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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2004 Commission File Number 1-9014 Chyron Corporation (Exact name of registrant as specified in its charter) New York 11-2117385 (State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.) 5 Hub Drive, Melville, New York 11747 (Address of principal executive offices) (Zip Code) (631) 845-2000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes No X Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock $.01 Par Value - 40,749,781 as of May 1, 2004 This document consists of 18 pages 1 CHYRON CORPORATION INDEX PART I FINANCIAL INFORMATION Page Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 2004 (unaudited) and December 31, 2003 3 Consolidated Statements of Operations (unaudited) for the Three Months ended March 31, 2004 and 2003 4 Consolidated Statements of Cash Flows (unaudited) for the Three Months ended March 31, 2004 and 2003 5 Notes to Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosure About Market Risk 16 Item 4. Controls and Procedures 16 PART II OTHER INFORMATION Item 1. Legal Proceedings 17 Item 6. Exhibits and Reports on Form 8-K 17 2 CHYRON CORPORATION Unaudited March 31, December 31, ASSETS 2004 2003 Current assets: Cash and cash equivalents $ 3,043 $ 6,968 Accounts receivable, net 4,522 3,454 Inventories, net 2,146 1,714 Marketable securities 288 Prepaid expenses and other current assets 204 667 Total current assets 9,915 13,091 Property and equipment, net 733 630 Other assets 364 454 TOTAL ASSETS $11,012 $14,175 LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Accounts payable and accrued expenses $ 3,815 $ 3,674 Deferred revenue 980 806 Pension liability 643 643 Capital lease obligations 9 11 Total current liabilities 5,447 5,134 Convertible debentures 5,021 8,677 Pension liability 1,770 1,712 Other liabilities 234 233 Total liabilities 12,472 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 - 40,738,274 at March 31, 2004 and 40,687,466 at December 31, 2003 407 407 Additional paid-in capital 71,813 71,795 Accumulated deficit (73,680) (74,006) Accumulated other comprehensive income 223 Total shareholders' deficit (1,460) (1,581) TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 11,012 $ 14,175 See Notes to Consolidated Financial Statements 3 CHYRON CORPORATION (Unaudited) 2004 2003 Net sales $5,760 $5,299 Cost of products sold 2,242 2,253 Gross profit 3,518 3,046 Operating expenses: Selling, general and administrative 2,410 1,853 Research and development 905 593 Total operating expenses 3,315 2,446 Operating income 203 600 Interest expense 153 500 Interest income (14) (2) Other (income) expense, net (262) 194 Income (loss) from continuing operations 326 (92) Income from discontinued operations 177 Net income $ 326 $ 85 Net income (loss) per share - basic and diluted: Continuing operations $ 0.01 $ 0.00 Discontinued operations 0.00 $ 0.01 $ 0.00 Weighted average shares outstanding: Basic 40,716 39,577 Diluted 41,236 39,582 Comprehensive income: Net income $ 326 $ 85 Other comprehensive income (loss): Foreign currency translation gain 31 Unrealized (loss) gain on securities available for sale (223) 10 Total comprehensive income $ 103 $ 126 See Notes to Consolidated Financial Statements 4 CHYRON CORPORATION 2004 2003 CASH FLOWS FROM OPERATING ACTIVITIES Net income $326 $ 85 Adjustments to reconcile net income (used in) provided by operating activities: Income from discontinued operations 177 Depreciation and amortization 73 173 Non-cash settlement of interest liability 125 356 Impairment of marketable securities 211 Amortization of debt issue costs 24 90 Gain on sale of securities (224) Changes in operating assets and liabilities: Accounts receivable (1,068) 569 Inventories (432) 404 Prepaid expenses and other assets 125 (207) Accounts payable and accrued expenses 333 (932) Other liabilities 58 (22) Net cash (used in) provided by operating activities (660) 904 CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of property and equipment (174) (40) Portion of proceeds from sale of Pro-Bel Division 415 Proceeds from sale of securities 289 Net cash provided by (used in) investing activities 530 (40) CASH FLOWS FROM FINANCING ACTIVITIES Payments of convertible debentures (3,792) Payments on revolving credit agreements, net (349) Payments of capital lease obligations (3) (4) Net cash used in financing activities (3,795) (353) Net cash used by discontinued operations (23) Change in cash and cash equivalents (3,925) 488 Cash and cash equivalents at beginning of period 6,968 1,217 Cash and cash equivalents at end of period $ 3,043 $1,705 See Notes to