SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2003
Commission File Number 1-9014

|CHYRON CORPORATION                                            
|--------------------------------------------------------------
|(Exact name of registrant as specified in its charter)        
|                                                              
|New York                                                      
|(State or other jurisdiction of incorporation or organization)
|                                                              
|5 Hub Drive, Melville, New York                               
|(Address of principal executive offices)                      
|                                                              
|Registrant's telephone number, including area code:           
|                                                              
|Securities registered pursuant to Section 12(b) of the Act:   
|                                                              
|None                                                          
|(Title of Class)                                              
|                                                              
|Securities registered pursuant to Section 12(g) of the Act:   
|Common Stock, par value $.01                                  
|(Title of Class)                                              

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 periods 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( )



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

|YES |  |  | NO | X
|--- |  |  | -- | -



The aggregate market value of voting stock held by non-affiliates of the Company on June 30, 2003 was $11,579,425. The number of shares outstanding of the issuer's common stock, par value $.01 per share, on March 1, 2004 was 40,721,359.

DOCUMENTS INCORPORATED BY REFERENCE



Portions of the proxy statement for the Annual Meeting of Shareholders to be held May 19, 2004 are incorporated by reference into Part III.

Exhibit index is located on page 72

This document consists of 76 pages

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From time to time, including in this Annual Report on Form 10-K, we may publish "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to such matters as anticipated financial performance, liquidity and capital resources, business prospects, technological developments, changes in the industry, new products, research and development activities and similar matters. Although we believe that the expectations reflected in such "forward-looking statements" are reasonable, we can give no assurance that such expectations will prove to have been correct.  Actual results could differ materially from our expectations. Information on significant potential risks and uncertainties not discussed herein may be found in our filings with the Securities and Exchange Commission. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for 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 materially from the anticipated results or other expectations expressed in our "forward-looking statements." Factors that can cause or contribute to these differences include those described under the headings "Factors Affecting Future Results" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."  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 digital television ("DTV") and high definition television ("HDTV"), consumer acceptance of DTV and HDTV, resistance within the broadcast or cable industry to implement DTV and HDTV technology, rapid technological changes, continued growth, 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, expansion into new markets and our ability to successfully maintain the costs associated with recent restructurings.

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PART I



ITEM 1.  BUSINESS



General Information Regarding the Company



Chyron Corporation ("Chyron" or the "Company" or "we") was incorporated under the laws of the State of New York on April 8, 1966 under the name The Computer Exchange, Inc., which was changed to the present name on November 28, 1975. Our principal executive offices are located at 5 Hub Drive, Melville, New York 11747 and our telephone number is (631) 845-2000.



On November 6, 2003, we completed the sale of Chyron UK Holdings Limited, including its operating subsidiary, Pro-Bel Limited. The Pro-Bel division specialized in the development of routers and associated equipment enabling the management and delivery of high bandwidth digital video, digital audio and other data signals. It also provided high-end transmission automation and media asset management solutions. In effect, this eliminates the entire operations of the Signal Distribution and Automation segment and only the Graphics Division will remain. As a result, the Company will now focus completely on its core-competency, the development of real-time graphics solutions for its worldwide professional video and TV broadcast customers. Consequently, this segment has been eliminated and the operating results will be reported as discontinued operations. Prior year Statements of Operations and Cash Flows have been restated to reflect this segment as a discontinued operation.



Overview



Chyron Corporation has been a leading supplier of graphics hardware and software to the television industry for over three decades. The Company develops, manufactures, markets and supports hardware and software products that enhance the presentation of live and pre-recorded video, audio and other data. We also provide products for graphics authoring for the worldwide emerging markets of interactive TV. Recently, the Company has migrated and transitioned from a closed, proprietary architecture to one that is open, and Windows®-based. Currently, Chyron designs the video "engine" that powers each product, writes software applications, assembles and tests components that make up the character generator ("CG") and clips and still server systems, and provides an experienced customer service team. Chyron's products enable customers to:



- create, manipulate and manage text, logos and other graphic images using special effects, real-time animations, 3D transforming and compositing,
- utilize clip and still servers for moving images and stills.



Our products are intended to meet the myriad of demands of digital television, which includes high definition television mandated by the United States Federal Communications Commission ("FCC") in 1996. The transition from analog to digital signals in the video and audio world has created a range of new means to deliver video and audio content to the consumer.  These range from high definition television ("HDTV"), through standard definition digital TV ("DTV"),
and interactive TV services to the Internet, where the ability to incorporate

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video to enhance web sites or to deliver a video channel
without a broadcast license continues to attract a growing number of
participants.



From the time the Company introduced its first character generator in 1970, Chyron's graphics products have grown to become integral to television operations all over the world. Chyron offers a comprehensive experience in providing integrated, scalable real-time graphics solutions. Since the Company has established such a strong presence in the live, "on-air" television graphics segment, its customers have grown to include most major broadcast, cable, satellite and postproduction facilities in the U.S. and Europe. A small sampling of users includes ABC, ESPN, Fox News, C-SPAN, Discovery, Home Shopping Network, Fox Sports, CBS, CBC (Canada), Comcast, DirecTV, Shop At Home, Court TV, CNN, BBC (UK), France 3, Korean Broadcast, YV Catalonia (Spain), NBA, Turner Entertainment, and hundreds of local and regional stations. The Company plans on leveraging and building on its leading brand image and large installed base in the broadcast graphics market to further penetrate the post-production, corporate, educational and professional video market sectors.  In addition, the Company will continue to be involved in the interactive market by developing partnerships to deliver advanced interactive graphics tools.



Products and Services

The Company offers a broad range of graphics products that meet the needs of television stations, networks, video production and postproduction markets. The Company's line of high-performance graphics systems is used by many of the world's leading broadcast stations to display news flashes, election results, sports scores, stock market quotations, programming notes and weather information. In the area of interactive television, Chyron is leveraging its expertise as a provider of broadcast tools to promote solutions to create and deliver interactive content.



All of the Company's products are Windows®-based, feature open architecture, and use a high content of off-the-shelf components. Industry standard interface protocol allows Chyron's equipment to be easily integrated into any television system. Furthermore, the Company's software has become a powerful application for products offered by leading broadcast manufacturers such as Avid and Thomson Grass Valley, greatly extending the capabilities of those products.



The Company is dedicated to providing the highest quality and most comprehensive array of broadcast graphics applications, ranging from low-cost CG packages that run on a user-supplied computer, to fully integrated systems providing precision management of text, stills, clips, effects, audio, storage and networking. A summary description of Chyron's selected products and services is listed below.



Hardware Products



The Duetâ
 family: The Duet family is a real-time 2D/3D serial digital video graphics processing platform that integrates a Windowsâ
 NT, Windowsâ
XP or Windows® 2000 front end with real-time graphics processing to provide exceptional performance for television character generator applications.  It has become the digital replacement for the iNFiNiT!® family of

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products, which accounted for almost 5,000 units placed worldwide. The Duet LEX is now the flagship DTV product, in use by major local, regional and national users. Both ESPN and Fox Sports have standardized on the LEX as the CG of choice for all major sporting events. The new HyperX is a hybrid platform, accepting both DTV and HDTV plug-in cards, enabling a smooth migration path from DTV to full HDTV without replacing the frame. Content may be created for both formats simultaneously, and can be played back on the two separate devices, or a single HyperX independently. Duet uses Lyric, our content creation and play-out software, to compose messages and play back content. The open architecture of the Duet and Lyric packages has enabled us to introduce additional scalable, cost effective product solutions to the Duet family, from low costs CG's to fully integrated systems.



Chyron Aprisaâ
 Clip/Stillstore Systems: Chyron's Aprisa family enables clip, still and video graphics management. The Aprisa family provides an extensive line of high-quality still stores, clip stores, clip/still stores, video graphics servers and storage area network systems. These devices are used to provide moving backgrounds, "over-the-shoulder" shots for news, and stills (slides) for news and sports. Aprisa systems have sophisticated data base functions to search and retrieve thousands of images quickly and enable those images and clips to be instantly recalled, or played out in sequence through internal or external playlists.  Both Aprisa and Duet systems seamlessly integrate to produce a total graphics workflow process that ranges from creation, to refinement, to approval and to on-air playout. Real-time interoperability and universal media access helps propel content through the system.



Software Products



The Company's graphics systems operate primarily with two main programs: Lyric and CAL (Chyron Application Library), plus a number of third party developed applications.



Lyric:  Lyric software provides a highly advanced graphics creation and playback application that is standard with every Duet system. In addition to Lyric's powerful graphics capabilities, the advantage of Lyric software is that it functions separately from Duet hardware allowing continuous graphic creation. Lyric is compatible with all Windows®XP/NT/2000 computers. Using Lyric, many graphic artists are able to create impressive 2D/3D graphics off-line for later transfer to Duet for broadcast-quality playback. Using Lyric, content can be created in one location and moved by LAN or WAN to another device or facility, no matter what the location. Lyric uses standard Windows network protocols and imports many different types of files, adding to its exceptional flexibility. Based on Chyron's experience in broadcast graphics, Lyric acts as a foundation for media content creators: intuitive and agile operation, powerful flexibility, hardware transparent, interoperable with many third-party graphics applications and technologies and designed from inception to accommodate future enhancements.



CAL: The Chyron Application Library is a powerful application programming interface ("API") used to create customized, real time, high quality broadcast graphics applications for Duet SD and HD platforms.  For example, continuous data feeds of financial, news, sports or other information is easily transformed into rolls and crawls through CAL's data spooler. CAL's compound 3D animation engine provides built-in and custom data transition effects to create uniquely engaging displays such as interactive viewer feedback from Internet polls.

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Chyron MOS:  MOS (Media Object Server) is a standard television station newsroom protocol that provides thumbnails and templates enabling journalists to enter character generator titling text while viewing the actual graphics that will be used.  Chyron MOS consists of a MOS-compliant activeX client control interface connected to the Duet and Aprisa range of products. Simple to use, yet powerful and flexible, Chyron MOS gives newsroom staff the ability to create and schedule template-based text and graphics for playout across Chyron's entire product line.



Interactive TV/Text Messaging:  As the communication and information age continue to move forward, Chyron's Interactive TV ("iTV") acts as a key component that merges traditional television with interactive graphics, permitting consumers to interact with the programming aspect.  Interactive TV allows consumers to vote in live polls, access entertainment/sports/news headlines, chat live with other viewers, participate in t-commerce, browse the Web or access e-mail. Chyron has also developed and deployed several SMS ("short message service") text-to-air applications that enable cell phone users to vote or respond to various criteria. The responses are tabulated, then displayed on-air using a CAL application. This technology was recently used for the "Big Brother" series in the U.K.



Sales and Marketing



We market our products and systems to traditional broadcast, production and post-production facilities, government agencies, educational institutions and telecommunications and corporate customers. In order to maintain and increase awareness of our products, we display at the major domestic and international trade shows of the broadcast and post production segments. In the U.S., we exhibit at the NAB Convention and other smaller trade shows. We also exhibit at the International Broadcasters Convention (IBC) in Europe and other smaller trade shows internationally. At these smaller shows we exhibit either directly or in partnership with our dealers.



Product promotion is also achieved through direct-mail campaigns, e-newsletters and  advertisements placed in relevant journals. Due to our long standing reputation as an innovator in the broadcast graphics market, our views are sought out and articles are often published in trade journals and papers presented at technical conventions by our engineering staff, reinforcing our technical credentials.



Sales of our products in the U.S., U.K. and France are made through our direct sales personnel as well as dealers, independent representatives, systems integrators and OEMs. Sales of our products outside of these areas are made through dealers and sales representatives covering specific territories. Direct sales, marketing and product specialists serving our global markets act as links between the customer and our development teams. In 2003, we sold our products in 37 countries around the world.



Service, Support and Training



We offer comprehensive technical service, support and
training to our customers through 24 hours per day, seven days per week, 52
weeks per year access to trained service and support

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professionals. Scalable and fixed duration training courses
are also available. These range from one day to one week and consist of a mix of
classroom discussions and hands-on training. We offer training courses for many
of our products at our Melville, NY headquarters, a facility in Los Angeles, CA
and at customer sites.



We provide our customers with installation assistance, hardware and software maintenance contracts and spare parts. We believe support contracts and a responsive spare parts supply facilitate customer satisfaction. Service is provided both domestically and internationally by us or through our appointed dealers and representatives. We also provide sales and service support to our dealers.



Warranty and Service



We generally provide warranties on all of our products for one year. There may be, in certain instances, exceptions to these terms.  A provision is made to estimate the warranty cost in products sold based on historical actual results.



Research and Development



Our research and product development has primarily been focused on the revitalization and extension of our core products. During 2003, 2002 and 2001, we spent approximately $2.7 million, $2.2 million and $2.8 million, respectively, for research and development for new and existing products.



Manufacturing



Our final assembly, system integration and test operations are located in Melville, NY. We primarily use third-party vendors to manufacture and supply all of the hardware components and sub-assemblies. The Company relies on a limited number of suppliers for major hardware components. We are continually reviewing product specifications in order to diversify the sourcing of critical components. With our change from proprietary to open architecture, we use more "off-the-shelf" components than we have in the past. This not only permits us greater flexibility in sourcing of components, but provides better gross margins on our products through the attainment of lower costs through competitive sourcing and greater commonality of components among our products.



Customers



There are no customers that represent in excess of 10% of our consolidated revenues for 2003, 2002 or 2001.



Competition



The markets for our graphics products are highly competitive and are characterized by rapid technological change and evolving industry standards. Rapid obsolescence of products, frequent development of new products and significant price erosion are all features of the

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industry in which we operate. An FCC ruling requires U.S. broadcasters to utilize digital television ("DTV") transmission by 2006. If a similar requirement were to be imposed by other government agencies worldwide, it would require large future capital expenditures by the broadcast industry. Management believes the FCC's ruling has created an opportunity for us in the market place; however, our ability to capitalize on this opportunity in the past has been delayed due to slower than anticipated market acceptance and implementation of DTV transmission globally by broadcasters.



We are currently aware of several major and a number of smaller competitors. We believe our primary competitors are Pinnacle Systems Inc., Pixel Power Ltd., vizrt Ltd., and Inscriber Technology Corporation. Some of these companies have significantly greater financial, technical, manufacturing and marketing resources than we have.  On a region-by-region basis, certain product categories or market segments in which our Company does or may operate, are dominated by established vendors.



Patents and Proprietary Rights



All of our products are proprietary in that we have the exclusive right to manufacture them. We sell our products directly and through third party dealers and agents under contractual arrangements with those third parties. Our success depends upon our ability to protect our proprietary intellectual property, technology and know-how and operate without infringing on the rights of others. We rely on a combination of methods to protect our proprietary intellectual property, technology and know-how, such as trade secret laws, copyright law, trademark law, patent law, contractual provisions, confidentiality agreements and certain technology and security measures.



Our registered trademarks are Chyron, Scribe, Chyron Scribe, Chyron Scribe Junior, Chyron SuperScribe, iNFiNiT!, MAX!>, MAXINE!, CODI, Duet, I2, Chyron Care, Intelligent Interface, Intelligent Interface (I2), CMX, CMX AEGIS, CMX OMNI, Aurora and Lyric. We also have rights in trademarks and service marks that are not federally registered. We do not have registered copyrights on any of our intellectual property.



While we do not have any significant patents granted for our current products, we have two important patents pending on our Duet architecture and our interactive TV authoring software applications.



Government Regulation



The telecommunications and television industries are subject to extensive regulation in the United States and other countries. For example, the FCC has issued regulations relating to shielding requirements for electromagnetic interface in electronic equipment. Our products are in compliance with these regulations. Furthermore, television operators are subject to extensive government regulation by the FCC and other federal and state regulatory agencies.

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Employees



As of December 31, 2003, we had 84 employees, comprised of 21 in sales and marketing, 22 in research and development, 14 in manufacturing and testing, 14 in customer support, service and training, and 13 in finance, management information systems and administration.  None of these employees are represented by a labor union. We also employ contract personnel for specific functions or expertise. The number of contract hires fluctuates according to our requirements.



ITEM 2.   PROPERTIES



The executive offices and principal office of our Company is located in Melville, New York, pursuant to a lease that expires on June 30, 2009. This facility consists of approximately 47,000 square feet and is used for manufacturing, research and development, marketing and the executive offices. Management believes that this facility is suitable for our existing operations and does not foresee the need for any significant expansion of our current facility.



ITEM 3.  LEGAL PROCEEDINGS

From time to time we are involved in routine legal matters incidental to our business.  In the opinion of management, the ultimate resolution of such matters will not have a material adverse effect on our financial position, results of operations or liquidity.



ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



During the fourth quarter of the year ended December 31, 2003, there were no matters submitted to a vote of the Chyron shareholders through the solicitation of proxies or otherwise.

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PART II



ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDERS MATTERS



Our common stock is quoted on the OTC Bulletin Board under the symbol "CYRO." The following table sets forth, for the periods indicated, the high and low reported bids as quoted on the OTC Bulletin Board. The over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.



Price Range of Common Stock





|                             | High  | Low  
|---------------------------- | ----- | -----
|Year ended December 31, 2003 |       |      
|Fourth quarter               | $0.51 | $0.29
|Third quarter                | 0.55  | 0.30 
|Second quarter               | 0.35  | 0.15 
|First quarter                | 0.32  | 0.16 
|                             |       |      
|Year ended December 31, 2002 |       |      
|Fourth quarter               | $0.30 | $0.24
|Third quarter                | 0.39  | 0.23 
|Second quarter               | 0.72  | 0.31 
|First quarter                | 0.51  | 0.22 



On March 1, 2004, the closing price of our common stock as reported on the OTC Bulletin Board was $0.44 and the approximate number of holders of record of our common stock was 5,071.



We have not declared or paid any cash dividend since November 27, 1989. We currently plan to retain our future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying cash dividends on the common stock in the foreseeable future.



During late 1998 and 1999 we raised $7.7 million through the issuance of Series A and Series B 8% Subordinated Convertible Debentures ("Series A and Series B Debentures), due December 31, 2003, to certain persons and entities, including certain directors, affiliates and shareholders of the Company. The Series A Debentures, which totaled $1.2 million, paid interest quarterly and were convertible, at any time, at the option of the holders thereof, into common stock of the Company at a conversion price of $2.466 per share. Under the original terms, the Series B Debentures, which totaled $6.5 million, were convertible, at any time, at the option of the holders thereof, into common stock of the Company at a conversion price of $1.625 per share. Interest on the Series A and Series B Debentures was payable quarterly and may be paid by increasing the amount of principal owed thereunder.

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On December 17, 2001, the terms of the existing Series A and Series B Debentures were amended to extend the maturity date from December 31, 2003 to December 31, 2004, increase the interest rate from 8% to 12%, and provide that until December 31, 2004, interest may be paid in the form of additional debentures, or in cash, at our sole option. On February 28, 2002, our board of directors resolved to pay interest on the Series A and Series B Debentures only in the form of additional debentures.  Interest expense attributable to Series A and Series B Debentures totaled $1.2 million, $1.1 million and $0.7 million in 2003, 2002 and 2001, respectively.



