FORM 10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2000
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)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)

 

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 registrantwas required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes
X
No
__
 
 

As of November 1, 2000 there were 35,473,693 shares of common stock, par value $.01 of the registrant issued and outstanding.

 

This document consists of 14 pages
**CHYRON CORPORATION

INDEX

**PART I****FINANCIAL INFORMATION
Page
Item 1.
Financial Statements
 
 
Consolidated Balance Sheets as of September 30, 2000 (unaudited) and December 31, 1999
3
 
Consolidated Statements of Operations (unaudited) for the Three 

Months ended September 30, 2000 and 1999
4
 
Consolidated Statements of Operations (unaudited) for the Nine 

Months ended September 30, 2000 and 1999
5
 
Consolidated Statements of Cash Flows (unaudited) for the Nine 

Months ended September 30, 2000 and 1999
6
 
Notes to Consolidated Financial Statements (unaudited)
7
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results 

of Operations
10
 
 
 
Item 3.
Quantitative and Qualitative Disclosure about Market Risk
12
 
 
 **PART II**OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
13
Item 2.
Changes in Securities
13
Item 3.
Defaults Upon Senior Securities
13
Item 4.
Submission of Matters to a Vote of Security Holders
13
Item 5.
Other Information
13
Item 6(a)
Exhibits
13
Item 6(b)
Reports on Form 8-K
13
Signatures
 
14
 

										
**CHYRON CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands except share amounts)

**ASSETS
 **(Unaudited)

September 30,

2000**December 31,

1999
Current assets:
 
 
	Cash and cash equivalents	
$14,842
$ 5,453
	Accounts receivable, net	
13,266
11,751
	Inventories, net	
14,129
13,766
	Investments	
2,635
 
	Prepaid expenses and other current assets	
	 1,269
1,038
		Total current assets	
46,141
32,008
 
 
 
Property and equipment	
8,999
10,583
Excess of purchase price over net tangible assets acquired	
4,147
4,561
Investments	
125
3,725
Software development costs	
1,459
2,491
Other assets	
4,847
5,013
TOTAL ASSETS	
$65,718
$58,381
 
 
 **LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
	Accounts payable and accrued expenses	
$ 9,915
$10,469
	Current portion of long-term debt	
2,799
3,180
	Capital lease obligations	
250
598
		Total current liabilities	
12,964
14,247
 
 
 
Long-term debt	
6,714
9,749
Convertible debentures	
8,037
7,954
Capital lease obligations	
296
367
Pension and other liabilities	
3,913
3,552
	Total liabilities	
31,924
35,869
 
 
 
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 -
 
 
	 35,473,693 at September 30, 2000 and 32,092,533 at December 31, 1999	
355
321
Additional paid-in capital	
63,522
44,184
Accumulated deficit	
(31,519)
(24,994)
Accumulated other comprehensive income	
1,436
3,001
	Total shareholders' equity	
33,794
22,512
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	
$65,718
$58,381

 

 

 

See Notes to Consolidated Financial Statements
**CHYRON CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

(In thousands except per share amounts)

(Unaudited)**
 **2000**1999
 
 
 
Net sales	
$14,027
$16,756
Cost of products sold	
7,025
8,650
Gross profit	
7,002
8,106
 
 
 
Operating expenses: 
 
 
	Selling, general and administrative	
7,739
6,946
	Research and development	
1,790
1,898
 
 
 
Total operating expenses	
9,529
8,844
 
 
 
Operating loss 	
(2,527)
(738)
 
 
 
Gain on sale of investments	
477
 
 
 
 
Interest and other expense, net	
(320)
(236)
 
 
 
Net loss 	
$(2,370)
$ (974)
 
 
 
Net loss per common share - basic and diluted	
$ (0.07)
$ (.03)
 
 
 
Weighted average shares used in computing net loss per 

common share - basic and diluted	
35,431
32,087
 
 
 
Comprehensive loss:
 
 
	Net loss	
$(2,370)
$ (974)
	Other comprehensive income (loss):
 
