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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission File Number 1-9014
CHYRON CORPORATION
(Exact name of registrant as specified in its charger)
New York
(State or other jurisdiction of incorporation or organization)
11-2117385
(I.R.S. Employer Identification No.)
5 Hub Drive, Melville, New York
(Address of principal executive offices)
11747
(Zip Code)
Registrant's telephone number, including area code (516) 845-2000
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.01
(Title of Class)
New York Stock Exchange
(Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter periods that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. ( )
The aggregate market value of voting stock held by non-affiliates
of the Company on March 6, 1998 was $48,530,746.
The number of shares outstanding of the issuer's common stock, par
value $.01 per share, on March 6, 1998 was 32,605,706.
DOCUMENTS INCORPORATED BY REFERENCE
Item 10 (Directors and Executive Officers of the Registrant), Item
11 (Executive Compensation), Item 12 (Security Ownership of Certain
Beneficial Owners and Management) and Item 13 (Certain
Relationships and Related Transactions) will be incorporated into
the Company's Proxy Statement to be filed within 120 days of
December 31, 1997 and are incorporated herein by reference.
Exhibit index is located on page 53
This document consists of 66 pages
PART I
ITEM 1. BUSINESS
General Information Regarding the Company
Chyron Corporation ("Chyron") was incorporated under the laws of
the State of New York on April 8, 1966 under the name The Computer
Exchange, Inc., which was changed to the present name on November
28, 1975. On April 12, 1996, Chyron acquired Pro-Bel Limited
("Pro-Bel"). On March 31, 1997, Chyron acquired Axis Holdings
Incorporated ("Axis", collectively with Chyron and Pro-Bel, the
"Company"). The Company's principal executive offices are located
at 5 Hub Drive, Melville, New York 11747 and its telephone number
is (516) 845-2000. Its executive offices in the United Kingdom are
located at Danehill, Lower Early, Reading, Berks RG6 4PB and its
telephone number is 44-1734-86-61-21.
The Company develops, manufactures, markets and supports a broad
range of equipment, software and systems that facilitate the
production and enhance the presentation of live and pre-recorded
video, audio and other data. The Company's products enable users
to (i) create and manipulate text, logos and other graphic images
using special effects such as 3D transforming, compositing and
painting; (ii) manage, monitor and distribute video, audio and
other data signals; and (iii) control edit processes and automate
broadcast equipment. The worldwide market for equipment, software
and systems used in the production and presentation of video and
audio content encompasses major television networks, cable
television broadcasters, direct to home satellite program
distributors, production companies and post-production houses, as
well as organizations and individuals creating materials such as
corporate and specialized video and audio presentations.
Industry Transition to High Definition Television
In October 1996, the Federal Communications Commission ("FCC")
adopted a rule that requires broadcasters to utilize digital
advanced television transmission. This ruling requires
broadcasters to adopt one of eighteen formats deemed acceptable as
broadcast standards for digital television, ("DTV") as opposed to
the current analog equipment, and, sets a timetable for the
adoption of DTV, specifically High Definition Television ("HDTV"),
broadcast by the year 2006.
These decisions have set in motion the evaluation of which digital
transmission formats are acceptable and will be used for replacing
the current analog National Television Standards Committee ("NTSC")
standards for broadcasting, news, entertainment and other program
sources. Today, broadcasters are examining the performance of each
of these formats, as well as their technical requirements. By the
year 2006, all the current analog NTSC equipment will have to be
upgraded or replaced in order to comply with the recent FCC ruling.
The method and timing of broadcasters conversion to digital
television is very important to the future profitability of Chyron.
As an equipment manufacturer, Chyron plans to provide broadcasters
with innovative DTV and HDTV equipment. Management views this
industry transition as potentially a great opportunity. However,
broadcasters' failure to convert on a timely basis would have a
negative impact on the Company.
Products
The Company offers a broad range of products that address the needs
of the video and audio production, post-production and distribution
markets. The Company's line of high performance graphics systems
are used by many of the world's leading broadcast stations to
display news flashes, election results, sports scores, stock market
quotations, programming notes and weather information. The
Company's signal management systems interconnect video, audio and
data signals to and from equipment within a studio's control room
or edit suite, as well as to and from signal transmission sites.
The Company's line of control and automation systems are used to
automate the steps used in the management, editing and distribution
of video and audio content.
Graphic Systems
Graphics and character generators. Chyron's family of iNFiNiT!
products use a digital computer and electronic storage to permit
operators to create images capable of being broadcast either
independently or superimposed on other images. Images broadcast
directly from the system have included election results, stock
market quotations, sports scores, commercial advertising and
promotional material. Superimposed images are similarly used for
a variety of purposes such as identifying speakers during
interviews or displaying statistics during sports telecasts.
The flagship iNFiNiT! is a dual-user graphics workstation with one
to three output channels, each with a dedicated key signal. MAX!>
is a signal-user graphics system with one or two separate video and
key channels. MAXINE! is a single channel/single-user character
generator. MAX!> and MAXINE! have similar feature sets and
effective resolution to the iNFiNiT!. In September 1996, the
Company introduced WiNFiNiT!, an optional PC-based graphical user
interface which utilizes the Microsoft Windows NT operating system.
Still store management systems. IMAGESTOR! offers real-time
playback of uncompressed video frames and instant access to
thousands of one-line or archived images. Live newscasters and
broadcast trucks use IMAGESTOR! for live video capture as well as
for image storage retrieval for on-air display. The IMAGESTOR!
system allows on-line storage of 2,000 still images with optional
additional storage available. The library of stills can be
searched and sorted by criteria, keywords and other attributes.
Users can create a playlist of images for automatic playback during
live on-air operations and embed the selected still images with
effects such as cut, dissolve, wipe, push, reveal and hide.
IMAGESTOR! is available as a stand-alone workstation or a database
file management software program for use with Chyron's iNFiNiT!
family of graphics systems.
Compact graphics and character generators. The Company's compact
character generators, sold under the CODI and PC-CODI names,
provide real-time text, titling and logo generation which are used
for broadcasting time, temperature, weather warnings, sports
statistics, scoreboards, news updates and financial information.
CODI products may operate through touch screens for real-time on-
screen drawing. They can work with standard computer platforms
regardless of operating system or system performance.
Electronic paint and animation systems and software. Chyron's
Liberty family of paint and animation tools are resolution-
independent, non-linear, digital image processing systems and
software. Liberty products are used to create, edit and composite
special visual effects in an on-line, real-time environment.
Liberty products have been used for high-end film applications and
have created special effects for major feature films, including
Casino, Broken Arrow, and Godzilla. Liberty products operate on
various Silicon Graphics workstations and support all popular file
formats. Liberty offers a menu of video graphic creation tools,
such as painting, compositing, morphing, titling, 3D transforming,
layering, coloring, cycle animation, rotoscoping and cell
animation.
Signal Management Systems
Switching and routing systems. Under the Pro-Bel name, the Company
provides a complete range of control solutions for matrix systems
which process and distribute multimedia signals. The PROCION
product offers a range of IBM PC/Windows touch screen control
systems which are easy to use and configure. System 3 provides a
push button control panel which can utilize simple signal matrix
solutions and multi-matrix installations with integrated tie-line
management. System 3 and PROCION can co-exist for maximum
flexibility.
The new XD series of digital router switchers are large-scale
routing systems that can produce high-performance signal
distribution across a wide spectrum of applications. The TM Series
are compact digital routing switchers that provide a cost-effective
solution for users moving from analog to digital distribution and
for smaller scale routing solutions such as remote broadcast
vehicles. The HD series of routing switchers includes matrix
products for digital and analog video, digital and analog audio and
RS422 machine control.
Intercom/talkback. The Trilogy Commander 400 Series combines
Digital Signal Processing ("DSP") audio techniques with control
technology to produce a digital intercom/talkback system. The
system is supplied with IBM compatible PC-based editing and control
panels to manage audio crosspoints. Intercom systems are
implemented in a wide range of applications including television
and radio broadcast facilities, airports, hospitals, outside and
remote broadcast trucks, post-production suites and leisure
complexes.
Control and Automation Systems
Master control, storage and station automation. Pro-Bel has
developed a suite of products which are designed to process video,
audio and related data signals, automate playout of the signals and
manage media signal storage devices in the master control and
transmission suites.
MAPP is a Windows-based, video server management and control
system. MAPP provides facilities to record, track, cache and
replay broadcast material according to a user defined schedule.
MAPP easily interfaces with disk based video servers manufactured
by many different vendors.
The COMPASS station automation system provides comprehensive
station automation capability to major broadcasters that have
complex playlists. Video tape cartridge machines, video servers
and other devices are typically interfaced by high speed data links
which allow the system to control the devices according to a
playlist schedule. The automation system monitors all functions
to check for discrepancies such as time errors, machines not
available for control or manual intervention.
The Company's digital master control switcher TX-220 employs
component digital and AES/EBU digital audio signal processing.
Features include 10 bit component digital video/audio processing
with an analog option, up to 4 AES/EBU levels, stand-alone
operation with an upstream keyer, multifunction plasma display,
simple user friendly manual control and full integration with the
compass Automation System. The master control switcher switches
and combines video and audio content signals from various devices,
such as video tape machines, disk based video servers, character
generators and still storage systems, to produce seamless program
flow for distribution to the final program delivery channel.
Electronic editing control systems. The CMX OMNI family of edit
controllers are designed to control and operate edit suite
equipment. CMX OMNI systems are flexible, configurable and easy
to operate. They are capable of controlling over 200 types of edit
suite devices developed by other manufacturers, including video
tape recorders, video disks, production control switchers, digital
video effects equipment, time base correctors and audio equipment.
Marketing and Sales
The Company markets its products and systems to traditional
broadcast, production and post-production facilities, government
agencies, educational institutions and telecommunications and
corporate customers.
In order to maintain and increase awareness of its products, the
Company displays its products at the major domestic and
international trade shows of the broadcast and computer graphics
industries. In the United States, the Company exhibits at the
National Association of Broadcasters (NAB) and ACM SIGGRAPH
conventions. It also exhibits at the International Broadcasters
Conventions (IBC) in Europe, INTERBEE in Japan and Broadcast-Asia
in China. The Company uses direct-mail campaigns and places
advertisements in broadcast, post-production and computer industry
publications.
Sales of the Company's products in the United States and the United
Kingdom are made through Company direct sales personnel, dealers,
independent representatives, systems integrators and OEMs. Direct
sales, marketing and product specialists serving the domestic
markets act as links between the customer and the Company's
development teams.
Sales of the Company's products outside of the United States and
United Kingdom are made through dealers and several representatives
covering specific territories. The Company maintains a sales
office in Hong Kong and is currently establishing a sales office
in Paris, France in an effort to increase foreign sales. In some
territories, dealers sell products from all of the Company's
product categories; in other territories, dealers handle only
specific products.
Service, Support and Training
The Company offers comprehensive technical service, support and
training to its customers through 24 hour per day, seven days per
week access to trained service and support professionals.
Training courses are available through the Company and range in
length from a few days to a few weeks and consist of a mix of
classroom discussions and hands-on training. The Company offers
training courses for many of its products at its Melville (New
York) headquarters and its Reading (United Kingdom) and Atlanta
(Georgia) centers. The Company also conducts on-site training.
Installation assistance, hardware and software, maintenance
contracts and spare parts are made available by the Company.
Support contracts and a responsive spare parts supply service
facilitate customer satisfaction. Service is provided both
domestically and internationally by the Company or its appointed
dealers and representatives. The Company also provides sales and
service support to its dealers from time to time. The Company
provides warranties on all of its products ranging from 90 days to
five years.
Research and Development
The Company's research and product development, conducted in
Melville, New York, Reading, United Kingdom and Cupertino and
Torrance, California, is focused on the continued enhancement of
its existing products and the development of new ones. Product
development efforts include both graphic products and end routers
and switches which will comply with the FCC rulings of October
1996. This ruling will affect the broadcast industry across the
next decade and beyond, specifically the adoption of digital
television, and more specifically HDTV television.