In connection with the amendment to the Series A and Series B Debentures, we issued warrants to holders of the amended Series A and Series B Debentures to purchase an aggregate of 861,027 shares of common stock of the Company at an exercise price equal to $0.35 per share. The fair value of the warrants of $0.13 million has been reflected as a discount to the related obligation, and will be amortized as additional interest expense over the life of the debenture. The warrants were valued using the Black-Scholes pricing model using the closing market price and the risk-free interest rate on their issue date. During 2003 and 2002 amortization expense was $0.04 million. The warrants were vested immediately and are exercisable through December 31, 2004.



On December 31, 2003, we closed on an exchange offer to holders of Series A and Series B Debentures. Holders who accepted the offer exchanged Series A and Series B Debentures representing a December 31, 2003 book value of $1.95 million in return for a total of discounted cash payments of $1.04 million and 853,816 shares of common stock of the Company. The exchange resulted in cancellation of approximately 18.3% of the total of the Series A and Series B Debentures at their December 31, 2003 book value with $8.7 million of the debentures still outstanding. The Company recorded a gain on extinguishment of debt, in accordance with SFAS No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructuring" ("SFAS No. 15"), in its fourth quarter of 2003 of $0.6 million. The gain from the transaction resulted in a decrease to the net loss per common share of $0.02 for the year ended December 31, 2003.



On February 27, 2004, we closed on a second exchange offer whereby Series A and B Debentures of $8.7 million ($8.8 million at January 31, 2004, including accrued paid in kind interest) were exchanged for $3.8 million in cash, and $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.  In accordance with SFAS No. 15, no gain will be recorded on this transaction.  Rather, interest expense will be adjusted prospectively in a manner to create a constant effective rate.



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At December 31, 2003, the following warrants to purchase shares of our common stock were outstanding:



|Warrants | Exercise Price | Expiration Date
|-------- | -------------- | ---------------
|123,631  | $1.625         | 9/6/2004       
|60,000   | 1.120          | 3/29/2005      
|60,000   | 6.500          | 4/10/2005      
|151,914  | 6.500          | 4/11/2005      
|861,027  | 0.350          | 12/31/2004     



The remaining information called for by this item relating to "Securities Authorized for Issuance under Equity Compensation Plans" is reported in footnote 14 of the Consolidated Financial Statements for the year ended December 31, 2003 appearing in this Annual Report on Form 10-K.



ITEM 6.  SELECTED FINANCIAL DATA



You should read the selected consolidated financial data presented below in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes appearing in this Annual Report on Form 10-K. The historical results are not necessarily indicative of the results to be expected in any future period. Statement of Operations Data has been restated to reflect the operations of our Pro-Bel Subsidiary as a discontinued operation.



SUMMARY FINANCIAL DATA

(In thousands, except per share amounts)



|                                              | Year Ended December 31,
|--------------------------------------------- | -----------------------
|                                              | 2003                   
|Statement of Operations Data:                 |                        
|Net sales                                     | $19,369                
|Goodwill impairment, restructuring            |                        
|and unusual charges                           |                        
|Provision for income taxes                    |                        
|Loss from continuing operations               | (1,944)                
|Net loss                                      | (393)                  
|Net loss per share - basic and diluted:       |                        
|Continuing operations                         | $(0.05)                
|Discontinued operations                       | 0.04                   
|                                              | $(0.01)                
|Weighted average number of shares outstanding |                        
|- basic                                       | 39,688                 
|- diluted                                     | 39,815                 
|                                              |                        
|                                              | As of December 31,     
|                                              | 2003                   
|Balance Sheet Data:                           |                        
|Cash and cash equivalents                     | $6,968                 
|Working capital                               | 7,957                  
|Total assets                                  | 14,175                 
|Long-term obligations                         | 10,622                 
|Shareholders' (deficit) equity                | (1,581)                





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SELECTED QUARTERLY DATA

(Dollars in thousands except per share amounts)





|               |           |              | Net Profit | Per Share of 
Common Stock(1)
|-------------- | --------- | ------------ | ---------- | -----------------------------
|               | Net Sales | Gross Profit | (Loss)     | Basic                        
|2003           |           |              |            |                              
|First Quarter  | $ 5,299   | $  3,046     | $       85 | $  0.00                      
|Second Quarter | 4,991     | 2,701        | (415)      | (0.01)                       
|Third Quarter  | 3,728     | 2,005        | (2,172)    | (0.05)                       
|Fourth Quarter | 5,351     | 3,250        | 2,109      | 0.05                         
|               | $19,369   | $11,002      | $(393)     | $(0.01)                      
|               |           |              |            |                              
|2002           |           |              |            |                              
|First Quarter  | $  4,817  | $ 2,744      | $  (820)   | $  (0.02)                    
|Second Quarter | 5,879     | 2,800        | (987)      | (0.02)                       
|Third Quarter  | 4,806     | 2,404        | (907)      | (0.02)                       
|Fourth Quarter | 5,561     | 2,592        | (330)      | (0.01)                       
|               | $21,063   | $10,540      | $(3,044)   | $(0.08)                      



(1)  The loss per share in each quarter is computed using the weighted-average number of shares outstanding during that quarter while the full year is computed using the weighted-average number of shares outstanding during the year.  Thus, the sum of the four quarters does not equal the full-year amount.



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
  CONDITION AND RESULTS OF OPERATIONS



General



Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements for the periods indicated, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to product returns, bad debts, inventories, revenue recognition, investments, intangible assets, income taxes, financing, operations, warranty obligations, restructuring costs, retirement benefits, forecasts of 2004 results, contingency plans, cash requirements and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors. These include, but are not limited to, pricing pressures, customer requirements, supply issues, manufacturing performance, product development and general market conditions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.  Results for the periods reported herein are not necessarily indicative of results that may be expected in future periods.

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On November 6, 2003, we completed the sale of the entire issued share capital of Chyron UK Holdings Limited, including our operating subsidiary, Pro-Bel Limited. In effect, this eliminated the entire operations of the Signal Distribution and Automation segment and only the Graphics Division remains. Consequently, this segment has been eliminated and the operating results are reported as discontinued operations. Discussion of prior year results have been restated to reflect this segment as a discontinued operation.



Critical Accounting Policies



Management believes the following critical accounting policies, among others, comprise the more significant judgments and estimates used in the preparation of our consolidated financial statements. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments.  If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances and/or the deferral of revenue may be required. We provide for the estimated cost of product warranties at the time revenue is recognized. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from our estimates, revisions to the estimated warranty liability may be required.



We write-down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. Technology changes and market conditions may render some of our products obsolete and additional inventory write-downs may be required.  If actual, future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required.



We hold interests in companies having operations or technology in areas within or adjacent to our strategic focus, one of which is publicly traded whose share prices are highly volatile and one of which is privately held whose value is difficult to determine.  We record an investment impairment charge when we believe an investment has experienced a decline in value that is other than temporary.  Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment's current carrying value, thereby possibly requiring an impairment charge in the future.



We record a valuation allowance to reduce our deferred tax assets to the amount that we believe is more likely than not to be realized.  Additionally, should we determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax assets would increase income in the period this determination was made.



Net sales includes revenue derived from sales of products and services. We recognize revenue when it is realized or realizable and earned, when we have persuasive evidence of an

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arrangement, the product has been shipped or the services have been provided to the customer, the sales price is fixed or determinable and collectibility is reasonably assured. Revenue is reduced for estimated customer returns and other allowances.



Revenue from product sales is recognized when title has passed (usually at the time the product is shipped to the customer) and there are no unfulfilled company obligations that affect the customer's final acceptance of the arrangement. Cost of these obligations, if any, would be accrued when the corresponding revenue is recognized. Revenue from one-time charge licensed software is recognized at the inception of the license term.



Revenue associated with long term contracts is recognized using the percentage-of-completion method of accounting. In using this method, we record revenue by reference to the costs incurred to date and the estimated costs remaining to fulfill the contracts or based upon the completion of certain tasks. Provisions for losses are recognized during the period in which the loss first becomes apparent.



Revenue from time and material service contracts is recognized as the services are provided. Revenue from maintenance contracts is recognized ratably over the contractual period.



At times we enter into transactions that include multiple element arrangements, which may include any combination of hardware, services or software. When some elements are delivered prior to others in an arrangement, revenue is deferred until the delivery of the last element unless there is all of the following:



- Vendor-specified objective evidence of fair value of the undelivered elements.
- The functionality of the delivered elements is not dependent on the undelivered elements.
- Delivery of the delivered element represents the culmination of the earnings process.



Year Ended December 31, 2003 Compared to Year Ended December 31, 2002



Net Sales. Revenues for the year ended December 31, 2003 were $19.4 million, a decrease of $1.7 million, or 8% from the $21.1 million reported for the year ended December 31, 2002. The decline in revenues is directly related to a lower level of sales in international markets. Revenue outside the U.S. was $5.1 million in 2002 and declined by $3.3 million to $1.8 million in 2003. This was offset by an increase in 2003 in sales within the U.S. of $1.6 million over the level in 2002. In 2002, we were the recipient of several large awards for major installations of equipment in Canada, Switzerland and France which did not recur in 2003. In addition, the distraction on the international sales force, due to the sale of our Pro-Bel Division in November 2003, contributed to the 2003 decline. Beginning in 2004, we have a sales force that is dedicated to graphics products in place in key international locations.



Gross Profit.  Gross margins for the year ended December 31, 2003 and 2002, were 57% and 50%, respectively. The migration of the Company's products from a closed, proprietary structure to one that is open, and Windows®-based, has increased the level of off-the-shelf components that are used which has substantially lowered material costs. In addition, due to the numerous products within a product family, from low cost CG's
to fully integrated systems, there

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is a high degree of inter-changeability of component parts
that has also enabled us to leverage material costs. Overhead costs have also
been reduced as a result of tighter cost controls.



Selling, General and Administrative Expenses.  Selling, general and administrative (SG&A) expenses decreased by $0.4 million, or 5%, to $8.1 million in 2003, compared to $8.5 million in 2002. This decline is directly attributable to reductions in selling and marketing expenses, specifically travel, commissions (which are based on sales levels) and advertising.



Research and Development Expenses.  Research and development (R&D) costs increased during 2003 compared to 2002 by $0.5 million or 23% to $2.7 million in 2003, compared to $2.2 million in 2002. During 2003 we enhanced our efforts in this area to address the changing requirements for products in the marketplace - we hired six additional developers, increased the use of outside consultants and incurred additional costs associated with hardware parts evaluation. Our focus will be to leverage our technical expertise by expanding our current line of products to suit the changing needs of our clients in addition to applying current technology to new products aimed at markets that have not traditionally been a focus of the Company.



Interest income and expense.  Overall interest expense was relatively flat year over year and amounted to $2.05 million in 2003 as compared to $2.01 million in 2002.  We experienced increases in interest expense of approximately $0.1 million relating to our Series A and Series B Debentures and Senior Notes because we did not pay any interest in cash.  Instead, interest was paid in the form of additional debentures ("payment in kind") and accrued on any unpaid balance. Interest declined by $0.07 million relative to our bank debt as principal balances declined throughout the year until the balance on the term loan was paid in full in September 2003 and the balance on our revolving line of credit was paid in full in November 2003 with the proceeds from the sale of our Pro-Bel subsidiary.



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





|                                  | 2003   | 2002 
|--------------------------------- | ------ | -----
|Gain on extinguishment of debt    | $(579) |      
|Writedown of marketable security  | 211    |      
|Gain on sale of equity securities | (63)   |      
|Writedown of Trilogy              | 624    |      
|Foreign exchange transaction gain | (44)   | $(55)
|Other                             | 1      | 13   
|                                  | $150   | $(42)



On December 31, 2003, we closed on an exchange offer to holders of Series A and Series B Debentures whereby debentures, representing a December 31, 2003 book value of $1.95 million, were exchanged for a total of discounted cash payments of $1.04 million and 853,816 shares of common stock of the Company. The exchange resulted in cancellation of approximately 18.3% of the total of the Series A and Series B Debentures at their December 31, 2003 book value with $8.7 million of debentures still outstanding. The Company recorded a gain on extinguishment of debt in its fourth quarter of 2003 of $0.6 million.

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During the first quarter of 2003 we evaluated our investment in equity securities of vizrt Ltd. ("vizrt"), 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. During the fourth quarter of 2003 the Company sold a portion of its equity investment in vizrt for a gain of $0.06 million.



During the quarter ended September 30, 2003 the Company determined that its remaining investment in, and a note receivable from Trilogy was at risk and fully reserved for such assets. This resulted in a charge of approximately $0.6 million and was recorded in the third quarter of 2003.



On November 6, 2003, we completed the sale of Chyron UK Holdings Limited, including its operating subsidiary, Pro-Bel Limited. The Pro-Bel division specialized in the development of routers and associated equipment enabling the management and delivery of high bandwidth digital video, digital audio and other data signals. It also provided high-end transmission automation and media asset management solutions. In effect, this eliminated the entire operations of the Signal Distribution and Automation segment and only the Graphics Division remains. As a result, the Company now focuses completely on its core-competency, the development of real-time graphics solutions for its worldwide professional video and TV broadcast customers. Consequently, this segment has been eliminated and the operating results are reported as discontinued operations. Prior year Statements of Operations and Cash Flows have been restated to reflect this segment as a discontinued operation.



Year Ended December 31, 2002 Compared to Year Ended December 31, 2001



Revenues increased to $21.1 million in 2002 as compared to $19.1 million for 2001.  This increase is primarily due to greater customer acceptance in the U.S. and European marketplaces of our Windowsâ
-based Duet and Aprisa Clip/Stillstore products, as these have replaced the legacy iNFiNiT! products. Revenues associated with these products grew by 41% in 2002 as compared to 2001 and offset the decline of $2 million in revenues of iNFiNiT! family products. The newer Duet and Aprisa products provide similar functionality but improved performance as compared to the legacy iNFiNiT! family of products that they are replacing.  The average selling prices of the newer Duet and Aprisa products are approximately 60% of the average selling prices of the older iNFiNiT! family of products. This, coupled with a market that is growing, but not appreciably, and a difficult economic environment in 2002 and 2001 in the U.S., which is the primary market for graphics products, has put pressure on graphics products sales. While it is difficult to forecast what the future impact on sales will be, the newer Duet and Aprisa products appear to be gaining increased recognition in the broadcast market.



Gross Profit.  Gross margins for the year ended December 31, 2002 and 2001, were 50% and 16%, respectively, inclusive of a $3.2 million write-down of inventory in 2001. Excluding the inventory write-down, the gross margin in 2001 was 33%.



Since we utilize semiconductor surface mount component technology more extensively than we had in the past, electronic assembly is outsourced to specialized subcontract

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manufacturers. This technology is in constant and rapid change and would require large capital expenditures if we were to manufacture on our own with surface mount technology. In consequence, we rely on high volume subcontract manufacturers to produce inventory items rather than to manufacture in-house. As a result, effective January 1, 2002, we no longer allocated selling, general and administrative (SG&A) and research and development (R&D) costs to manufacturing as these will be incurred by third party manufacturers. Throughout 2001, we allocated portions of R&D and SG&A costs of approximately $1 million to cost of sales and overhead applied to inventory, which had the effect of lowering gross margins in 2001 by approximately 5%.



Improvement in margins in 2002 were also attributable to lower fixed overhead costs attributable to our cost reduction efforts implemented during 2001, manufacturing efficiencies relative to Aprisa products, and that in 2001 the iNFiNiT! products experienced lower margins due to greater discounting as they neared the end of their product life cycle and began to be replaced by the newer Duet and Aprisa products.



Selling, General and Administrative Expenses. Selling, general and administrative (SG&A) expenses decreased by $6.4 million, or 43%, to $8.5 million in 2002, compared to $14.9 million in 2001. SG&A expenses in the fourth quarter of 2001 were sharply reduced as part of a restructuring plan, which eliminated sales and marketing staff and reduced other operating costs. The effects of these actions were substantially realized in 2002. Included in 2001 were approximately $5 million in expenses related to our former streaming services business that was discontinued in the second quarter of 2001.



Research and Development Expenses. Research and development (R&D) costs decreased during 2002 compared to 2001 by $0.6 million or 21% to $2.2 million in 2002, compared to $2.8 million in 2001 primarily as a result of headcount reduction in late 2001. Beginning in 2001 and continuing in 2002, as we launched our new products and refocused on our core competencies, it became apparent that our expenditures on R&D could be reduced to a level commensurate with our projected product needs. R&D efforts were refocused on near term products rather than on longer term products for which no definable future product benefits were apparent.



Goodwill impairment, restructuring and unusual charges.
During 2001, we experienced a slowdown in revenues in our graphics business. In
addition, revenues in our streaming services business were significantly lower
than anticipated and we virtually eliminated any additional investment in that
business for the foreseeable future. Consequently, during the second quarter of
2001, we approved restructuring plans to realign our organization, reduce
operating costs, and curtail any spending associated with the pursuit of
streaming services. This restructuring involved the reduction of employee staff
by approximately 40 positions and the closure of our New York and London offices
and two satellite offices. As a result of these circumstances and events, we
considered a variety of factors and determined that the carrying amount of the
excess of purchase price over net tangible assets acquired and other long-lived
assets associated with the streaming services business were in excess of their
fair value. Impairment charges associated with the streaming services business
were recorded for the write down of the excess of purchase price over net
tangible assets acquired, leasehold improvements, software, computers and other

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equipment. As a result, we recorded restructuring and other
unusual charges totaling $8.3 million in the second quarter of 2001.



In the fourth quarter of 2001, we implemented a restructuring plan to size our cost structure in line with anticipated revenues. Pursuant to the plan, we implemented staff reductions of individuals for an overall cost of $0.3 million.



Interest income and expense. Overall interest expense increased in the year ended December 31, 2002 by $0.7 million to $2.0 million. This increase results from the additional costs associated with the issuance of senior notes as well as higher interest rates resulting from the restructuring of our convertible debentures and issuance of warrants in December 2001. Additionally, amortization of debt issue and warrant costs increased interest expense. Interest income declined by $0.2 million in the year ended December 31, 2002 due to lower cash balances available for investment purposes.



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





|                                  | 2002   | 2001  
|--------------------------------- | ------ | ------
|                                  |        |       
|Loss on sale of investments       |        | $  328
|Foreign exchange transaction gain | $ (55) | (93)  
|Other                             | 13     | (24)  
|                                  | $ (42) | $  211



During 2001, we realized a loss of $0.3 million on the sale of approximately 60% of our marketable securities of vizrt Ltd.



Liquidity and Capital Resources



During 2003 net cash of $0.9 million was provided by operations as compared to $0.3 million in 2002. The generation of cash from operations results primarily from the realization of the net loss of $0.4 million offset by non-cash expenses totaling $0.8 million and net changes in operating assets and liabilities of $0.5 million.