 
		Foreign currency translation adjustment	
(305)
224
		Unrealized loss on securities available for sale	
(1,676) 
 
 
 
	Total comprehensive loss	
$ (4,351)
$ (750)
 

 

 

See Notes to Consolidated Financial Statements
**CHYRON CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

(In thousands except per share amounts)

(Unaudited)**
 **2000**1999
 
 
 
Net sales	
$44,851
$47,953
Cost of products sold	
23,887
27,936
Gross profit	
20,964
20,017
 
 
 
Operating expenses:
 
 
	Selling, general and administrative	
21,132
21,586
	Research and development	
5,293
5,737
	Restructuring and other nonrecurring charges	 
6,681
 
 
 
Total operating expenses	
26,425
34,004
 
 
 
Operating loss	
(5,461)
(13,987)
 
 
 
Gain on sale of investments	
477
 
 
 
 
Interest and other expense, net	
(1,541)
(765)
 
 
 
Loss before provision for income taxes	
(6,525)
(14,752)
 
 
 
Provision for income taxes	 
13,250
 
 
 
Net loss	
$(6,525)
$(28,002)
 
 
 
Net loss per common share - basic and diluted	
$ (.19)
$ (.87)
 
 
 
Weighted average shares used in computing net loss per common

share - basic and diluted	
34,208
32,083
 
 
 
Comprehensive loss:
 
 
	Net loss	
$(6,525)
$(28,002)
	Other comprehensive loss:
 
 
		Foreign currency translation adjustment	
(744)
(194)
		Unrealized loss on securities available for sale	
(821) 
 
 
 
	Total comprehensive loss	
$(8,090)
$(28,196)
 

See Notes to Consolidated Financial Statements
**CHYRON CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

(In thousands)

(Unaudited)

 

 **2000**1999
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
Net loss	
$(6,525)
$(28,002)
Adjustments to reconcile net loss to net cash from operating activities:
 
 
	Restructuring and other nonrecurring charges	
 
6,283
	Depreciation and amortization	
3,361
3,802
	Non-cash settlement of interest liability	
542
 
	Gain on sale of investments	
(477)
 
	Deferred income tax provision 	
 
13,334
Changes in operating assets and liabilities:
 
 
	Accounts receivable	
(2,005)
2,652
	Inventories	
(819)
3,556
	Prepaid expenses and other assets	
(187)
(885)
	Accounts payable and accrued expenses	
3
(1,944)
	Other liabilities	
359
191
Net cash used in operating activities	
(5,748)
(1,013)
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
Acquisitions of property and equipment	
(1,000)
(266)
Proceeds from sale of investments	
620
 
Capitalized software development	 
(2,519)
Net cash used in investing activities	
(380)
(2,785)
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
Paydown of expiring credit facility	
 
(8,493)
Net proceeds from new credit facility	
 
8,688
Payments of term loan	
(250)
(500)
Payments on revolving credit agreements, net 	
(2,753)
(839)
Proceeds from issuance of convertible debt	
 
6,611
Payments of capital lease obligations 	
(363)
(440)
Net proceeds from sale of common stock	
18,187
 
Proceeds from exercise of stock options and warrants 	
697 
Net cash provided by financing activities 	
15,518
5,027
 
 
 
Effect of foreign currency rate fluctuations on cash and cash equivalents	
(1)
3
 
 
 
Change in cash and cash equivalents	
9,389
1,232
 
 
 
Cash and cash equivalents at beginning of period	
5,453
1,585
Cash and cash equivalents at end of period	
$14,842
$ 2,817
 
 
 
 

 

 

 

See Notes to Consolidated Financial Statements

 
**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)**
 

 

 
**1.	BASIS OF PRESENTATION
	In the opinion of management of Chyron Corporation (the "Company"), the accompanying unaudited consolidated interim financial statements reflect all adjustments (consisting of only normal recurring adjustments) necessary topresent fairly the financial position of the Company as of September 30, 2000 and the consolidated results of its operations and its cash flows for the periods ended September 30, 2000 and 1999. The results of operations for such interim periods are notnecessarily indicative of the results that may be expected for the year ending December 31, 2000. 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 andregulations 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, 1999. The December31, 1999 figures included herein were derived from such audited consolidated financial statements. Certain reclassifications have been made to the 1999 financial statements to conform to the 2000 method of presentation.