Historically, the Company has focused its efforts toward the
development of complete systems rather than of either hardware or
software standing alone. A strategic engineering group evaluates
hardware and software technologies. Currently engineering efforts
include software stand alone products and hardware with software
products that address the FCC rulings described above. On March
31, 1997, the Company acquired Axis for the primary purpose of
acquiring software technology owned by Axis. As a result of this
acquisition, the Company plans to start shipping Concerto, a
compositing software, in 1998.
During 1997, 1996 and 1995, the Company expensed approximately $6.8
million, $5.3 million and $4.1 million, respectively, for research
and development. Such amounts were net of amounts capitalized and
amortized with respect to software development costs incurred in
connection with the development of new products and the
modification and enhancement of the then existing products.
Manufacturing
The Company has final assembly and system integration operations
located in Melville and Reading. The Company primarily uses third-
party vendors to manufacture and supply all of the hardware
components and sub-assemblies utilized in the Company's graphics
systems and relies upon a combination of third-party vendors and
internal manufacturing for components and sub-assemblies utilized
in the Company's signal management systems. The Company designs
many of its system components to its own specifications, including
metal and electronic parts and components, circuit boards and
certain subassemblies. It assembles such items and standard parts,
together with internally-developed software, to create final
products. The Company then performs testing and quality
inspections of each product.
Competition
The market for graphics imaging, editing and animation systems,
signal routing systems and media storage systems is highly
competitive and is characterized by rapid technological change and
evolving industry standards. Rapid obsolescence of products,
frequent development of new products and significant price erosion
are all features of the industry in which the Company operates.
The FCC's recent ruling requiring broadcasters to utilize DTV
transmission beginning in 1998 will require large future capital
expenditures by the broadcast industry. Management recognizes this
as an opportunity for the Company in the market place, but also as
a result, the Company anticipates increased competition from both
existing companies and new market entrants. The Company is
currently aware of several major and a number of smaller
competitors. In the graphics area, the Company believes its
primary competitors are Aston Electronic Designs Limited, Digital
Graphix Inc., Dynatech Corporation, Quantel Inc. and Scitex
Corporation Ltd. In the signal management area, the Company
believes its primary competitors are Dynatech Corporation, Leitch
Incorporated, Philips Electronics N.V., Sony Corporation and
Tektronix Inc. In the control and automation area, the Company
believes its primary competitors are Accom, Inc., Louth Automation,
Philips Electronics N.V., Sony Corporation and Tektronix, Inc.
Many of these companies have significantly greater financial,
technical, manufacturing and marketing resources than the Company.
In addition, certain product categories and market segments, on a
region-by-region basis, in which the Company does or may compete,
are dominated by certain vendors.
Backlog
The Company's backlog of orders at December 31, 1997 approximated
$6.7 million. The Company believes these orders to be firm and
expects to fulfill the entire amount of this backlog in 1998.
Employees
As of December 31, 1997, the Company employed 459 persons on a
full-time basis, including 74 in sales and marketing, 160 in
manufacturing and testing, 36 in customer support, service and
training, 70 in finance and administration and 112 in research and
development. None of these employees is represented by a labor
union.
Patents and Proprietary Rights
The Company's success depends upon its ability to protect its
proprietary software technology and operate without infringing the
rights of others. It relies on a combination of patent, trademark
and trade secret laws to establish and protect its proprietary
rights in its technology.
The Company currently has seven patents. The names Chyron, Scribe,
Chyron Scribe, Chyron Scribe Junior, Chyron SuperScribe, iNFiNiT!,
MAX!>, MAXINE!, CODI, I2, Chyron Care, Intelligent Interface,
Intelligent Interface (I2), CMX, CMX AEGIS, CMX OMNI, Aurora,
Liberty, and Liberty Aurora and Design are registered trademarks
of the Company. The Company also has rights in trademarks and
service marks which are not federally registered. The Company does
not have registered copyrights on any of its intellectual property.
The duration of patents in the United States is 20 years from
priority or 17 years from issuance. As a result, the Company's
existing patents will begin to expire commencing in the year 1998.
Government Regulations
The United States Federal Communications Commission has issued
regulations relating to shielding requirements for electromagnetic
interface in electronic equipment. The Company's products are in
compliance with these regulations.
The Year 2000
The Company has taken actions to make its systems, products and
infrastructure Year 2000 compliant. The Company is also beginning
to inquire as to the status of its key suppliers and vendors with
respect to the Year 2000. The Company believes it is taking the
necessary steps to resolve Year 2000 issues; however, there can be
no assurance that a failure to resolve any such issue would not
have a material adverse effect on the Company. Management
believes, based on available information, that it will be able to
manage its total Year 2000 transition without any material adverse
effect on its business operations, products or financial
prospects.
ITEM 2. FACILITIES
The executive offices and principal office of the Company and its
graphics business are located in Melville, New York pursuant to a
lease that expires on June 30, 2004. This facility consists of
approximately 47,000 square feet and is used for manufacturing,
research and development, marketing and the executive offices. The
Company also leases approximately 7,000 square feet in Cupertino,
California and 4,300 square feet in Torrance, California for
research and development, which expire on December 31, 2002 and
November 30, 2000, respectively. The Company also maintains sales
offices in Atlanta and Dunwoody, Georgia of 1,000 and 2,700 square
feet, respectively, and in Hong Kong of 2,000 square feet which
expire on January 31, 2001, November 30, 2002 and April 26, 2001,
respectively. In the United Kingdom, the Company's executive
office is located in Reading, United Kingdom where it owns an
approximately 19,000 square foot facility. This facility is used
for manufacturing, research and development and marketing. The
Company occupies additional facilities in the United Kingdom in
Reading and Andover, used primarily for research and development
and manufacturing, which total approximately 28,000 square feet
pursuant to leases which expire from October 31, 1997 through
September 24, 2020. Currently, the Company is considering
expanding its Andover facility but has not made any lease
commitments. The Company currently utilizes 90% to 100% of the
space of all of its facilities. Management currently believes
that, other than the Andover facility, each facility is suitable
for its existing operations and does not foresee the need for any
significant expansion of its current facilities.
ITEM 3. LITIGATION
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.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDERS MATTERS
Principal Market
Chyron's common stock is traded on the New York Stock Exchange
("NYSE") under the ticker symbol "CHY". The approximate number of
holders of record of the Company's common stock at December 31,
1997 was 5,784.
The following table sets forth the high and low reported sales
price for the common stock adjusted to reflect the one-for-three
reverse stock split which occurred in February 1997.
Price Range of Common Stock
High Low
Year Ended December 31, 1997
Fourth Quarter $6.125 $4.125
Third Quarter 5.500 4.063
Second Quarter 5.875 3.750
First Quarter 9.375 4.875
Year Ended December 31, 1996
Fourth Quarter $15.375 $7.50
Third Quarter 19.875 12.00
Second Quarter 18.750 9.375
First Quarter 10.125 6.375
On March 6, 1998, the closing price of the Company's common stock
as reported on the NYSE was $3.625.
The Company has not declared or paid any cash dividend since
November 27, 1989. The Company currently plans to retain its
future earnings, if any, for use in the operation and expansion of
its business and does not anticipate paying cash dividends on the
common stock in the foreseeable future. During the term of its
loan agreement with Fleet Bank (formerly NatWest Bank), the Company
is prohibited from paying dividends in excess of 25% of its net
income for the then current fiscal year.
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
Year Ended December 31,
1997 1996(1) 1995 1994 1993
Statement of Operations Data:
Net sales
$86,774 $82,608 $53,971 $42,762 $37,391
Cost of products sold
46,944 39,941 22,746 18,912 16,816
Gross profit
39,830 42,667 31,225 23,850 20,575
Operating expenses:
Selling, general and administrative
29,662 22,349 17,066 14,301 13,452
Research and development
6,822 5,253 4,105 4,163 3,573
Non-recurring charges
3,082
Management fee
2,911 1,139 800
West Coast restructuring charge (recapture)
(1,339) 12,716
Total operating expenses
39,566 27,602 22,743 32,319 17,825
Operating income (loss)
264 15,065 8,482 (8,469) 2,750
Interest and other expense, net
1,242 1,666 536 525 714
(Loss) income before provision for income taxes
(978) 13,399 7,946 (8,994) 2,036
Income tax/equivalent(benefit) provision
(218) 4,745 470 760
Net (loss) income $(760) $8,654 $7,476 $(8,994) $1,276
Net (loss) income per common share-basic(2)(3)
$(.02) $0.27 $0.26 $(0.31) $0.05
Weighted average number of common shares outstanding(2)(3)
32,538 31,825 29,379 28,962 25,295
Net (loss) income per common share - diluted (2)(3)
$(.02) $.27 $.25 $(0.31) $.04
Weighted average number of common and common equivalent shares
outstanding (2)(3)
32,538 32,327 30,382 28,962 30,231
December 31,
1997 1996(1) 1995 1994 1993
Balance Sheet Data:
Cash and cash
equivalents $2,968 $4,555 $5,012 $1,555 $213
Working capital 38,955 45,362 28,221 12,103 13,256
Total assets 94,080 91,403 44,332 28,644 38,516
Long-term obligations 21,959 21,226 4,911 4,829 200
Shareholders' equity 53,962 53,946 29,983 13,776 22,627
(1) Includes the operations of Pro-Bel since its acquisition by the
Company on April 12, 1996. The acquisition was accounted for as
a purchase. See Note 3 to the Consolidated Financial Statements.
(2) Adjusted to reflect the Reverse Stock Split which was ratified
by the Company's shareholders on January 24, 1997.
(3) Adjusted to reflect FASB Statement No. 128, "Earnings per
share".
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
From time to time including in this annual report, the Company 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 forward-looking statements. In order to comply with the
terms of the safe harbor, the Company notes that a variety of
factors could cause the Company's actual results to differ
materially from the anticipated results or other expectations
expressed in the Company's forward-looking statements. The risks
and uncertainties that may affect the operations, performance,
development and results of the Company's business include the
following: product concentration in a mature market, dependence on
the emerging digital market and the industry's transition to DTV
and HDTV, rapid technological changes, highly competitive
environment, new product introductions, seasonality, fluctuations
in quarterly operating results, expansion into new markets and the
Company's ability to implement successfully its acquisition and
alliance strategy.
Overview
The Company develops, manufactures, markets and supports a broad
range of equipment, software and systems that facilitate the
production and enhance the presentation of live and pre-recorded
video, audio and other data. The Company introduced the iNFiNiT!,
its flagship product, in late 1990. Subsequently, the Company has
introduced a broad range of graphics products such as the MAX!> and
MAXINE!, CODI, LIBERTY, WiNFiNiT! and IMAGESTOR!. These products
superimpose text, logos and other graphics onto a primary video
image or create an independent image to be televised by itself.
The Company expects that revenue from its current graphics and
character generator systems will continue to constitute a
substantial percentage of its net sales in the near future. The
Company's Pro-Bel signal management systems interconnect video,
audio and data signals to and from equipment within a studio's
control room or edit suite, as well as to and from signal
transmission sites.
The Company was incorporated under the laws of the State of New
York on April 8, 1966. In 1994, the Company restructured its West
Coast operations, resulting in a charge of approximately $12.7
million. In 1997, as a result of the FCC's announcement on its
position for HDTV, the Company took steps to position itself for
the transition to HDTV, which included appointing a new Chief
Executive Officer.
The Company's current business strategy includes the following key
elements: (i) position itself as the lead vendor in providing DTV
and HDTV equipment to broadcasters as they make their transition
to digital television in response to the recent FCC ruling; (ii)
maintain and enhance its leadership position in current markets;
(iii) provide upgrades to existing equipment; (iv) cross sell
products to its existing customers; (v) address low-end and
emerging markets;
(vi) expand its global presence; (vii) pursue strategic
acquisitions and alliances; and (viii) utilize open platforms. The
Company intends to continue to serve its worldwide customer base
by introducing products which address the requirements to improve
the production and presentation of video, audio and other data.
