ChyronHego Corp - FORM 10-Q - November 9, 2011

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - ChyronHego Corp	Financial_Report.xls
EX-31.1 - CERT OF CEO - ChyronHego Corp	ex311.htm
EX-32.2 - CERT OF PRINCIPAL FINANCIAL OFFICER - ChyronHego Corp	ex322.htm
EX-31.2 - CERT OF CFO - ChyronHego Corp	ex312.htm
EX-32.1 - CERT OF PRINCIPAL EXECUTIVE OFFICER - ChyronHego Corp	ex321.htm

United States Securities and Exchange Commission

Washington, DC 20549

FORM 10-Q

[ x ]	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended September 30, 2011

[ ]	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _________to ________.

Commission File Number 001-09014
Chyron Corporation
(Exact name of registrant as specified in its charter)

New York		11-2117385
(State or other jurisdiction of incorporation or organization)		(I.R.S. 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 checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [x] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ]		Accelerated filer [ ]
Non-accelerated filer [ ] (do not check if a smaller reporting company)		Smaller reporting company [x]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]

The number of shares outstanding of the issuer's common stock, par value $.01 per share, on November 2, 2011 was 16,611,026.

CHYRON CORPORATION

INDEX

PART I	FINANCIAL INFORMATION	Page

Item 1.	Financial Statements
	Consolidated Balance Sheets as of September 30, 2011 (unaudited) and
	December 31, 2010	3

	Consolidated Statements of Operations (unaudited) for the Three
	Months ended September 30, 2011 and 2010	4

	Consolidated Statements of Operations (unaudited) for the Nine
	Months ended September 30, 2011 and 2010	5

	Consolidated Statements of Cash Flows (unaudited) for the Nine
	Months ended September 30, 2011 and 2010	6

	Notes to Consolidated Financial Statements (unaudited)	7

Item 2.	Management's Discussion and Analysis of Financial Condition
	and Results of Operations	16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

Item 4.	Controls and Procedures	21

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	21

Item 1A.	Risk Factors	22

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22

Item 3.	Defaults Upon Senior Securities	22

Item 4.	(Removed and Reserved)	22

Item 5.	Other Information	22

Item 6.	Exhibits	23

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

CHYRON CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

	Unaudited
	September 30,			December 31,
Assets	2011			2010
Current assets:
Cash and cash equivalents	$	5,222		$	5,565
Accounts receivable, net		3,679			4,141
Inventories, net		1,904			2,218
Deferred taxes		2,607			2,869
Prepaid expenses and other current assets		900			775
Total current assets		14,312			15,568

Property and equipment, net		1,742			1,575
Intangible assets, net		684			763
Goodwill		2,066			2,066
Deferred taxes		15,310			17,343
Other assets		95			106
TOTAL ASSETS	$	34,209		$	37,421

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses	$	2,865		$	3,296
Deferred revenue		3,174			2,846
Current portion of pension liability		444			704
Current portion of term loan		217			326
Capital lease obligations		37			34
Total current liabilities		6,737			7,206

Pension liability		1,430			1,519
Deferred revenue		641			642
Term loan		-			136
Other liabilities		327			308
Total liabilities		9,135			9,811

Commitments and contingencies

Shareholders' equity:
Preferred stock, par value $1.00, without designation
Authorized - 1,000,000 shares, Issued - none
Common stock, par value $.01
Authorized - 150,000,000 shares
Issued and outstanding - 16,583,523 at September 30, 2011
and 16,053,945 at December 31, 2010		166			161
Additional paid-in capital		83,095			81,793
Accumulated deficit		(57,702	)		(53,857	)
Accumulated other comprehensive loss		(485	)		(487	)
Total shareholders' equity		25,074			27,610
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	34,209		$	37,421

See Notes to Consolidated Financial Statements

CHYRON CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(In thousands, except per share amounts)

(Unaudited)

	2011			2010

Product revenues	$	5,361		$	5,309
Service revenues		2,109			1,575
Total revenues		7,470			6,884

Cost of sales		2,313			2,124
Gross profit		5,157			4,760

Operating expenses:
Selling, general and administrative		4,270			3,754
Research and development		1,753			1,676

Total operating expenses		6,023			5,430

Operating loss		(866	)		(670	)

Interest expense		(8	)		(14	)

Other (expense) income, net		(14	)		74

Loss before taxes		(888	)		(610	)

Income tax (expense) benefit, net		(2,604	)		128

Net loss	$	(3,492	)	$	(482	)