 
**2.	NEW ACCOUNTING POLICIES
	In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the SEC's views in applyinggenerally accepted accounting principles to revenue recognition in financial statements. In June 2000, the SEC issued SAB No. 101B to defer the effective date of implementation of SAB No. 101 until the fourth quarter of fiscal 2000. The Company has notyet determined the impact, if any, the adoption of SAB 101 will have on its financial position and results of operations.

 
**3.	ACCOUNTS RECEIVABLE
	Accounts receivable is stated net of an allowance for doubtful accounts of $2.1 and $3.3 million at September 30, 2000 and December 31, 1999, respectively. 
** 

4.	INVENTORIES
	Inventories, net of obsolescence reserves, consist of the following (in thousands):

 **September 30,

2000**December 31,

1999
 
 
 
Finished goods
$ 6,158
$ 6,262
Work-in-process
1,027
	1,228
Raw material
6,944
	 6,276
 
$14,129
$13,766**5.	COMMON STOCK OFFERING
	In April 2000, the Company raised $20 million in connection with a private placement of 3,076,923 shares of its common stock at a price of $6.50. The offering price per share was determined based on negotiations between theCompany and its placement agents taking into account the historical trading history of the common stock and market conditions at such time. The price of the common stock, as listed on the NYSE, ranged between 5 7/16 and 9 7/16 on the various closingdates. The Company expects to apply the net proceeds, of approximately $18.2 million, towards sales, marketing, the pursuit of strategic alliances and research and development in connection with its new media business. 

	In connection with the private placement, the Company issued 151,914 warrants to the placement agents and 60,000 warrants to a consulting company to purchase common stock of the Company at an exercise price of $6.50. These warrants,which are immediately exercisable, will expire in April 2005.
**6.	NYSE CONTINUED LISTING STATUS
	In August 1999, the Company received a notice from the New York Stock Exchange ("NYSE") indicating that it did not currently meet the new continued listing standards issued in late July 1999. The new criteria revised andraised the minimum requirement of stockholders' equity to $50 million from $12 million of net tangible assets and global market capitalization to $50 million from $12 million. Companies below these levels must submit a business plan to the NYSEdemonstrating how the Company anticipates meeting the new standards within an eighteen month period. The period ends in the first quarter of 2001. The Company submitted its plan to the NYSE and received approval in December 1999. The Company will beworking closely with the NYSE as the exchange monitors the Company's compliance with the plan on a quarterly basis.
** 

7.	SEGMENT INFORMATION
	Chyron's businesses are organized, managed and internally reported as three segments. The segments, which are based on differences in products and technologies, are Graphics Products, Media Management Systems and New MediaServices. The accounting policies of the segments are the same as those described in the "Summary of Significant Accounting Policies" included in the Company's Financial Statements contained in its Annual Report on Form 10-K for the year ended December31, 1999. The Company is an integrated organization characterized by interdivisional cooperation, cost allocations and inventory transfers. Therefore, management does not represent that these segments, if operated independently, would report the financialinformation shown below.

 

**Business Segment Information**
(In thousands)**Media**New**Graphics**Management**Media**Three months ended September 30, 2000
	Net sales
$6,793
$7,209
$ 25
	Operating profit (loss)
417
(1,199)
(1,745)
	Depreciation and amortization
438
652
32**Three months ended September 30, 1999
	Net sales
8,361
8,395
	Operating loss 
(507)
(231)
	Depreciation and amortization
395
736
**Geographic Areas**United States**Europe**Other**Three months ended September 30, 2000
	Net sales
$8,333
$ 5,037
$ 657
	Operating loss
(45)
(2,159)
(323)**Three months ended September 30, 1999
	Net sales
10,129
6,299
328
	Operating profit (loss)
141
(835)
(44)
 