On November 6, 2003, we completed the sale of the entire issued share capital of our wholly owned subsidiary, Chyron UK Holdings Limited, including our operating subsidiary, Pro-Bel Limited. In effect, this eliminated the entire operations of the Signal Distribution and Automation segment and only the Graphics Division remains. As a result, the Company now focuses completely on its core-competency, the development of real-time graphics solutions for its worldwide professional video and TV broadcast customers. The gross proceeds were approximately $15.3 million, before the required settlement of Pro-Bel bank obligations of approximately $3.4 million and related transaction costs of approximately $1.4 million. The Company realized a gain on sale of $2.6 million that was recorded in the fourth quarter of 2003.

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The net proceeds resulting from the sale, totaling $10.5 million, was used to pay down a portion of our indebtedness, with the balance retained for working capital purposes. In November 2003, we repaid the remaining balance on our outstanding indebtedness with our U.S. bank and terminated our borrowing arrangement. Total cash used to settle U.S. bank obligations totaled $3.7 million in 2003. 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 holders of Series A and B Debentures whereby approximately 18.3% of debentures totaling $1.95 million were exchanged for discounted cash payments of $1.04 million and 853,816 shares of common stock. This resulted in a gain of $0.6 million, in accordance with SFAS No. 15, which was included in our fourth quarter of 2003 consolidated statement of operations. Total cash used to settle Series A and Series B Debentures and Senior Notes totaled $3.7 million in 2003. Consequently, at December 31, 2003, the Company's outstanding indebtedness, consisting solely of Series A and B Debentures, totaled $8.7 million.



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, which included accrued interest) of debentures were exchanged for $3.8 million in cash and new Series C and D Debentures totaling $4.6 million were issued. The Series C Debentures, of $2.3 million, bear interest annually at 7%, payable in kind, and will mature December 31, 2005.  The Series D Debentures bear interest annually at 8%, payable in kind, and will mature December 31, 2006. Cash and cash equivalents at February 29, 2004, was $2.9 million and total indebtedness, consisting of Series C and Series D Debentures totaled $4.7 million.  In accordance with SFAS No. 15, no gain will be recorded on this transaction.  Rather, interest expense will be adjusted prospectively in a manner to create a constant effective rate.



Chyron's contractual obligations as of December 31, 2003, are as follows (in thousands):





|                            | Payments Due by Period
|--------------------------- | ----------------------
|                            |                       
|Contractual Obligations     | Total                 
|                            |                       
|Series A and Series B       |                       
|Debentures (1)              | $ 8,677               
|Other long-term obligations | 643                   
|Capital lease obligations   | 19                    
|Operating lease obligations | 2,357                 
|Total                       | $11,696               



(1) On February 27, 2004, we exchanged these Series A and Series B Debentures (value of $8.8 million at January 31, 2004, including accrued paid in kind interest) for $3.8 million in cash and $2.3 million for new Series C Debentures that mature December 31, 2005 and $2.3 million in Series D Debentures that will mature December 31, 2006.



In March 2004, the Company received a commitment from a new U.S. bank for a $2.5 million working capital line of credit which extends through April 15, 2005. The Company will have the ability to borrow on a revolving credit basis based on levels of eligible accounts receivable. Interest will be payable at prime +2%, where prime is a minimum 4%, and we will be required to maintain certain levels of tangible net worth.

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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. During 2001 we effected a restructuring that involved reductions in staff and overhead, as well as reduced capital expenditures and discretionary spending, so as to reduce costs and expenses and reduce cash outflows in response to lower revenues. We do not currently intend to effect another restructuring as we did in 2001 unless a downturn in sales necessitates it. We operate in a rapidly changing environment and must remain responsive to changes as they occur. In the event that revenues are significantly below 2004 forecasted revenues we believe we have the ability to reduce or delay discretionary expenditures, including capital purchases, and further reduce headcount, according to our contingency plan so that we will have sufficient cash resources through December 31, 2004. 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 2004 sales than we are currently forecasting, 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, trade shows, advertising, 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, net cash to be generated in the business, and availability under our new line of credit, will be sufficient to meet our cash needs for the next twelve 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.



Impact of Inflation and Changing Prices



Although we cannot accurately determine the precise effect of inflation, we have experienced increased costs of materials, supplies, salaries and benefits and increased general and administrative expenses.  We attempt to pass on increased costs and expenses by developing more useful and cost-effective products for our customers that can be sold at more favorable profit margins.



Industry Transition to Digital Standards



Conversion to a digital standard in the U.S., and similar standards internationally, will produce an opportunity to appropriately positioned companies involved in the broadcast industry and related business; however, this change has caused uncertainty, hesitation and indecision for broadcasters and other customers in their decisions on capital spending. The delay in capital spending by broadcasters has affected the level of our sales. The method and timing of broadcasters' conversion to digital television is very important to our future operating results.



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Recent Accounting Pronouncements



In November 2002, the Emerging Issues Task Force (or EITF) of the Financial Accounting Standards Board (or FASB) issued EITF 00-21, "Revenue Arrangements with Multiple Deliverables," which addresses certain aspects of the accounting for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. Under EITF 00-21, revenue arrangements with multiple deliverables should be divided into separate units of accounting if the deliverables meet certain criteria, including whether the fair value of the delivered items can be determined and whether there is evidence of fair value of the undelivered items. In addition, the consideration should be allocated among the separate units of accounting based on their fair values, and the applicable revenue recognition criteria should be considered separately for each of the separate units of accounting. EITF 00-21 is effective for revenue arrangements we enter into after June 30, 2003. We continuously evaluate the impact of EITF 00-21 on revenue arrangements we enter into which did not have a material impact on the Company's consolidated financial statements.



In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities" and a revised interpretation of FIN 46 (FIN 46-R) in December 2003 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 all arrangements entered into after January 31, 2003. Since January 31, 2003, the Company has not invested in any entities it believes are variable interest entities for which the Company is the primary beneficiary.  For arrangements entered into prior to February 1, 2003, the Company is required to adopt the provisions of FIN 46-R in the first quarter of 2004.  The Company does not believe the adoption of FIN 46-R will have a material impact on its financial statements.



In April 2003, the FASB issued SFAS No. 149. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133.  SFAS No. 149 requires that contracts with comparable characteristics be accounted for similarly.  In particular, SFAS No. 149 (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative discussed in paragraph 6(b) of SFAS No. 133, (2) clarifies when a derivative contains a financing component, (3) amends the definition of an underlying to conform it to language used in FIN No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," and (4) amends certain other existing pronouncements. The provisions of SFAS No. 149 are effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS No. 149 did not have a material impact on the Company's results of operations or financial condition.



In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with

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characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). The provisions of SFAS No. 150 are effective for financial instruments entered into or modified after May 31, 2003, and otherwise are effective at the beginning of the first interim period beginning after June 15, 2003.  The adoption of SFAS No. 150 did not have any impact on the Company's results of operations or financial condition.



In December 2003, the Financial Accounting Standards Board ("FASB") issued a revised SFAS No. 132, "Employer's Disclosures about Pensions and Other Postretirement Benefits." The revised standard requires incremental pension and other postretirement benefit plan disclosures to financial statements and is designed to improve disclosure transparency.  The adoption of this accounting standard did not have any effect on our results of operations or financial position.



Our Common Stock in 401(k) Plan



We have a 401(k) plan for U.S. employees into which we make a matching contribution in the form of our common stock equal to one-fifth of up to the first 10% of the compensation contributed by a participant. Prior to January 1, 2003, our Company match was in cash which was used to purchase our stock, whereas since January 1, 2003, we issue new, previously unissued shares. A participant in the plan has 19 investment choices, one of which is our common stock.



Transactions with Related Parties



During late 1998 and 1999 we raised $7.7 million through the issuance of Series A and Series B Debentures, due December 31, 2003. Certain directors, officers and 5% shareholders at that time acquired approximately 74% of these debentures. The Series A Debentures, which totaled $1.2 million, paid interest quarterly and were convertible, at any time, at the option of the holders thereof, into common stock of the Company at a conversion price of $2.466 per share. Under the original terms, the Series B Debentures, which totaled $6.5 million, were convertible, at any time, at the option of the holders thereof, into common stock of the Company at a conversion price of $1.625 per share. Interest was payable quarterly and may be paid by increasing the amount of principal owed thereunder.



On December 17, 2001, the terms of the existing Series A and Series B Debentures were amended to extend the maturity date of the Series A and B Debentures from December 31, 2003 to December 31, 2004, increase the interest rate from 8% to 12%, and provide that until December 31, 2004, interest may be paid in the form of additional debentures, or in cash, at our sole option. On February 28, 2002, our board of directors resolved to pay interest on the Series A and Series B Debentures only in the form of additional debentures. Interest expense attributable to Series A and B Debentures totaled $1.2 million, $1.1 million and $0.7 million in 2003, 2002 and 2001, respectively.



In connection with the amendment to the Series A and Series B Debentures, we issued warrants to holders of the amended Series A and Series B Debentures to purchase an aggregate of 861,027 shares of common stock of the Company at an exercise price equal to $0.35 per share.

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The fair value of the warrants of $0.13 million has been reflected as a discount to the related obligation, and will be amortized as additional interest expense over the life of the debenture. The warrants were valued using the Black-Scholes pricing model using the closing market price and the risk-free interest rate on their issue date. During 2003 and 2002 amortization expense was $0.04 million. The warrants were vested immediately and are exercisable through December 31, 2004.



On December 31, 2003, we closed on an exchange offer to holders of Series A and Series B Debentures. Holders who accepted the offer exchanged Series A and Series B Debentures representing a December 31, 2003 book value of $1.95 million in return for a total of discounted cash payments of $1.04 million and 853,816 shares of common stock of the Company. The exchange resulted in cancellation of approximately 18.3% of the total of the Series A and Series B Debentures at their December 31, 2003 book value with $8.7 million of the debentures still outstanding. The Company recorded a gain on extinguishment of debt, in accordance with SFAS No. 15, in its fourth quarter of 2003 of $0.6 million.



On February 27, 2004, we closed on a second exchange offer whereby Series A and B Debentures of $8.7 million ($8.8 million at January 31, 2004, including accrued paid in kind interest) were exchanged for $3.8 million in cash, and $2.3 million for new Series C Debentures and $2.3 million for new 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 will be recorded on this transaction.  Rather, interest expense will be adjusted prospectively in a manner to create a constant effective rate.



Beginning in 2001 and ending in February 2003, when he became the President and Chief Executive Officer of the Company, Mr. Michael Wellesley-Wesley, then a member of our board of directors, was paid $15,000 monthly for consulting services and was assigned a company automobile, for exploring strategic alternatives for the Company. During 2003, 2002 and 2001, the cost of consulting services approximated $0.03 million, $0.18 million and $0.09 million, respectively.



Mr. Henderson, a current Director and the Company's President and Chief Executive Officer until February 2003, was paid fees of $0.04 million, plus expenses, for consulting services in exploring strategic alternatives for the Company subsequent to his resignation.



In November 2000, we purchased 20% of Video Technics, a supplier of certain hardware and software products. In connection with this investment, we have an exclusive arrangement to sell/license these products.  For a time in 2001 and for years prior, we purchased both hardware and software from Video Technics. Currently, only software is purchased since we are manufacturing all hardware. The purchase price of the software is based on market conditions and competitive offerings. Purchases of Aprisa Clip/Stillstore products from Video Technics

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were approximately $0.7 million, $1.0 million and $1.3 million for the years ended December 31, 2003, 2002 and 2001, respectively.



Presently, we are the only major customer of Video Technics whose financial well being is dependent on our success with the Aprisa line.  Being a privately-held and small company, there is no assurance that Video Technics will not face financial problems, thus being unable to meet its supply obligations and endangering the Aprisa product line for several months.  Sales of Aprisa products represented 11%, 10% and 18% of sales in 2003, 2002 and 2001, respectively.



ITEM 7A. 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 years ended December 31, 2003, 2002 and 2001, sales to foreign customers were 9%, 24% and 19% of total sales, respectively.  Substantially all sales generated outside of the U.S. are denominated in British Pounds Sterling, Euros and U.S. Dollars. The net impact of foreign exchange transactions was a gain of $0.04 million, a gain of $0.05 million and a gain of $0.09 million for the years ended December 31, 2003, 2002 and 2001, respectively.  We record translation gain or loss as a separate component of other comprehensive income or loss.



Additionally, we are exposed to interest rate risk with respect to certain of our short-term and long-term debt that carries a variable interest rate. Rates that affect the variable interest on this debt include the Prime Rate and LIBOR. 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.



Factors Affecting Future Results



We cannot assure you that we will reach profitability because we have a history of losses.



We incurred significant losses from 1997 through 2003. Our accumulated deficit as of December 31, 2003 was $74.0 million. We cannot assure you that we will achieve profitability in any future periods, and you should not rely on our historical revenue or our previous profitability as any indication of our future operating results or prospects. In addition, as a result of the sale of our Pro-Bel division, our sales will be reduced to a level where it will be more difficult to absorb fixed overhead costs.  If we continue to generate losses and do not generate sufficient cash, we will not have cash to maintain operations at current levels.  In addition, we may need additional financing to sustain our operations in the future. There can be no assurance that additional financing will be available or if available that it will be on terms acceptable to us.



Our future operating results are likely to fluctuate and therefore may fail to meet expectations, which could cause our stock price to decline.



Our operating results have varied widely in the past and are
likely to do so in the future. In addition, our operating results may not follow
any past trends. Our future operating results

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will depend on many factors and may fail to meet our
expectations for a number of reasons, including those set forth in these risk
factors. Any failure to meet expectations could cause our stock price to
significantly fluctuate or decline.



Factors that relate to our internal operations and could cause our operating results to fluctuate include:



- the need for continual, rapid new product introductions,
- changes in our product mix,
- our inability to adjust our fixed costs in the face of any declines in sales,
- successful execution of our strategy to develop and market products for the TV broadcasting markets, namely, character generators, video clip and stillstore and media management
- the quality and market acceptance of new products, and
- the timing and nature of selling and marketing expenses (such as trade shows and other promotions).



Factors that depend upon our suppliers and customers and could cause our operating results to fluctuate include:



- the timing of significant product orders, order cancellations and reschedulings,
- the availability of production capacity and fluctuations in the manufacturing yields at the facilities to which we subcontract our critical components,
- the cost of raw materials and manufacturing services from our suppliers, and
- the financial stability of our suppliers and customers.



Factors that are industry risks and could cause our operating results to fluctuate include:



- intense competitive pricing pressures due to increased competition,
- introductions of or enhancements to our competitors' products,
- the cyclical nature of the industry, and
- economic conditions affecting our customers and us.



Our day-to-day business decisions are made with these factors in mind.  Although certain of these factors are out of our immediate control, unless we can anticipate and be prepared with contingency plans that respond to these factors, we will be unsuccessful in carrying out our business plan.



If we fail to successfully develop, introduce and sell new products, we may be unable to compete effectively in the future.



We operate in a highly competitive, quickly changing environment marked by rapid obsolescence of existing products. Our future success depends on our ability to develop, introduce and successfully market new products, including Duet products that replaced our existing iNFiNiT!,
Max and Maxine product lines. To date, we have been selling our Duet

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products in increasing quantities, and we must continue to
increase our sales or our business will suffer. If any of the following occur,
our business will be materially harmed:



- We fail to complete and introduce new product designs in a timely manner,
- We are unable to have these new products manufactured according to design specifications,
- Our customers do not perceive value in our new products and demand deep discounts,
- Our sales force and independent distributors do not create adequate demand for our products, or
- Market demand for our new products does not develop as anticipated.



If we are unable to keep up with rapid change in our industry, our business will not grow.



The markets for our products are characterized by rapidly changing technology, evolving industry standards and frequent new product introductions and enhancements. Due to technological advancements and changes in industry standards, our products may become obsolete or the prices at which we can sell them may decline.  Future technological advances in the television and video industries may result in the availability of new products or services that could compete with our products or reduce the price of our existing products or services. The availability of competing or less expensive products could cause our existing or potential customers to fulfill their needs better and more cost efficiently with products other than ours.



For example, customers are beginning to use personal computers to edit graphics.  This is a task that traditionally would have been completed on our lower-end stand-alone machines.  We may not be successful in enhancing our products or developing, manufacturing or marketing new products that satisfy customer needs or achieve market acceptance. In addition, services, products or technologies developed by others may render our products or technologies uncompetitive, unmarketable or obsolete. Announcements of currently planned or other new product offerings by either our competitors or us may cause customers to defer or fail to purchase our existing products or services.



In addition, errors or failures may be found in our products.  Such errors or failures could cause delays in product introductions and shipments or require design modifications that could adversely affect our competitive position.  This could result in an increase in the inventory of our products.  If we do not develop, on a timely basis, new products, and enhancements to existing products or correct errors should they arise, or if such new products or enhancements do not achieve market acceptance, our business, financial condition and results of operations may suffer.  Furthermore, the trend toward the use of open systems may cause price erosion in our products, create opportunities for new competitors, allow existing competitors enhanced opportunities and limit the sale of our proprietary systems. Customers may also have unique product requirements such as support of foreign languages, which may be difficult and expensive for us to support and may have limited acceptability.



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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.



To establish market acceptance of our products, we must dedicate significant resources to research and development, production and sales and marketing. We experience a long delay between the time when we expend these resources and the time when we begin to generate revenue, if any, from these expenditures. Typically, this delay is one year or more. We record as expenses the costs related to the development of new products as these expenses are incurred. As a result, our profitability from quarter to quarter and from year to year may be materially and adversely affected by the number and timing of our new product introductions in any period and the level of acceptance gained by these products.



Our customers may cancel or change their product plans after we have expended substantial time and resources in the design of their products.



If one of our potential customers cancels, reduces or delays product orders from us or chooses not to release equipment that incorporates our products after we have spent substantial time and resources in designing a product, our business could be materially harmed. Even when customers integrate one or more of our products into their systems, they may ultimately discontinue the system that incorporates our products. System integrators whose products achieve customer acceptance may choose to replace our products with other products giving them higher margins or better performance.



If the digital video market does not grow, we will be unable to increase our revenues.



Our future growth and success in our existing business lines will depend to a significant degree on the rate at which broadcasters and cable operators convert to digital video systems and the rate at which digital video technology expands to additional market segments. Television broadcasters and cable television operators have historically relied on and utilized traditional analog technology.  Digital video technology is still a relatively new technology and the move from traditional analog technology to digital video technology requires a significant initial expense for television broadcasters and cable television operators. Accordingly, the use of digital video technology may not expand among television broadcasters and cable television operators or into additional markets.  If television broadcasters and cable television operators do not accept and implement digital video technology, or if the October 1996 ruling of the FCC mandating these changes is repealed or amended, we may not be able to grow our existing business lines and our financial condition will suffer.



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 spend significant time and money on research and
development to design and develop products around an emerging technology or
industry standard. If an emerging technology or industry standard that we have
identified fails to achieve broad market acceptance in our target markets, we
may be unable to generate significant revenue from our research and

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development efforts. Moreover, even if we are able to
develop products using adopted standards, our products may not be accepted in
our target markets. As a result, our business would be materially harmed.