Consolidated Financial Statements 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION General In the opinion of management of Chyron Corporation (the "Company"), the accompanying unaudited consolidated interim financial statements reflect all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of March 31, 2004 and the consolidated results of its operations and its cash flows for the periods ended March 31, 2004 and 2003. The results of operations for such interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. In addition, management is required to make estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Also, during interim periods, certain costs and expenses are allocated among periods based on an estimate of time expired, benefit received, or other activity associated with the periods. Accordingly, actual results cou
ld differ from those estimates. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2003. The December 31, 2003 figures included herein were derived from such audited consolidated financial statements. Certain reclassifications have been made to the 2003 financial statements to conform to the 2004 method of presentation. Nature of Business On November 6, 2003 we sold all of the stock of our wholly-owned subsidiary Chyron UK Holdings Limited, including the operating subsidiary Pro-Bel Limited. In effect, this eliminated the entire operations of the Signal Distribution and Automation segment and only the Graphics division remains. The 2003 Statements of Operations and Cash Flows have been restated to reflect this segment as a discontinued operation. For the three month period ended March 31, 2003, revenues and the net income attributable to the Signal Distribution and Automation segment were $5.6 million and $0.18 million, respectively. As a result, the Company is now focused completely on its core-competency, the development of real-time graphics solutions for our worldwide professional video and TV broadcast customers. The net proceeds of the sale of $10.5 million were used to
pay down a portion of our indebtedness, with the balance retained for working
capital purposes. As of November 13, 2003, we repaid in full the remaining
balance of outstanding indebtedness with our U.S. bank and terminated our
borrowing arrangement. On December 31, 2003, we used $2.5 million to pay off our
Senior Subordinated Notes that matured on such date. On December 31, 2003, we
closed on an exchange offer with certain holders of Series A and B Subordinated
Convertible Debentures 6 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. On February 27, 2004, the Company closed on a second
exchange offer with a majority of the remaining Series A and B Debenture holders
whereby $8.8 million (balance on January 31, 2004, including accrued interest)
of debentures were exchanged for $3.8 million in cash and newly issued Series C
and D Debentures totaling $4.6 million. We provide graphics products to the broadcast industry for use in analog and 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 D
ecember 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 a new $2.5 million bank line of credit that we entered into in May, 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. 2. MARKETABLE SECURITY During the first quarter of 2003 we evaluated our investment in equity securities of vizrt Ltd. (symbol VIZ - traded on the Prime Standard segment of the Frankfurt Stock Exchange). Due to market values that were below our cost for a period of time, we determined that the decline in market value was other than temporary and wrote this security down to its then fair value. Accordingly, an impairment loss of $0.2 million, which is included in other expense, was charged to earnings in the first quarter of 2003. 7 In the fourth quarter of 2003, the market value of this security increased and we sold a portion of our investment and realized a gain of $0.06 million. Also at December 31, 2003, included in other comprehensive income, was an unrealized gain of $0.2 million. In the first quarter of 2004, we sold the remaining balance of our investment and realized a gain of $0.2 million which is included in other income, net. 3. INTANGIBLE ASSETS In 2000, we purchased a 20% interest in Video Technics, Inc., which develops software for the Chyron Aprisa Clip/Stillstore systems. 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 (the term of the agreement) pursuant to Statement of Financial Accounting Standards No. 142 "Goodwill and Intangible Assets." Amortization of this intangible approximated $0.09 million in the three months ended March 31, 2003. As of December 31, 2003 this asset had been fully amortized. 4. INVENTORIES Inventory, net is comprised of the following (in thousands): March 31, December 31, 2004 2003 Finished goods $ 589 $ 568 Work-in-progress 349 307 Raw materials 1,208 839 $2,146 $1,714