Net loss per share:
Basic	$	(0.21	)	$	(0.03	)
Diluted	$	(0.21	)	$	(0.03	)

Weighted average shares outstanding:
Basic		16,558			15,994
Diluted		16,558			15,994

See Notes to Consolidated Financial Statements

CHYRON CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(In thousands, except per share amounts)

(Unaudited)

	2011			2010

Product revenues	$	17,825		$	16,071
Service revenues		5,655			4,621
Total revenues		23,480			20,692

Cost of sales		7,151			6,284
Gross profit		16,329			14,408

Operating expenses:
Selling, general and administrative		12,827			11,220
Research and development		5,016			4,998

Total operating expenses		17,843			16,218

Operating loss		(1,514	)		(1,810	)

Interest expense		(29	)		(45	)

Other income (expense), net		20			(10	)

Loss before taxes		(1,523	)		(1,865	)

Income tax (expense) benefit, net		(2,322	)		18

Net loss	$	(3,845	)	$	(1,847	)

Net loss per share:
Basic	$	(0.23	)	$	(0.12	)
Diluted	$	(0.23	)	$	(0.12	)

Weighted average shares outstanding:
Basic		16,404			15,946
Diluted		16,404			15,946

See Notes to Consolidated Financial Statements

CHYRON CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(In thousands)

(Unaudited)

	2011			2010
Cash Flows From Operating Activities
Net loss	$	(3,845	)	$	(1,847	)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation and amortization		719			782
Deferred tax asset allowance		2,724			136
Deferred income tax benefit		(429	)		(175	)
Inventory provisions		94			140
Share-based compensation expense		753			1,302
Other		188			211
Changes in operating assets and liabilities:
Accounts receivable		462			(1,377	)
Inventories		164			(208	)
Prepaid expenses and other assets		(119	)		296
Accounts payable and accrued expenses		(116	)		(64	)
Deferred revenue		326			399
Other liabilities		(301	)		325
Net cash provided by (used in) operating activities		620			(80	)

Cash Flows From Investing Activities
Acquisitions of property and equipment		(807	)		(365	)
Net cash used in investing activities		(807	)		(365	)

Cash Flows From Financing Activities
Proceeds from exercise of stock options		113			1
Payments on term loan		(244	)		(244	)
Payments on capital lease obligations		(25	)		(25	)
Net cash used in financing activities		(156	)		(268	)

Change in cash and cash equivalents		(343	)		(713	)
Cash and cash equivalents at beginning of period		5,565			5,238
Cash and cash equivalents at end of period	$	5,222		$	4,525

See Notes to Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. BASIS OF PRESENTATION

Nature of Business

Chyron provides sophisticated graphics offerings that include Chyron's AXIS Graphics online content creation software and order management system, on-air graphics systems, clip servers, channel branding and telestration systems, and graphic asset management solutions. As a pioneer of Graphics as a Service for digital video media, Chyron addresses the world of digital and broadcast graphics with web, mobile, HD, 3D and newsroom integration solutions.

General

The consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries. All significant intercompany amounts have been eliminated.

In the opinion of management of Chyron Corporation (the "Company" or "Chyron"), the accompanying unaudited consolidated interim financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position of the Company as of September 30, 2011 and the consolidated results of its operations and its cash flows for the periods ended September 30, 2011 and 2010. The results of operations for such interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2011. In addition, management is required to make estimates and assumptions that affect the amounts reported and related disclosures. Estimates made by management include inventory valuations, stock and bonus compensation, allowances for doubtful accounts, income taxes, pension assumptions and reserves for warranty and incurred but not reported health insurance claims. Estimates, by their nature, are based on judgment and available information. Also, during interim periods, certain costs and expenses are allocated among periods based on an estimate of time expired, benefit received, or other activity associated with the periods. Accordingly, actual results could differ from those estimates. The Company has not segregated its cost of sales between costs of products and costs of services as it is not practicable to segregate such costs. 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 audited consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010. The December 31, 2010 figures included herein were derived from such audited consolidated financial statements.

In December 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2010-28, "When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts" ("ASU 2010-28"). The amendments in ASU 2010-28 affect all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative. The amendments in ASU 2010-28 modify Step 1 so that for those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. ASU 2010-28 is effective for fiscal years beginning after December 15, 2010. Effective January 1, 2011, we adopted ASU 2010-28 which did not have a material effect on our financial statements.