We have limited experience in designing and developing products that support industry standards. If systems manufacturers move away from the use of industry standards that we support with our products and adopt alternative standards, we may be unable to design and develop new products that conform to these new standards. The expertise required is unique to each industry standard, and we would have to either hire individuals with the required expertise or acquire this expertise through a licensing arrangement or by other means. The demand for individuals with the necessary expertise to develop a product relating to a particular industry standard is generally high, and we may not be able to hire such individuals. The cost to acquire this expertise through licensing or other means may be high and such arrangements may not be possible in a timely manner, if at all.



We may not successfully develop strategic relationships that may be important to our business.



We believe the formation of strategic relationships will be important to our interactive television business. The inability to find strategic partners or the failure of any existing relationships to achieve meaningful positive results for us could harm our business.  We will rely in part on strategic relationships to help us:



- Maximize adoption of our products through distribution arrangements,
- Enhance our brand,
- Expand the range of commercial activities based on our technology, and
- Increase the performance, functionality and utility of our products and services.



Many of these goals are beyond our traditional strengths.  We anticipate that the efforts of our strategic partners will become more important as the use of interactive television matures. For example, we may become more reliant on strategic partners to provide multimedia content and build the necessary infrastructure for media delivery. We may not be successful in forming strategic relationships. In addition, the efforts of our strategic partners may be unsuccessful. Furthermore, these strategic relationships may be terminated before we realize any benefit.



We operate in a highly competitive environment and industry and we may lack resources needed to capture increased market share.



We may not be able to compete successfully against our current or future competitors. The markets for graphics imaging and editing products are highly competitive. These markets are characterized by constant technological change and evolving industry standards. Many of our competitors have significantly greater financial, technical, manufacturing and marketing resources than we have. In addition, certain vendors dominate certain product categories and market segments, on a region-by-region basis, in which we currently operate or may wish to operate in the future. As a result, our ability to compete and operate in these areas may be limited.

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We anticipate increased competition from companies with which we currently compete and from companies that may enter our industry. We believe our primary competitors are Pinnacle Systems Inc., Pixel Power, vizrt Ltd. and Inscriber Technology Corporation.



We believe that our ability to compete depends on factors both within and outside our control, including the success and timing of new product developments introduced by us and our competitors, product performance and price, market presence and customer support. We may not be able to compete successfully with respect to these factors.  Maintaining any advantage that we may have, now or in the future, over our competitors will require our continuing investments in research and development, sales and marketing and customer service and support. In addition, as we enter new markets, we may encounter distribution channels, technical requirements and competitive factors that differ from those in the markets in which we currently operate. We may not be able to compete successfully in these new markets.  In addition, increased competition in any of our current markets could result in price reductions, reduced margins or loss of market share, any of which could harm our business, financial condition and results of operations.



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.



The semiconductor industry (from which surface mount components are derived) has historically been characterized by wide fluctuations in the demand for, and supply of, its products, which feed the electronics, telecommunications and computer markets. These fluctuations have resulted in circumstances when supply and demand for the industry's products have been widely out of balance. Our operating results may be materially harmed by industry-wide surface mount component shortage, which could result in severe pricing pressure. In a market with undersupply, we would have to compete with the larger customers of our vendors for limited manufacturing capacity. In such an environment, we may be unable to have our products manufactured in a timely manner or in quantities necessary to meet our requirements. Since we outsource a large proportion of our products, we are particularly vulnerable to such supply shortages.  As a result, we may be unable to fulfill orders and may lose customers. Any future industry-wide shortage of surface mount components or manufacturing capacity would materially harm our business.



We depend upon one supplier for the software license of our Aprisa product.



Aprisa is our range of stillstores, clipstore and digital disk recorder (DDR) system products, including the SSX, 100, 200, 250, 300 and VCS. Our Aprisa DDR software permits our Aprisa DDRs to operate as network entities and provides many of the features available in the Aprisa product line. Our Aprisa product line has represented 11%, 10% and 18% of revenues for the years ended December 31, 2003, 2002 and 2001, respectively. We purchase the software component of this product from Video Technics, a company where we have a 20% ownership interest. Video Technics is a small, privately held company whose financial success is partially dependent on the success of the Aprisa product line. There is no assurance that they will not face financial problems and not be able to meet its supply obligations.



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We depend on a limited number of suppliers of surface mount components.



We depend on a limited number of contract manufacturers to produce surface mount components for our products. Our principal suppliers may experience unanticipated events that could inhibit their ability to provide us with adequate manufacturing capacity on a timely basis, or at all. Introducing new surface mount components or transferring existing design and specifications to a new third party manufacturer would require significant development time to adapt our designs to their manufacturing processes and could cause product shipment delays. In addition, the costs associated with manufacturing our components may increase if we are required to use a new third party manufacturer. If we fail to satisfy our manufacturing requirements, our business would be materially harmed.



If we fail to adequately forecast demand for our products, we may incur product shortages or excess product.



Our agreements with third-party manufacturers require us to provide forecasts of our anticipated manufacturing orders, and place binding manufacturing orders in advance of receiving purchase orders from our customers. This may result in product shortages or excess product inventory because it may not be practical to increase or decrease our rolling forecasts under such agreements. Obtaining additional supply in the face of product shortages may be costly or not possible, especially in the short term. Our failure to adequately forecast demand for our products would materially harm our business.



Problems in manufacturing our products, especially our new products, may increase the costs of our manufacturing process.



Difficulties or delays in the manufacturing of our products can adversely impact our gross margin.  In the past we have experienced production and supply problems that affected the gross margin.  We may experience in the future the same type of problems or other problems. This would be especially true if we face cash constraints, slowing payments to our suppliers. That in turn affects our ability to manufacture products in a timely manner, which would adversely affect our profitability.



We may be unable to grow our business if the markets in which we sell our products do not grow.



Our success depends in large part on the continued growth of various markets that use our products. Any decline in the demand for our products in the following markets could materially harm our business:



- Broadcasting infrastructure projects,
- Video/audio, graphics and imaging,
- Advertising,
- Corporate customers, or
- Military and security systems.

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Slower growth in any of the other markets in which our products are sold may also materially harm our business.  Many of these markets are characterized by rapid technological change and intense competition.  As a result, our products may face severe price competition, become obsolete over a short time period, or fail to gain market acceptance. In addition, customers may require replacements and upgrades of equipment rather than the purchase of new, more expensive products. Any of these occurrences would materially harm our business, financial condition and results of operations.



Our business will suffer if our systems fail or become unavailable.



A reduction in the performance, reliability and availability of our network infrastructure will harm our ability to distribute our products and services to our users, as well as our reputation and ability to attract and retain funding, users and content providers.  Our systems and operations could be damaged or interrupted by fire, flood, power loss, telecommunications failure, Internet breakdown, earthquake and similar events. Our systems are also subject to viruses, break-ins, sabotage, acts of physical terrorism, intentional acts of vandalism, hacking, cyber-terrorism and similar misconduct. We do not have fully redundant systems or a formal disaster recovery plan, and we might not carry adequate business interruption insurance to compensate us for losses that may occur from a system outage. Any system error or failure that causes interruption in availability of products or content or an increase in response time could result in a loss of potential or existing customers or content providers and declines in stock values. If we suffer sustained or repeated interruptions, our products and services could be less attractive to our users and our business would be harmed.



In order to become profitable, we will need to offset the general pattern of declines and fluctuations in the prices of our products.



The legacy iNFiNiT!, MAX!> and MAXINE! products sold at prices that were higher than the current Duet line prices. With advances in technology and introduction of Windows®-based operating systems, we have to strive continuously to provide more performance and characteristics in our products at lower prices. We may not be able to do so successfully in the future, thus negatively affecting our performance.



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.



We employ independent, third-party dealers to market and sell a significant portion of our products. During 2003, 28% of our sales were made through our dealers and representatives. Although we have contracts with our dealers and representatives, any of them may terminate their relationship with us on short notice.  The loss of one or more of our principal dealers, or our inability to attract new dealers, could materially harm our business. We may lose dealers in the future and we may be unable to recruit additional or replacement dealers. As a result, our future performance will depend in part on our ability to retain our existing dealers and representatives and attract new dealers and representatives that will be able to market, sell and support our products effectively.

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Furthermore, with advances in technology we have been able to introduce lower-priced products. It may be that our distribution strategy needs to be modified as new product prices are lowered. It is possible we may not be successful in modifying our distribution strategy, thus adversely impacting our ability to sell our new 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.



Sales to customers located outside the United States accounted for 9%, 24% and 19% of our total sales in 2003, 2002 and 2001, respectively. We anticipate that sales to customers located outside the United States will continue to represent a significant portion of our total sales in future periods. Accordingly, our operations and revenues are subject to a number of risks associated with foreign commerce, including the following:



- Managing foreign dealers and foreign customers, which may be state corporations or government agencies,
- Staffing and managing foreign branch offices,
- Political and economic instability,
- Foreign currency exchange fluctuations,
- Changes in tax laws, tariffs, environmental directives, freight rates and governmental royalties,
- Timing and availability of export licenses,
- Changes in laws and policies governing operations of foreign-based companies,
- Inadequate protection of intellectual property rights in some countries, and
- Obtaining governmental approvals for certain products.



In 2003 we denominated sales of our products in foreign countries exclusively in U.S. dollars, British Pounds Sterling and Euros.  As a result, any increase in the value of the U.S. dollar relative to the local currency of a foreign country will increase the price of our products in that country so that our products become more expensive to customers in the local currency of that foreign country.  As a result, sales of our products in that foreign country may decline. To the extent any such risks materialize, our business would be materially harmed.



We may be unable to accurately predict quarterly results which could adversely affect the trading price of our stock.



We build up our sales projections from information obtained by the sales force and our dealers. Furthermore, in certain large contracts, there are acceptance and/or commissioning conditions. It is possible our products are delivered but are not paid for because acceptance and/or commissioning have not taken place to the satisfaction of the customer.  We would not be able to recognize the revenue until the customer has accepted and/or commissioned the products.



Any deviation or inaccuracy in these above factors could affect our quarterly revenue and results of operations.  As a result, on a quarterly basis, our stock price could materially fluctuate.

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We may be unable to successfully grow our business if we fail to compete effectively with others to attract and retain key personnel.



We believe our future success will depend upon our ability to attract and retain engineers and other highly skilled personnel and sales people.  Most of our employees are at-will and only a few are subject to employment contracts.  Hiring qualified sales and technical personnel will be difficult due to the limited number of qualified professionals. Competition for these types of employees is high. We have in the past experienced difficulty in recruiting and retaining qualified sales and technical personnel necessary for the development of our business.  Failure to attract and retain personnel, particularly sales and technical personnel, would materially harm our business. We are also highly dependent upon the efforts of our senior management.  The loss of the services of one or more of these individuals may delay or prevent us from achieving our objectives.



We may not be able to protect our proprietary technology and may be sued for infringing on the rights of others.



Protection of intellectual property rights is crucial to our business, since that is how we keep others from copying innovations that are central to our existing and future products. Our success also depends, in part, upon our ability to operate without infringing the rights of others. We rely on a combination of methods to protect our proprietary intellectual property, technology and know-how, such as:



- trade secret laws,
- copyright law,
- trademark law,
- patent law,
- contractual provisions,
- confidentiality agreements, and
- certain technology and security measures.



Because it is critical to our success that we are able to prevent competitors from copying our innovations, we intend to continue to seek patent and trade secret protection for our products. The process of seeking patent protection can be long and expensive and we cannot be certain that any currently pending or future applications will actually result in issued patents, or that, even if patents are issued, they will be of sufficient scope or strength to provide meaningful protection or any commercial advantage to us.



The steps we have taken regarding our proprietary
technology, however, may not be sufficient to deter misappropriation. For
example, we have rights in trademarks, service marks and copyrights that are not
registered. In addition, the laws of certain countries in which our products are
or may be developed, manufactured, sold or otherwise distributed do not protect
our products and intellectual rights to the extent of the laws of the U.S. We
also rely on trade secret protection for our technology, in part through
confidentiality agreements with our employees, consultants and third parties.
However, employees may breach these agreements, and we may

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not have adequate remedies for any breach. In any case,
others may come to know about or determine our trade secrets through a variety
of methods.



In the systems and software industries, companies receive notices from time to time alleging infringement of patents, copyrights or other intellectual property rights of others.  In the past we have been, and may from time to time continue to be, notified of claims that we may be infringing patents, copyrights or other intellectual property rights owned by third parties. Companies may pursue claims against us with respect to the alleged infringement of patents, copyrights or other intellectual property rights owned by third parties.  In addition, litigation may be necessary to protect our intellectual property rights and trade secrets, to determine the validity of and scope of the proprietary rights of others or to defend against third party claims of invalidity.  Any litigation could result in substantial costs and diversion of resources.



Existing copyright, trademark, patent and trade secret laws afford only limited protection. Moreover, effective protection of copyrights, trade secrets, trademarks and other proprietary rights may be unavailable or limited in certain foreign countries and territories. Domestic and foreign laws, in combination with the steps we have taken to protect our proprietary rights may not be adequate to prevent misappropriation of our technology or other proprietary rights. Also, these protections do not preclude competitors from independently developing products with functionality or features similar or superior to our products and technologies or designing around the patents we own or the technology we create.



Litigation may be necessary to defend against claims of infringement, to enforce our proprietary rights, or to protect trade secrets and that could result in substantial cost, and a diversion of resources away from the day-to-day operation of our business.



We may not be able to successfully implement our contingency plan upon a decline in revenues.



During 2001 we effected a restructuring that involved reductions in staff and overhead, as well as reduced capital expenditures and discretionary spending, so as to reduce costs and expenses and reduce cash outflows in response to lower revenues. If sales decline we could be forced to further reduce staff and other costs and expenses. Were this to occur, we may be unable to reduce personnel and other costs and expenses on a timely basis, which could have a material adverse effect on our business, financial condition and results of operations. In addition, further reductions in personnel and costs and expenses may adversely affect our ability to generate 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.



At December 31, 2003, we had cash and cash equivalents of $7.0 million and working capital of $7.9 million.  We also had repayment obligations on Series A and Series B Debentures of $8.7 million at December 31, 2003.



The net proceeds of the sale of our Pro-Bel Division was used to pay down a portion of our indebtedness, with the balance retained for working capital purposes.  As of November 13,

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2003, we repaid in full all 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 holders of Series A and B Debentures whereby approximately 18.3% of debentures totaling $1.95 million were exchanged for discounted cash payments of $1.04 million and 853,816 shares of common stock. This resulted in a gain of $0.6 million, in accordance with SFAS No. 15, which was recorded in the fourth quarter of 2003. Consequently, at December 31, 2003, the Company's outstanding indebtedness, consisting solely of Series A and B Debentures, totaled $8.7 million.



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 of debentures were exchanged for $3.8 million in cash and new Series C and D Debentures totaling $4.6 million were issued. At February 27, 2004 the total amount of outstanding debentures total $4.7 million.



In March 2004, the Company received a commitment from a new U.S. bank for a $2.5 million working capital line of credit which extends through April 15, 2005. The Company will have the ability to borrow on a revolving credit basis based on levels of eligible accounts receivable. We believe that cash on hand, net cash expected to be generated in the business, and availability under our new line of credit, will be sufficient to meet our needs for the next twelve months if we are able to achieve our planned results of operations. However, we may need to raise additional funds in order to fund our business, expand our sales and marketing activities, develop or enhance new products, respond to competitive pressures and satisfy our existing and any new obligations that may arise. Additional financing may not be available on terms favorable to us, or at all. While we significantly reduced our cash usage for operations during recent years, capital is critical to our business, and our ability to raise capital in the event that ongoing losses use our available cash would have a material adverse effect on our business.



The TV broadcast industry has historically expected substantial marketing expenses.



In the past we have spent generously on marketing.  We have attended major trade shows in the U.S. and Europe, which cost us a substantial amount of money. Our plan going forward is to participate in the principal trade shows and some of the minor shows. We plan to control these expenditures and be more frugal. We cannot provide any assurance we will remain frugal and judicious in expensing our marketing dollars, because of market demands. Furthermore, we cannot provide any assurance that selective spending of our marketing dollars will pay off in the areas in which we are expecting results.



We sell hardware and software service agreements to our customers that may become onerous because of product problems or the age of our products.



We generated approximately 8% of our 2003 revenues from
hardware and software service agreements sold to our customers. The customary
term of such agreements is one year. In order to maintain our customer
relations, we may need to support customers' products beyond their useful life,
which may require us to expend significant resources. It is possible that our
products, current and prospective, will not provide sufficient customer
satisfaction and require

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inordinate and expensive service support for each product
category, beyond the level planned in the service agreements in place. That, by
itself, would increase our expenses and make these service agreements
unprofitable. In addition, customers who purchase service agreements and
experience problems may be disinclined to renew their service agreements in
subsequent years, hence affecting the revenues generated from service
agreements.

Our warranties on products may prove insufficient and could cause us unexpected costs.



We generally provide warranties on all of our products for one year. It is possible that our products, current and prospective, do not provide sufficient customer satisfaction and we may decide to extend our warranty for a particular product or product line. In addition, we may extend the warranty period in certain special situations to win a particular contract, hence extending our liability period.



Any unplanned increase of our warranty periods would increase our costs and reduce our profitability. Because of the attendant contingent liabilities, it is possible that a reserve would have to be established, further affecting our operating results.



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.



The enactment by U.S. federal or state or international governments of new laws or regulations, changes in the interpretation of existing regulations or a reversal of the trend toward deregulation in these industries could cause our customers to suffer, and thereby adversely affect our ability to continue to be profitable.  Television operators are subject to extensive government regulation by the FCC and other U.S. federal and state regulatory agencies. These regulations could limit capital expenditures by television operators and if that happens, our business, financial condition and results of operations may suffer.



The telecommunications and television industries are subject to extensive regulation in the United States and other countries.  Our business is dependent upon the continued growth of these industries in the United States and internationally.  Recent legislation has lowered the legal barriers to entry for companies into the United States' multi-channel television market, but telecommunications companies may not successfully enter this or related markets. Moreover, the growth of our business internationally is dependent in part on similar deregulation of the telecommunications industry abroad, which deregulation may not occur.



Our principal stockholders have significant voting power and may vote for actions that may not be in the best interests of our stockholders.



Our officers, directors and principal stockholders together
control approximately 41% (as of March 1, 2004) of our issued and outstanding
common stock. As a result, these stockholders, if they act together, will be
able to significantly influence the management and affairs of our company and
all matters requiring stockholder approval, including the election of directors
and approval of significant corporate transactions. This concentration of
ownership may have the effect of delaying or preventing a change in control or
other business combination and might

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affect the market price of our common stock. This
concentration of ownership may not be in the best interest of our other
stockholders.



We have not issued dividends on our common stock for over thirteen years and do not anticipate doing so in foreseeable future.