The Company also intends to continue to upgrade its current high
performance systems, invest in the development of new options and
enhancements for its products, and provide complete system
solutions to its customers.
Acquisition of Axis
On March 31, 1997, the Company acquired Axis, located in Los
Angeles, California. Axis develops software in professional video
and audio tools created specifically for use on the Microsoft
Windows NT Operating System. The aggregate cost of $1.83 million
consisted of $413,000 in cash, $667,000 in two year promissory
notes and 173,913 restricted shares of Chyron Corporation common
stock valued at $750,000.
The acquisition of Axis was accounted for as a purchase; therefore,
the cost was allocated to the net tangible assets acquired based
on their estimated fair values. The majority of the purchase price
was capitalized as software development costs and will be amortized
over the estimated economic life of the products, commencing when
each product is available for general release.
Acquisition of Pro-Bel
On April 12, 1996, the Company acquired Pro-Bel, located in
Reading, United Kingdom. Pro-Bel develops, manufactures and
markets signal management systems and control and automation
systems. The aggregate consideration of $19.1 million consisted
of $6.9 million in cash, $5.3 million in two-year promissory notes
and 1,048,735 restricted shares of common stock valued at $6.9
million.
The acquisition of Pro-Bel was accounted for as a purchase.
Accordingly, the cost was allocated to the net tangible assets
acquired based upon their estimated fair values. The excess of
cost over the estimated fair values of the net tangible assets
acquired amounted to $6.9 million, which is being amortized over
12 years using the straight-line method.
Investment in RT-SET
On February 29, 1996, the Company purchased a 19% interest in Real
Time Synthesized Entertainment Technology, Ltd. ("RT-SET"), which
develops, markets and sells real time virtual studio set software
and proprietary communications hardware and is located in Israel.
The Company purchased shares of RT-SET Convertible Preferred Stock
in exchange for 800,000 restricted shares of Chyron Corporation
common stock. In addition, the Company was granted certain call
option rights which, if and when exercised, allows the Company to
purchase up to a 51% interest in RT-SET in exchange for the
issuance of additional shares of common stock. In accordance with
the purchase agreement, the 800,000 shares of common stock were to
be held in escrow and released in two tranches, subject to certain
conditions. One-third of such shares was released from escrow in
June 1996 and the remainder will be released upon the earlier of
a public offering of RT-SET's equity; or RT-SET achieving two
consecutive years of profitability. Prior to any public offering
by RT-SET or achievement of the aforementioned profitability, the
Company has the right to recover the remaining two-thirds of its
shares held in escrow in exchange for its interest in RT-SET. The
transaction has been recorded as the purchase of a right to acquire
a 19% interest in RT-SET (which was diluted to 17% as a result of
a subsequent investment by a third party). RT-SET shall retain the
voting rights with respect to the escrowed shares of the Company
while such shares are held by the escrow agent. The acquisition
was recorded at the estimated fair value of the restricted shares
of common stock released from escrow.
Year Ended December 31, 1997 Compared to Year Ended December 31,
1996
Net Sales. Net sales increased 5.0% to $86.8 million in 1997 from
$82.6 million in 1996. The increase was attributable to an
increase in Pro-Bel product sales of 73% offset by a decrease in
the Chyron Graphics line of 27%. The Pro-Bel increase is due to
a combination of: (i) an increase in sales of the Pro-Bel product
in the U.S. market; (ii) the fact that 1997 amounts represent 12
months of revenue, while 1996 represents revenue from the purchase
date, April 12, 1996, through December 31, 1996, and (iii)
increases in Pro-Bel sales in the European and other non-U.S.
markets. Chyron sales declined mainly due to customers opting to
fill their graphic needs with the Company's lower-end Chyron
products based on the recent FCC ruling requiring broadcasters to
utilize digital advanced television transmission beginning in 1998;
such ruling should cause future capital expenditures by the
broadcast industry. The Company's net sales consist of product
sales, upgrades and enhancements and rental income as well as
customer service revenue.
Gross Profit. Gross profit decreased to $39.8 million in 1997 from
$42.7 million in 1996. Gross margin as a percentage of net sales
decreased to 45.9% in 1997 from 51.6% in 1996. This decrease was
caused by increases in Pro-Bel sales for the year, which have
historically lower margins than the Chyron lines, as well as
decreases in the Chyron margin as a result of a shift in product
mix from high-end products to lower-end products as described
above. Customer service costs are included in selling, general
and administrative expenses and are not material.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 32.7% to $29.7 million in 1997
from $22.3 million in 1996. As a percentage of net sales, selling,
general and administrative expenses increased to 34.2% in 1997 from
27.1% in 1996. The increase is due mainly to the inclusion of Pro-
Bel expenses for 12 months in 1997, while 1996 only included 9
months of expenses. Additional increases were due to an overall
increase in sales volume and increases in headcount at both Chyron
and Pro-Bel.
Research and Development Expenses. Research and development
expenses increased 29.9% to $6.8 million in 1997 from $5.3 million
in 1996. This increase is mainly due to the inclusion of Pro-Bel's
expenditures for a full twelve month period in 1997. Additional
increases in R&D have been seen at both Chyron and Pro-Bel as the
Company has focused its attention on new product development to
address the FCC ruling described above as well as the continued
development of the "Concerto" product line of Axis, which was
acquired on March 31, 1997. These increases were offset by net
capitalized software cost, (exclusive of the $1.7 million of the
cost of Axis capitalized), which increased approximately $1.0
million for the twelve months ended December 31, 1997 versus the
same period in 1996.
Non-recurring Charges. For the twelve months ended December 31,
1997, non-recurring charges totaling $3.1 million were incurred by
the Company. A non-recurring charge of $675,000 incurred in the
first quarter of 1997 was attributable to the Company's planned
secondary offering of common stock, which was terminated due to the
change in the market valuation of the stock. During the second
quarter of 1997, in an effort to position Chyron to meet the
domestic television market's need for high definition and
multichannel standard definition equipment that comply with the
recent FCC rulings described above, the Company underwent a
repositioning which, together with several other items, resulted
in non-recurring charges in the second quarter totalling
$2,407,000.
Included in this charge was a write-down of inventory related to
product lines which have been discontinued as a result of a new
market positioning strategy, severance expense related to staff
reduction, the write-off of software development projects related
to products not within the new strategy, the consolidation of
certain Chyron offices, the settlement of litigation dating back
several years and the write-off of costs related to a potential
acquisition that was abandoned due to the new strategy.
The specific components of the non-recurring charge are as follows
(in thousands):
Non-cash outlays:
Write-down of inventory $700
Write-off of software development costs 205
Litigation settlement - Issuance of Chyron
common stock 88
Total non-cash charges 993
Cash outlays:
Secondary offering termination 675
Severance 825
Write-off of acquisition costs 200
Litigation settlement 100
Other 289
Total $3,082
Cash outlays related to the non-recurring charges total $2.1
million, of which $1.6 million was made by December 31, 1997.
Interest and Other Expense, Net. Interest and other expense, net,
decreased 25.5% to $1.3 million in 1997 from $1.7 million in 1996.
The decrease was due to the fact that in 1997 a foreign transaction
gain of $423,000 was recognized, as opposed to a $264,000 loss
recognized in 1996. This was due to the increase in the foreign
exchange rate for British pounds sterling over the respective
periods and the increased intercompany transactions between Chyron
and Pro-Bel. This decrease was offset by increases in interest
expense due to increases in average borrowing and interest rates
over the comparable twelve month periods.
(Loss) Income Before Provision for Income Taxes. The Company
incurred a loss before taxes of ($978,000) compared to income of
$13.4 million for the same prior year period. This loss was
attributable mainly to the $3.1 million in non-recurring charges
discussed above, coupled with decreases in sales of Chyron graphics
products, the gross margin erosion as a result of product mix and
increased SG&A and R&D expenses incurred in anticipation of the
opportunity availing the Company as the industry transitions to
HDTV.
Income Taxes/Equivalent (Benefit) Provision. The Company
recognized a $218,000 tax benefit for the twelve months ended
December 31, 1997 compared to an income tax provision of $4.7
million for 1996. The tax benefit was primarily attributable to
the loss of ($978,000) before taxes while the provision was based
on pre-tax income of $13.4 million.
Year Ended December 31, 1996 Compared to Year Ended December 31,
1995
Net Sales. Net sales increased 53.1% to $82.6 million in 1996 from
$53.9 million in 1995. Over 85% of the $28.7 million increase was
attributable to the inclusion, since April 1996, of Pro-Bel's
sales; Chyron's graphic products showed modest growth. The
Company's net sales consist of product sales, upgrades and
enhancements and rental income as well as customer service revenue.
Gross Profit. Gross profit increased to $42.7 million in 1996 from
$31.2 million in 1995. This increase was primarily attributable
to the 53.1% increase in net sales. Gross margin as a percentage
of net sales decreased to 51.6% in 1996 from 57.9% in 1995. This
decrease was caused primarily by the inclusion since April 1996 of
net sales of Pro-Bel products, which historically have had lower
gross margins. The gross margin for the Chyron product lines
decreased slightly, primarily as a result of the product mix for
the year. Customer service costs are included in selling, general
and administrative expenses and are not material.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 31.0% to $22.3 million in 1996
from $17.1 million in 1995. As a percentage of net sales, selling,
general and administrative expenses decreased to 27.0% in 1996 from
31.6% in 1995. The increase in dollars was primarily due to the
inclusion of Pro-Bel's operations since April 1996 and the
accounting for the acquisition under the purchase method resulting
in amortization of excess purchase price over net tangible assets
acquired and increased depreciation, as well as increased costs as
a direct result of increased sales volume. The decrease as a
percentage of net sales was affected by the incurrence in 1995 of
$443,000 of one-time legal and investment banking fees (incurred
with respect to the undertaking of the Special Transaction
Committee of the Board of Directors, which was appointed in
connection with the potential change in control of the Company) and
$430,000 of severance costs for former management.
Research and Development Expenses. Research and development
expenses increased 27.9% to $5.3 million in 1996 from $4.1 million
in 1995. This increase was primarily due to the inclusion of Pro-
Bel's research and development expenditures since April 1996.
Research and development expenses related to Chyron's product lines
decreased in 1996 in part due to an increase of approximately
$800,000 in the amount of software capitalized and an increased
percentage of research and development undertaken internally
instead of by outside consultants.
Interest and Other Expense, Net. Interest and other expense, net,
increased 210.8% to $1,666,000 in 1996 from $536,000 in 1995. In
conjunction with the Pro-Bel acquisition, the Company entered into
various agreements with a bank, issued promissory notes (payable
in pounds sterling) to the shareholders of Pro-Bel and assumed Pro-
Bel's existing bank debt, all of which led to an increase of
$866,000 in interest expense for the year. Net foreign currency
transaction losses of $264,000 have been recognized in 1996 due to
the change in the exchange rate from date of acquisition of Pro-Bel
to December 31, 1996.
Income Before Provision for Income Taxes. Income before provision
for income taxes increased 68.6% to $13.4 million in 1996 from $7.9
million in 1995, primarily due to the improved operating income of
Chyron coupled with the addition of the operating income generated
by Pro-Bel. Additionally, in 1995, Chyron was subject to
management fees of $2.9 million which were not in place in 1996.
These fees were offset in 1995 by income of $1.3 million realized
as a result of the recapture of restructuring charges recognized
in 1994.
Income Taxes/Equivalent Provision. Income taxes/equivalent
provision increased to $4.7 million in 1996 from $470,000 in 1995,
primarily because in 1995 an income tax benefit of approximately
$2.2 million was realized as a result of the 1994 West Coast
restructuring. The increase was also due to increased income
before income taxes in 1996.
Liquidity and Capital Resources
At December 31, 1997, the Company had cash on hand of $3.0 million
and working capital of $39.0 million.