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(In thousands, except per share amounts)
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(In thousands)
(Unaudited)
(UNAUDITED)
5. EQUITY BASED COMPENSATION
We account for our stock compensation plans in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and its related interpretations, which requires that compensation cost be recognized on the date of grant for stock options issued based on the difference, if any, between the fair market value of our stock and the exercise price. Under this intrinsic value method prescribed under APB 25 there was no compensation expense recognized for the three months ended March 31, 2004 and 2003. We have adopted the disclosure requirements of SFAS 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" which allows entities to continue to apply the provisions of APB 25 for transactions with employees and provides pro-forma earnings disclosures for employee stock grants as if the fair value based me thod of accounting in SFAS No. 123 had been applied to these stock grants. The following table illustrates the effect on net
8
income and net income per share if the fair value method had been applied (in thousands except per share amounts):
|
Three Months Ended |
|
March 31, |
||
2004 |
2003 |
|
Net income |
$326 |
$ 85 |
Total stock-based compensation income determined under |
||
fair value based method, net of related tax effects |
14 |
40 |
Pro forma net income |
$340 |
$125 |
Earnings per share: |
||
Basic - as reported |
$0.01 |
$0.00 |
Basic - pro forma |
0.01 |
0.00 |
Diluted - as reported |
0.01 |
0.00 |
Diluted - pro forma |
0.01 |
0.00 |
6. SUBORDINATED CONVERTIBLE DEBENTURES
On February 27, 2004, we utilized a portion of the proceeds from the sale of our Pro-Bel Division to close on an exchange offer to reduce our outstanding indebtedness. In the offer, Series A and B Debentures of $8.8 million were exchanged for $3.8 million in cash, $2.3 million for new Series C Subordinated Convertible Debentures ("Series C Debentures") and $2.3 million for new Series D Subordinated Convertible Debentures ("Series D Debentures"). The Series C Debentures bear interest annually at 7%, payable in kind, will mature December 31, 2005 and can be converted to common stock at a per share conversion price of $1.50. The Series D Debentures bear interest annually at 8%, payable in kind, will mature December 31, 2006 and carry a per share conversion price of $0.65. All holders of Series C and Series D Debentures are beneficial owners of 5% or more of our common stock. In accordance with SFAS No. 15, no gain was recorded on this transaction. Rather, the gain wil l be deferred and interest expense related to the Series D Debentures will be adjusted prospectively in a manner to create a constant effective rate of interest of approximately 3%.
7. BENEFIT PLANS
The net periodic benefit cost for the three months ended March 31 was as follows:
2004 |
2003 |
|
Service cost |
$ 71 |
$ 73 |
Interest cost |
37 |
36 |
Expected return on plan assets |
(27) |
(33) |
Amortization of prior service cost |
(9) |
(9) |
Amortization of prior gain |
(14) |
(24) |
$ 58 |
$ 43 |
9
During the quarter ended March 31, 2004 there were no contributions made to the Pension Plan. We expect to contribute $0.6 million over the balance of 2004.
8. GEOGRAPHIC INFORMATION
As a result of the disposal of the Signal Distribution and Automation division in November 2003, we have only one segment of business. Consequently, the only division remaining is the Graphics division, whose operating information is reported in the Statements of Operations for the three month period ended March 31, 2004 and 2003. The details of the Graphics division geographic sales are as follows:
|
Three Months Ended |
|
March 31, |
||
(In thousands) |
||
2004 |
2003 |
|
United States |
$4,574 |
$5,033 |
Canada |
202 |
92 |
France |
216 |
34 |
Other |
768 |
140 |
9. SUBSEQUENT EVENT
In May 2004, the Company entered into a new line of credit agreement with a new U.S. bank. The new agreement provides the Company with a $2.5 million working capital line of credit which extends through April 15, 2005. Under the agreement, the Company has the ability to borrow on a revolving credit basis based on levels of eligible accounts receivable. Interest on borrowings under the line is payable at prime +2%, where prime is a minimum of 4%, and we are required to maintain certain levels of tangible net worth.
10. RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities - an interpretation of ARB No. 51," which addresses consolidation of variable interest entities. FIN 46 expands the criteria for consideration in determining whether a variable interest entity should be consolidated by a business entity, and requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. This interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after December 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The adoption of FIN 46 did not have a material impact on the Company's Cons olidated Financial Statements.
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
From time to time, including in this Quarterly Report on Form 10-Q, we may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, changes in the industry, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. In order to comply with the terms of the safe harbor, we note that a variety of factors could cause our actual results to differ from the anticipated results or other expectations expressed in our forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of our business include, without limitation, the following: product concentration in a mature market, dependence on the emerging digital market and the industry's transition to DTV and HDTV, consumer acceptance of DTV and HDTV, resistance within the b roadcast or cable industry to implement DTV and HDTV technology, use and improvement of the Internet, new technologies that could render certain Chyron products to be obsolete, a highly competitive environment, competitors with significantly greater financial resources, new product introductions by competitors, seasonality, fluctuations in quarterly operating results, ability to maintain adequate levels of working capital, viability of the OTC Bulletin Board as a trading platform, expansion into new markets, and our ability to successfully implement our strategic alliance strategy. Additional factors affecting future results, and which are described in more detail in our Annual Report on Form 10-K for the year ended December 31, 2003, include:
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12
Results of Operations
This discussion should be read in conjunction with the Consolidated Financial Statements including the Notes thereto.
Comparison of the Three Months Ended March 31, 2004 and 2003
Revenues for the quarter ended March 31, 2004 were $5.8 million, an increase of $0.5 million, or 9% from the $5.3 million reported for the first quarter of 2003. This increase is directly attributable to an increase in revenues in Europe and Asia. During 2003, we did not have an international sales force that was specifically dedicated to graphics products. In connection with the sale of our Pro-Bel Division, we established a small, but experienced team that possesses specific knowledge of graphics products, is based internationally and is focused on the worldwide marketplace.
Gross margins for the first quarter of 2004 increased to 61% from 57% in the comparable quarter in 2003. Higher average selling prices of products in the first quarter of 2004 as compared to the first quarter of 2003 accounted for the majority of the increase. Other factors contributing to the improvement in margins were an increase in software sales which carry a higher margin and the elimination of costs of approximately $0.1 million relating to amortization and inventory reserves that were incurred in 2003 and were not required in 2004.
Selling, general and administrative (SG&A) expenses increased by $0.5 million, to $2.4 million in the quarter ended March 31, 2004, compared to $1.9 million in the first quarter of 2003. During 2003, for the period that we owned Pro-Bel, there existed cost sharing arrangements related to sales and marketing expenses, trade shows and other corporate expenses that benefited both organizations. Effective with the sale of this division in November 2003, Chyron has to absorb the full cost of any of these expenses that remain. The net impact in the first quarter 2004 of these additional costs is approximately $0.5 million and represents substantially the increase in SG&A.
Research and development (R&D) costs of $0.9 million in the first quarter of 2004 increased by $0.3 million compared to the $0.6 million incurred in the first quarter of 2003. Increases were attributable to increased engineering personnel costs of approximately $0.1 million as we hired five additional developers to enhance our development efforts to address the changing requirements in the marketplace, most notably HD products. Material costs associated with these development efforts grew by over $0.1 million. In addition, other costs of approximately $0.1 million were incurred relative to the use of outside consultants and professional services for the protection of our intellectual property.