We have not paid cash dividends on our common stock since November 27, 1989 and do not anticipate paying any cash dividends in the foreseeable future. We intend to retain any earnings for use in our business. The decision to pay dividends in the future will be at the discretion of our board of directors. The historical and prospective lack of issuing dividends may diminish the value of the common stock.



The price of our common stock may be volatile.



The trading price of our common stock has been and may continue to be subject to fluctuations in response to quarter-to-quarter variations in operating results, changes in earnings estimates by analysts, general conditions in the digital media industry, announcements of technological innovations or new products introduced by us or our competitors and other events or factors.  The stock market in general, and the shares of technology companies in particular, have experienced extreme price fluctuations in recent years. During the period commencing January 1, 2002 through March 1, 2004, the closing price of our common stock has ranged between $0.15 and $0.72. This volatility has had a substantial impact on the market prices of securities issued by many companies for reasons unrelated to the operating performance of the companies affected. These broad market fluctuations may adversely affect the market price of our common stock. In addition, our common stock is now traded on the OTC Bulletin Board. You may expect trading volume to be low in such a market. Consequently, the activity of only a few shares may affect the market and may result in wide swings in price and in volume.



An increase in the number of shares of our common stock outstanding could reduce the price of our common stock.



At December 31, 2003, there were 9,520,000 potentially dilutive shares that would be issuable if all debentures, including interest paid in kind, were converted and all outstanding warrants and common stock options were exercised. As of February 27, 2004, subsequent to the Company's debt exchange offer that closed on that date, there were 9,413,000 potentially dilutive shares that would be issuable. While debt decreased, the conversion price on the new debt is lower than on the old debt, resulting in approximately the same number of shares. Issuance or sale of a substantial number of shares of additional common stock, or the perception that such issuance or sales could occur, could adversely affect the market price for our common stock as it would result in additional shares of our common stock being available on the public market. These issuances or sales also might make it difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.



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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.



Various provisions of our Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws and in New York corporate law may discourage, delay or prevent a change in control or takeover attempt of our company by a third party which is opposed to by our management and board of directors.  Public stockholders who might desire to participate in such a transaction may not have the opportunity to do so.  These anti-takeover provisions could substantially impede the ability of public stockholders to benefit from a change of control or change in our management and board of directors.  These provisions include:



- authorizing the issuance of "blank check" preferred stock that could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt,
- limiting who may call special meetings of our stockholders, and
- establishing advance notice requirements for nominations of candidates for election to our board of directors or for proposing matters that can be acted upon by our stockholders at stockholder meetings.



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.



Our common stock trades on the OTC Bulletin Board and it experiences lower trading volumes than many stocks listed on a national exchange, and therefore it may be difficult for an investor to sell the shares and to realize any return on an investment in our common stock. Because our common stock lacks public market research analyst coverage it is more difficult to obtain reliable information about its value or the extent of risks to which the investment is exposed. Even if a liquid market for the shares of our common stock exists in the future, there can be no assurance that the securities could be transferred at or above the price paid. The price of our common stock may fall against the investor's interests, and the investor may get back less than he or she invested.



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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA







Index to Financial Statements



|Financial Statements:                                                        | Page
|---------------------------------------------------------------------------- | ----
|                                                                             |     
|Report of Independent Auditors - PricewaterhouseCoopers LLP                  | 41  
|                                                                             |     
|Consolidated Balance Sheets at December 31, 2003 and 2002                    | 42  
|                                                                             |     
|Consolidated Statements of Operations for the Years Ended December 31, 2003, |     
|2002 and 2001                                                                | 43  
|                                                                             |     
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, |     
|2002 and 2001                                                                | 44  
|                                                                             |     
|Consolidated Statements of Shareholders' (Deficit) Equity for the Years      |     
|Ended December  31, 2003, 2002 and 2001                                      | 45  
|                                                                             |     
|Notes to the Consolidated Financial Statements                               | 46  
|                                                                             |     
|Financial Statement Schedule:                                                |     
|                                                                             |     
|II - Valuation and Qualifying Accounts                                       | 75  
|                                                                             |     







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REPORT OF INDEPENDENT AUDITORS









To the Board of Directors and Shareholders of Chyron Corporation:



In our opinion, the consolidated financial statements and the financial statement schedule listed under Item 8 present fairly, in all material respects, the financial position of Chyron Corporation and its subsidiaries at December 31, 2003 and 2002 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the consolidated financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.







/s/PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP





Melville, New York

March 4, 2004



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

|                                                                  | December 31,
|----------------------------------------------------------------- | ------------
|Assets                                                            | 2003        
|Current assets:                                                   |             
|Cash and cash equivalents                                         | $6,968      
|Restricted cash                                                   |             
|Accounts receivable, net                                          | 3,454       
|Inventories, net                                                  | 1,714       
|Marketable securities                                             | 288         
|Prepaid expenses and other current assets                         | 667         
|Total current assets                                              | 13,091      
|                                                                  |             
|Property and equipment, net                                       | 630         
|Intangible assets, net                                            |             
|Pension asset                                                     |             
|Other assets                                                      | 454         
|TOTAL ASSETS                                                      | $14,175     
|                                                                 
|Liabilities and Shareholders' Deficit                            
|Current liabilities:                                              |             
|Accounts payable and accrued expenses                             | $3,674      
|Current portion of long-term debt and convertible debentures      |             
|Deferred revenue                                                  | 806         
|Pension liability                                                 | 643         
|Capital lease obligations                                         | 11          
|Total current liabilities                                         | 5,134       
|                                                                  |             
|Long-term debt                                                    |             
|Convertible debentures                                            | 8,677       
|Pension liability                                                 | 1,712       
|Other liabilities                                                 | 233         
|Total liabilities                                                 | 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 - 40,687,466 and 39,563,691at December 31, |             
|2003 and 2002, respectively                                       | 407         
|Additional paid-in capital                                        | 71,795      
|Accumulated deficit                                               | (74,006)    
|Accumulated other comprehensive income (loss)                     | 223         
|Total shareholders' deficit                                       | (1,581)     
|TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT                       | $14,175     



See Notes to Consolidated Financial Statements

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CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)



|                                                         | Year Ended December 31,
|-------------------------------------------------------- | -----------------------
|                                                         | 2003                   
|                                                         |                        
|Net sales                                                | $19,369                
|Cost of products sold                                    | 8,367                  
|Gross profit                                             | 11,002                 
|                                                         |                        
|Operating expenses:                                      |                        
|Selling, general and administrative                      | 8,102                  
|Research and development                                 | 2,663                  
|Goodwill impairment, restructuring and unusual charges   |                        
|                                                         |                        
|Total operating expenses                                 | 10,765                 
|                                                         |                        
|Operating income (loss)                                  | 237                    
|                                                         |                        
|Interest expense                                         | 2,052                  
|Interest income                                          | (21)                   
|Other expense (income), net                              | 150                    
|                                                         |                        
|Loss from continuing operations                          | (1,944)                
|                                                         |                        
|Discontinued operations:                                 |                        
|Loss from discontinued operations                        | (1,048)                
|Gain on sale from disposition of discontinued operations | 2,599                  
|                                                         |                        
|Net loss                                                 | $(393)                 
|                                                         |                        
|Net income (loss) per share - basic and diluted          |                        
|Continuing operations                                    | $ (0.05)               
|Discontinued operations                                  | 0.04                   
|Net loss per share - basic and diluted                   | $(0.01)                
|                                                         |                        
|Weighted average shares used in computing net            |                        
|loss per share:                                          |                        
|Basic                                                    | 39,688                 
|Diluted                                                  | 39,815                 



See Notes to Consolidated Financial Statements

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CHYRON CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                             | Year Ended December 31,
|------------------------------------------------------------ | -----------------------
|                                                             | 2003                   
|CASH FLOWS FROM OPERATING ACTIVITIES:                        |                        
|Net loss                                                     | $(393)                 
|Adjustments to reconcile net loss to net cash                |                        
|provided by (used in) operating activities:                  |                        
|Goodwill impairment, restructuring and unusual charges       |                        
|(Income) loss from discontinued operations, net              | (1,551)                
|Depreciation and amortization                                | 588                    
|Loss on sale of investments and asset writedown              | 560                    
|Non-cash settlement of interest liability                    | 1,190                  
|Gain on debt extinguishment                                  | (579)                  
|Other                                                        | 610                    
|Changes in operating assets and liabilities, net of acquired |                        
|assets & liabilities in 2001:                                |                        
|Accounts receivable                                          | 553                    
|Inventories                                                  | 942                    
|Prepaid expenses and other assets                            | (801)                  
|Accounts payable and accrued expenses                        | (402)                  
|Other liabilities                                            | 177                    
|Net cash  provided by (used in) operating activities         | 894                    
|                                                             |                        
|CASH FLOWS FROM INVESTING ACTIVITIES:                        |                        
|Proceeds from sale of subsidiary, net                        | 10,294                 
|Proceeds from sale of property/investments                   | 83                     
|Acquisition of Interocity                                    |                        
|Acquisition of property and equipment                        | (155)                  
|Decrease (increase) in restricted cash                       | 1,000                  
|Net cash provided by (used in) investing activities          | 11,222                 
|                                                             |                        
|CASH FLOWS FROM FINANCING ACTIVITIES:                        |                        
|(Payments) borrowings on term loan                           | (1,350)                
|Payments from revolving credit agreements, net               | (2,311)                
|(Payments) proceeds from issuance of convertible debentures  | (3,682)                
|Payments of capital lease obligations                        | (16)                   
|Net cash (used in) provided by financing activities          | (7,359)                
|                                                             |                        
|Net cash provided by (used in) discontinued operations       | 994                    
|                                                             |                        
|Change in cash and cash equivalents                          | 5,751                  
|Cash and cash equivalents at beginning of  year              | 1,217                  
|Cash and cash equivalents at end of year                     | $6,968                 
|                                                             |                        
|SUPPLEMENTAL CASH FLOW INFORMATION:                          |                        
|Interest paid                                                | $469                   









See Notes to Consolidated Financial Statements

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CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY

(In thousands)







|                                                    |        |        |            |             | Accumulated   |         
|--------------------------------------------------- | ------ | ------ | ---------- | ----------- | ------------- | --------
|                                                    |        |        | Additional |             | Other         |         
|                                                    |        |        | Paid-In    | Accumulated | Comprehensive |         
|                                                    | Shares | Amount | Capital    | Deficit     | Income(loss)  | Total   
|                                                    |        |        |            |             |               |         
|Balance at January 1, 2001                          | 38,870 | $  389 | $70,022    | $(36,902)   | $(548)        | $32,961 
|                                                    |        |        |            |             |               |         
|Net loss                                            |        |        |            | (33,667)    |               | (33,667)
|                                                    |        |        |            |             |               |         
|Cumulative translation adjustment                   |        |        |            |             | (166)         | (166)   
|                                                    |        |        |            |             |               |         
|Unrealized loss on available for sale securities    |        |        |            |             | (124)         | (124)   
|                                                    |        |        |            |             |               |         
|Total comprehensive loss                            |        |        |            |             |               | (33,957)
|                                                    |        |        |            |             |               |         
|Exercise of stock options                           | 2      |        | 1          |             |               | 1       
|                                                    |        |        |            |             |               |         
|Shares issued in connection with the acquisition of | 633    | 6      | 1,235      |             |               | 1,241   
|Interocity                                          |        |        |            |             |               |         
|                                                    |        |        |            |             |               |         
|Issuance of common stock as compensation            | 59     | 1      | 66         | 0           | 0             | 67      
|                                                    |        |        |            |             |               |         
|Balance at December 31, 2001                        | 39,564 | 396    | 71,324     | (70,569)    | (838)         | 313     
|                                                    |        |        |            |             |               |         
|Net loss                                            |        |        |            | (3,044)     |               | (3,044) 
|                                                    |        |        |            |             |               |         
|Cumulative translation adjustment                   |        |        |            |             | 202           | 202     
|                                                    |        |        |            |             |               |         
|Unrealized gain on available for sale securities    |        |        |            |             | 37            | 37      
|                                                    |        |        |            |             |               |         
|Total comprehensive loss                            |        |        |            |             |               | (2,805) 
|                                                    |        |        |            |             |               |         
|Warrants issued                                     |        |        | 129        |             |               | 129     
|                                                    |        |        |            |             |               |         
|Balance at December 31, 2002                        | 39,564 | 396    | 71,453     | (73,613)    | (599)         | (2,363) 
|                                                    |        |        |            |             |               |         
|Net loss                                            |        |        |            | (393)       |               | (393)   
|                                                    |        |        |            |             |               |         
|Cumulative translation adjustment                   |        |        |            |             | 378           | 378     
|                                                    |        |        |            |             |               |         
|Unrealized gain on available for sale securities    |        |        |            |             | 444           | 444     
|                                                    |        |        |            |             |               |         
|Total comprehensive income                          |        |        |            |             |               | 429     
|                                                    |        |        |            |             |               |         
|Shares issued in connection with debt               |        |        |            |             |               |         
|redemption  and extinguishment                      | 901    | 9      | 272        |             |               | 281     
|                                                    |        |        |            |             |               |         
|Shares issued to 401K plan                          | 223    | 2      | 70         |             |               | 72      
|                                                    |        |        |            |             |               |         
|Balance at December 31, 2003                        | 40,688 | $407   | $71,795    | $(74,006)   | $223          | $(1,581)











See Notes to Consolidated Financial Statements

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CHYRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Nature of Business



Chyron Corporation and its wholly-owned subsidiaries ("Chyron" or the "Company") is a supplier of character generators ("CG") and graphics hardware and software related products to the television industry.  The Company develops, manufactures, markets and supports hardware and software products that enhance the presentation of live and pre-recorded video, audio and other data. Chyron's products are used in broadcast production facilities worldwide for applications including news, sports, weather and election coverage. The Company's graphics products create, manipulate, store, playback and manage content including 2D/3D text, logos, graphics, animations and video stills/clips.



On November 6, 2003, the Company completed the sale of the entire issued share capital of its wholly owned subsidiary, Chyron UK Holdings Limited (Chyron UK Holdings), including its operating subsidiary, Pro-Bel Limited, to Oval (1883) Limited, pursuant to the terms of a sale and purchase agreement. In effect, this eliminated the entire operations of the Signal Distribution and Automation segment and only the Graphics Division remains. As a result, the Company now focuses completely on its core-competency, the development of real-time graphics solutions for its worldwide professional video and TV broadcast customers. The gross proceeds were approximately $15.3 million, before the required settlement of Pro-Bel bank obligations of approximately $3.4 million and related transaction costs of approximately $1.4 million. The Company realized a gain on sale of $2.6 million that was recorded in the fourth quarter of 2003.



The net proceeds of the sale of $10.5 million was 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 holders of Series A and B Subordinated Convertible Debentures whereby approximately 18.3% of debentures totaling $1.95 million were exchanged for discounted cash payments of $1.04 million and 853,816 shares of common stock.  This resulted in a gain of $0.6 million, in accordance with SFAS No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructuring" ("SFAS No. 15"), which was recorded in the fourth quarter of 2003.  Consequently, at December 31, 2003, the Company's outstanding indebtedness, consisting solely of Series A and B Subordinated Convertible Debentures, totaled $8.7 million.



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 new Series C and D Debentures totaling $4.6 million were issued.

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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. During 2001, we effected a restructuring that involved reductions in staff and overhead, as well as reduced capital expenditures and discretionary spending, so as to reduce costs and expenses and reduce cash outflows in response to lower revenues. We do not currently intend to effect another restructuring as we did in 2001 unless a downturn in sales necessitates it. We operate in a rapidly changing environment and must remain responsive to changes as they occur. In the event that revenues are significantly below 2004 forecasted revenues we believe we have the ability to reduce or delay discretionary expenditures, including capital purchases, and further reduce headcount, according to our contingency plan so that we will have sufficient cash resources through December 31, 2004. 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 2004 sales than we are currently forecasting, 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, trade shows, advertising, 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, and availability under our new line of credit, will be sufficient to meet our cash needs for the next twelve 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.



Basis of Presentation



The consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries. All significant intercompany amounts have been eliminated. Investments in affiliates of less than 20 percent are generally stated at cost. Investments in companies representing ownership interests of 20 percent to 50 percent are accounted for by the equity method of accounting. Under the equity method, we include our pro-rata share of income (loss) of such equity investment, in our consolidated income (loss).



The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, costs and expenses during the periods presented. Estimates made by management include inventory valuations, allowances for doubtful accounts, warranty reserves, forecasts of 2004 results and cash requirements. Actual results could differ from those estimates.



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Cash and Cash Equivalents



Cash includes cash on deposit and amounts invested in highly liquid money market funds. Cash equivalents consist of short term investments with original maturities of three months or less. The carrying amount of cash and cash equivalents approximates their fair value.



Inventories



Inventories are stated at the lower of cost or market, cost being determined primarily on the basis of average cost. The need for inventory obsolescence provisions is evaluated by us and, when appropriate, reserves for technological obsolescence, non-profitability of product lines and excess quantities are established.



Property, Equipment and Depreciation



Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are provided on the straight line method over the following estimated useful lives:





|Machinery and equipment | 3-10 years                                                       
|----------------------- | -----------------------------------------------------------------
|Furniture and fixtures  | 5-10 years                                                       
|Leasehold improvements  | Shorter of the life of improvement or
remaining life of the lease



Excess of Cost over Net Tangible Assets Acquired



We continually evaluate whether changes have occurred that would require revision of the remaining estimated useful life of the assigned excess of cost over the value of net tangible assets acquired (goodwill) or its carrying amount. Our method used to measure whether or not there is an impairment in the recorded value of an investment is to use the undiscounted cash flow method prescribed by FAS 142. Under this method we compare the undiscounted future cash flows with the recorded value of the investment to determine whether an impairment exists. If an impairment exists, we use the discounted cash flow method to calculate the impairment amount.



Marketable Securities



We account for our investments in accordance with the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities."  This standard requires that certain debt and equity securities be adjusted to market value at the end of each accounting period. Management determines the appropriate classification of marketable securities at the time of purchase and reevaluates such designation as of each balance sheet date. At December 31, 2003, all securities covered by SFAS
No. 115 were designated as available for sale. Accordingly, these securities are
stated at fair value, with unrealized gains and losses reported as a separate
component of comprehensive income or loss, net of tax. Realized gains and losses
on sales of

-48-

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investments, as determined by the specific identification
method, are included in the Consolidated Statements of Operations.



Research, Development and Engineering



Technological feasibility for our products is reached shortly before the products are released to manufacturing. Consequently, costs incurred after technological feasibility is established are not material, and accordingly, we expense all research and development costs when incurred. Research and development costs include wages and other personnel costs, material costs and an allocation of certain indirect costs related to facilities.



For periods prior to 2000 certain software development costs were capitalized, which resulted in amortization expense of such costs of approximately $0.4 million in 2002 and 2001. At December 31, 2002 all costs that were previously capitalized have been fully amortized.