In connection with the acquisition of Axis, the Company issued
promissory notes to the shareholders of Axis for $667,000.
Installment payments are due on March 31, 1998 and 1999, with the
timing of the amounts due being contingent upon the Axis division
realizing certain revenue targets. See Note 2 to the Consolidated
Financial Statements. $250,000 of such notes is due March 31,
1998 and will be paid from Chyron's operating cash flow. Interest
is payable with the annual installments at a rate of 6% per annum.
See Note 11 to the Consolidated Financial Statements.
To finance the acquisition of Pro-Bel, the Company incurred
additional debt of $7.2 million used cash on hand of $6.9 million
and issued promissory notes to the shareholders of Pro-Bel for 3.5
million pounds sterling ($5.7 million, converted at the December
31, 1997 exchange rate). See Note 3 to the Consolidated Financial
Statements. The promissory notes are secured and will be paid by
an irrevocable letter of credit from a bank. The amount of this
irrevocable letter of credit is included as an outstanding
borrowing in the formula used to calculate borrowing availability
for the Company's facility with Fleet Bank described below.
Interest through April 15, 1998 is equal to LIBOR as of April 15,
1997 (7.03%) and is payable quarterly. Interest through April 15,
1997 was equal to LIBOR as of April 15, 1996 (6.46%). The notes
are due on or before April 15, 1998 and are subordinated to any
obligations to a bank or financial institution currently existing
or subsequently entered into. The notes can be prepaid without
penalty. See Note 11 to the Consolidated Financial Statements.
Since the Pro-Bel acquisition, the Company's consolidated financial
statements include the Pro-Bel accounts, as adjusted for purchase
accounting. At the date of acquisition, inventory increased by
$7.8 million, accounts receivable increased by $6.9 million and
accounts payable increased by $9.5 million which, in sum with other
current assets acquired and current liabilities assumed, increased
working capital by $6.8 million. Additionally, at the date of
acquisition, property and equipment increased by $8.8 million,
excess of cost over net tangible assets acquired of $6.9 million
was recorded and $3.6 million of Pro-Bel debt was assumed.
On March 28, 1996 and April 16, 1996, the Company entered into
agreements with Fleet Bank (formerly NatWest Bank) to obtain a
revolving credit facility of $10.0 million and a term loan of $8.0
million, respectively. The entire facility is secured by certain
of the Company's assets. Borrowings are limited to amounts
computed under a formula for eligible accounts receivable and
inventory. Interest on the revolving credit facility is equal to
adjusted LIBOR plus 175 basis points or prime (8.50% at December
31, 1997) and is payable monthly. The term loan is payable in
quarterly installments of $500,000, commencing June 1, 1996.
Interest on the term loan is equal to adjusted LIBOR plus 200 basis
points or prime and is payable monthly. At December 31, 1997, the
Company did not comply with certain financial covenants and,
accordingly, had obtained waivers for periods up to and including
March 30, 1998 and amendments with respect to such covenants from
its lender for periods up to and including April 16, 2000, the
maturity date of the term loan. Currently management is
negotiating an increase in the revolving credit facility with the
Bank. The revolving credit facility is scheduled to expire on
March 28, 1999. Management intends to renew such facility prior
to the expiration date. See Note 11 to the Consolidated Financial
Statements.
Pro-Bel has a commercial mortgage term loan with Barclay's Bank
Plc. ("Barclays"). The loan is secured by a building and property
located in the United Kingdom. Interest is equal to LIBOR plus 2%
(9.56% at December 31, 1997). The loan (including interest) is
payable in quarterly installments of 80,600 pounds sterling
($133,000, converted at the December 31, 1997 exchange rate). See
Note 11 to the Consolidated Financial Statements.
On January 13, 1998, Pro-Bel entered into an agreement with
Barclays whereby Barclays agreed to provide an overdraft facility
of up to 4.0 million pounds sterling through December 31, 1998 to
Pro-Bel, and its subsidiaries. The overdraft facility provides for
interest at 1.5% per annum over the banks base rate. Interest is
payable quarterly in arrears. This facility replaces the overdraft
facility of up to 3.0 million pounds sterling in place at December
31, 1997. All monies under the facility are repayable upon written
demand. Management intends to renew this facility on or about
December 31, 1998. Total borrowings are limited to amounts
computed under multiple formulas of eligible accounts receivable
and inventory.
On December 20, 1996, Pro-Bel entered into an agreement with a bank
to obtain an overdraft facility of up to 3.0 million pounds
sterling through December 31, 1997, subsequently extended to
January 12, 1998 ($4,943,000 converted at the December 31, 1997
exchange rate). Total borrowings were limited to amounts computed
under a formula for eligible accounts receivable. Interest was
equal to the bank's base rate plus 1.5% (8.75% at December 31,
1997) and was payable in arrears. The facility was payable upon
written demand by the bank and any undrawn portion was cancellable
by the bank at any time. This facility was replaced by the
facility with Barclays, described above, dated January 13, 1998.
At December 31, 1997, the Company had operating and capital lease
commitments totaling $12.9 million and $.8 million, respectively,
of which $1.1 million and $.4 million, respectively is payable
within one year. Such lease committments were for equipment,
factory and office space and are expected to be paid out of
operating cash flows of the Company. See Note 15 to the
Consolidated Financial Statements.
Impact of Inflation and Changing Prices
Although the Company cannot accurately determine the precise effect
of inflation, the Company has experienced increased costs of
materials, supplies, salaries and benefits and increased general
and administrative expenses. The Company attempts to pass on
increased costs and expenses by developing more useful and cost
effective products for its customers that can be sold at more
favorable profit margins.
Industry Transition to High Definition Television
As discussed above, in October 1996, the FCC adopted a new digital
television standard. Conversion to the new standard will produce
potentially great opportunity to companies involved in the
broadcast industry and related business, however, this change has
caused uncertainty, hesitation and confusion for broadcasters and
other customers in their decisions on capital spending. The delay
in capital spending by broadcasters has affected Chyron graphic
sales. The method and timing of broadcasters conversion to digital
television is very important to the future profitability of Chyron.
The Year 2000
The Company has taken actions to make its systems, products and
infrastructure year 2000 compliant. The current budget includes
an allocation of $400,000 for a new integrated information system
at Pro-Bel. Management believes based on available information
that aside from the amounts described above, additional year 2000
issues are immaterial and that the Company will be able to handle
the year 2000 transition, without any material adverse effects on
its business operations, products or financial prospects.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and
Shareholders of Chyron Corporation
In our opinion, the consolidated financial statements listed in the
index appearing under Item 14(a)(1) and (2) on page 53 presents
fairly, in all material respects, the financial position of Chyron
Corporation and its subsidiaries at December 31, 1997 and 1996 and
the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
New York, New York
January 29, 1998
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHYRON CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
December 31,
Assets 1997 1996
Current Assets;
Cash and Cash equivalents $2,968 $4,555
Accounts and notes receivable 21,125 25,237
Inventories 26,540 23,502
Prepaid expenses 1,897 865
Deferred tax asset 4,301 6,015
Other 283 1,419
Total current assets 57,114 61,593
Property and equipment 12,373 12,701
Excess of cost over net
tangible assets acquired 6,779 6,439
Investment in RT-SET 2,161 2,161
Software development costs 5,224 2,176
Deferred tax asset 7,070 4,709
Other 3,359 1,624
TOTAL ASSETS $94,080 $91,403
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued
expenses $15,491 $13,925
Current portion of long-term debt 2,318 2,081
Capital lease obligations 350 225
Total current liabilities 18,159 16,231
Long-term debt 17,774 18,162
Capital lease obligations 2,007 1,903
Accrued pension expense 317 118
Other 1,861 1,043
Total liabilities 40,118 37,457
Commitments and contingencies
(see Note 15)
Shareholders' equity:
Preferred stock, par value
without designation;
Authorized - 1,000,000 shares;
Issued - none
Common stock, par value $.01;
Authorized - 150,000,000 shares;
Issued and outstanding, 32,605,706
and 32,384,635 shares at 1997 and
1996, respectively 326 324
Addtional paid-in capital 44,016 43,124
Retained earnings 9,237 9,997
Cumulative translation adjustment 383 501
Total shareholders' equity 53,962 53,946
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $94,080 $91,403
See Notes to Consolidated Financial Statements
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
year Ended December 31,
1997 1996 1995
Net sales $86,774 $82,608 $53,971
Cost of products sold 46,944 39,941 22,746
Gross profit 39,830 42,667 31,225
Operating expenses:
Selling, general, and
administrative 29,662 22,349 17,066
Research and development 6,822 5,253 4,105
Non-recurring charges 3,082
Management fee 2,911
West Coast restructuring
charge (recapture) (1,339)
Total operating expenses 39,566 27,602 22,743
Operating income 264 15,065 8,482
Interest and other expense,
net 1,242 1,666 536
(Loss) income before
provision for income taxes (978) 13,399 7,946
Income taxes/equivalent
(benefit) provision (218) 4,745 470
Net (loss) income $(760) $8,654 $7,476
Net (loss) income per
common share:
Basic $(.02) $.27 $.26
Diluted $(.02) $.27 $.25
Weighted average shares
used in computing net
(loss) income per
common share:
Basic 32,538 31,825 29,379
Diluted 32,538 32,327 30,382
See Notes to Consolidated Financial Statements
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(760) $8,654 $7,476
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Non-recurring charges 890
West Coast restructuring (recapture) (1,339)
Depreciation and amortization 4,137 3,120 2,067
(Provision) benefit of deferred
income taxes (1,241) 2,335 354
Changes in operating assets and
liabilities:
Accounts and trade notes receivable 3,851 (3,505) (742)
Inventories (3,575) (3,303) (6,181)
Prepaid expenses (1,038) (117) 1,320
Other assets (600) (464)
Accounts payable and accrued expenses 1,382 (2,865) 1,112
Other liabilities 936
Management fee payable (1,000) 1,000
Reserve for West Coast restructuring (1,327)
Net cash provided by operating
activities 3,982 2,855 3,740
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Axis (413)
Acquisition of Pro-Bel and Investment
in RT-SET (7,191)
Acquisition of property and equipment (1,621) (1,802) (710)
Capitalized software development (2,678) (1,268) (207)
Other 52 28
Net cash (used in) investing activities (4,712) (10,209) (889)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of term loan (2,000) (1,500)
Borrowings (Payments of) from revolving
credit agreement, net 1,374 (4,144) (4,500)
Payments of capital lease obligations (290) (262) (106)
Net proceeds from new credit facility 11,976 4,741
Proceeds from exercise of common stock
purchase warrants, net 239 471
proceeds from exercise of stock options 108 552
Other (52)
Net cash (used in) provided by
financing activities (860) 6,861 606
Effect of foreign currency rate
fluctuations on cash and cash
equivalents 3 36
Change in cash and cash equivalents (1,587) (457) 3,457
Cash and cash equivalents at beginning
of year 4,555 5,012 1,555
Cash and cash equivalents at end of
year $2,968 $4,555 $5,012
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $1,348 $1,636 $555
Income taxes paid $697 $2,920 $116
See Notes to Consolidated Financial Statements
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
Non-cash investing and financing activities:
On March 31, 1997, the Company acquired the issued and outstanding
shares of Axis Holdings Incorporated. The consideration in
addition to cash paid included the issuance of 173,913 shares of
Chyron Corporation common stock valued at $750,000 and notes
payable of $667,000. See Note 2 to the Consolidated Financial
Statements.
The Company recorded capital lease obligations of $614,000 during
1997 related to the acquisition of equipment.
On February 29, 1996, the Company effectively acquired an option
to acquire a 19% interest in RT-SET Ltd. in exchange for 800,000
shares of Chyron common stock. See Note 4 to the Consolidated
Financial Statements.