Recent Accounting Pronouncements

In May 2011, the FASB issued amended guidance on fair value measurement and related disclosures. The new guidance clarified the concepts applicable for fair value measurement of non-financial assets and requires the disclosure of quantitative information about the unobservable inputs used in a fair value measurement. This guidance will be effective for reporting periods beginning after December 15, 2011, and will be applied prospectively. We do not anticipate that the adoption of this amended guidance will have a material impact on our consolidated financial statements.

In June 2011, the FASB issued amended guidance on the presentation of comprehensive income. The amended guidance eliminates one of the presentation options provided by current U.S. GAAP, that is to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. In addition, it gives an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance will be effective for reporting periods beginning after December 15, 2011 and will be applied retrospectively. The adoption of this guidance will not have a material impact on our consolidated financial statements.

In September 2011, the FASB issued an accounting standard update that amends the accounting guidance on goodwill impairment testing. The amendments are intended to reduce complexity and costs by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The amendments also improve previous guidance by expanding upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The amendments in this accounting standard update are effective for interim and annual goodwill impairment tests performed for fiscal years beginning after

December 15, 2011. We do not anticipate that the adoption of this accounting standard update will have a material impact on our consolidated financial statements.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed based on the weighted average number of common shares outstanding. Diluted earnings (loss) per share is based on the sum of the weighted average number of common shares outstanding and common stock equivalents. Potentially dilutive shares are excluded from the computation of diluted earnings per share when their effect is anti-dilutive. Shares excluded from the calculation are as follows (in thousands):

	Three Months		Nine Months
	Ended September 30,		Ended September 30,
	2011	2010	2011	2010
Weighted average shares
which are not included
in the calculation of diluted
earnings (loss) per share
because their impact is
anti-dilutive:
Stock options	2,098	3,345	2,170	3,324
Restricted stock units	1,968	2,073	1,854	1,121

2. LONG-TERM INCENTIVE PLANS

Pursuant to the 2008 Long-term Incentive Plan (the "Plan"), we may grant stock options (non-qualified or incentive), stock appreciation rights, restricted stock, restricted stock units and other share-based awards to employees, directors and other persons who serve the Company. The Plan is overseen by the Compensation Committee of the Board of Directors, which approves the timing and circumstances under which share-based awards may be granted. At September 30, 2011, there were approximately 0.8 million shares available to be granted under the Plan. We issue new shares to satisfy the exercise or release of share-based awards. Under the provisions of Accounting Standards Codification Topic for Stock Compensation, all share-based payments are required to be recognized in the statement of operations based on their fair values at the date of grant.

The fair value of each option award is estimated using a Black-Scholes option valuation model. Expected volatility is based on the historical volatility of the price of the Company's stock. The risk-free interest rate is based on U.S. Treasury issues with a term equal to the expected life of the option. The Company uses historical data to estimate expected dividend yield, expected life and forfeiture rates. Options generally have a life of 10 years and vest over a period of 3 years. The fair values of the options granted during the periods ended September 30, 2011 and 2010, were estimated based on the following weighted average assumptions:

	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2011			2010			2011			2010
Expected volatility		70.72	%		73.24	%		71.11	%		75.52	%
Risk-free interest rate		1.42	%		1.64	%		1.79	%		1.95	%
Expected dividend yield		0.00	%		0.00	%		0.00	%		0.00	%
Expected life (in years)		6.0			5.3			6.0			5.6
Estimated fair value per
option granted	$	1.32		$	1.71		$	1.34		$	1.14

The following table presents a summary of the Company's stock option activity for the nine months ended September 30, 2011:

	Number of
	Options
Outstanding at January 1, 2011	3,411,573
Granted	88,000
Exercised	(157,921)
Forfeited and cancelled	(224,320)
Outstanding at September 30, 2011	3,117,332

The Company also grants restricted stock units, or RSUs, which have either time or performance-based vesting features. RSUs are equity awards that are granted to individuals entitling the holder to a share of Company common stock. The fair value of an RSU is equal to the market value of a share of common stock on the date of grant. Time-based RSUs typically vest over a one to three year period, while performance-based RSUs vest based upon the achievement of specific performance targets. All RSUs are required to be settled in shares upon vesting. In the nine months ended September 30, 2011 and 2010, we recorded an expense of $376 thousand and $309 thousand, respectively, relating to RSUs. Included in the total outstanding RSUs as of September 30, 2011 are 1,567,500 RSUs that were awarded under the Company's Key Management Medium-Term Incentive Program that provides for the award of up to 1,750,000 RSUs if certain financial performance conditions are achieved in 2012, or if not in 2012, then in 2013. As of September 30, 2011, no expense was recorded in 2010 or 2011 for this program. If in the future it is probable that these awards will be earned, we will commence recording an expense for them.