** 

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, the Company may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technologicaldevelopments, 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 theterms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results to differ from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertaintiesthat may affect the operations, performance, development and results of the Company's business include, without limitation, the following: product concentration in a mature market, dependence on the emerging digital market and the industry's transition toDTV and HDTV, consumer acceptance of DTV and HDTV, resistance within the broadcast or cable industry to implement DTV and HDTV technology, acceptance of the Company's new media service products, rapid technological changes, new technologies that couldrender 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 tomaintain adequate levels of working capital, ability to maintain its NYSE listing, expansion into new markets and the Company's ability to successfully implement its acquisition and strategic alliance strategy.
**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, 2000 and 1999

	Sales for the quarter ended September 30, 2000 were $14 million, a decrease of $2.8 million, or 16.7% over the $16.8 million reported for the third quarter of 1999. Sales for the nine months ended September 30, 2000 were$44.9 million, a decrease of $3.1 million or 6.4% over the $48 million reported for the first nine months of 1999. Third quarter 2000 revenues consisted of $6.8 million from the graphics division and $7.2 million from the media management division. Thiscompares to last year's third quarter breakdown of $8.4 million in each of the divisions. Revenues during the nine month periods ended September 30, 2000 and 1999 consisted of $20.7 million and $21.5 million, respectively, from the graphics division and$24.2 million and $26.5 million, respectively, from the media management division.

	The graphics division is experiencing a transition. Duet is gaining acceptance in the U.S. and in Europe and shipments this quarter were the highest to date. This is, however, at the expense of the iNFiNiT! family of products whichit is replacing. The Company's stillstore product, Aprisa, also gained momentum in 2000. In addition, last year's periods included a substantial number of system upgrades, in part to insure that customers were Y2K compliant. In the third quarter of 2000the Company recorded revenues associated with the Sydney Olympics of approximately $1 million. 

	Overall media management revenues in the quarter were lower due to the near completion of a major contract for an expanded routing system and the effect of declining foreign currency exchange rates on U.K. revenues. Also impactingthe nine month revenues is the disappointing rollout of digital television in Europe resulting in lower than expected customer demand for media management products and the reduced value of the Euro against the British pound and the decision to discountprices to remain competitive.

	The Company generated nominal revenues in the third quarter of 2000 in connection with its new media division. This division, which can now offer streaming media services such as consultancy, equipment installation, encoding andwebcasting, has begun to build a customer base in the U.K. and U.S.A.

	Gross margins for the third quarter of 2000 increased to 50% from 48% in the comparable quarter in 1999. Gross margins for the nine month periods in 2000 and 1999, were 47% and 46% respectively, exclusive of a $2.2 millionwrite-down of inventory in 1999. Margins in the graphics sector improved, in large part, to products provided to the Olympics and lower overhead costs. Margins in the media management division have declined due to the level of discounting in theinternational market due to competition and the reduced value of the Euro, but were offset, to a lesser degree by lower costs associated with product redesigns.

	Selling, general and administrative (SG&A) expenses increased by $0.8 million, or 12%, to $7.7 million in the quarter ended September 30, 2000 compared to $6.9 million in the third quarter of 1999. SG&A expenses decreased by$0.5 million, or 2%, to $21.1 million in the first nine months of 2000 compared to $21.6 million for the first nine months of 1999. SG&A expenses in the core businesses declined as a result of the Q2 1999 restructuring and have continued to bereduced, primarily in the area of personnel as the reduction in force year over year is another 10% in the third quarter. These savings have been offset by the Company's expenditures, of approximately $1.7 million in Q3 2000, to implement its strategy inthe new media marketplace. This division now employs 29 people. The Company anticipates that its efforts, and consequently its costs, will grow in future quarters as a result. 

	Research and development (R&D) costs in the third quarter of 2000 are less than the comparable 1999 levels by approximately $0.1 million. R&D costs decreased during the first nine months of 2000 compared to the same periodin 1999 by $0.4 million. The revised product strategy implemented at the end of the second quarter of 1999 resulted in the elimination of effort associated with non-strategic products, thereby reducing costs. Recently, efforts in this area have beenredirected to graphics and streaming products for the Internet and Interactive TV. 