On April 12, 1996, the Company acquired the issued and outstanding
shares of Pro-Bel. The consideration in addition to cash included
1,048,735 shares of Chyron common stock valued at $6,868,000 and
notes payable of $5,349,000 (3.5 million pounds sterling valued at
the exchange rate at the date of acquisition). See Note 3 to the
Consolidated Financial Statements.
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
Retained
Additional Earnings Cumulative
Paid-In (Accumulated Translation
Shares Amount Capital Deficit Adjustment
Balance at December 31, 1994
29,131 $291 $19,618 $(6,133)
Net income
7,476
Exercise of warrants
726 7 464
Conversion of subordinated notes
167 2 98
Benefit of utilization of net net operating loss carryforward under
Fresh Start Reporting
1,360
Income tax equivalent benefit from reduction of deferred tax asset
valuation allowance
6,800
Balance at December 31, 1995
30,024 300 28,340 1,343
Net income
8,654
Exercise of warrants
398 4 235
Exercise of stock options
114 1 551
Issuance of stock in connection with acquisiton of Pro-Bel, Ltd.
1,049 11 6,857
Issuance of stock in connection with investment in RT-SET
800 8 1,942
Cumulative translation adjustment
$501
Income tax equivalent benefit from reduction of deferred tax asset
valuation allowance
5,199
Balance at December 31, 1996
32,385 324 43,124 9,997 501
Net loss
(760)
Exercise of stock options
22 108
Issuance of stock in connection with the acquisition of Axis
174 2 748
Issuance of shares in ocnnection with a litigation settlement
25 88
Payment of truncated shares as a result of reverse stock split
(52)
Cumulative translation adjustment
(118)
Balance at December 31, 1997
32,606 $326 $44,016 $9,237 $383
CHYRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Chyron Corporation and its wholly-owned subsidiaries ("Chyron" or
the "Company") develop manufacture, market and support a broad
range of equipment, software and systems that facilitate the
production and enhance the presentation of live and pre-recorded
video, audio and other data. Chyron's wholly-owned United Kingdom
subsidiary, Pro-Bel Limited ("Pro-Bel"), develops, manufactures and
markets signal management systems and control and automation
systems.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. On April 12, 1996, the
Company acquired Pro-Bel and its subsidiaries (see Note 3). The
Company established Chyron Overseas Limited June 5, 1997. The
Company's other subsidiaries are inactive.
Restatement and Reclassification
On January 24, 1997, the Company's shareholders ratified a one-for-
three reverse stock split. (Loss)/income per share, weighted
average shares used in computing net (loss)/income per common
share, common stock issued and outstanding, additional paid-in-
capital and all other common stock transactions presented in these
consolidated financial statements have been restated to reflect the
one-for-three reverse stock split. In addition, certain prior year
amounts have been reclassified to conform to the current year
presentation.
Accounting Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues, costs and expenses during the periods
presented. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash includes cash on deposit and amounts invested in a highly
liquid money market fund. Cash equivalents consist of short term
investments with original maturities of three months or less. The
carrying amount of cash and cash equivalents approximates their
fair value.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined on a first-in, first-out basis. The need for inventory
obsolescence provisions is evaluated quarterly by the Company and,
when appropriate, provisions for technological obsolescence, non-
profitability of related product lines and excess quantities on
hand are made.
Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation and
amortization are provided on the straight line method over the
following estimated useful lives:
Building 35 years
Machinery and Equipment 3-10 years
Furniture and Fixtures 5-10 years
Leasehold Improvements Shorter of the life of improvement
or remaining life of the lease
Shorter of the life of improvement or remaining life of the
leaseExcess of Cost over Net Tangible Assets Acquired
The Company continually evaluates whether changes have occurred
that would require revision of the remaining estimated useful life
of the assigned excess of cost over the value of net tangible
assets acquired (goodwill) or its carrying amount. In making such
determinations, the Company evaluates undiscounted cash flows of
the underlying business which gave rise to such amount.
Approximately 91% of the Company's goodwill is a result of the 1996
acquisition of Pro-Bel Limited (see Note 3). Costs in excess of
net assets are being amortized over 12 years using the straight
line method. Amortization in 1997 and 1996 amounted to $603,000
and $487,000, respectively.
Software Development Costs
Certain software development costs are capitalized when incurred.
Capitalization of software development costs begins upon the
establishment of technological feasibility. The establishment of
technological feasibility and the ongoing assessment of
recoverability of capitalized software development costs is
continually monitored by management with respect to anticipated
future revenues and estimated economic life. Amortization of
capitalized software development costs is provided on a product-by-
product basis over the products' estimated economic life, which
ranges from 3-5 years, using the straight line method.
Impairment of Long-Lived Assets
The Company continually evaluates whether changes have occurred
that would require revisions to the carrying amounts of its long-
lived assets. In making such determination the Company reassesses
market value, assesses recoverability, replacement values, and
evaluates undiscounted cash flows of the underlying business in
valuing goodwill. Currently management does not believe any of its
long-lived assets are impaired.
Revenue Recognition
Net sales, which include revenue derived from product sales and
upgrades as well as service revenue, are recorded upon shipment of
product or performance of service. Customer service costs are
included in selling, general and administrative expenses and are
not material.
Non-recurring Charges
During 1997, the Company incurred non-recurring charges totaling
$3.1 million related to both the 1) termination of the Company's
planned secondary offering of common stock due to the decline in
the market valuation of the Company's stock and 2) a respositioning
by the Company to address recent FCC rulings, which will transition
the domestic television market to DTV and HDTV. The principal
components of the repositioning charge included a writedown of
inventory related to product lines which have been discontinued as
a result of a new market positioning strategy, severance expense
related to staff reductions, write-off of software development
projects related to products not within the new strategy, write-off
of costs related to a potential acquisition that was abandoned due
to the new strategy and the settlement of litigation dating back
several years. These charges are included in the Company's
operating expenses for the year.
Income Taxes
In connection with the Company's emergence in 1991 from its
reorganization proceeding under Chapter 11 of the United States
Bankruptcy Code, the Company adopted "Fresh Start Reporting" in
accordance with AICPA Statement of Position No. 90-7, "Financial
Reporting by Entities in Reorganization under the Bankruptcy Code."
Fresh Start Reporting requires that the Company report an income
tax equivalent provision when there is book taxable income and a
pre-reorganization net operating loss carryforward. This
requirement applies despite the fact that the Company's
pre-reorganization net operating loss carryforward would eliminate
(or reduce) the related income tax payable. The current and future
year benefit related to the carryforward is not reflected in net
income, but instead is recorded as a direct increase to additional
paid-in capital. The income tax equivalent provision does not
affect the Company's tax liability.
The Company's net deferred tax assets represent the tax benefit to
be derived from the pre- and post- reorganization net deductible
temporary differences and net operating loss carryfowards.
Foreign Currencies
The functional currency for the Company's foreign operations is the
applicable local currency. The translation from the applicable
foreign currency to U.S. dollars is performed for asset and
liability accounts using period-end exchange rates and for revenue
and expense accounts using a weighted average exchange rate during
the periods. The gains or losses resulting from such translation
are recorded in the cumulative translation adjustment account
which is included in shareholders' equity. Transaction gains or
losses are included in interest and other expenses.
Net (Loss) Income Per Share
In 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share," which the Company has adopted for
the year ended December 31, 1997. Accordingly, all prior period
amounts have been restated to reflect this new statement.
Basic net (loss)/income per common share is computed based on the
weighted average number of common shares outstanding during the
year. Diluted net (loss) income per common share is computed based
on the weighted average number of common shares outstanding during
the year plus, when dilutive, additional shares issuable upon the
assumed exercise of outstanding common stock equivalents.
Incremental shares of nil, 502,000 and 1,003,000 in 1997, 1996 and
1995, respectively were used in the calculation of diluted net
(loss) income per share.
For 1997 and 1996, outstanding common stock options of 2,458,423
and 396,302, respectively, were not included in the computation of
diluted net (loss) income per common share because their effect
would have been anti-dilutive.
Comprehensive Income
The Company has adopted Statement of Financial Accounting Standard
No. 130, "Reporting Comprehensive Income", for the year ended
December 31, 1997. The components of comprehensive income which
are excluded from net (loss)/income are not significant
individually or in the aggregate and, therefore, no separate
statement of comprehensive income has been presented.
Common Stock Equivalents
In December 1991, the Company issued to Pesa, Inc. ("Pesa"), a
Delaware corporation, and its then majority shareholder, $5 million
of Convertible Subordinated Notes ("Notes"). The Notes were
convertible into shares of common stock at a conversion price of
$.60 per share. As of December 31, 1995, all of the Notes had been
so converted.
In January 1992, shareholders of the Company, other than Pesa,
received one warrant for every two shares of common stock held when
the Company issued 1,931,851 Common Stock Purchase Warrants. Each
warrant entitled its holder to purchase one share of common stock
at $.60 per share. As of January 31, 1996, the expiration date of
the warrants, a total of 1,736,182 Common Stock Purchase Warrants
had been exercised.
During 1995, 1996 and 1997, respectively, the Company's Board of
Directors granted to certain employees 1,041,666, 435,000 and
1,215,834 Incentive and Non-Incentive Stock Options for the
purchase of Chyron common stock and to non-employee members of the
Board of Directors 30,000, 33,332 and 23,331 Non-Incentive Stock
Options for the purchase of Chyron common stock. The exercise
price of each stock option granted is the quoted closing market
price at the date of such grant. See Note 12.
Stock-Based Compensation Plans
The Company elected to continue following Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees",
(APB 25) in accounting for its employee stock options, rather than
adopt the alternate method of accounting provided under Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123). Under APB 25, the Company does not
recognize compensation expense on stock options granted to
employees because the exercise price of each option is equal to the
market price of the underlying stock on the respective date of
grant. See Note 12.
2. INVESTMENT IN AXIS HOLDINGS INCORPORATED
On March 31, 1997, the Company acquired 100% of the capital stock
of Axis Holdings Incorporated ("Axis") located in Los Angeles,
California. Axis develops software in professional video and audio
tools created specifically for use on the Microsoft Windows NT
Operating System. The purchase consisted of $413,000 in cash paid,
$667,000 in notes and 173,913 restricted shares of Chyron common
stock valued at $750,000.
As stated in the purchase agreement, the principal portion of the
note is to be paid in two successive annual installments.
Installment payment amounts are contingent upon Axis achieving
certain revenue targets. The timing of the installments of
$250,000 and $417,000 are due on March 31, 1998 and March 31, 1999,
respectively. Interest is to be paid at the rate of 6% per year
and is due with the annual installments.
Additionally, payments equal to 20% of cumulative net profits, as
defined, on the Axis product line, in excess of $1 million, will
be payable to the sellers. The period for the calculation of
cumulative net profits is March 31, 1997 through December 31, 1999.
At December 31, 1997, there were no profits yet accumulated on the
Axis product line. Payments due for each year will be made on or
before April 30 of the next succeeding year.
The acquisition was accounted for as a purchase. Accordingly, the
costs of the acquisition were allocated to the net assets acquired
based on their estimated fair values. The majority of the purchase
price was capitalized as software development costs and will be
amortized over the estimated economic life of the products (not to
exceed 5 years), commencing when each product is available for
general release.
3. ACQUISITION OF PRO-BEL LIMITED
On April 12, 1996, the Company acquired Pro-Bel in exchange for
$6.9 million in cash, 3.5 million British pounds sterling ($5.3
million at the exchange rate of date of acquisition) in notes and
1,048,735 shares of restricted Chyron common stock valued at $6.9
million. The acquisition of Pro-Bel was accounted for as a
purchase. Accordingly, the cost of the acquisition was allocated
to the net assets acquired based upon their estimated fair values.
The following summary financial data includes the proforma
operating results of the Company and Pro-Bel for the year ended
December 31, 1996, assuming the acquisition of Pro-Bel had been
made as of January 1, 1996 (in thousands except per share amounts).
