The following discussion should be read along with our 2008 Annual Report on Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission, and with the unaudited financial statements included in this Form 10-Q.

Overview

Chyron provides sophisticated graphics offerings that include Chyron's AXIS Graphics online content creation software, HD/SD switchable on-air graphics systems, clip servers, channel branding and telestration systems, graphic asset management and XMP integration solutions, and the WAPSTR mobile phone newsgathering application. As a pioneer of Graphics as a Service for all digital video media, Chyron aims to address the world of digital and broadcast graphics with Web, Mobile, HD, 3D and newsroom integration solutions.

Over the past few years Chyron has made continued progress towards its goal of becoming a provider of digital graphics workflow solutions for broadcast, online and out of home applications. Our AXIS on demand online content creation software continues to generate interest as our broadcast customers look to replace a high fixed cost business model with a variable, low cost model.

We expect that the global economy will continue to be depressed for the remainder of 2009 and into 2010, and that many of our customers may wait to make purchase decisions until they have more visibility of where the economy is headed and how it might affect them. We have adjusted to this by reducing headcount, cutting salaries and taking other expense control measures while continuing to emphasize investment in R&D and product development. Our strategy is to seek to gain market share in broadcast and online graphics content workflow solutions and expand the use and penetration of our AXIS online graphics creation platform. We believe that because our addressable market opportunity is no longer restricted to broadcast television, we have additional opportunities for growth. We plan to continue to focus on our growth strategy in order to emerge stronger when the recovery takes hold.

Results of Operations for the Three and Nine Months Ended September 30, 2009 and 2008

Net Sales. Revenues for the quarter ended September 30, 2009 were $6.4 million, a decrease of $2.9 million, or 31% from the $9.3 million reported for the quarter ended September 30, 2008. Revenues derived from U.S. customers were $4.6 million in the quarter ended September 30, 2009 as compared to $7.2 million in the quarter ended September 30, 2008. Revenues derived from international customers were $1.8 million in the quarter ended September 30, 2009 and $2.1 million in the quarter ended September 30, 2008.

Revenues for the nine months ended September 30, 2009, were $18.4 million, a decrease of $9.3 million, or 34% from the $27.7 million reported for the nine months ended September 30, 2008. Revenues derived from U.S. customers were $14.0 million in the nine month period ended September 30, 2009 as compared to $21.1 million in the nine months ended September 30, 2008. Revenues derived from international customers in the nine months ended September 30, 2009 and 2008 were $4.4 million and $6.6 million, respectively.

Throughout 2009, we have continued to experience a decline in our revenues, which we believe is due to global economic conditions. We expect the global economy will continue to be depressed for the remainder of 2009 and into 2010, as it was in the latter part of 2008, and that many of our customers may wait to make purchase decisions until they have more visibility of where the economy is headed and how it might affect them. We plan to continue to focus on our growth strategy in order to emerge stronger when the recovery takes hold. Our strategy is to seek to gain market share in broadcast and online graphics content workflow solutions and expand the use and penetration of our AXIS online graphics creation platform.

Gross Profit. Gross margins for the quarter ended September 30, 2009 and 2008, were 69% and 70%, respectively. Gross margins for the nine month periods ended September 30, 2009 and 2008 were 68% and 71%, respectively. Gross margins in all periods in 2009 were negatively impacted by the inability to completely absorb fixed overhead costs at these lower revenue levels.

Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses were $3.6 million in the quarter ended September 30, 2009 compared to $4.1 million in the quarter ended September 30, 2008. The decrease in spending is primarily due to reduced sales commissions of $0.1 million on lower revenues, lower professional service costs of $0.1 million and $0.3 million in lower marketing and other promotional costs. SG&A in the nine months ended September 30, 2009 and 2008 were $10.6 million and $12.8 million, respectively. The decrease in the nine months of 2009 is primarily due to $0.4 million in lower commissions, $0.2 million in reduced travel costs, $0.4 million in lower compensation costs associated with bonus accruals, $0.5 million in overall professional services, $0.3 million in the cost of international sales offices and $0.4 million in marketing and AXIS Graphics launch costs.