The following table presents a summary of the Company's RSU activity for the nine months ended September 30, 2011:

	Shares
Nonvested at January 1, 2011	1,869,991
Granted	697,262
Vested and settled in shares	(221,830)
Forfeited and cancelled	(283,143)
Nonvested at September 30, 2011	2,062,280

In addition, the Company also has a 2011 Management Incentive Compensation Plan ("the 2011 Incentive Plan") that entitles recipients to a combination of cash and equity awards based on achievement of certain performance and service conditions in 2011. No expense has been recorded in 2011 for the 2011 Incentive Plan. If in the future it is probable that these awards will be earned, we will commence recording an expense for them.

The impact on the Company's results of operations of recording share-based compensation expense is as follows (in thousands):

	Three Months				Nine Months
	Ended September 30,				Ended September 30,
	2011		2010		2011		2010
Cost of sales	$	24	$	40	$	76	$	120
Research and development		84		130		270		407
Selling, general and administrative		127		185		407		775
	$	235	$	355	$	753	$	1,302

3. INVENTORIES

Inventories, net are comprised of the following (in thousands):

	September 30,		December 31,
	2011		2010
Finished goods	$	374	$	312
Work-in-progress		281		259
Raw material		1,249		1,647
	$	1,904	$	2,218

4. CREDIT FACILITY

On March 24, 2011, the Company entered into an amendment to its credit facility, effective March 30, 2011, with a U.S. bank which extends its term until March 29, 2012. The credit facility continues to provide for a $1.5 million revolving line of credit ("revolver") with an advance rate of up to 80% of eligible accounts receivable. At September 30, 2011, available borrowings were approximately $1.5 million based on this formula, and no borrowings were outstanding. The revolver will bear interest at Prime +1.75%.

The credit facility is collateralized by the Company's assets, except for its intellectual property rights which are subject to a negative pledge arrangement with the bank. The Company is required to maintain financial covenants based on an adjusted quick ratio of at least 1.5 to 1.0, measured at month end, and minimum tangible net worth of $22 million, increased by 60% of the sum of the gross proceeds received by the Company from any sale of its equity or incurrence of subordinated debt and any positive quarterly net income earned, measured at quarter end (both as defined as per the credit facility). As is usual and customary in such lending agreements, the agreements also contain certain nonfinancial requirements, such as required periodic reporting to the bank and various representations and warranties. The lending agreement also restricts our

ability to pay dividends without the bank's consent. The Company has been in compliance with all debt covenants since inception of the credit facility.

In 2009, the Company borrowed to finance capital equipment under the then existing credit facility which resulted in a term loan of $977 thousand payable over 36 months in equal monthly installments of principal plus accrued interest. The balance outstanding at September 30, 2011 is $217 thousand. Interest expense related to the term loan was $15 thousand and $30 thousand for the nine months ended September 30, 2011 and 2010, respectively. Interest expense was $4 thousand and $9 thousand for the three months ended September 30, 2011 and 2010, respectively.

5. BENEFIT PLANS

The net periodic benefit cost relating to the Company's Pension Plan is as follows (in thousands):

	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2011			2010			2011			2010
Service cost	$	108		$	51		$	300		$	253
Interest cost		86			88			248			252
Expected return on plan assets		(80	)		(97	)		(220	)		(225	)
Amortization of prior service cost		(7	)		(52	)		(19	)		(20	)
Amortization of prior loss		20			12			30			-
	$	127		$	2		$	339		$	260

Our policy is to fund the minimum contributions required under the Employee Retirement Income Security Act (ERISA), and, subject to cash flow levels, the Company may choose to make a discretionary contribution to the Pension Plan to reduce the unfunded liability. In the first quarter of 2011 we made an additional contribution of $0.36 million in order to exceed an 80% funding level as measured at January 1, 2011. In the second quarter of 2011 we made a required quarterly contribution of $0.11 million and in the third quarter of 2011 we made required contributions of $0.22 million. No additional contribution is expected for the remainder of 2011. However, we anticipate that additional contributions will be required in 2012 of approximately $0.1 million per quarter.

