2004 of these additional costs is approximately $0.5 million and $2.0 million, respectively, and represents substantially the increase in SG&A. Other increases in the three and nine month periods were primarily related to sales and marketing expenses as we enhanced efforts in those areas relative to new HD products.



Research and development (R&D) costs in the third quarter of 2004 of $0.8 million increased slightly by $0.2 million compared to the quarter ended September 30, 2003. R&D costs increased by $0.7 million, to $2.6 million in the first nine months of 2004, compared to $1.9 million for the first nine months of 2003. Increases in the three and nine month periods ended September 30, 2004, were attributable to increased engineering personnel costs of approximately $0.2 million and $0.5 million, respectively, as we hired additional developers to enhance our development efforts to address the changing requirements in the marketplace, most notably HD products. Material costs associated with these development efforts grew by over $0.02 million and $0.2 million in the three and nine month periods ended September 30, 2004, respectively.  In addition, in the first nine months of 2004, other costs of approximately $0.03 million were incurred for professional services relative to the protection of our intellectual property.



Interest expense in the third quarter of 2004 approximated $0.1 million as compared to $0.5 million in the third quarter of 2003. Interest expense in the first nine months of 2004 was $0.3 million as compared to $1.5 million in 2003. This is a direct result of the combination of lower borrowings and lower interest rates discussed as follows.



During 2004, there was no outstanding indebtedness with any banking institution. Our revolving line of credit and term loan with our former U.S. bank was paid down throughout 2003 with funds from operations, with the final payment being made in November 2003.  This resulted in interest savings in the three and nine month periods ended September 30, 2004, of $0.07 million and $0.2 million, respectively. In addition, our senior notes were paid off in December 2003 which also reduced interest expense by $0.08 million and $0.22 million in the three and nine month periods in 2004.



In the fourth quarter of 2003 and first quarter of 2004, we closed on two exchange offers, which resulted in the retirement of approximately $6 million of Series A and B debentures, with the balance exchanged for Series C and D debentures which carry a lower rate of interest. The combination of these factors reduced interest expense by another $0.3 million in the third quarter of 2004 and $0.8 million year-to-date in 2004.

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The components of other (income) expense, net are as follows (in thousands):





|                                  | Three Months        | Nine Months        
|--------------------------------- | ------------------- | -------------------
|                                  | Ended
September 30, | Ended
September 30,
|                                  | 2004                | 2003               
|                                  |                     |                    
|Foreign exchange transaction gain | $(46)               | $(10)              
|Gain on sale of securities        |                     |                    
|Impairment of marketable security |                     |                    
|Other                             | (41)                | 624                
|                                  | $(87)               | $614               



During the quarter ended March 31, 2003 we evaluated our investment in equity securities of vizrt Ltd., that was trading below our cost for a period of time, and determined that the decline in the market value was other than temporary. Accordingly, the security was written down to its current fair value and a loss of $0.2 million was charged to earnings. In the first quarter of 2004, the market value of this security improved and we sold our remaining investment and realized a gain of $0.2 million.



During the quarter ended September 30, 2003, the Company determined that its investment in, and a note receivable from, Trilogy (a business that was sold in 1998) was at risk and fully reserved for such assets. This charge approximated $0.6 million and is a component of other expense.



On November 6, 2003 we sold all of the stock of our wholly-owned subsidiary Chyron UK Holdings Limited, including the operating subsidiary Pro-Bel Limited. In effect, this eliminated the entire operations of the Signal Distribution and Automation segment and only the Graphics business remains. The 2003 Statements of Operations and Cash Flows have been restated to reflect this segment as a discontinued operation. For the nine month period ended September 30, 2003, revenues and the net loss attributable to the Signal Distribution and Automation segment were $15.5 million and $0.7 million, respectively. As a result, the Company now focuses completely on its core competency, the development of real-time graphics solutions for our worldwide professional video and TV broadcast customers.

Liquidity and Capital Resources



At September 30, 2004, we had cash on hand of $1.98 million and working capital of $4.7 million.



During the nine months ended September 30, 2004, net cash of $1.6 million was used by operations and $3.8 million was used to retire convertible debentures. The utilization of cash from operations was driven by an increase in receivables from sales that were realized late in the quarter, and therefore not yet collectable, delays in collection of several customer receivables and an increase in inventory primarily relative to new products. This was partially offset by $0.4 million provided by investing activities, primarily the receipt, in March 2004, of the funds held in escrow from the sale of Pro-Bel and proceeds from the sale of securities.

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The Company utilized a portion of the proceeds from the sale of Pro-Bel to effect a second exchange offer on February 27, 2004 with a majority of the remaining Series A and B Debenture holders whereby $8.8 million of debentures were exchanged for $3.8 million in cash and newly issued Series C and D Debentures totaling $4.6 million. The Series C Debentures bear interest annually at 7%, payable in kind, and will mature December 31, 2005 in the amount of $2.65 million. The Series D Debentures bear interest annually at 8%, payable in kind, and will mature December 31, 2006 in the amount of $2.9 million. In accordance with SFAS No. 15, no gain was recorded on this transaction. Rather, the gain will be deferred and interest expense related to the Series D debentures will be adjusted prospectively in a manner to create a constant effective rate of interest of approximately 3%.



In May 2004, the Company entered into a line of credit agreement with a new U.S. bank for a $2.5 million working capital line of credit which extends through April 15, 2005. Under the agreement, the Company has the ability to borrow on a revolving credit basis based on levels of eligible accounts receivable. Interest on borrowings under the line is payable at prime +2%, where prime is a minimum 4%, and we are required to maintain certain levels of tangible net worth.