Unaudited
Proforma
December 31,
1996
Net Sales $92,974
Net (loss) income $8,633
Net (loss) income per share $.27
These pro forma results have been prepared for comparative purposes
only and include adjustments as a result of applying purchase
accounting and conversion to generally accepted accounting
principles in the United States, such as additional depreciation
expense and cost of goods sold due to the step-up in the basis of
fixed assets and inventory, respectively, goodwill amortization,
a decrease in research and development due to the capitalization
of software development costs net of the amortization of such
costs, increased interest expense on acquisition debt and the
estimated income tax effect on the acquisition financing. The pro
forma financial information is not necessarily indicative of the
operating results that would have occurred if the acquisition had
taken place on the aforementioned dates or of future results of
operations of the consolidated entities.
4. INVESTMENT IN RT-SET
On February 29, 1996, the Company effectively purchased an option
to acquire a 19% interest in Real Time Synthesized Entertainment
Technology, Ltd. ("RT-SET"), located in Tel Aviv, Israel. RT-SET
develops, markets and sells real time virtual studio set software
and proprietary communications hardware that operate on Silicon
Graphics systems. In form, Chyron purchased shares of RT-SET
Convertible Preferred Stock, which are convertible into RT-SET
common stock, in exchange for 800,000 shares of Chyron restricted
common stock. In accordance with the purchase agreement, the
800,000 shares of Chyron common stock were to be held in escrow and
released in tranches of one-third and two-thirds, subject to
certain conditions. During 1996, the first of these conditions was
met, which resulted in the release of 266,666 shares of Chyron
restricted common stock to RT-SET. Upon the satisfaction of the
remaining conditions, the remaining 533,334 escrowed shares will
be released. If the conditions are not met or at Chyron's option,
the remaining shares of Chyron restricted common stock held in
escrow will be returned to the Company in exchange for the RT-SET
Convertible Preferred Stock held by the Company. Accordingly, the
transaction has been recorded as the purchase of a right to acquire
a 19% interest in RT-SET (which was diluted to 17% as a result of
a subsequent investment by a third party). RT-SET retains the
voting rights with respect to the escrowed Chyron shares while such
shares are held by the escrow agent. The investment was recorded
and is currently carried at the then estimated fair value of the
Chyron restricted common stock released from escrow. In addition,
Chyron was granted certain call option rights which, if and when
exercised, will result in the Company owning up to a 51% interest
in RT-SET.
5. CONTROL OF REGISTRANT
Prior to July 25, 1995, the Company's majority shareholder and
parent was Pesa, Inc. ("Pesa"). Pursuant to two agreements dated
May 26, 1995 and July 25, 1995, Pesa sold all of its shares of
Chyron Corporation (19,804,904) to an investor group.
Additionally, Sepa Technologies, Ltd. ("Sepa") an affiliate of
Pesa, sold 1,666,667 of its shares of Chyron Corporation and the
voting rights and right of first refusal with respect to an
additional 3,000,000 shares owned by Sepa to the same investor
group.
6. ACCOUNTS AND NOTES RECEIVABLE
Trade accounts and notes receivable are stated net of an allowance
for doubtful accounts of $3,124,000 and $2,850,000 at December 31,
1997 and 1996, respectively. The provision for doubtful accounts
amounted to $533,000, $nil, and $466,000 for 1997, 1996 and 1995,
respectively. The carrying amounts of accounts and notes
receivable approximate their fair values.
The Company periodically evaluates the credit worthiness of its
customers and determines whether collateral (in the form of letters
of credit or liens on equipment sold) should be taken or whether
reduced credit limits are necessary. Credit losses have
consistently been within management's expectations.
Accounts and notes receivable are principally due from customers
in, and dealers serving, the broadcast video industry and
non-broadcast display markets. At December 31, 1997 and 1996,
receivables included approximately $13.6 million and $12.5 million,
respectively, due from foreign customers.
7. INVENTORIES
Inventories consist of the following (in thousands):
December 31,
1997 1996
Finished goods $12,346 $12,879
Work-in-process 9,303 5,271
Raw material 4,891 5,352
$26,540 $23,502
8. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
December 31,
1997 1996
Land $798 $798
Building 1,619 1,619
Machinery and equipment 14,019 12,175
Furniture and fixtures 2,287 2,098
Leashold improvements 727 691
19,450 17,381
Less: Accumulated
depreciation and
amortization 7,077 4,680
$12,373 $12,701
Machinery and equipment at December 31, 1997 and 1996 includes
$1,045,000 and $818,000, respectively, of assets held under capital
lease obligations. Accumulated depreciation at December 31, 1997
and 1996 includes $516,000 and $381,000, respectively, attributable
to assets held under capital lease obligations. See Note 15.
Depreciation expense, which includes amortization of capital lease
assets, was $2,362,000, $1,671,000 and $1,054,000 in 1997, 1996 and
1995, respectively.
9. SOFTWARE DEVELOPMENT COSTS
The following amounts were capitalized, amortized and written off
(in thousands):
1997 1996 1995
Amounts capitalized $4,425 $1,420 $207
Less: Amortization (included in
Research and Development expense) (1,172) (960) (1,013)
Non-recurring charge-writedown
to net realizable value (205)
Net increase (decrease)
in software development costs $3,048 $460 $(806)
Capitalized amounts for 1997 include $1.7 million arising from the
purchase of Axis (See Note 2). Accumulated amortization at
December 31, 1997 and 1996 was $4,554,000 and $3,177,000,
respectively.
10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in
thousands):
December 31,
1997 1996
Accounts payable $7,948 $7,500
Compensation 1,898 1,741
Income taxes payable 486 1,225
Other accrued items 5,159 3,459
$15,491 $13,925
The carrying amounts of accounts payable and accrued expenses
approximate their fair values.
11. LONG-TERM DEBT
Long term debt consists of the following (in thousands):
December 31,
1997 1996
Term loan, maturing April 16, 2000 (a) $4,500 $6,500
Revolving credit facility, maturing
March 28, 1999 (a) 2,730 2,730
Commercial mortgage term loan,
maturing March 28, 2010 (c) 1,965 2,097
Promissory notes, payable
on or before April 15, 1998 (d) 5,766 5,917
Trade finance facility maturing
December 31, 1997
replaced with debt maturing
December 31, 1998 (g) 4,464
Promissory notes, payable in
installments on March 31, 1998
and March 31, 1999 (b) 667
Trade finance facility, maturing
December 31, 1996
replaced with debt maturing
December 31, 1997 (e) 1,209
Overdraft facility, maturing
December 31, 1996
replaced with debt maturing
December 31, 1997 (f) 1,790
20,092 20,243
Less amounts due in one year 2,318 2,081
$17,774 $18,162
a) On March 28, 1996 and April 16, 1996, the Company entered into
agreements with a bank to obtain a revolving credit facility of $10
million and a term loan of $8 million, respectively. The entire
facility is secured by Chyron's accounts receivable and inventory
and the common stock of Pro-Bel. Borrowings are limited to amounts
computed under a formula for eligible accounts receivable and
inventory. Interest on the revolving credit facility is equal to
adjusted LIBOR plus 175 basis points or prime (8.50% at December
31, 1997) and is payable monthly. The term loan is payable in
quarterly installments of $500,000, commencing June 1, 1996.
Interest on the term loan is equal to adjusted LIBOR plus 200 basis
points or prime and is payable monthly. The Company must pay a
commitment fee equal to 1/4 of 1% per annum on the average daily
unused portion of the credit facility. The commitment fee is
payable on the last day of each quarter commencing June 30, 1996.
This agreement contains, among other provisions, requirements for
maintaining defined levels of net worth, leverage, capital
expenditures, lease payments and various financial ratios. The
Company is prohibited by the agreement from paying cash dividends
in excess of 25% of its net income for the then current fiscal
year. As of December 31, 1997, the Company did not comply with
certain financial covenants; however, it has received from its
lender waivers for periods up to and including March 30, 1998 and
amendments with respect to certain covenants for periods up to and
including April 16, 2000, the maturity date of the term loan.
(b) On March 31, 1997, the Company issued promissory notes to the
shareholders of Axis for $667,000 in conjunction with the
acquisition (see Note 2). Installment payments are due on March
31, 1998 and 1999. Interest is payable with the annual
installments, at a rate of 6% per annum. The Company will pay the
first installment due March 31, 1998 of $250,000 out of operating
cash flow.
(c) Pro-Bel has a commercial mortgage term loan with a bank. The
loan is secured by a building and property located in the United
Kingdom. Interest is equal to LIBOR plus 2% (9.56% at December
31, 1997) . The loan (including interest) is payable in quarterly
installments of 80,600 pounds sterling ($133,000, converted at the
December 31, 1997 exchange rate).
(d) On April 12, 1996, the Company issued promissory notes to the
shareholders of Pro-Bel for 3.5 million pounds sterling
($5,766,000, converted at the December 31, 1997 exchange rate and
$5,919,000 converted at the December 31, 1996 exchange rate) in
conjunction with the acquisition (see Note 3). The promissory
notes are secured and will be paid by an irrevocable letter of
credit from a bank. The amount of this irrevocable letter of
credit will be drawn against the revolving credit facility
described in (a) above, which expires in 1999. Interest from
April 16, 1997 through April 15, 1998 is equal to LIBOR as of April
15, 1997 (7.03%) and is payable quarterly. Interest through April
15, 1997 was equal to LIBOR as of April 15, 1996 (6.46%) and was
payable quarterly. The notes are due on or before April 15, 1998
and are subordinated to any obligations to a bank or financial
institution currently existing or subsequently entered into.
(e) On February 1, 1996, Pro-Bel entered into an agreement with a
bank to obtain a trade finance facility of 750,000 pounds sterling
($1,267,000, converted at the December 31, 1996 exchange rate).
The facility was secured by Pro-Bel's accounts receivable.
Interest was equal to the bank's base rate plus 2% (8% at December
31, 1996) on advances against accounts receivable in pounds
sterling and equal to the Barclays Bank PLC currency call loan rate
plus 2% (8% at December 31, 1996) on advances against foreign
accounts receivable. Interest was payable quarterly, in arrears.
At December 20, 1996 this facility was replaced by the facility
described in (g) below.
(f) On February 1, 1996, Pro-Bel entered into an agreement with a
bank to obtain an overdraft facility of 750,000 pounds sterling
($1,276,000 converted at the December 31, 1996 exchange rate).
Interest was equal to the bank's base rate plus 2.5% (8.5% at
December 31, 1996) and was payable quarterly commencing in March
1996. The facility had a sublimit for overdraft on Pro-Bel's
wholly owned subsidiary, Trilogy Broadcast Limited, of 160,000
pounds sterling ($270,000, converted at the December 31, 1996
exchange rate). At December 20, 1996, this facility was replaced
by the facility described in (g) below.
(g) On December 20, 1996, Pro-Bel entered into an agreement with
a bank, to obtain an overdraft facility of up to 3.0 million pounds
sterling through December 31, 1997 and extended through January 12,
1998. ($4,943,000 converted at the December 31, 1997 exchange
rate). Total borrowings are limited to amounts computed under a
formula for eligible accounts receivable. Interest is equal to the
bank's base rate plus 1.5% (8.75% at December 31, 1997) and is
payable quarterly commencing March 1997. The facility has
sublimits for overdraft for Pro-Bel's wholly owned subsidiaries.
The facility is payable upon written demand by the bank and any
undrawn portion may be cancelled by the bank at any time. This
facility was replaced by a new facility dated January 13, 1998,
with the same bank as desribed below.
On January 13, 1998, Pro-Bel entered into an agreement with a bank
whereby the bank agreed to provide an overdraft facility of up to
4.0 million pounds sterling through December 31, 1998 to Pro-Bel
and its subsidiaries. The overdraft facility provides for interest
at 1.5% per annum over the bank's base rate. Interest is payable
quarterly in arrears. This facility replaces the overdraft
facility of up to 3.0 million pounds sterling in place at December
31, 1997 desribed at (g) above. All monies under the facility are
repayable upon written demand. Total borrowings are limited to
amounts computed under multiple formulas of eligible accounts
receivable and inventory. It is the Company's intent to refinance
this facility prior to its expiration date. Accordingly, the
Company has classified this debt as long-term.