Research and Development Expenses. Research and development ("R&D") expenses increased $0.2 million in the third quarter of 2009 to $1.9 million as compared to 2008. R&D increased $0.6 million in the nine month period ended September 30, 2009 to $5.5 million as compared to $4.9 million in the nine month period ended September 30, 2008. The primary factor contributing to the increase is the Company's investment, primarily in the form of personnel and related costs, in the integration of our AXIS Graphics solution into our other products, the development of new online products and the continued development of new products for HDTV, mobile content, and channel branding. We believe we will continue to invest at this level for the remainder of 2009.

Interest income and expense. Interest expense approximated $24 thousand in the third quarter of 2009 and $27 thousand in the third quarter of 2008. In 2008, the major component of interest related to the cost associated with the note payable for the purchase of AXIS, which was repaid as of December 31, 2008, whereas the 2009 interest cost is associated with our capital leases and interest costs associated with the advance of $977 thousand under our term loan in May 2009. Interest income is associated with interest earned on available cash balances that are invested in overnight repurchase agreements. The decline in interest rates in 2009 has virtually eliminated our interest income.

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

                                          Three Months                  Nine Months
                                      Ended September 30,           Ended September 30,
                                       2009            2008              2009         2008
Foreign exchange transaction loss   $       (9 )       $ (75 )    $       (13 )     $  (19 )
Sublease income                              0            14                0           43
Other                                        0             8                5            8
                                    $       (9 )       $ (53 )    $        (8 )     $   32

Income tax benefit, net. During 2009, we recorded income tax benefits of $0.3 million and $0.8 million in the three and nine months periods ended September 30, 2009, respectively, related to the additional net operating losses incurred, that will be available to offset taxable income in future periods.

In the three and nine months ended September 30, 2008, the Company reversed $16.4 million and $16.9 million, respectively, of the valuation allowance related to its deferred tax assets since management determined that it was more likely than not these assets would be realized. At that time this determination was primarily based on cumulative positive earnings in recent years and projected taxable income in the future. In evaluating our ability to realize our deferred tax assets we considered all available positive and negative evidence including our past operating results and our forecast of future taxable income.

Liquidity and Capital Resources

The Company finances its business primarily with cash generated from operations. At September 30, 2009, we had cash and cash equivalents on hand of $4.0 million and working capital of $8.1 million. Since December 31, 2008, we have had a reduction in the amount of our operating cash, primarily driven by the operating loss and the increase in accounts receivable. While there has been an increase in our accounts receivable due to slowdown in collections, we believe that it is not material and that it is within our tolerable range of risk. The Company has also invested approximately $1.5 million in 2009 for a new co-location facility for AXIS services and a data center for redundancy and disaster recovery of our data systems. This expense was largely financed in the second quarter of 2009 by drawing on the equipment term loan from our lender.

The Company has a credit facility with a U.S. bank which was renewed June 18, 2009, and expires March 31, 2010, to provide for a $1.5 million revolving line of credit ("revolver"), with an advance rate of up to 80% of eligible accounts receivable. At September 30, 2009, available borrowings were approximately $1.1 million based on this formula. The credit facility also provides for a $1.0 million equipment term loan to finance eligible equipment purchases, from which the Company borrowed $977 thousand in the second quarter of 2009 to finance capital equipment to build a new co-location facility and data center. The Company is required to maintain financial covenants based on an adjusted quick ratio of 1.5 measured at month-end and minimum tangible net worth of $24 million, increased by 60% of the sum of the gross proceeds received by the Company from any sale of its equity or incurrence of subordinated debt and any positive quarterly net income earned, measured at quarter-end (both as defined as per the credit facility). As is usual and customary in such lending agreements, the agreements also contain certain non-financial requirements, such as required periodic reporting to the bank and various representations and warranties. The lending agreement also restricts our ability to pay dividends without the bank's consent. The Company has been in compliance with all debt covenants since inception of the credit facility.