6. PRODUCT WARRANTY

We provide product warranties for our various products, typically for one year. Liabilities for the estimated future costs of repair or replacement are established and charged to cost of sales at the time the sale is recognized. We establish our reserve based on historical data, taking into consideration specific product information. The following table sets forth the movement in the warranty reserve (in thousands):

	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2011			2010			2011			2010
Balance at beginning of period	$	50		$	50		$	50		$	50
Provisions		7			26			63			30
Warranty services provided, net		(7	)		(26	)		(63	)		(30	)
	$	50		$	50		$	50		$	50

7. SHAREHOLDERS' EQUITY

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

	Foreign						Accumulated
	Currency			Pension			Other
	Translation			Benefit			Comprehensive
	Adjustments			Costs			Loss
January 1, 2011	$	(25	)	$	(462	)	$	(487	)
Change for period		9			-			9
March 31, 2011		(16	)		(462	)		(478	)
Change for period		-			-			-
June 30, 2011		(16	)		(462	)		(478	)
Change for period		(7	)		-			(7	)
September 30, 2011	$	(23	)	$	(462	)	$	(485	)

During the nine months ended September 30, 2011, we issued 91 thousand shares of common stock in connection with the Company match for our 401(k) plan in lieu of an aggregate cash match of $197 thousand.

8. INCOME TAXES

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

	September 30,		December 31,
	2011		2010
Deferred tax assets:
Net operating loss carryforwards	$	16,920	$	17,027
Temporary differences		4,461		4,074
		21,381		21,101
Deferred tax valuation allowance		3,464		889
	$	17,917	$	20,212

In accordance with accounting standards, the Company has not recorded a deferred tax asset related to the settlement of share-based awards in the accompanying consolidated financial statements because it will not result in the reduction of income taxes payable, due to the existence of net operating loss carryforwards. The cumulative amount of unrecognized tax benefits associated with these awards was approximately $0.67 million at September 30, 2011, and if the Company is able to utilize this benefit in the future it would result in a credit to additional paid in capital.

The components of the provision for income tax (expense) benefit for the periods ended September 30, are as follows (in thousands):

	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2011			2010			2011			2010
Current:
State and foreign	$	(9	)	$	(1	)	$	(26	)	$	(21	)

Deferred:
State		6			14			19			10
Federal		123			251			409			165
		129			265			428			175
Valuation allowance		(2,724	)		(136	)		(2,724	)		(136	)
Income tax (expense) benefit	$	(2,604	)	$	128		$	(2,322	)	$	18

At September 30, 2011, we had U.S. federal net operating loss carryforwards ("NOLs") of approximately $49 million expiring between the years 2012 through 2030. Based on management's current estimate of book income and the uncertainty of the timing of future taxable income, it was determined that it is more likely than not that the Company will not be able to generate enough taxable income in the respective carry forward periods to realize all of its NOLs. Consequently, in the third quarter of 2011, we recorded a $2.7 million valuation allowance related to the portion of NOLs that may not be realized.

We file U.S. federal income tax returns as well as income tax returns in various states and one foreign jurisdiction. We may be subject to examination by the Internal Revenue Service ("IRS") for calendar years 2007 through 2010 under the normal statute of limitations. Additionally, any net operating losses that were generated in prior years and utilized in these years may also be subject to examination by the IRS. Generally, for state tax purposes, the Company's 2006 through 2010 tax years remain open for examination by the tax authorities under a four year statute of limitations, however, certain states may have a statute of limitations of six to ten years.

9. CONTINGENCIES

On December 1, 2009, one of our customers, International Broadcast Consultants, Inc., or IBC, filed a lawsuit against us in the Superior Court of the State of California for the County of Los Angeles, which was subsequently removed to the United States District Court for the Central District of California on January 4, 2010. In August 2011, after various motions and proceedings before the court, Chyron settled this lawsuit for de minimis consideration. The settlement of this lawsuit did not have a material impact on our business, financial condition, results of operations or liquidity.

A letter of notification, dated March 10, 2011, was received from counsel for Turner Broadcasting System, Inc., Turner Network Television, Inc., Cable News Network, Inc., and The Cartoon Network, Inc. ("Turner") alleging that we are obligated to indemnify Turner as a result of a recently filed patent infringement action against Turner by Multimedia Patent Trust ("MPT") in the United States District Court for the Southern District of California. Chyron supplies various products to Turner. We have notified Turner that its request is without merit. We believe Turner's request for indemnification lacks merit because our products do not infringe any of MPT's patents and we are not obligated to indemnify Turner for those portions of our products that are allegedly involved. Should any of such parts of our products be found to be infringing, then indemnification should lawfully be sought from our outside supplier of such parts and not Chyron. We have denied Turner's request.