Impairment of Long-Lived Assets



We continually evaluate whether changes have occurred that would require revisions to the carrying amounts of our long-lived assets. In making such determination, we reassess market value, assess recoverability and replacement values and evaluate undiscounted cash flows of the underlying business or assets. Currently, management does not believe any of its long-lived assets are impaired.



Revenue Recognition



Net sales includes revenue derived from sales of products and services. We recognize revenue when it is realized or realizable and earned, when we have persuasive evidence of an arrangement, the product has been shipped or the services have been provided to the customer, the sales price is fixed or determinable and collectibility is reasonably assured. Revenue is reduced for estimated customer returns and other allowances.



Revenue from product sales is recognized when title has passed (usually at the time the product is shipped to the customer) and there are no unfulfilled company obligations that affect the customer's final acceptance of the arrangement. Cost of these obligations, if any, would be accrued when the corresponding revenue is recognized. Revenue from one-time charge licensed software is recognized at the inception of the license term.



Revenue associated with long term contracts is recognized using the percentage-of-completion method of accounting. In using this method, we record revenue by reference to the costs incurred to date and the estimated costs remaining to fulfill the contracts or based upon the completion of certain tasks. Provisions for losses are recognized during the period in which the loss first becomes apparent.



Revenue from time and material service contracts is recognized as the services are provided. Revenue from maintenance contracts is recognized ratably over the contractual period.

-49-

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At times we enter into transactions that include multiple element arrangements, which may include any combination of hardware, services or software.  When some elements are delivered prior to others in an arrangement, revenue is deferred until the delivery of the last element unless there is all of the following:



- Vendor-specified objective evidence of fair value of the undelivered elements.
- The functionality of the delivered elements is not dependent on the undelivered elements.
- Delivery of the delivered element represents the culmination of the earnings process.



Shipping and Handling Fees and Costs



All amounts billed to a customer in a sales transaction related to shipping and handling represent revenues earned and are reported as revenue, and the costs incurred by the Company for shipping and handling are reported as an expense.



Advertising Costs



Advertising costs are expensed as incurred. Advertising expense was $0.05 million in 2003, $0.09 million in 2002 and $0.12 million in 2001.



Income Taxes



We account for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." Under SFAS 109, deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end.



We account for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the net deferred tax assets will not be realized.



Foreign Currencies



Assets and liabilities of our foreign subsidiaries are translated into U.S. dollars at the current rate of exchange, while revenues and expenses are translated at the average exchange rate during the year. Adjustments from translating foreign subsidiaries' financial statements are reported as a component of other comprehensive loss. Transaction gains or losses are included in other income and expense, net. The net impact of foreign exchange transactions for the years ended December 31, 2003, 2002 and 2001 were gains of $0.04 million, $0.05 million and $0.09 million, respectively.



-50-

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Net Loss Per Share



We report our net loss per share in accordance with Financial Accounting Standards Board Statement No. 128, "Earnings Per Share."  Basic net loss per common share is computed based on the weighted average number of common shares outstanding during the year. Diluted net loss per common share is computed based on the weighted average number of common shares outstanding during the year plus, when dilutive, additional shares issuable upon the assumed exercise of outstanding common stock equivalents. For 2003, 2002 and 2001 common stock equivalents of 9,520,000, 18,794,000 and 16,401,000, respectively, were not included in the computation of diluted net loss per common share because their effect would have been anti-dilutive.



Stock-Based Compensation Plans



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 years ended December 31, 2003, 2002 and 2001.  We have adopted the disclosure requirements of SFAS 123, "Accounting for Stock-Based Compensation," 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 loss and net loss per share if the fair value method had been applied (in thousands except per share amounts):





|                                        | Year Ended December 31,
|--------------------------------------- | -----------------------
|                                        | 2003                   
|Net loss, as reported                   | $(393)                 
|Deduct: Total stock-based employee      |                        
|compensation expense determined under   |                        
|fair value based method, net of related |                        
|tax effects                             | (50)                   
|Proforma net loss                       | $(443)                 
|Net loss per share - basic and diluted: |                        
|As reported                             | $(0.01)                
|Proforma                                | $(0.01)                



We account for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and EITF No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services."

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Recent Accounting Pronouncements



In November 2002, the Emerging Issues Task Force (or EITF) of the Financial Accounting Standards Board (or FASB) issued EITF 00-21, "Revenue Arrangements with Multiple Deliverables," which addresses certain aspects of the accounting for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. Under EITF 00-21, revenue arrangements with multiple deliverables should be divided into separate units of accounting if the deliverables meet certain criteria, including whether the fair value of the delivered items can be determined and whether there is evidence of fair value of the undelivered items. In addition, the consideration should be allocated among the separate units of accounting based on their fair values, and the applicable revenue recognition criteria should be considered separately for each of the separate units of accounting. EITF 00-21 is effective for revenue arrangements we enter into after June 30, 2003. We continuously evaluate the impact of EITF 00-21 on revenue arrangements we enter into which did not have a material impact on the Company's consolidated financial statements.



In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities" and a revised interpretation of FIN 46 (FIN 46-R) in December 2003 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 all arrangements entered into after January 31, 2003. Since January 31, 2003, the Company has not invested in any entities it believes are variable interest entities for which the Company is the primary beneficiary.  For arrangements entered into prior to February 1, 2003, the Company is required to adopt the provisions of FIN 46-R in the first quarter of 2004.  The Company does not believe the adoption of FIN 46-R will have a material impact on its financial statements.



In April 2003, the FASB issued SFAS No. 149. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133.  SFAS No. 149 requires that contracts with comparable characteristics be accounted for similarly.  In particular, SFAS No. 149 (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative discussed in paragraph 6(b) of SFAS No. 133, (2) clarifies when a derivative contains a financing component, (3) amends the definition of an underlying to conform it to language used in FIN No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," and (4) amends certain other existing pronouncements. The provisions of SFAS No. 149 are effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS No. 149 did not have a material impact on the Company's results of operations or financial condition.



In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with

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characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). The provisions of SFAS No. 150 are effective for financial instruments entered into or modified after May 31, 2003, and otherwise are effective at the beginning of the first interim period beginning after June 15, 2003.  The adoption of SFAS No. 150 did not have any impact on the Company's results of operations or financial condition.



In December 2003, the Financial Accounting Standards Board ("FASB") issued a revised SFAS No. 132, "Employer's Disclosures about Pensions and Other Postretirement Benefits." The revised standard requires incremental pension and other postretirement benefit plan disclosures to financial statements and is designed to improve disclosure transparency. The adoption of this accounting standard did not have any effect on our results of operations or financial position.



Reclassifications



Certain reclassification of prior years' data have been made to conform to 2003 classifications.



2. DISCONTINUED OPERATIONS



On November 6, 2003, Chyron Corporation completed the sale of the entire issued share capital of its wholly owned subsidiary, Chyron UK Holdings Limited (Chyron UK Holdings), including its operating subsidiary, Pro-Bel Limited, to Oval (1883) Limited, pursuant to the terms of a sale and purchase agreement. In effect, this eliminated the entire operations of  the Signal Distribution and Automation segment and only the Graphics Division remains. As a result, the Company now focuses completely on its core-competency, the development of real-time graphics solutions for its worldwide professional video and TV broadcast customers. The gross proceeds were approximately $15.3 million, before the required settlement of Pro-Bel bank obligations of approximately $3.4 million and related transaction costs of approximately $1.4 million. This resulted in net proceeds of $10.5 million, of which $0.3 million will be paid in April 2005 (included in other assets at December 31, 2003), $0.4 million will be held in escrow, until the first quarter of 2004, pending the final valuation of net assets sold (included in other current assets at December 31, 2003), and the balance of $9.8 million was paid in cash at closing. The Company realized a gain on sale of $2.6 million that was recorded in the fourth quarter of 2003.



Consequently, this segment has been eliminated and the operating results are reported as discontinued operations. Prior year Statements of Operations and Cash Flows have been restated to reflect this segment as a discontinued operation. At December 31, 2002, the related assets and liabilities of this segment consisted of (in thousands):

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|Cash                                  | $     642
|------------------------------------- | ---------
|Accounts receivable, net              | 2,821    
|Inventories, net                      | 6,012    
|Prepaid expenses and other assets     | 419      
|Property and equipment, net           | 3,359    
|Pension asset                         | 4,429    
|Total assets                          | $17,682  
|                                      |          
|Accounts payable and accrued expenses | $  3,251 
|Current and long term debt            | 2,566    
|Capital lease obligations             | 184      
|Other liabilities                     | 1,055    
|Total liabilities                     | $ 7,056  



Following are the Statements of Operations for the discontinued operations through November 6, 2003 (in thousands):





|                                    | 2003     | 2002    | 2001    
|----------------------------------- | -------- | ------- | --------
|                                    |          |         |         
|Net sales                           | $17,389  | $20,316 | $27,106 
|Cost of sales                       | 8,006    | 9,454   | 15,190  
|                                    | 9,383    | 10,862  | 11,916  
|Operating expenses:                 |          |         |         
|Selling, general and administrative | 8,608    | 10,567  | 14,003  
|Research and development            | 1,771    | 1,905   | 2,881   
|Goodwill, impairment, restructuring |          |         |         
|and unusual charges                 |          |         | 3,898   
|Total operating expenses            | 10,379   | 12,472  | 20,782  
|Operating loss                      | (996)    | (1,610) | (8,866) 
|Interest expense                    | 161      | 206     | 234     
|Other (income) expense              | (109)    | (855)   | 143     
|Loss from discontinued operations   | $(1,048) | $(961)  | $(9,243)



3. BUSINESS ACQUISITION



In January 2001, we acquired Interocity Development Corporation ("Interocity"), a small, privately held company.  The purchase price consisted of $5 million in cash and approximately 633,000 shares of our company's common stock ($1.3 million) accounted for based on the stock price two days before and two days after the announcement, and direct acquisition costs of approximately $0.2 million.  The acquisition was accounted for as a purchase in accordance with APB16 and accordingly, the $6.2 million excess of the purchase price over the value of the net assets acquired was recorded as goodwill to be amortized over a period of three years.



Interocity was a relative start up web site development company (commenced operations in 1999) providing streaming media design and development services, a market that we thought offered growth opportunities as we expected businesses to start to move towards Internet-based broadcasting and would require related consulting services in their effort. We acquired Interocity to be the cornerstone of our then new Streaming Services division that we had started in late

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2000 to build an internal infrastructure to enter this market. However, due to a sharp slowdown in the economy and a sudden and marked decline in the Internet business market in particular at the end of 2000 and into early 2001, the Streaming Services division (which included the Interocity operations) experienced lower than expected revenues in the first quarter (only $0.18 million) and early second quarter (only $0.04 million) of 2001, and the demand that we had anticipated for such services did not materialize.  It became apparent in the second quarter of 2001 that revenues would not be even remotely sufficient to support the accelerating costs of entering the streaming services market and that the Streaming Services division would be a significant net user of cash that we needed for our core business, for the foreseeable future. Consequently, we quickly decided to close down the Streaming Services division and assessed the recoverability of our investment in Interocity. Our assessment concluded that the recoverability was minimal based on a comparison of undiscounted cash flow from forecasted revenues and potential disposition to the net carrying amount of our investment in Interocity in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("FAS 121").  Consequently we determined that the goodwill associated with the acquisition of Interocity was permanently impaired and should be written off. The actual impairment amount to be written off was calculated using a discounted cash flow method. Accordingly, we determined that the entire remaining unamortized net asset of $5.5 million was non-recoverable, and recognized a goodwill impairment charge of $5.5 million during the second quarter of 2001.



4. GOODWILL IMPAIRMENT, RESTRUCTURING AND OTHER

UNUSUAL CHARGES



We recorded goodwill impairment, restructuring and other unusual charges totaling $12.5 million during the second, third and fourth quarters of  2001 as summarized in the table below (in thousands):





|                       | Q2     | Q3     | Q4     | Total  
|---------------------- | ------ | ------ | ------ | -------
|                       |        |        |        |        
|Goodwill impairment    | $5,478 | $3,595 | $   0  | $ 9,073
|Fixed assets           | 1,504  | 0      | 0      | 1,504  
|Severance              | 749    | 0      | 571    | 1,320  
|Lease commitments      | 523    | 0      | 0      | 523    
|Other                  | 48     | 0      | 0      | 48     
|                       | $8,302 | $3,595 | $571   | $12,468
|Breakdown:             |        |        |        |        
|Non cash charges       | $6,982 | $3,595 | $    0 | $10,577
|Cash charges           | 1,320  | 0      | 571    | 1,891  
|Remaining cash outlays |        |        |        |        
|at December 31, 2003   | 0      | 0      | 0      | 0      



The $8.3 million charge incurred in the second quarter of
2001 was directly related to a restructuring involving the closing down of our
Streaming Services division. Of this charge, $5.5 million related to the
impairment of goodwill from our investment in Interocity, which was the core
component of our Streaming Services division. The $3.6 million charge incurred
in the third quarter of 2001 was directly related to an impairment of goodwill
from our investment in our Pro-Bel division. The $0.6 million charge incurred in
the fourth quarter of 2001 was related to a

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company-wide restructuring plan effected to bring costs and
expenses in line with forecasted revenues. Of the total 2001 charges of $12.5
million, $10.6 million were non-cash charges, consisting of the goodwill
impairment and fixed assets write-offs, and the balance of $1.9 million were
cash charges, consisting of severance payments, lease payments and other minor
payments. The majority of the cash charges were paid out in 2001, with the
balance paid out during 2002.



The leased offices in New York, NY, London, U.K., Slough, U.K., Atlanta, GA and Cupertino, CA, were closed and the related liabilities were accrued or written-off in the second quarter of 2001, as were operating leases for software and leased communication lines, in connection with the closure of the Streaming Services division. Subsequently, the leases related to closed offices were either subleased or expired. Charges incurred in connection with theses leases were $0.5 million.



We paid severance to 40 employees, representing all of our Streaming Services division employees who were made redundant by the closure of this division. Virtually all types of positions were eliminated including managers, sales persons, consultants and support and administrative staff. Employee severance costs amounted to $0.7 million. Severance consisted of salary and benefits continuance for a period of time and was determined based on length of service or, in a few cases, as per the terms of employment agreements.



Concurrent with the closing down of our Streaming Services division, we evaluated our investment in Interocity, the core component of that Division, in accordance with FAS 121. We assessed the recoverability of our investment in Interocity by comparing the undiscounted future cash flows from forecasted results of operations and its potential disposition with the carrying amount of our investment.  As a result of this analysis, we determined that the expected future cash flows would be insufficient to recover the carrying value of our investment and determined the asset was impaired.  Accordingly, we determined that the entire net asset of $5.5 million was non-recoverable and recognized a goodwill impairment charge of $5.5 million during the second quarter of 2001.



In creating the Streaming Services division, we invested in computer equipment, servers and furniture.  When the division was closed, those total fixed assets that could not be sold or used elsewhere in the Company, were written-off in the second quarter of 2001 in the amount of their depreciated carrying value of $1.5 million.



In the third quarter of 2001, due to continued poor results of our Pro-Bel division, we assessed the recoverability of our investment in Pro-Bel in accordance with FAS 121 by comparing the undiscounted future cash flows from forecasted results of operations with the carrying value of our investment.  As a result of this analysis, we determined that the expected future cash flows would be insufficient to recover the carrying value of our investment and determined the asset was impaired.  Accordingly, we recognized a goodwill impairment charge of $3.6 million during the third quarter of 2001. The amount of the goodwill impairment was calculated by comparing the carrying value of our investment with the present value of our estimated future cash flows.

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In the fourth quarter of 2001, we implemented a company-wide restructuring plan. Severance associated with the elimination/termination of 66 employees in implementing the restructuring plan was $0.57 million. Positions were eliminated in virtually all functions of the Company including marketing, manufacturing and testing, customer support, service and training, finance, support and administration and research and development. Severance consisting of salary and benefits continuance for a period of time was determined based on length of service or, in some cases, as per the terms of employment agreements. Cash outlays related to severance of $0.43 million were made during the fourth quarter of 2001 and the balance was paid out during the first and second quarters of 2002.



5. MARKETABLE SECURITIES



Our investment in equity securities of vizrt Ltd. (symbol VIZ - traded on Neuer Market and Frankfurt Stock Exchange) is categorized as available for sale and has been reflected in our balance sheet at December 31, 2003 and 2002 at fair market value of  $0.3 million and $0.08 million, respectively.



Early in 2003, due to trading values that were below 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 fair value. Accordingly, an impairment loss of $0.2 million, which is included in other expense, was charged to earnings.  A net unrealized gain of $0.2 million and an unrealized loss of $0.2 million were reported as components of other comprehensive income at December 31, 2003 and 2002, respectively. During 2003 and 2001, we recognized a realized gain of $0.06 million and a loss of $0.33 million on the sale of a portion of such securities, respectively.



6. INTANGIBLE ASSETS



In November 2000, we purchased a 20% interest in Video Technics, Inc. ("Video Technics"), which develops software for the Chyron Aprisa Clip/Stillstore systems. The purchase price consisted of $0.5 million in cash and $0.6 million in stock (300,000 shares) accounted for based on the stock price two days before and two days after the announcement. The investment is accounted for under the equity method of accounting.



The excess of the aggregate purchase price over the fair market value of net assets acquired, of approximately $1.1 million, was ascribed to an exclusive sales and marketing agreement and was amortized over three years pursuant to Statement of Financial Accounting Standards No. 142 "Goodwill and Intangible Assets." Amortization of this intangible approximated $0.25 million, $0.35 million and $0.35 million in 2003, 2002 and 2001, respectively. As of December 31, 2003 the asset is fully amortized. As of December 31, 2002 the gross asset balance was $1.1 million and the accumulated amortization was $0.8 million.



7. ACCOUNTS RECEIVABLE



Accounts receivable are stated net of an allowance for
doubtful accounts of $0.98 million and $2.1 million at December 31, 2003 and
2002, respectively. Accounts receivable are principally due from customers in,
and dealers serving, the broadcast video industry and non-

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broadcast display markets. At December 31, 2003 and 2002,
receivables included approximately $0.5 million and $3.7 million, respectively,
due from foreign customers.



Bad debt expense amounted to $0.1 million and $0.2 million in 2002 and 2001, respectively. We periodically evaluate the credit worthiness of our customers and determine whether collateral (in the form of letters of credit or liens on equipment sold) should be taken or whether reduced credit limits are necessary. Credit losses have consistently been within management's expectations. The carrying amounts of accounts receivable approximate their fair values.