Aggregate maturities of long term debt in the next five years are
as follows (in thousands):
1998 $2,318
1999 15,447
2000 572
2001 74
2002 76
The carrying amounts of long-term debt instruments approximate
their fair values.
Net interest expense was $1,665,000, $1,402,000 and $536,000 in
1997, 1996 and 1995, respectively.
12. LONG-TERM INCENTIVE PLAN
In May 1995, the Company's shareholders approved the Chyron
Corporation Long-Term Incentive Plan ("the Plan"). The Plan, as
amended in May 1997, allows for a maximum of 3,000,000 shares of
common stock to be available with respect to the grant of awards
under the Plan. The Plan allows for the award of incentive and
non-incentive options to employees and non-incentive options to
non-employee members of the Company's Board of Directors. Options
issued to employees other than the Company's Chief Executive
Officer ("CEO") vest over a three year period. Certain options
issued to the CEO vest one third at issuance, with the remaining
two thirds vesting over two years. Additional options issued to
the CEO vest based on the earlier of the attainment of specified
criteria or June 5, 2003. Options issued to non-employee members
of the Company's Board of Directors vest immediately.
Transactions involving stock options are summarized as follows:
Stock Options
Outstanding Price per share
Balance, January 1, 1995
Granted 1,071,665 $4.875-$5.625
Exercised
Cancelled
Balance, December 31, 1995 1,071,665 $4.875-$5.625
Granted 468,332 $9.375-$16.125
Exercised (113,018) $4.875-$5.625
Cancelled (86,666) $4.875
Balance, December 31, 1996 1,340,313 $4.875-$16.125
Granted 1,767,498 $4.25-$5.875
Exercised (22,220) $4.875
Cancelled (627,168) $9.00-$12.75
Balance, December 31, 1997 2,458,423 $4.25-$16.125
The following table summarizes information concerning currently
outstanding and exercisable stock options:
Weighted
Outstanding Average Exerciseable
Exercise at December Contractual at December
Price 31, 1997 Life 31, 1997
$4.875 675,760 2.6 years 421,870
5.625 76,666 2.8 years 59,999
9.375 6,666 3.2 years 6,666
16.125 23,333 3.6 years 23,333
12.750 3,333 3.8 years 3,333
5.875 511,667 4.3 years 0
4.500 23,331 4.6 years 23,331
4.250 700,000 6.5 years 166,667
5.375 437,666 9.8 years 0
2,458,423 705,199
If the Company had elected to recognize compensation expense based
upon the fair values at the grant date for awards under this plan
consistent with the methodology prescribed by SFAS No. 123,
"Accounting for Stock Based Compensation", the Company's net (loss)
income and net (loss) income per share would be reduced to the pro
forma amounts indicated below:
1997 1996 1995
Net (loss) income (in thousands):
As reported $(760) $8,654 $7,476
Pro forma $(2,866) $7,560 $7,125
Net (loss) income per common share:
As reported $(.02) $.27 $.25
Pro forma $(.09) $.23 $.24
These pro forma amounts may not be representative of future
disclosures since the estimated fair value of stock options is
amortized to expense over the vesting period for purposes of future
pro forma disclosures, and additional options may be granted in
future years. The fair value of these options was estimated at the
date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions for 1997, 1996 and 1995:
dividend yield of 0; expected volatility of 50% and expected life
of 4 years. The weighted average risk free interest rates for
1997, 1996 and 1995 were 6.19%, 6.54% and 6.11%, respectively.
The weighted average fair values of
options granted during 1997, 1996 and 1995, for which the exercise
price equaled the market price on the grant dates, were $5.254,
$12.870 and $4.931 per option, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions
including the expected price volatility. Because the Company's
employees' stock options have characteristics significantly
different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value
estimate, in managements' opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of
employee stock options.
13. INCOME TAXES
The (benefit) provision for income taxes consists of the following
(in thousands):
1997 1996 1995
Current:
Federal $(611) $1,308 $
State 4 629 50
Foreign 1,036 473
Tax equivalent provision 420
429 2,410 470
Deferred:
Federal (647) 2,664
State (150)
Foreign (39)
Release of valuation reserve (140)
(647) 2,335
$(218) $4,745 $470
The effective income tax rate differed from the Federal statutory
rate as follows (in thousands):
1997 1996 1995
Amount % Amount % Amount %
Federal income tax benefit provision at statutory rate
($333) (34.0) $4,689 35.0 $2,702 34.0
State income taxes, net of federal tax benefit
3 0.3 409 3.0 33 .4
Permanent differences
35 3.6 36 .3
Benefit from post reorganization temporary differences on tax
equivalent provision
(140) (1.1) (1,351) (17.0)
Foreign income tax benefit
8 .1
Provision (benefit) of lower tax rates on U.S. Federal Provision
169 17.2 (121) (.9)
Effect of valuation allowance of deferred tax assets
(150) (1.1) (940) (11.8)
Other, net
(92) (9.4) 14 .1 (940) (11.8)
($218) (22.3) $4,745 35.4 $470 5.9
The Company has deferred tax assets and deferred tax liabilities
as presented in the tables below.
December 31,
1997 1996
Post-reorganization net operating loss carryforward
$3,433 $276
Pre-reorganization net operating loss carryforward
4,631 4,631
Pre-reorganization deductible temporary differences
3,067 4,555
Other
1,976 2,030
Total deferred tax assets
$13,107 $11,492
December 31,
1997 1996
Pre-reorganization taxable temporary differences
85 85
Software development costs
913 683
Other
738
Total deferred tax assets
$1,736 $768
At December 31, 1997, the Company had U.S. Federal net operating
loss carryforwards ("NOL") of approximately $23.7 million for tax
purposes, expiring beginning with the year 2001 through 2012.
Under U.S. income tax rules, the utilization of a portion of the
NOL ($13.6 million) is subject to annual limitations as a result
of the changes in control of the Company at December 27, 1991 and
July 25, 1995. However, despite these restrictions, the Company
expects to fully utilize all of its remaining NOL prior to
expiration.
14. BENEFIT PLANS
Chyron Corporation has a domestic defined benefit pension plan (the
"U.S. Pension Plan") covering substantially all U.S. employees
meeting minimum eligibility requirements. Benefits paid to
retirees are based upon age at retirement, years of credited
service and average compensation. Pension expense is actuarially
determined using the projected unit credit method. The Company's
policy is to fund the minimum contributions required under the
Employees Retirement Income Security Act. The assets of the U.S.
Pension Plan at December 31, 1997 include government bonds,
equities, mutual funds and cash and cash equivalents.
1997 1996 1995
Service cost $444 $414 $383
Interest cost on projected
benefit obligations 294 267 292
Actual return on plan assets (277) (206) (227)
Net amortization 3 (43) (15)
Net periodic pension cost $464 $432 $433
The net periodic pension cost and its components are as follows (in
thousands):
A reconciliation of the funded status of the U.S. Pension Plan to
the amounts included in the Company's balance sheet is as follows
(in thousands):
December 31,
1997 1996 1995
Accumulated pension benefit obligation:
Vested $2,580 $2,234 $2,265
Non-vested 44 29 79
Total $2,624 $2,263 $2,344
Projected benefit obligation $4,502 $3,803 $4,138
Plan assets at fair value 2,895 2,709 2,609
Projected benefit obligation
in excess of assets 1,607 1,094 1,529
Less items not yet recognized in net
periodic pension costs:
Unrecognized net gain from past
experience and changes in
assumptions 400 809 49
Pension liability $2,007 $1,903 $1,578
In each year presented, the expected long-term rate of return on
U.S. Pension Plan assets was 9%. The weighted average discount
rates used to determine the accumulated benefit obligation were
7.5% in 1997, 8.0% in 1996 and 7.5% in 1995. The rate of
compensation increase used was 5% for all years presented.
Pro-Bel has a non-contributory defined benefit pension plan (the
"U.K. Pension Plan") covering all its permanent employees.
Contributions are determined on the basis of valuations using the
projected unit method. Pro-Bel's policy is to fund minimum
contributions required pursuant to U.K. rules and regulations.
The assets of the U.K. Pension Plan at December 31, 1997 include
cash equivalents and land and a building.
The net periodic pension cost of the U.K. Pension Plan for 1997 and
for the period since the acquisition of Pro-Bel (April 12, 1996)
through December 31, 1996 and its components under the provisions
of SFAS No. 87 were as follows (in thousands):
1997 1996
Service cost-benefit earned during the period $548 $303
Interest cost on projected benefit obligation 446 285
Actual return on plan assets (420) (457)
Net amortization (224) 0
Net periodic pension cost $350 $131
A reconciliation of the funded status of the U.K. Pension Plan to
the amounts included in the Company's balance sheet is as follows
(in thousands):
December 31,
1997 1996
Accumulated pension benefit obligation
Vested $6,595 $4,867
Non-vested
Total $6,595 $4,867
Projected benefit obligation $7,347 $5,739
Plan assets at fair value 9,289 7,005
Plan assets at fair value in excess
of projected benefit obligation 1,942 1,266
Items not yet recognized in net
periodic pension cost:
Unrecognized net gain from past
experience and changes in
assumptions 1,162 141
Pension asset $3,104 $1,407
The expected long-term rate of return on the U.K. Pension Plan
assets was 8% in 1997 and 9% in 1996. The weighted average
discount rate used to determine the accumulated benefit obligation
was 7% in 1997 and 8% in 1996. The rate of compensation increase
used was 5.0% in 1997 and 5.5% in 1996.
Chyron Corporation has adopted a 401(k) Plan exclusively for the
benefit of participants and their beneficiaries. All employees of
Chyron Corporation are eligible to participate in the 401(k) Plan
except non-resident aliens and employees who are members of a union
which bargains separately for retirement benefits during
negotiations. An employee may elect to contribute a percentage of
his or her current compensation to the 401(k) Plan, subject to a
maximum of 20% of compensation or the Internal Revenue Service
annual contribution limit ($9,500 in 1997 and 1996), whichever is
less. Total compensation that can be considered for contribution
purposes is limited to $150,000.
Chyron Corporation can elect to make a contribution to the 401(k)
Plan on behalf of those participants who have made salary deferral
contributions. During 1997, 1996 and 1995 the Company contributed
$63,000, $51,000 and $29,000, respectively, to the 401(k) Plan.
15. COMMITMENTS AND CONTINGENCIES
At December 31, 1997, the Company was obligated under operating and
capital leases covering facility space and equipment as follows (in
thousands):
Operating Capital
1998 $1,147 $432
1999 1,214 223
2000 1,243 160
2001 1,104
2002 1,090
2003 and thereafter 7,124
$12,922 $815
The operating leases contain provisions for escalations for
maintenance and real estate taxes. Total rent expense was
$965,000, $826,000 and $496,000 for 1997, 1996 and 1995,
respectively. The cumulative imputed interest in the capital lease
obligation was $148,000 at December 31, 1997.
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.
16. RELATED PARTY TRANSACTIONS
Sepa, prior to the change in control discussed in Note 5, was the
beneficial owner of 24,471,570 shares of Chyron common stock.
Consequent to such ownership, Sepa had an amended and restated
management agreement with Chyron whereby Chyron agreed to pay
management fees to Sepa equal to 2.5% of consolidated revenues
through December 31, 1997. The management fees under this
agreement were subject to an annual limitation of $1.5 million.
In July 1994, Chyron took advantage of an option to prepay the
management fee at a 25% discount from the aggregate estimated
yearly fees for the period July 1, 1994 through December 31, 1995,
resulting in estimated aggregate total savings of $486,000 in fees
for the eighteen month period ending December 31, 1995.