We are not a party to any other legal proceedings that we believe will have a material impact on our business, financial condition, results of operations or liquidity.

10. SEGMENT AND GEOGRAPHIC INFORMATION

The Company operates and evaluates its business as one reporting unit.

The details of the Company's geographic sales are as follows (in thousands):

	Three Months				Nine Months
	Ended September 30,				Ended September 30,
	2011		2010		2011		2010
United States	$	6,106	$	5,080	$	17,670	$	15,448
Europe		660		1,000		2,978		3,216
Rest of world		704		804		2,832		2,028
	$	7,470	$	6,884	$	23,480	$	20,692

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q, including, without limitation, Management's Discussion and Analysis of Financial Condition and Results of Operations, contains "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We intend that the forward-looking statements be covered by the safe harbor for forward-looking statements in the Exchange Act. The forward-looking information is based on various factors and was derived using numerous assumptions. All statements, other than statements of historical fact, that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. Such statements are based upon certain assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. These forward-looking statements are usually accompanied by words such as "believe," "anticipate," "plan," "seek," "expect," "intend" and similar expressions.

Forward-looking statements necessarily involve risks and uncertainties, and our actual results could differ materially from those anticipated in the forward looking statements due to a number of factors, including those set forth in Part I, Item 1A, entitled "Risk Factors," of our Annual Report on Form 10-K for the year ended December 31, 2010. Those factors as well as other cautionary statements made in this Quarterly Report on Form 10-Q, should be read and understood as being applicable to all related forward-looking statements wherever they appear herein. The forward-looking statements contained in this Quarterly Report on Form 10-Q represent our judgment as of the date hereof. We encourage you to read those descriptions carefully. We caution you not to place undue reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless an earlier date is indicated) and we undertake no obligation to update or revise the statements except as required by law. Such forward-looking statements are not guarantees of future performance and actual results will likely differ, perhaps materially, from those suggested by such forward-looking statements. In this report, "Chyron," the "Company," "we," "us," and "our" refer to Chyron Corporation.

Overview

We have been holding our position during recent recessionary periods by improving our technology and investing in sales and marketing personnel both domestically and abroad. We believe that our media company customers are beginning to realize increases in their revenues, mainly due to political advertising and the recovery in several core advertising segments, most notably automotive, that favorably impacts their capital expenditure budgets. These strategies and occurrences in the marketplace are beginning to have a positive impact on our results of operations.

The overall economic recovery is still tenuous, and our professional media customers continue to be challenged. They are in the process of transforming their businesses to address new opportunities and threats. To help our customers transition their business models we must develop workflow solutions for them that bring cost advantage over traditional processes. Simply put, our mission is to offer visionary, responsive and cost-effective solutions to the community of professionals involved in the creation, management and distribution of media content. These solutions help our media clients do more with less. By leveraging our Cloud-based technologies to deliver low-cost, scalable, collaborative applications and services, we help our customers transform their high fixed-cost business model to a lower, variable and more flexible cost model. We are not deemphasizing our products business, rather, we are finding that adoption of our services offerings results in new product and systems sales and vice versa.

We currently depend on one supplier for a surface-mount component that is used in substantially all of our hardware products. This component is manufactured by our supplier at a facility in Thailand which has experienced extensive flooding in recent months. As a result, they have not been able to supply our demand for the surface-mount component. Our supplier is working on options to meet our production needs by seeking alternate sources of supply and shifting production to other facilities. We have been advised by our supplier that deliveries are expected to begin in December 2011, although no assurances can be provided as to the timing or quantity of such deliveries. Based on our current assessment of the situation, we believe we have enough inventory on hand to fulfill approximately two thirds of our production requirements for the fourth quarter of 2011, although no assurances can be provided.

We are in contact with our supplier and we continue to evaluate the situation. Although the delay in receipt of this component did not have any impact on the results of operations for the period ending September 30, 2011, it could adversely affect our operating results in the fourth quarter of 2011, as well as future periods, until the supply situation is remedied. Because the situation in Thailand is still evolving, uncertainty remains regarding the ultimate impact of this event on us. If we fail to satisfy our manufacturing requirements, then our business, financial condition and results of operations could be materially harmed.