8. INVENTORIES



Inventory is comprised of the following (in thousands):





|                      | December 31,
|--------------------- | ------------
|                      | 2003        
|Finished goods        | $  568      
|Work-in-progress      | 307         
|Raw material          | 839         
|                      | 1,714       
|Pro-Bel Division, net |             
|                      | $1,714      



9. PROPERTY AND EQUIPMENT



Property and equipment consist of the following (in thousands):





|                               | December 31,
|------------------------------ | ------------
|                               | 2003        
|Machinery and equipment        | $11,613     
|Furniture and fixtures         | 627         
|Leasehold improvements         | 498         
|                               | 12,738      
|Less: Accumulated depreciation |             
|and amortization               | 12,108      
|                               | 630         
|Pro-Bel Division, net          |             
|                               | $630        



Depreciation expense, which includes amortization of assets under capital lease, was $0.3 million, $0.4 million and $1.4 million in 2003, 2002 and 2001, respectively.



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10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES



Accounts payable and accrued expenses consist of the following (in thousands):





|                            | December 31,
|--------------------------- | ------------
|                            | 2003        
|Accounts payable            | $1,987      
|Accrued salaries, wages and |             
|vacation pay                | 924         
|Other                       | 763         
|                            | 3,674       
|Pro-Bel Division            |             
|                            | $3,674      



11. LONG-TERM DEBT



At December 31, 2003, we had no outstanding indebtedness under credit facilities with lending institutions. At December 31, 2002, long-term debt consisted of the following (in thousands):





|Graphics division:                |         
|--------------------------------- | --------
|Term loan (a)                     | $  1,350
|Revolving credit facility (a)     | 2,311   
|                                  | 3,661   
|Pro-Bel division:                 |         
|Commercial mortgage term loan (b) | 1,219   
|Trade finance facility (b)        | 1,347   
|                                  | 2,566   
|                                  | 6,227   
|Less amounts due in one year      | (5,141) 
|                                  | $1,086  



(a) At December 31, 2002, we had a $5.3 million credit facility with a U.S. bank, under which we had a term loan and a revolving line of credit. During 2003, we made scheduled principal payments on the term loan until it was fully paid in September 2003.  On November 13, 2003, we utilized a portion of the proceeds received upon the sale of our Pro-Bel Division to pay down the remaining balance on our revolving line of credit and terminated this facility with our U.S. bank.  Interest was paid monthly at a rate of Prime +2% on the term loan and Prime +1% on the revolving line of credit. In addition, we paid monthly commitment fees equal to one half of 1% per annum of the daily unused portion of the facility which were not significant for any of the years presented.



(b) Pro-Bel had a commercial mortgage term loan and overdraft facility with a U.K. bank. As a condition of the sale of the Pro-Bel division, the mortgage and overdraft facility were paid in full at closing.



In March 2004, the Company received a commitment from a new
U.S. bank for a $2.5 million working capital line of credit which extends
through April 15, 2005. The Company will

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have the ability to borrow on a revolving credit basis based
on levels of eligible accounts receivable. Interest will be payable at prime
+2%, where prime is a minimum of 4%, and we will be required to maintain certain
levels of tangible net worth.



12. SUBORDINATED CONVERTIBLE DEBENTURES





|                                | December 31,
|------------------------------- | ------------
|                                | 2003        
|Series A Convertible Debentures | $1,378      
|Series B Convertible Debentures | 7,299       
|Senior Notes                    |             
|                                | $8,677      



During late 1998 and 1999 we raised $7.7 million through the issuance of Series A and Series B 8% Subordinated Convertible Debentures ("Series A and Series B Debentures"), due December 31, 2003, to certain persons and entities, including certain directors, affiliates and shareholders of the Company. The Series A Debentures, which totaled $1.2 million, paid interest quarterly and were convertible, at any time, at the option of the holders thereof, into common stock of the Company at a conversion price of $2.466 per share. Under the original terms, the Series B Debentures, which totaled $6.5 million, were convertible, at any time, at the option of the holders thereof, into common stock of the Company at a conversion price of $1.625 per share. Interest was payable quarterly and may be paid by increasing the amount of principal owed thereunder.



On December 17, 2001, the terms of the existing Series A and Series B Debentures were amended to extend the maturity date of the Series A and B Debentures from December 31, 2003 to December 31, 2004, increase the interest rate from 8% to 12%, and provide that until December 31, 2004, interest may be paid in the form of additional debentures, or in cash, at our sole option. On February 28, 2002, our board of directors resolved to pay interest on the Series A and Series B Debentures only in the form of additional debentures. Interest expense attributable to Series A and B Debentures totaled $1.2 million, $1.1 million and $0.7 million in 2003, 2002 and 2001, respectively.



In connection with the amendment to the Series A and Series B Debentures, we issued warrants to holders of the amended Series A and Series B Debentures to purchase an aggregate of 861,027 shares of common stock of the Company at an exercise price equal to $0.35 per share. The fair value of the warrants of $0.13 million has been reflected as a discount to the related obligation, which will be amortized as additional interest expense over the life of the debenture. The warrants were valued using the Black-Scholes pricing model using the closing market price and the risk-free interest rate on their issue date. During 2003 and 2002 amortization expense was $0.04 million. The warrants were vested immediately and are exercisable through December 31, 2004.



On December 31, 2003, we closed on an exchange offer to holders of Series A and Series B Debentures.  Holders who accepted the offer exchanged Series A and Series B Debentures representing a December 31, 2003 book value of $1.95 million in return for a total of discounted cash payments of $1.04 million and 853,816 shares of common stock of the Company. The

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exchange resulted in cancellation of approximately 18.3% of the total of the debentures at their December 31, 2003 book value with $8.7 million of debentures still outstanding. The Company recorded a gain on extinguishment of debt, in accordance with SFAS No. 15, in its fourth quarter of 2003 of $0.6 million (net of transaction costs of $0.06 million). The gain from the transaction resulted in a decrease to the net loss per common share of $0.02 for the year ended December 31, 2003.



On February 27, 2004, we closed on a second exchange offer whereby Series A and B Debentures of $8.7 million ($8.8 million at January 31, 2004, including accrued paid in kind interest) were exchanged for $3.8 million in cash, and $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 or 5% or more of our common stock. In accordance with SFAS No. 15, no gain will be recorded on this transaction.  Rather, interest expense will be adjusted prospectively in a manner to create a constant effective rate.



In December 2001, we completed a private placement of 12% Senior Subordinated Convertible Notes and received $2.21 million, exclusive of offering costs of $0.2 million, which were deferred and reflected as additional interest expense over the term of the Notes. These Senior Subordinated Notes matured December 31, 2003. Interest at 12% was payable in the form of additional senior notes. At December 31, 2003, the entire principal balance and interest was paid to note holders. Interest expense attributable to senior notes totaled $0.3 million in 2003 and 2002.



13. SHAREHOLDERS' (DEFICIT) EQUITY



Components and activity related to accumulated other comprehensive income is as follows (in thousands):



|                  |                  |                       | Accumulated  
|----------------- | ---------------- | --------------------- | -------------
|                  | Foreign Currency | Net Unrealized        | Other        
|                  | Translation      | Gain (Loss) on        | Comprehensive
|                  | Adjustments      | Marketable Securities | Income (Loss)
|                  |                  |                       |              
|January 1, 2001   | $ (414)          | $ (134)               | $ (548)      
|Change for period | (166)            | (124)                 | (290)        
|December 31, 2001 | (580)            | (258)                 | (838)        
|Change for period | 202              | 37                    | 239          
|December 31, 2002 | (378)            | (221)                 | (599)        
|Change for period | 378              | 444                   | 822          
|December 31, 2003 | $0               | $223                  | $223         



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At December 31, 2003, the following warrants to purchase shares of our common stock were outstanding:





|Warrants | Exercise Price | Expiration Date
|-------- | -------------- | ---------------
|         |                |                
|123,631  | $1.625         | 9/6/2004       
|60,000   | 1.120          | 3/29/2005      
|60,000   | 6.500          | 4/10/2005      
|151,914  | 6.500          | 4/11/2005      
|861,027  | 0.350          | 12/31/2004     



14. LONG-TERM INCENTIVE PLAN



Incentive awards are provided to employees under the terms of our 1999 Incentive Compensation Plan. The Plan allows for the award of incentive and non-incentive options to employees and non-incentive options to non-employee members of our board of directors. The Plan is administered by a committee, designated by the board, to determine the time and circumstances under which an employee option may be exercised. Generally, options vest 1/3 each year, are fully vested three years from grant date and have a term of ten years. At December 31, 2003, there were 1.9 million shares available to be granted under the Plan.



Transactions involving stock options are summarized as follows:





|                             |             |               | Weighted  |            
|---------------------------- | ----------- | ------------- | --------- | -----------
|                             |             | Range of      | Average   |            
|                             | Stock       | Exercise      | Exercise  |            
|                             | Options     | Price         | Price     |            
|                             | Outstanding | Per Share     | Per Share | Exercisable
|                             |             |               |           |            
|Balance at January 1, 2001   | 3,353,827   | $0.75 - 16.13 | $2.23     | 1,072,676  
|Granted                      | 1,697,500   | 0.32 -   2.13 | 0.92      |            
|Exercised                    | (1,914)     | 0.75          | 0.75      |            
|Canceled                     | (1,280,901) | 0.55 -   5.38 | 2.08      |            
|Balance at December 31, 2001 | 3,768,512   | 0.32 - 16.13  | 1.70      | 2,088,347  
|Granted                      | 1,271,000   | 0.26 -   0.61 | 0.32      |            
|Canceled                     | (257,180)   | 0.32 -   5.38 | 1.70      |            
|Balance at December 31, 2002 | 4,782,332   | 0.26 - 16.13  | 1.33      | 2,910,539  
|Granted                      | 575,001     | 0.16 -   0.51 | 0.30      |            
|Exercised                    | (2,500)     | 0.26 -   0.32 | 0.30      |            
|Canceled                     | (2,166,951) | 0.26 -   5.88 | 1.32      |            
|Balance at December 31, 2003 | 3,187,882   | 0.16 - 16.13  | 1.16      | 2,387,683  









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The following table summarizes information concerning currently outstanding and exercisable stock options (thousands of shares):





|               | Options Outstanding | Options Exercisable
|-------------- | ------------------- | -------------------
|Range of       |                     | Average            
|Exercise Price | Options             | Life               
|               |                     |                    
|$0.00 - $0.50  | 1,412               | 9.0                
|0.51 -   1.00  | 778                 | 7.4                
|1.01 -   2.00  | 236                 | 5.5                
|2.01 -   3.00  | 553                 | 5.7                
|3.01 -   4.00  | 134                 | 6.0                
|4.01 -   5.00  | 18                  | 3.5                
|5.01 -   6.00  | 27                  | 2.0                
|9.01 - 10.00   | 3                   | 2.1                
|12.01 - 13.00  | 3                   | 2.7                
|16.01 - 17.00  | 24                  | 2.6                
|               | 3,188               |                    



If we had elected to recognize compensation expense based upon the fair values at the grant date for awards under this plan consistent with the methodology prescribed by SFAS No. 123, the effect on our net loss and net loss per share has been illustrated in our footnote entitled "Summary of Significant Accounting Policies." The pro forma amounts may not be representative of future disclosures since the estimated fair value of stock options is amortized to expense over the vesting period for purposes of future pro forma disclosures, and additional options may be granted in future years.  The fair value of these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for 2003, 2002 and 2001:  dividend yield of 0%; expected volatility of 125.0% in 2003, 125.1% in 2002 and 110.9% in 2001 and expected life of 4 years. The weighted average risk free interest rates for 2003, 2002 and 2001 were 2.88%, 3.08% and 4.25%, respectively. Using these assumptions, the weighted average grant date fair value of options granted during 2003, 2002 and 2001 was $0.24, $0.26 and $0.68, respectively.



The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable.  In addition, option valuation models require the input of highly subjective assumptions including expected price volatility. Because our employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of employee stock options.



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15. INCOME TAXES



The components of deferred income taxes are as follows (in thousands):





|                                      | December 31,
|------------------------------------- | ------------
|                                      | 2003        
|Deferred tax assets:                  |             
|Net operating loss carryforwards      | $21,177     
|Capital loss carryforwards            | 5,014       
|Inventory                             | 2,252       
|Fixed assets and capitalized software | 1,572       
|Other liabilities                     | 1,031       
|Accounts receivable and other assets  | 911         
|                                      | 31,957      
|Deferred tax liabilities:             |             
|Other taxable temporary differences   |             
|                                      |             
|Deferred tax valuation allowance      | 31,957      
|                                      | $0          



At December 31, 2003, we had U.S. net operating loss carryforwards ("NOLs") of approximately $62 million expiring between the years 2004 through 2023. In connection with our emergence in 1991 from our reorganization under Chapter 11 of the U.S. Bankruptcy Code, the benefit of our pre-reorganization NOLs were not reflected in net income, but rather recorded as an increase to paid-in capital. In addition, such NOLs (approximately $13 million) are subject to annual limitations under U.S. income tax rules as a result of the changes in control of the Company.



Our net deferred tax assets include substantial amounts of net operating loss carryforwards. Inability to generate taxable income within the carryforward period would affect the ultimate realization of such assets. Consequently, management determined that sufficient uncertainty exists regarding the realization of these assets and established a full valuation allowance.



The effective income tax rate differed from the Federal statutory rate as follows (in thousands):



|                                 | 2003    | 2002      | 2001    
|-------------------------------- | ------- | --------- | --------
|                                 | Amount  | %         | Amount  
|Federal income tax benefit       |         |           |         
|at statutory rate                | $(134)  | (34.0)    | $(1,035)
|Permanent differences            | 5       | 1.2       | (138)   
|International rate differences   | 5,457   | 1,387.8   | (317)   
|Effect of valuation allowance of |         |           |         
|deferred tax assets              | (5,337) | (1,357.0) | 1,472   
|Other, net                       | 9       | 2.0       | 18      
|                                 | $0      | 0.0       | $0      



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16. BENEFIT PLANS



Chyron Corporation has a domestic defined benefit pension plan (the "U.S. Pension Plan") covering substantially all U.S. employees meeting minimum eligibility requirements. Benefits paid to retirees are based upon age at retirement, years of credited service and average compensation. Pension expense is actuarially determined using the projected unit credit method. Our policy is to fund the minimum contributions required under the Employee Retirement Income Security Act. During 2004, we expect to contribute $0.6 million for the 2003 and 2004 plan years, based on these funding requirements. The assets of the U.S. Pension Plan at December 31, 2003 include equities, government and corporate fixed income securities, cash and cash equivalents. We use a December 31 measurement date to determine pension benefit obligations.



Benefit plan information for the U.S. Pension Plan is as follows (in thousands):





|                                                | 2003     | 2002    
|----------------------------------------------- | -------- | --------
|Reconciliation of projected benefit obligation: |          |         
|Obligation at January 1                         | $2,249   | $2,093  
|Service cost                                    | 285      | 291     
|Interest cost                                   | 146      | 144     
|Actuarial losses                                | 297      | 129     
|Benefit payments                                | (189)    | (408)   
|Obligation at December 31                       | $2,788   | $2,249  
|                                                |          |         
|Reconciliation of fair value of plan assets:    |          |         
|Fair value of plan assets at January 1          | $1,220   | $1,281  
|Actual return on plan assets                    | 86       | (170)   
|Employer contributions                          | 98       | 517     
|Benefit payments                                | (189)    | (408)   
|Fair value of plan assets at December 31        | $1,215   | $1,220  
|                                                |          |         
|Funded Status:                                  |          |         
|Funded status at December 31                    | $(1,573) | $(1,029)
|Unrecognized prior-service cost                 | (341)    | (375)   
|Unrecognized gain                               | (441)    | (818)   
|Net amount recognized                           | $(2,355) | $(2,222)





|                                         | 2003  | 2002  | 2001 
|---------------------------------------- | ----- | ----- | -----
|Components of net periodic pension cost: |       |       |      
|Service cost                             | $285  | $291  | $370 
|Interest cost                            | 146   | 144   | 126  
|Expected return on plan assets           | (109) | (131) | (119)
|Amortization of prior service cost       | (34)  | (34)  | (34) 
|Amortization of prior gain               | (56)  | (99)  | (78) 
|Net periodic benefit cost                | $232  | $171  | $265 





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|                                               | 2003  | 2002  | 2001
|---------------------------------------------- | ----- | ----- | ----
|Weighted-average assumptions used to determine |       |       |     
|net periodic benefit cost for the years ended  |       |       |     
|December 31:                                   |       |       |     
|Discount rate                                  | 6.75% | 7.25% | 7.5%
|Expected long term return on plan assets       | 8.50% | 9.0%  | 9.0%
|Rate of compensation increase                  | 4.0%  | 4.5%  | 4.5%
|                                               |       |       |     
|Weighted-average assumptions used to determine |       |       |     
|pension benefit obligation as of December 31:  |       |       |     
|Discount rate                                  | 6.00% | 6.75% |     
|Rate of compensation increase                  | 4.0%  | 4.5%  |     



The expected return on pension plan assets was based on the current interest rate environment, our pension plan investment guidelines, and our expectations for long-term rates of return. The overall investment objective is to achieve the highest level of return with the least amount of risk. It is desired that the aggregate investment portfolios achieve a return higher than the "market", with "market" being a benchmark equal to 80% of the arithmetic mean return of the Russell 2000 Index over three to five year rolling time periods. The real return objective of the total portfolio is CPI + 5% measured on an arithmetic means basis, annualized over a three to five year time period. Our target allocation for 2004 and actual pension plan asset allocations at December 31, 2003 and 2002 are as follows:





|                  | Target     | Actual    
|----------------- | ---------- | ----------
|                  | Allocation | Allocation
|Asset Category    | 2004       | 2003      
|Equity securities | 45%        | 53%       
|Debt securities   | 45         | 43        
|Other             | 10         | 4         
|Total             | 100%       | 100%      



The accumulated benefit obligation was $2.26 million and $1.76 million at December 31, 2003 and 2002, respectively.



We have adopted a 401(k) Plan exclusively for the benefit of participants and their beneficiaries. All U.S. employees of Chyron Corporation are eligible to participate in the 401(k) Plan. An employee may elect to contribute a percentage of his or her current compensation to the 401(k) Plan, subject to a maximum of 20% of compensation or the Internal Revenue Service annual contribution limit, whichever is less. We may make discretionary contributions in the form of Company common stock of up to 20% of the first 10% of the compensation contributed by a participant. The charge to earnings for the cost of the matching contribution was $0.07 million, $0.07 million and $0.09 million in 2003, 2002 and 2001, respectively. Employees will vest in the matching contribution in equal increments annually over three years.



We also have several U.K. employees that are provided with pension benefits through the Chyron International Corporation Group Personal Pension Plan (the "CIC Pension Plan") which was established upon the sale of Pro-Bel. Under the CIC
Pension Plan, each member has an

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individual account within the plan and the Company
contributes monthly an amount equal to a percentage of his/her salary. New
employees will receive an 8% of salary contribution.



Pro-Bel had a non-contributory defined benefit pension plan covering permanent employees hired prior to September 1, 1999. Along with the sale of the Pro-Bel Division in November 2003, the plan assets and the net benefit obligation were transferred as part of the sale.