We provide graphics products to the broadcast industry for use in digital television. Our future growth and success will depend to a significant degree on the continued growth of various markets that use our products. We operate in a rapidly changing environment and must remain responsive to changes as they occur. In the event that revenues fall significantly below forecasted revenues we believe we have the ability to reduce or delay certain expenditures, including some capital purchases, and reduce headcount, according to our contingency plan so that we will have sufficient cash resources through the next fifteen months. However, there can be no assurance that we will be able to adjust our costs in sufficient time to respond to revenue shortfalls, should that occur.



In preparing contingency plans for a lower level of sales than we are currently forecasting, and in recognition that $2.65 million of principal and accrued interest mature on December 31, 2005, we have re-examined our cost structure and prepared a contingent restructuring plan that recommends, in the event it is necessary, to reduce spending in staffing, travel, marketing expenses, professional fees, equipment, and bonuses, among other items. However, there can be no assurance we would be able to execute the plans in adequate time to provide a significant immediate or short-term benefit and if implemented, could have an adverse effect on our ability to conduct business.



We believe that cash on hand and net cash to be generated in the business will be sufficient to meet our cash needs for the next fifteen months, if we are able to achieve our planned results of operations. However, there can be no assurance we will be able to achieve our plan.



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Recent Accounting Pronouncements



In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities - an interpretation of ARB No. 51," which addresses consolidation of variable interest entities. FIN 46 expands the criteria for consideration in determining whether a variable interest entity should be consolidated by a business entity, and requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. This interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after March 15, 2004, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The adoption of FIN 46 did not have any impact on the Company's Consolidated Financial Statements.



On October 13, 2004, the FASB concluded that Statement of Financial Accounting Standards No. 123R, "Share-Based Payment" ("Statement 123R"), which would require all companies to expense compensation cost for all share-based payments (including employee stock options) based on their fair value, would be effective for public companies (except small business issuer as defined in SEC Regulation S-B) for interim or annual periods beginning after June 15, 2005.  Retroactive application of the requirements of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("Statement 123"), not Statement 123R, to the beginning of the fiscal year that includes the effective date would be permitted, but not required.  Note 5 - "Equity Based Compensation" sets forth the pro forma effect on net income (loss) and net income (loss) per common share assuming we had applied the fair value recognition provisions of Statement 123.



Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT

MARKET RISK



We are exposed to foreign currency and exchange risk in the normal course of business related to investments in our foreign subsidiaries and sales to foreign customers. For the three months ended September 30, 2004 and 2003, sales to foreign customers were 10% and 16% of total sales, respectively. For the nine months ended September 30, 2004 and 2003, sales to foreign customers were 19% and 9% of total sales, respectively. All sales generated outside of the U.S. are denominated in British Pounds Sterling, Euros or U.S. Dollars.



The net impact on earnings of foreign exchange transactions in the three month periods ended September 30, 2004 and 2003 were gains of $0.05 million and $0.01 million, respectively.  The net impact of foreign exchange transactions in the nine months ended September 30, 2004 and 2003 were gains of $0.08 million and $0.03 million, respectively. We record translation gain or loss as a separate component of other comprehensive income (loss) in shareholders' equity (deficit).



We have evaluated the foreign currency exchange risk and interest rate risk and believe that our exposure to these risks are not material to our near-term financial position, earnings, or cash flows.



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Item 4.   CONTROLS AND PROCEDURES



As of September 30, 2004, an evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of September 30, 2004. There have been no significant changes in the Company's internal control over financial reporting during the most recent quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.



PART II.   OTHER INFORMATION



Item 1.    LEGAL PROCEEDINGS



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.   EXHIBITS AND REPORTS ON FORM 8-K



(a) Exhibits:





|Exhibit No. |  | Description of Exhibit                                          
|----------- |  | ----------------------------------------------------------------
|            |  |                                                                 
|31.1        |  | Rule 13a-14(a)/15d-14(a) Certification (Chief Executive Officer)
|            |  |                                                                 
|31.2        |  | Rule 13a-14(a)/15d-14(a) Certification (Chief Financial Officer)
|            |  |                                                                 
|32          |  | Section 1350 Certifications                                     



(b) Reports on Form 8-K:



A Form 8-K was filed on August 12, 2004, advising of a press release, on August 11, 2004, announcing the results of the Company's operations for the three months ended June 30, 2004.



A Form 8-K was filed on August 27, 2004, advising of the results of a meeting of the Board of Directors held on August 25, 2004. At such meeting, Wesley W. Lang, Jr., resigned as Chairman of the Board and all other positions, which reduced the number of members from 7 to 6.  Christopher R. Kelly was elected to the position of Chairman to replace Mr. Lang.



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A Form 8-K was filed on October 1, 2004 to announce the promotion of Kevin Prince to the position of Senior Vice President, Operations.



A Form 8-K was filed on October 10, 2004, to advise of a consulting arrangement with Donald P. Greenberg, a Director of the Company.





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 10, 2004 |  | /s/ Michael Wellesley-Wesley
|(Date)            |  | Michael Wellesley-Wesley    
|                  |  | President and               
|                  |  | Chief Executive Officer     
|                  |  |                             
|November 10, 2004 |  | /s/ Jerry Kieliszak         
|(Date)            |  | Jerry Kieliszak             
|                  |  | Chief Financial Officer and 
|                  |  | Senior Vice President       





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