Results of Operations for the Three and Nine Months Ended September 30, 2011 and 2010

Net Sales. Revenues for the quarter ended September 30, 2011 were $7.5 million, an increase of $0.6 million, or 9% from the $6.9 million reported for the quarter ended September 30, 2010. Revenues derived from U.S. customers were $6.1 million in the quarter ended September 30, 2011 as compared to $5.1 million in the quarter ended September 30, 2010. Revenues derived from international customers were $1.4 million and $1.8 million in the quarters ended September 30, 2011 and 2010, respectively.

Revenues for the nine months ended September 30, 2011, were $23.5 million, an increase of $2.8 million, or 13% from the $20.7 million reported for the nine months ended September 30, 2010. Revenues derived from U.S. customers were $17.7 million in the nine months ended September 30, 2011 as compared to $15.4 million in the nine months ended September 30, 2010. Revenues derived from international customers in the nine months ended September 30, 2011 and 2010 were $5.8 million and $5.3 million, respectively.

Revenues, by type, for the three and nine month periods are as follows (in thousands):

	Three Months										Nine Months
	Ended September 30,										Ended September 30,
			% of					% of					% of					% of
	2011		Total			2010		Total			2011		Total			2010		Total
Product	$	5,361		72	%	$	5,309		77	%	$	17,825		76	%	$	16,071		78	%
Services		2,109		28	%		1,575		23	%		5,655		24	%		4,621		22	%
	$	7,470				$	6,884				$	23,480				$	20,692

In the U.S., many TV networks and station groups realized increases in political advertising revenues and automotive advertising revenues that enabled them to procure products, resulting in increased demand for our product and services offerings in 2011.

Our services revenues have increased in both total dollars and as a percentage of total revenues in all periods presented in the table above due to an increase in the sale of software and hardware maintenance contracts for our broadcast graphics products as well as new revenues generated from the sale of our AXIS online graphics creation platform (“AXIS”). We believe that AXIS provides a variable cost business model that is an appealing alternative to our broadcast customers' current up-front fixed cost business model for graphics creation.

Gross Profit. Gross margins for each of the quarters ended September 30, 2011 and 2010 was 69%. Gross margins for each of the nine month periods ended September 30, 2011 and 2010 was 70%. Overall, we have been able to obtain reasonable pricing for our materials and have favorably managed our overhead costs to achieve a consistent cost structure.

Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses were $4.3 million in the quarter ended September 30, 2011 compared to $3.8 million in the quarter ended September 30, 2010. The increase in spending is primarily due to additional compensation and related direct costs of increasing our senior sales, marketing and support staff.

SG&A in the nine months ended September 30, 2011 and 2010 were $12.8 million and $11.2 million, respectively. The increase in spending is also primarily due to additional compensation and related direct costs of increasing our senior sales, marketing and support staff.

Research and Development Expenses. Research and development ("R&D") expenses increased $0.1 million in the third quarter of 2011 to $1.8 million as compared to $1.7 million in the third quarter of 2010. The increase is due to additional engineering staff to support the development process. R&D in the nine month period ended September 30, 2011 remained consistent to the nine month period ended September 30, 2010.

Interest expense. Interest expense declined slightly in the three and nine month periods ended September 30, 2011, as compared to the comparable periods in 2010, as we continue to make monthly principal payments on our term loan and the outstanding balance is reduced.

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

	Three Months					Nine Months
	Ended September 30,					Ended September 30,
	2011			2010		2011			2010
Foreign exchange transaction gain (loss)	$	(14	)	$	74	$	22		$	31
Other		-			-		(2	)		(41	)
	$	(14	)	$	74	$	20		$	(10	)

We continue to be exposed to foreign currency and exchange risk in the normal course of business due to our revenues that are negotiated in British Pounds Sterling. However, we believe that it is not material to our near-term financial position or results of operations.

Income tax (expense) benefit, net. In the third quarter of 2011, we recorded an income tax expense of $2.6 million compared to a benefit in the third quarter of 2010 of $0.1 million. In the nine month period ended September 30, 2011 and 2010, we recorded an income tax expense of $2.3 million and an income tax benefit of $18 thousand, respectively. The primary reason for the increase in income tax expense in all such periods relates to the increase in our valuation allowance for deferred tax assets. In the quarter ended September 30, 2011, it was determined, based on management's current estimate of book income and the uncertainty of the timing of future taxable income, that it was more likely than not that we would not realize a portion of our net operating loss carryforwards and, therefore, we recorded a charge of $2.7 million.