Benefit plan information for the U.K. Pension Plan at December 31, 2002 is as follows (in thousands):





|                                                | 2002   
|----------------------------------------------- | -------
|Reconciliation of projected benefit obligation: |        
|Obligation at January 1                         | $13,013
|Service cost                                    | 552    
|Interest cost                                   | 712    
|Actuarial gain                                  | (436)  
|Benefit payments                                | (146)  
|Obligation at December 31                       | $13,695
|                                                |        
|Reconciliation of fair value of plan assets:    |        
|Fair value of plan assets at January 1          | $14,337
|Actual return on plan assets                    | 186    
|Employer contributions                          | 543    
|Benefit payments                                | (146)  
|Fair value of plan assets at December 31        | $14,920
|                                                |        
|Funded status:                                  |        
|Funded status at December 31                    | $1,225 
|Unrecognized loss                               | 2,352  
|Unrecognized prior-service cost                 | 493    
|Effect of currency rate fluctuations            | (182)  
|Net amount recognized                           | $3,888 



17. COMMITMENTS AND CONTINGENCIES



At December 31, 2003, we were obligated under operating and capital leases covering facility space and equipment as follows (in thousands):





|                | Operating | Capital
|--------------- | --------- | -------
|                |           |        
|2004            | $414      | $11    
|2005            | 408       | 8      
|2006            | 423       |        
|2007            | 433       |        
|2008            | 449       |        
|2009 thereafter | 230       |        



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The operating leases contain provisions for escalations and for facility maintenance. Total rent expense was $0.48 million, $0.43 million and $0.58 million for 2003, 2002 and 2001, respectively.



We generally provide warranties on all of our products ranging for one year. There may be, in certain instances, exceptions to these terms. Liabilities for the estimated future costs of repair or replacement are established and charged to cost of sales at the time the related sale is recognized. Warranty costs incurred have not been material in recent years. We record an estimate for future warranty costs based on return rates and other factors. The product warranty obligation included in accrued expenses at December 31, 2003 and 2002 was $0.05 million and $0.2 million, respectively.



We have severance arrangements for key and virtually all other employees of the Company that provide for payment of a portion of their salary and continuance of their benefits for their severance period, in the event they are involuntarily terminated. The severance periods range from a week to a number of months depending on the length of service and/or level of the employee within the Company. Had all such key and other covered employees been terminated at December 31, 2003, the estimated total severance would have approximated $1.4 million.



We, from time to time, are involved in routine legal matters incidental to our business. In the opinion of management, the ultimate resolution of such matters will not have a material adverse effect on our financial position, results of operations or liquidity.



18. RELATED PARTY TRANSACTIONS



The secretary of the Company, a non-executive position, is affiliated with a law firm that rendered various legal services to us for which we incurred costs of $0.3 million, $0.3 million and $0.5 million during 2003, 2002 and 2001, respectively. The balance owed for legal services was $0.03 million and $0.04 million at December 31, 2003 and 2002, respectively.



In November 2000, we purchased 20% of Video Technics, a supplier of certain hardware and software products. In connection with this investment, we have an exclusive arrangement to sell/license these products.  For a time in 2001 and for years prior, we purchased both hardware and software from Video Technics. Currently, only software is purchased since we are manufacturing all hardware. The purchase price of the software is based on market conditions and competitive offerings. Purchases of Aprisa Clip/Stillstore products from Video Technics were approximately $0.7 million, $1.0 million and $1.3 million for the years ended December 31, 2003, 2002 and 2001, respectively. The balance owed to Video Technics for purchases was $0.2 million and $0.08 million at December 31, 2003 and 2002, respectively.



Presently, we are the only major customer of Video Technics whose financial well being is dependent on our success with the Aprisa line. Being a privately-held and small company, there is no assurance that Video Technics will not face financial problems, thus being unable to meet its supply obligations and endangering the Aprisa product line for several months. Sales of Aprisa products represented 11%, 10% and 18% of sales in 2003, 2002 and 2001, respectively.

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Beginning in 2001 and ending in February 2003, when he became the President and Chief Executive Officer of the Company, Mr. Michael Wellesley-Wesley, then a member of our board of directors, was paid $15,000 monthly for consulting services, and was assigned a company automobile, for exploring strategic alternatives for the Company. During 2003, 2002 and 2001, the cost of these consulting services approximated $0.03 million, $0.18 million and $0.09 million, respectively.



Mr. Henderson, a current Director and the Company's President and Chief Executive Officer until February 2003, was paid fees of $0.04 million, plus expenses, for consulting services in exploring strategic alternatives for the Company subsequent to his resignation.



19. SEGMENT INFORMATION



As a result of the sale of our Pro-Bel division in November 2003, the Company no longer has any reportable segments.  For a portion of 2001, we did maintain a Streaming Services division that was closed in the second quarter of 2001.





|Business Segment Information: |          
|----------------------------- | ---------
|(In thousands)                |          
|                              | Graphics 
|                              |          
|Net sales  2001               | $18,854  
|                              |          
|Operating loss  2001*         | $(10,428)
|                              |          
|Depreciation and              |          
|amortization  2001            | $2,181   



*Operating loss includes unusual charges in 2001 of $8,570.





|Geographic Area Information:     |         |         |        
|-------------------------------- | ------- | ------- | -------
|                                 | 2003    | 2002    | 2001   
|Revenues from external customers |         |         |        
|United States                    | $17,529 | $15,958 | $15,419
|United Kingdom                   | 608     |         |        
|Canada                           |         | 1,339   | 795    
|Switzerland                      |         | 1,107   |        
|France                           |         | 979     | 671    
|All other                        | 1,232   | 1,680   | 2,191  
|                                 | $19,369 | $21,063 | $19,076





ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE



None.



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ITEM 9A. CONTROLS AND PROCEDURES



As of December 31, 2003, 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 December 31, 2003.  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 III



ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



The information called for herein will be presented under the captions ELECTION OF THE BOARD OF DIRECTORS and SECTION 16(a) REPORTING COMPLIANCE, in our definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the Exchange Act by April 29, 2004, in connection with the 2004 annual meeting of stockholders of Chyron ("Proxy Statement"), and is incorporated herein by reference in response to this item.



We have adopted a written code of ethics for senior financial officers which is included as Exhibit 14 to this report. The Company will provide to any person, without charge, a copy of such code of ethics, upon written request to: Ms. Margaret Roed, Chyron Corporation, 5 Hub Drive, Melville, NY 11747.



ITEM 11.  EXECUTIVE COMPENSATION



The information called for herein will be presented under the captions EXECUTIVE COMPENSATION AND OTHER INFORMATION, STOCK PERFORMANCE CHART, COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION and COMPENSATION AND STOCK OPTION COMMITTEE REPORT ON EXECUTIVE COMPENSATION in our Proxy Statement, and is incorporated herein by reference in response to this item.



ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

AND MANAGEMENT



The information called for herein will be presented under the captions PRINCIPAL SHAREHOLDERS - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS and SECURITY OWNERSHIP OF MANAGEMENT in our Proxy Statement, and is incorporated herein by reference in response to this item.



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ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



The information called for herein will be presented under the caption CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS in our Proxy Statement, and is incorporated herein by reference in response to this item.



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



The information called for herein will be presented under the caption REPORT OF THE AUDIT COMMITTEE in our Proxy Statement, and is incorporated herein by reference in response to this item.

PART IV





ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND

REPORTS ON FORM 8-K



(a) (1)  Financial Statements



See index to Consolidated Financial Statements on page 40.



(2)  Financial Statement Schedule



The following Consolidated Financial Statement schedule of Chyron Corporation and subsidiaries is included in Item 15(d) found on page 75.



Schedule II - Valuation and Qualifying Accounts for the Years Ended December 31, 2003, 2002 and 2001.



All other schedules called for under Regulation S-X are not submitted because they are not applicable or not required or because the required information is not material or is included in the Consolidated Financial Statements or notes thereto.



(3)  Financial Statement Exhibits



See list of exhibits to the Financial Statements in Section (c) below.



(b) Reports on Form 8-K



A report on Form 8-K was filed on November 10, 2003, announcing the sale of all of the stock of the Company's wholly owned subsidiary, Chyron UK Holdings Limited and its operating subsidiary Pro-Bel Limited which constituted all of the Company's Signal Distribution and Automation business.



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A report on Form 8-K was filed on November 14, 2003, advising of a press release, on the same date, announcing the results of the Company's operations for the three and nine months ended, and financial condition as of September 30, 2003.



A report on Form 8-K was filed on November 21, 2003, which disclosed the details and provided Pro forma Financial Information related to the sale, on November 6, 2003, of the Company's wholly-owned subsidiary, Chyron UK Holdings Limited, including its operating subsidiary Pro-Bel Limited.



|    |                                                                        | Note
|--- | ---------------------------------------------------------------------- | ----
|(c) | Exhibits                                                               |     
|    |                                                                        |     
|3.  | Articles of Incorporation and By-Laws.                                 |     
|(a) | Restated Certificate of Incorporation of Chyron Corporation            | (1) 
|(b) | Amended and Restated By-Laws of Chyron Corporation,                    |     
|    | adopted October 28, 1998                                               | (4) 
|(c) | Amendment of Certificate of Incorporation of Chyron Corporation,       |     
|    | adopted January 24, 1997                                               | (3) 
|    |                                                                        |     
|4.  | Instruments defining rights of security holders, including debentures. |     
|(a) | Form of 8% Subordinated Convertible Debenture Due                      |     
|    | December 31, 2003                                                      | (4) 
|(b) | Form of Subscription Agreement and Investment Representation for the   |     
|    | purchase of the 8% Subordinated Convertible Debenture Due              |     
|    | December 31, 2003                                                      | (4) 
|(c) | Form of 8% Series B Subordinated Convertible Debenture Due             |     
|    | December 31, 2003                                                      | (5) 
|(d) | Form of Subscription Agreement and Investment Representation for the   |     
|    | purchase of the 8% Series B Subordinated Convertible Debenture Due     |     
|    | December 31, 2003                                                      | (5) 
|(e) | Form of 12% Senior Subordinated Convertible Note Due                   |     
|    | December 31, 2003                                                      | (6) 
|(f) | Form of Subscription, Subordination and Registration Rights Agreement  |     
|    | for the purchase of the 12% Senior Subordinated Convertible Notes Due  |     
|    | December 31, 2003                                                      | (6) 
|(g) | Form of Series A 12% Subordinated Convertible Debenture Due            |     
|    | December 31, 2004                                                      | (6) 
|(h) | Form of Series B 12% Subordinated Convertible Debenture Due            |     
|    | December 31, 2004                                                      | (6) 
|(i) | Form of Amendment to the 8% Subordinated Convertible Debentures        |     
|    | Due December 31, 2003 and the Series B 8% Subordinated Convertible     |     
|    | Debentures Due December 31, 2003                                       | (6) 
|(j) | Form of Common Stock Purchase Warrant, Issued on                       |     
|    | December 17, 2001                                                      | (6) 

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|(k) | Notice of Amendment of each of the 12% Senior Subordinated Convertible |    
|--- | ---------------------------------------------------------------------- | ---
|    | Notes Due December 31, 2003, Series A 12% Subordinated Convertible     |    
|    | Debentures Due December 31, 2004 and Series B 12% Subordinated         |    
|    | Convertible Debentures Due December 31, 2004, Dated March 11, 2002     | (6)
|(l) | Form of Series C 7% Subordinated Convertible Debenture Due             |    
|    | December 31, 2005                                                      | (8)
|(m) | Form of Series D 8% Subordinated Convertible Debenture Due             |    
|    | December 31, 2006                                                      | (8)
|    |                                                                        |    
|10. | Material Contracts.                                                    |    
|(a) | Indemnification Agreement between Chyron Corporation and               |    
|    | Donald P. Greenberg dated November 19, 1996                            | (3)
|(b) | Indemnification Agreement between Chyron Corporation and               |    
|    | Roger Henderson dated November 19, 1996                                | (3)
|(c) | Indemnification Agreement between Chyron Corporation and               |    
|    | Christopher R. Kelly dated July 18, 2002                               | (7)
|(d) | Indemnification Agreement between Chyron Corporation and               |    
|    | Wesley W. Lang, Jr. dated November 19, 1996                            | (3)
|(e) | Indemnification Agreement between Chyron Corporation and               |    
|    | Eugene M. Weber dated November 19, 1996                                | (3)
|(f) | Indemnification Agreement between Chyron Corporation and               |    
|    | Michael Wellesley-Wesley dated November 19, 1996                       | (3)
|(g) | Indemnification Agreement between Chyron Corporation and               |    
|    | Jerry Kieliszak dated July 18, 2002                                    | (7)
|(h) | Indemnification Agreement between Chyron Corporation and               |    
|    | Jerry Kieliszak, Trustee, Chyron Corporation 401(k) Plan, effective    |    
|    | March 1, 2002                                                          | (7)
|(i) | Indemnification Agreement between Jerry Kieliszak, Trustee, and        |    
|    | Chyron Corporation Employees' Pension Plan, effective March 1, 2002    | (7)
|(j) | Employment Agreement between Chyron Corporation and                    |    
|    | Michael Wellesley-Wesley, dated February 1, 2003                       | (7)
|(k) | Separation Agreement between Chyron Corporation and                    |    
|    | Roger Henderson dated January 16, 2003                                 | (7)
|(l) | Separation Agreement between Chyron Corporation and                    |    
|    | Michael Knight dated February 11, 2004                                 | (8)
|(m) | Separation Agreement between Chyron Corporation and                    |    
|    | James Paul dated December 22, 2003                                     | (8)
|(n) | Employment Agreement between Chyron Corporation and                    |    
|    | Michael Wellesley-Wesley dated January 30, 2004                        | (8)
|    |                                                                        |    
|14. | Code of Ethics for Senior Financial Officers                           | (8)
|    |                                                                        |    
|    |                                                                        |    

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|23.  | Consent of PricewaterhouseCoopers LLP dated March 30, 2004              | (8)
|---- | ----------------------------------------------------------------------- | ---
|     |                                                                         |    
|31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the |    
|     | Sarbanes-Oxley Act of 2002                                              | (8)
|31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the |    
|     | Sarbanes-Oxley Act of 2002                                              | (8)
|     |                                                                         |    
|32.  | Certification of Chief Executive Officer and Chief Financial Officer    |    
|     | pursuant to Section 906 of the Sarbanes-Oxley Act of 2002               | (8)
|     |                                                                         |    





(1) Incorporated herein in its entirety by reference to the Annual Report for the fiscal year ended June 30, 1991 on Form 10-K dated January 31, 1992.

(2) Incorporated herein in its entirety by reference to the Annual Report for  the fiscal year ended December 31, 1995 on Form 10-K dated March 14, 1996.

(3) Incorporated herein in its entirety by reference to the Annual Report for the fiscal year ended December 31, 1996 on Form 10-K dated March 20, 1997.

(4) Incorporated herein in its entirety by reference to the Annual Report for the fiscal year ended December 31, 1998 on Form 10-K dated March 30, 1999.

(5) Incorporated herein in its entirety by reference to the Annual Report for the fiscal year ended December 31, 1999 on Form 10-K dated March 9, 2000.

(6) Incorporated herein in its entirety by reference to the Annual Report for the fiscal year ended December 31, 2001 on Form 10-K dated April 1, 2002.

(7) Incorporated herein in its entirety by reference to the Annual Report for the fiscal year ended December 31, 2002 on Form 10-K dated March 31, 2003.

(8) Attached hereto in this Annual Report for the fiscal year ended December 31, 2003 on Form 10-K dated March 30, 2004.



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d)  Financial Statement Schedules



Schedule II





CHYRON CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)







|Column A                              | Column B   | Column C   | Column D   | Column E  
|------------------------------------- | ---------- | ---------- | ---------- | ----------
|                                      |            |            |            |           
|                                      | Balance at | Charged to |            | Balance at
|                                      | Beginning  | Costs and  |            | End of    
|Description                           | of Period  | Expenses   | Deductions | Period    
|                                      |            |            |            |           
|Reserves and allowances deducted from |            |            |            |           
|asset accounts:                       |            |            |            |           
|                                      |            |            |            |           
|YEAR ENDED DECEMBER 31, 2003          |            |            |            |           
|Allowance for doubtful accounts(1)    | $  2,132   |            | $1,155     | $    977  
|Inventory reserves(2)                 | 14,830     | (155)      | 9,155      | 5,520     
|Deferred tax valuation allowance(3)   | 30,844     |            | (1,113)    | 31,957    
|                                      |            |            |            |           
|YEAR ENDED DECEMBER 31, 2002          |            |            |            |           
|Allowance for doubtful accounts       | $  1,923   | $   248    | $   39     | $  2,132  
|Inventory reserves                    | 14,568     | 327        | 65         | 14,830    
|Deferred tax valuation allowance      | 32,687     |            | 1,843      | 30,844    
|                                      |            |            |            |           
|YEAR ENDED DECEMBER 31, 2001          |            |            |            |           
|Allowance for doubtful accounts       | $  2,274   | $   200    | $ 551      | $  1,923  
|Inventory reserves                    | 12,332     | 2,868      | 632        | 14,568    
|Deferred tax valuation allowance      | 21,932     | 10,755     | 0          | 32,687    



(1) Approximately $0.9 million of this deduction results from the sale of our Pro-Bel Division.

(2) Approximately $1.3 million of this deduction results from the sale of our Pro-Bel Division. The balance results from the disposal of inventory items that were fully reserved.

(3) Approximately $6.1 million results from the tax loss generated in 2003, offset by a $5 million reduction attributable to the Pro-Bel Division.

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SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) 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          
| | ----------------------------
| |                             
| | /s/ Michael Wellesley-Wesley
| | Michael Wellesley-Wesley    
| | President and               
| | Chief Executive Officer     



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 30, 2004, by the following persons on behalf of the registrant and in the capacities on the date indicated.



|/s/ Wesley W. Lang, Jr.      |  | Chairman of the Board of Directors     
|---------------------------- |  | ---------------------------------------
|Wesley W. Lang, Jr.          |  |                                        
|                             |  |                                        
|/s/ Dawn R. Johnston         |  | Vice President and Corporate Controller
|Dawn R. Johnston             |  |                                        
|                             |  |                                        
|/s/ Donald P. Greenberg      |  | Director                               
|Donald P. Greenberg          |  |                                        
|                             |  |                                        
|/s/ Roger Henderson          |  | Director                               
|Roger Henderson              |  |                                        
|                             |  |                                        
|/s/ Christopher R. Kelly     |  | Director                               
|Christopher R. Kelly         |  |                                        
|                             |  |                                        
|/s/ Jerry Kieliszak          |  | Sr. VP and Chief Financial Officer     
|Jerry Kieliszak              |  |                                        
|                             |  |                                        
|/s/ Joan Y. McCabe           |  | Director                               
|Joan Y. McCabe               |  |                                        
|                             |  |                                        
|/s/ Eugene M. Weber          |  | Director                               
|Eugene M. Weber              |  |                                        
|                             |  |                                        
|/s/ Michael Wellesley-Wesley |  | President, CEO and Director            
|Michael Wellesley-Wesley     |  |                                        



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