Interest expense in the first quarter of 2004 approximated $0.15 million as compared to $0.5 million in the first quarter of 2003. This is a direct result of the combination of lower borrowings and lower interest rates discussed as follows.
During 2004, there was no outstanding indebtedness with any financial institution. Our revolving line of credit and term loan with our former U.S. bank was paid down throughout 2003
13
with funds from operations, with the final payment being made in November 2003. This resulted in interest savings of $0.07 million. In addition, our senior notes were paid off in December 2003 which also reduced interest expense by $0.08 million.
In the fourth quarter of 2003 and first quarter of 2004, we closed on two exchange offers, which resulted in the retirement of approximately $6 million of Series A and B debentures, with the balance exchanged for Series C and D debentures which carry a lower rate of interest. The combination of these factors reduced interest expense by another $0.2 million.
The components of other (income) expense, net are as follows (in thousands):
Three Months Ended |
||
March 31, |
||
2004 |
2003 |
|
Impairment of marketable securities |
$211 |
|
Gain on sale of securities |
$(224) |
|
Foreign exchange transaction gain |
(40) |
(16) |
Other |
2 |
(1) |
$(262) |
$194 |
During the quarter ended March 31, 2003 we evaluated our investment in equity securities of vizrt Ltd., that was trading below our cost for a period of time, and determined that the decline in the market value was other than temporary. Accordingly, the security was written down to its current fair value and a loss of $0.2 million was charged to earnings. In the first quarter of 2004, the market value of this security improved and we sold our remaining investment and realized a gain of $0.2 million.
On November 6, 2003 we sold all of the stock of our wholly-owned subsidiary Chyron UK Holdings Limited, including the operating subsidiary Pro-Bel Limited. In effect, this eliminated the entire operations of the Signal Distribution and Automation segment and only the Graphics division remains. The 2003 Statements of Operations and Cash Flows have been restated to reflect this segment as a discontinued operation. For the three month period ended March 31, 2003, revenues and the net income attributable to the Signal Distribution and Automation segment were $5.6 million and $0.18 million, respectively. As a result, the Company now focuses completely on its core-competency, the development of real-time graphics solutions for our worldwide professional video and TV broadcast customers.
Liquidity and Capital Resources
At March 31, 2004, we had cash on hand of $3 million and working capital of $4.5 million.
During the three months ended March 31, 2004, net cash of $0.7 million was used by operations and $3.8 million was used to retire convertible debentures. The utilization of cash from operations was driven by the increase in receivables from sales that were realized late in the quarter, and therefore not yet collected, and an increase in inventory relative to new products.
14
This was partially offset by $0.5 million provided by investing activities, primarily the receipt, in March 2004, of the funds held in escrow from the sale of Pro-Bel and proceeds from the sale of securities.
The Company utilized a portion of the proceeds from the sale of Pro-Bel to effect a second exchange offer on February 27, 2004 with a majority of the remaining Series A and B Debenture holders whereby $8.8 million of debentures were exchanged for $3.8 million in cash and newly issued Series C and D Debentures totaling $4.6 million. The Series C Debentures, 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. In accordance with SFAS No. 15, no gain was recorded on this transaction. Rather, the gain will be deferred and interest expense related to the Series D debentures will be adjusted prospectively in a manner to create a constant effective rate of interest of approximately 3%.
In May 2004, the Company entered into a new line of credit agreement with a new U.S. bank for a $2.5 million working capital line of credit which extends through April 15, 2005. Under the agreement, the Company has the ability to borrow on a revolving credit basis based on levels of eligible accounts receivable. Interest on borrowings under the line is payable at prime +2%, where prime is a minimum 4%, and we are required to maintain certain levels of tangible net worth.
We provide graphics products to the broadcast industry for use in digital television. Our future growth and success will depend to a significant degree on the continued growth of various markets that use our products. 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
15
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.