We anticipate that no contribution to our Pension Plan will be required under ERISA in 2009, nor will any additional discretionary contribution be made. The Company's Pension Plan investments were valued at $3.8 million at December 31, 2008 and $4.1 million at September 30, 2009. The Company's investment strategy remains the same and we anticipate the value of these investments will continue to rise. We believe that the Plan's investments are more than adequate to meet Plan obligations for the next twelve months.

We expect that the global economy will continue to be depressed for the remainder of 2009 and into 2010, as it was in the latter part of 2008, and that many of our customers may wait to make purchase decisions until they have more visibility of where the economy is headed and how it might affect them. We have adjusted to this by reducing headcount, cutting salaries and taking other expense control measures while continuing to emphasize investment in R&D and product development. The net impact of Q3 salary and headcount reductions was approximately $0.1 million in savings and we expect fourth quarter savings to be approximately $0.4 million. Our strategy is to seek to gain market share in broadcast and online graphics content workflow solutions and expand the use and penetration of our AXIS online graphics creation platform.

We believe that because our addressable market opportunity is no longer restricted to broadcast television, we have additional opportunities for growth. We plan to continue to focus on our growth strategy in order to emerge stronger when the recovery takes hold.

However, our future growth and success will depend to a significant degree on our ability to generate sales of our newer, non-broadcast products in our existing and in new markets. We operate in a rapidly changing environment and must remain responsive to changes as they occur. In the event that revenues are significantly below forecasted revenues, we believe we have the ability to reduce or delay discretionary expenditures, including capital purchases, and reduce headcount further than we have during 2009, so that we will have sufficient cash resources. However, there can be no assurance that we will be able to adjust our costs in sufficient time to respond to revenue and cash shortfalls, should that occur.

The long-term success of the Company will be dependent on achieving and maintaining profitable operating results and the ability to raise additional capital on acceptable terms should such additional capital be required. In the event the Company is unable to achieve its desired goal of profitability or raise sufficient additional capital, if needed, we may have to scale back or eliminate certain parts of our operations.

We believe that cash on hand, net cash to be generated in the business, and availability under our line of credit, will be sufficient to meet our cash needs for at least the next 12 months if we are able to achieve our planned results of operations and retain availability of credit under our lending agreement and renew the lending agreement when it expires on March 31, 2010.

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

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

Special Note Regarding Forward-Looking Statements

The SEC encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q contains such "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements in connection with any discussion of future financial performance, liquidity and capital resources, business prospects, technological developments, changes in the industry, new products, research and development activities and similar matters are identified by use of words such as "may," "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning. Such statements are based on management's expectations and are subject to certain factors, risks and uncertainties that may cause actual results, outcome of events, timing and performance to differ materially from those expressed or implied by such forward-looking statements.

These risks and uncertainties include, but are not limited to: current and future economic conditions that may adversely affect our business and customers; our revenues may fluctuate from period to period and therefore may fail to meet expectations, which could cause our stock price to decline; our ability to maintain adequate levels of working capital; our ability to successfully maintain the level of operating costs; our ability to obtain financing for our future needs should there be a need; our ability to incentivize and retain our current senior management team and continue to attract and retain qualified scientific, technical and business personnel; our ability to integrate our AXIS online graphics creation solution into our product offerings and to generate profits from AXIS as quickly as expected; our ability to generate sales and profits from our workflow and asset management solutions and Mobile Suite products; rapid technological changes and new technologies that could render certain of our products to be obsolete; competitors with significantly greater financial resources; new product introductions by competitors; expansion into new markets; and, other factors discussed under the heading "Risk Factors" contained in Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2008, which has been filed with the Securities and Exchange Commission, as well as any updates to those risk factors filed from time to time.

In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this Quarterly Report might not occur. Investors are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. All subsequent forward-looking statements attributable to us or to any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.