	Interest and other expense, net increased in the three months ended September 30, 2000 as compared to 1999 by $0.08 million. Interest expense increased by approximately $0.07 million as a result of greater interest rates but wasoffset to a lesser degree by lower average borrowings. Interest income increased by $0.2 million due to interest earned on monies raised in a private placement in April 2000. Also included in this caption is the net impact of foreign exchange transactionsfor the three months ended September 30, 2000 and 1999 which was a loss of $0.13 million and a gain of $0.08 million, respectively.

	Interest and other expense, net, increased $0.8 million during the nine month period ended September 30, 2000 as compared to 1999. This increase was due primarily to a non-cash charge of $0.5 million resulting from the Company'sdecision to satisfy an interest obligation related to its subordinated debentures. 

	The Company did not record a tax benefit in the three and nine months periods of 2000 relative to its operating loss. In the second quarter of 1999 the Company established a full valuation allowance against its U.S. deferred taxassets to recognize the uncertainty surrounding its realizability. Until the Company has U.S. taxable income, no additional benefit will be realized. 
**Liquidity and Capital Resources

	At September 30, 2000, the Company had cash on hand of $14.8 million and working capital of $33.2 million.

	In April 2000, as discussed in the notes to the financial statements, the Company raised $20 million in connection with a private placement of 3,076,923 shares of common stock. The Company is utilizing the net proceeds, ofapproximately $18.2 million, to invest in efforts associated primarily with sales, marketing, research and development and the pursuit of strategic alliances in connection with its new media business.

	As set forth in the Consolidated Statements of Cash Flows, the Company used $5.7 million in cash from operations during the nine months ended September 30, 2000 as compared to using $1.0 million in cash for the comparable 1999period. The utilization of cash from operations during the nine month period ended September 30, 2000 results primarily from the realization of the net loss and the increase in accounts receivable and inventory balances. The increase in accountsreceivable during such period results from the $1.3 million increase in the volume of sales in the third quarter of 2000 as compared to the fourth quarter of 1999 and the timing of receipt of certain milestone payments. Inventory balances at the end ofthe third quarter of 2000 were higher due to the additional product required for the 2000 Olympic summer games and for demonstration purposes.

	Cash used to acquire property and equipment in the nine month period in 2000 totaled $1 million of which $0.5 million relates to the infrastructure to support the Company's new media initiatives. The Company also utilized $3.4million in cash to paydown its credit facility, received $0.7 million from the issuance of common stock as a result of exercises of options and warrants and $0.6 million from the sale of investments.
**Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT 
		MARKET RISK
	The Company is exposed to currency risk in the normal course of business related to investments in its foreign subsidiaries and the level of sales to foreign customers. For the three months ended September 30, 2000 and 1999,sales to foreign customers were 41% and 40% of total sales, respectively. Substantially all sales generated outside of the U.S. are denominated in British pounds sterling. The net impact of foreign exchange transactions for the three months endedSeptember 30, 2000 and 1999 were a loss of $0.13 million and a gain of $0.08 million, respectively.
**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 financialposition, results of operations or liquidity.
**ITEM 2.	Changes in Securities 

	

	Not applicable.
**	

ITEM 3.	Defaults Upon Senior Securities

	Not applicable.
**ITEM 4.	Submission of Matters to a Vote of Security Holders

	Not applicable.
**ITEM 5.	Other Information

	Not applicable.
**ITEM 6(a). Exhibits

	(27) Financial Data Schedule
**ITEM 6(b). Reports on Form 8-K

	The Company did not file any current reports on Form 8-K during its fiscal quarter ended September 30, 2000.
**	**
 

 
**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 9, 2000
 
/s/ Roger Henderson
(Date)
 
Roger Henderson
 
 
President and

Chief Executive Officer
 
 
 
November 9, 2000
 
/s/ Dawn Johnston
(Date)
 
Dawn Johnston
 
 
Senior Vice President and

Chief Financial Officer

 

 

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