Recent Accounting Pronouncements
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities - an interpretation of ARB No. 51," which addresses consolidation of variable interest entities. FIN 46 expands the criteria for consideration in determining whether a variable interest entity should be consolidated by a business entity, and requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. This interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after December 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The adoption of FIN 46 did not have a material impact on the Company's Cons olidated Financial Statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK
We are exposed to foreign currency and exchange risk in the normal course of business related to investments in our foreign subsidiaries and sales to foreign customers. For the three months ended March 31, 2004 and 2003, sales to foreign customers were 21% and 5% 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 on earnings of foreign exchange transactions was minimal in the three month periods ended March 31, 2004 and 2003. We record translation gain or loss as a separate component of other comprehensive income or loss in shareholders' equity (deficit).
We have evaluated the foreign currency exchange risk and interest rate risk and believe that our exposure to these risks are not material to our near-term financial position, earnings, or cash flows.
Item 4. CONTROLS AND PROCEDURES
As of March 31, 2004, an evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of March 31, 2004. There have been no significant changes in the Company's internal control over financial reporting during the most recent quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company from time to time is involved in routine legal matters incidental to its business. In the opinion of management, the ultimate resolution of such matters will not have a material adverse effect on the Company's financial position, results of operations or liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. |
Description of Exhibit |
|
31.1 |
Rule 13a-14(a)/15d-14(a) Certification (Chief Executive Officer) |
|
31.2 |
Rule 13a-14(a)/15d-14(a) Certification (Chief Financial Officer) |
|
32 |
Section 1350 Certifications |
(b) Reports on Form 8-K:
A Form 8-K was filed on January 6, 2004 pertaining to an exchange offer with holders of Series A and Series B 12% Subordinated Convertible Debentures.
A Form 8-K was filed on March 2, 2004, advising of a press release, on same date, announcing the closing of an offering to retire Series A and Series B 12% Subordinated Convertible Debentures.
A Form 8-K was filed on March 12, 2004, advising of a press release, on March 11, 2004, announcing the results of the Company operations for the three months and year ended December 31, 2003.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CHYRON CORPORATION |
||
(Registrant) |
||
May 11, 2004 |
/s/ Michael Wellesley-Wesley |
|
(Date) |
Michael Wellesley-Wesley |
|
President and |
||
Chief Executive Officer |
||
May 11, 2004 |
/s/ Jerry Kieliszak |
|
(Date) |
Jerry Kieliszak |
|
Senior Vice President and |
||
Chief Financial Officer |
18
Exhibit 31.1
CERTIFICATION BY
CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael Wellesley-Wesley, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Chyron Corporation (the "registrant") for the quarter ended March 31, 2004 (the "report");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 11, 2004
/s/ Michael Wellesley-Wesley |
Michael Wellesley-Wesley |
President and |
Chief Executive Officer |
Exhibit 31.2
CERTIFICATION BY
CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jerry Kieliszak, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Chyron Corporation (the "registrant") for the quarter ended March 31, 2004 (the "report");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 11, 2004
/s/ Jerry Kieliszak |
Jerry Kieliszak |
Senior Vice President and |
Chief Financial Officer |
Exhibit 32
Chyron Corporation
Certification of
Chief Executive Officer and Chief Financial Officer
(Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350)
This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, and accompanies the quarterly report on Form 10-Q (the "Form 10-Q") for the quarter ended March 31, 2004 of Chyron Corporation (the "Issuer").
We, Michael Wellesley-Wesley, Chief Executive Officer, and Jerry Kieliszak, Chief Financial Officer, of Issuer, each individually, certify that:
(i) the Form 10-Q fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
(ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer.
Dated: May 11, 2004
/s/ Michael Wellesley-Wesley |
|
Michael Wellesley-Wesley |
|
President and |
|
Chief Executive Officer |
|
/s/ Jerry Kieliszak |
|
Jerry Kieliszak |
|
Senior Vice President and |
|
Chief Financial Officer |