In December 1995, Chyron and Sepa agreed to terminate the
Management Agreement upon payment to Sepa of $2 million, which
resulted in aggregate savings for the Company of $1 million for the
two year period ending December 31, 1997. The $2 million was paid
in equal installments in December 1995 and January 1996.
The Secretary of the Company and an individual who held a board
seat through May 1997 are partners in a law firm that rendered
various legal services to the Company for which the Company
incurred costs of $783,000 and $861,000 during 1997 and 1996,
respectively.
17. WEST COAST RESTRUCTURING
During the third quarter of 1994, as the result of continuing
significant operating losses by the Company's West Coast Operations
and its inability to meet revenue and operating targets, management
implemented a restructuring plan to eliminate a substantial number
of product lines and consolidate certain remaining products into
the Company's Graphics Operations, with only certain product
engineering capabilities remaining on the West Coast. As a result,
the Company recorded a $12.7 million charge to operations during
the third quarter of 1994, resulting from headcount reductions,
consolidation costs, write-downs of assets related to discontinued
product lines and accrual of estimated operating losses anticipated
during the disposition period. During 1995, operating losses of
$1,707,000 related to the discontinued product lines were charged
against the reserve for West Coast restructuring.
During 1995, $1,339,000 of such charge was recaptured as a result
of (1) the Company entering into an agreement to sublease a portion
of the office space, thereby decreasing future rent commitments
(the Company reversed $356,000 of the original $12.7 million charge
to account for the decrease in projected rent expense), (2) the
Company selling certain inventory that had been fully reserved for
in the original $12.7 million charge (as a result, the Company
realized a gain of $380,000 related to this inventory) and (3) the
reversal of $603,000 of the original restructuring charge as a
result of lower than anticipated costs related to the disposition
period.
18. SEGMENT INFORMATION
Chyron's business is organized under a group concept that
coordinates product development, marketing, advertising,
distribution and procurement. The Company has a multi-product
approach for filling customer requirements for equipment and
systems used in video or film productions. These products include
graphics and character generation systems, video and audio signal
management systems and electronic paint and animation systems and
software. Customers for the Company's products include
broadcasters, video production and post-production companies, cable
television distributors and operators, industrial users,
governments and governmental agencies and domestic and
international dealers serving the video production and display
industries for non-broadcast and broadcast markets. As a result,
the Company operates as one business segment.
The Company's operations are located primarily in the United States
and Europe. Foreign operations prior to 1996 and interarea sales
were not significant. Net sales, operating profit and identifiable
assets by geographic areas consist of the following (in thousands):
December 31,
1997 1997
Net Operating Identifiable
Sales Income Assets
United States $37,039 $(2,817) $51,160
Europe 41,915 3,157 42,860
Other 7,820 (76) 60
Total $86,774 $264 $94,080
December 31,
1996 1996
Net Operating Identifiable
Sales Income Assets
United States $55,446 $12,764 $52,988
Europe 24,281 1,611 38,375
Other 2,881 690 40
Total $82,608 $15,065 $91,403
During 1997, 1996 and 1995, net export sales from the United States
were approximately $10,129,000, $9,580,000 and $7,511,000,
respectively. For 1997 and 1996, income before taxes from foreign
operations totalled $2.2 million and $3.5 million, respectively,
and (loss) income before taxes for domestic operations totalled
($3.2) million and $9.9 million, respectively.
During 1997 and 1996, foreign exchange gains of $423,000 and losses
of $264,000, respectively, are included in other expenses.
PART III
Item 10 (Directors and Executive Officers of the Registrant), Item
11 (Executive Compensation), Item 12 (Security Ownership of Certain
Beneficial Owners and Management) and Item 13 (Certain
Relationships and Related Transactions) will be incorporated in the
Company's Proxy Statement to be filed within 90 days of December
31, 1997 and are incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) Financial Statements
The following Consolidated Financial Statements of Chyron
Corporation and subsidiaries are included in Part II, Item 8:
Report of Independent Auditors - Price Waterhouse, LLP - page 23
Consolidated Balance Sheets at December 31, 1997 and 1996 - page
25
Consolidated Statements of Operations for the Years Ended December
31, 1997, 1996 and 1995 - page 26
Consolidated Statements of Cash Flows for the Years Ended December
31, 1997, 1996 and 1995 - page 27
Consolidated Statements of Shareholders' Equity for the Years Ended
December
31, 1997, 1996 and 1995 - page 29
Notes to the Consolidated Financial Statements - page 30-51
(2) Financial Statement Schedule
The following Consolidated Financial Statement schedule of Chyron
Corporation and subsidiaries is included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts for the Years Ended
December 31, 1997, 1996 and 1995 - page 58
All other schedules called for under Regulation S-X are not
submitted because they are not applicable or not required or
because the required information is not material or is included in
the Consolidated Financial Statements or notes hereto.
(3) Financial Statement Exhibits
See list of exhibits to the Financial Statements in Section (c)
below:
(b) Reports on Form 8-K
None
(c) Exhibits
2. Plan of acquisition, reorganization, arrangement, liquidation
or succession.
(a) First Amended Disclosure Statement pursuant to Section 1125
of the Bankruptcy Code, dated October 28, 1991 (with First Amended
Plan of Reorganization under Chapter 11 of the Bankruptcy Code
attached as Exhibit A thereto) - Note 2
3. Articles of Incorporation and By-Laws.
(a) Restated Certificate of Incorporation of Chyron Corporation -
Note (1)
(b) Amended and Restated By-Laws of Chyron Corporation, adopted
February 17, 1995 - Note(3)
(c) Amendment of Certificate of Incorporation of Chyron
Corporation, adopted January 24, 1997 - Note (9)
4. Instruments defining rights of security holders, including
debentures.
(b) Registration Rights Agreement, dated December 27, 1991, between
Chyron Corporation and Pesa, Inc. - Note (2)
(c) Registration Rights Agreement dated July 25, 1995 by and
between Chyron Corporation and CC Acquisition Company A, L.L.C.,
CC Acquisition Company B, L.L.C., WPG Corporate Development
Associates, IV, L.P., WPG Corporate Development Associates IV
(Overseas), L.P., WPG Enterprise Fund II, L.P. Weiss, Peck & Greer
Venture Associates, III, L.P., Westpool Investment Trust PLC, Lion
Investment Limited, Charles Diker, Mint House Nominees Limited,
Pine Street Ventures, L.L.C., Isaac Hersly, Alan I. Annex, Ilan
Kaufthal, Z Four Partners L.L.C. and A.J.L. Beare - Note 8
10. Material Contracts.
(a) Distribution and License Agreement, dated September 22, 1994,
between Chyron Corporation and Comunicacion Integral Consultores,
S.L - Note 3
(b) Termination Agreement, dated November 6, 1995, between Chyron
Corporation and Comunicacion Integral Consultores, S.L. - Note 8
(c) Loan Agreement between Chyron Corporation and NatWest Bank. .N.A.
(currently known as Fleet Bank), dated March 28, 1996 - Note 9
(d) Loan Agreement between Pro-Bel Limited and Barclays Bank, PLC
dated December 19, 1996 effective January 1997 - Note 9
(e) Indemnification Agreement between Chyron Corporation and Roi
Agneta dated November 19, 1996 - Note 9
(f) Indemnification Agreement between Chyron Corporation and
James Coppersmith dated November 19, 1996 - Note 9
(g) Indemnification Agreement between Chyron Corporation and Daniel
DeWolf dated November 19, 1996 - Note 9
(h) Indemnification Agreement between Chyron Corporation and
Charles M. Diker dated November 19, 1996 - Note 9
(i) Indemnification Agreement between Chyron Corporation and Donald
P. Greenberg dated November 19, 1996 - Note 9
(j) Indemnification Agreement between Chyron Corporation and Ray
Hartman dated November 19, 1996 - Note 9
(k) Indemnification Agreement between Chyron Corporation and Roger
Henderson dated November 19, 1996 - Note 9
(l) Indemnification Agreement between Chyron Corporation and Alan
J. Hirschfield dated November 19, 1996 - Note 9
(m) Indemnification Agreement between Chyron Corporation and
Patricia Lampe dated November 19, 1996 - Note 9
(n) Indemnification Agreement between Chyron Corporation and Wesley
W. Lang, Jr. dated November 19, 1996 - Note 9
(o) Indemnification Agreement between Chyron Corporation and Eugene
M. Weber dated November 19, 1996 - Note 9
(p) Indemnification Agreement between Chyron Corporation and
Michael Wellesley-Wesley dated November 19, 1996 - Note 9
(q) Employment Agreement between Chyron Corporation and Edward
Grebow dated June 5, 1997 - Note 10
(r) Termination Agreement between Chyron Corporation and Isaac
Hersly dated September 17, 1997 - Note 11
(s) Indemnification Agreement between Chyron Corporation and Edward
Grebow dated June 5, 1997 - page 60
(1) Incorporated herein in its entirety by reference to the Annual
Report for the
Fiscal Year Ended June 30, 1991 on Form 10-K dated January 31,
1992.
(2)Incorporated herein in its entirety by reference to the report
on Form 8-K dated December 27, 1991.
(3)Incorporated herein in its entirety by reference to the Annual
Report for the fiscal year ended December 31, 1994 on Form 10-K dated
March 24, 1995.
(4)Incorporated herein in its entirety by reference to the report
on Form 8-K dated October 25, 1995.
(5)Incorporated herein in its entirety by reference to the report
on Form 8-K dated April 26, 1996.
(6)Incorporated herein in its entirety by reference to the report
on Form 8-K dated March 14, 1996.
(7)Incorporated herein in its entirety by reference to the report
on Form 8-K/A dated June 21, 1996.
(8)Incorporated herein in its entirety by reference to the Annual
Report for the fiscal year ended December 31, 1995 on Form 10-K
dated March 14,1996.
(9) Incorporated herein in its entirety by reference to the Annual
Report for the fiscal year ended December 31, 1996 on Form 10-K
dated March 20, 1997.
(10)Incorporated herein in its entirety by reference to the Form
10-Q for the quarter ended June 30, 1997 dated August 12, 1997
(11) Incorporated herein in its entirety by reference to the Form
10-Q for the quarter ended September 30, 1997 dated November 12,
1997.
d) Financial Statement Schedules
Schedule II
CHYRON CORPORATION AND SUBSIDIARIES
VAULATION AND QUALIFYING ACCOUNTS
(In thousands)
Column A Column B Column C Column D Column E
Additions
Balance at Changes to
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
Reserves and allowances deducted
from asset accounts:
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts
$2,850 $533 $259 $3,124
Inventory reserves
12,041 1,887 5,766 8,162
Deferred tax assets valuation allowance
0 0
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts
3,134 284 2,850
Inventory reserves
12,233 192 12,041
Deferred tax assets valuation allowance
5,400 5,400 0
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts
2,240 $185 3,134
Inventory reserves
12,515 745 1,435 12,233
Deferred tax assets valuation allowance
14,500 1,153 9,100 5,400
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CHYRON CORPORATION
/s/ Edward Grebow
Edward Grebow
President and
Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities on the date
indicated.
/s/ Michael Wellesley-Wesley
(Michael Wellesley-Wesley)
Chairman of the Board of Directors
March 16, 1998
/s/ Charles Diker
(Charles Diker)
Director
March 16, 1998
/s/ Edward Grebow
(Edward Grebow)
President, Chief Executive Officer and Director
March 16, 1998
/s/ Douglas Greenberg
(Douglas Greenberg)
Director
March 16, 1998
/s/ Raymond Hartman
(Raymond Hartman)
Director
March 16, 1998
/s/ Alan Hirschfield
(Alan Hirschfield)
Director
March 16, 1998
/s/ Wesley Lang
(Wesley Lang)
Director
March 16, 1998
/s/ Eugene Weber
(Eugene Weber)
Director
March 16, 1998
/s/ Patricia Arundell-Lampe
(Patricia Arundell-Lampe)
Chief Financial Officer and Treasurer
March 16, 1998