Liquidity and Capital Resources

At September 30, 2011, we had cash and cash equivalents on hand of $5.2 million and working capital of $7.6 million. In the first nine months of 2011, the Company generated approximately $0.6 million in cash from operations. This was primarily caused by decreases in inventory and accounts receivable, resulting from higher customer collections. In addition, we spent $0.8 million on equipment primarily used for demonstrations and trade shows and other equipment for storage and backup related to our services business.

Also, during the first nine months of 2011, we made $0.7 million in contributions to our Pension Plan. We do not expect to make any more quarterly contributions for the remainder of 2011. However, we anticipate that additional contributions will be required in 2012 of approximately $0.1 million per quarter. The Company’s Pension Plan investments were valued at $3.9 million at September 30, 2011 and $3.6 million at December 31, 2010. The Company’s investment strategy remains the same and we believe that the Plan's investments are more than adequate to meet Plan obligations for the next twelve months.

On March 24, 2011, the Company entered into an amendment to its credit facility, effective March 30, 2011, with a U.S. bank to extend its terms until March 29, 2012. The credit facility continues to provide for a $1.5 million revolving line of credit ("revolver"), with an advance rate of up to 80% of eligible accounts receivable. At September 30, 2011, available borrowings were approximately $1.5 million based on this formula, but no borrowings were outstanding under the revolver. In 2009, the Company borrowed $0.98 million to finance capital

equipment under the then existing credit facility, of which $0.2 million remains outstanding at September 30, 2011. This equipment term loan is being repaid in thirty-six equal installments of principal plus interest, and is scheduled to be repaid in full by May 2012. Pursuant to the credit agreement, the Company is required to maintain financial covenants based on an adjusted quick ratio of at least 1.5 to 1.0, measured at month-end, and minimum tangible net worth of $22 million, increased by 60% of the sum of the gross proceeds received by the Company from any sale of its equity or incurrence of subordinated debt and any positive quarterly net income earned, measured at quarter-end (both as defined in the credit facility). As is usual and customary in such lending agreements, the agreements also contain certain non-financial requirements, such as required periodic reporting to the bank and various representations and warranties. The lending agreement also restricts our ability to pay dividends without the bank's consent. The Company has been in compliance with all debt covenants since inception of the credit facility.

Our long-term success will depend on our ability to achieve and sustain profitable operating results and our ability to raise additional capital on acceptable terms should such additional capital be required. In the event that we are unable to achieve expected goals of profitability or raise sufficient additional capital, if needed, we may have to scale back or eliminate certain parts of our operations.

We believe that cash on hand, net cash to be generated in the business, and availability of funding under our credit facility, will be sufficient to meet our cash needs for at least the next 12 months if we are able to achieve our planned results of operations and retain the availability of credit under our lending agreement.

If these sources of funds are not sufficient, we may need to reduce, delay or terminate our existing or planned products and services. We may also need to raise additional funds through one or more capital financings. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or products, or grant licenses on terms that are not favorable to us.

There can be no assurance that additional funds will be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate development activities for one or more of our products or services; or delay, limit, reduce or terminate our sales and marketing capabilities or other activities that may be necessary to commercialize one or more of our products or services.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET

RISK

The information called for by this Item is omitted in reliance upon Item 305(e) of Regulation S-K.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that, based on such evaluation, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal chief financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure, particularly during the period in which this report was being prepared.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control, that occurred during our most recent completed quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not a party to any other legal proceedings that we believe will have a material impact on our business, financial condition, results of operations or liquidity.

ITEM 1A. RISK FACTORS

As a smaller reporting company, we are not required to provide information required by this item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE

OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. (REMOVED AND RESERVED)

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

(a) Exhibits:

Exhibit No.	Description of Exhibit
31.1*	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*	Interactive Data Files regarding (a) our Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010, (b) our Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2011 and 2010, (c) our Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2011 and 2010 and (d) the Notes to such Consolidated Financial Statements.**
	*filed herewith
	**Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		CHYRON CORPORATION
		(Registrant)

November 9, 2011		/s/ Michael Wellesley-Wesley
(Date)		Michael Wellesley-Wesley
		President and Chief Executive Officer

November 9, 2011		/s/ Jerry Kieliszak
(Date)		Jerry Kieliszak
		Chief Financial Officer and Sr. Vice President

Attached files

Stock widget

Investing forum

ChyronHego Corp Reports

Also read