<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Mark One
XX QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
- - --------- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
- - --------- OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-13160
DYCAM, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 95-4202424
(State or other jurisdiction (I.R.S. Employer
or organization) Identification Number)
9414 Eton Ave.
Chatsworth, California 91311
(Address of principal executive offices)
(818) 998-8008
(Issuer's telephone number, including area code)
(NONE)
(Former name, address and fiscal year, if changed since last report)
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 preceeding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
----- -----
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date.
Common Stock, $.01 Par Value, 3,120,836 shares as of May 1, 1996
Transitional Small Business Disclosure Format (Check one)
YES NO X
----- -----
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DYCAM, INC.
BALANCE SHEETS
March 31, 1996
<TABLE>
<CAPTION>
ASSETS
------
March 31, 1996 December 31, 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,385,000 $1,374,000
Accounts receivable, net 201,000 115,000
Inventory 624,000 698,000
Prepaid expenses and other current assets 34,000 37,000
------------- ---------------
Total current assets 2,244,000 2,224,000
Goodwill, net of accumulated amortization
of $596,000 4,958,000 5,027,000
Property and equipment, net 437,000 452,000
Deposits 32,000 33,000
Note Receivable from Styles 1,000,000 1,000,000
------------- ---------------
$8,671,000 $8,736,000
============= ===============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable $255,000 $120,000
Accrued payroll and related expenses 65,000 65,000
Accrued expenses 24,000 14,000
-------- --------
Total current liabilities 344,000 199,000
Stockholders' equity
Common stock (par value $.01) 31,000 31,000
Additional paid in capital 10,710,000 10,710,000
Retained earnings (deficit) (2,414,000) (2,204,000)
------------- ---------------
Total shareholders' equity 8,327,000 8,537,000
------------- ---------------
Total liabilities and shareholders' equity $8,671,000 $8,736,000
============= ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
DYCAM, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
Three months ended
March 31, 1996 March 31, 1995
<S> <C> <C>
Revenues
Camera sales $763,000 $405,000
Contract engineering fees $66,000
License fees $16,000 $3,000
------------------ ----------------
Total revenues $845,000 $408,000
------------------ ----------------
Cost of revenues
Camera sales 487,000 347,000
Contract engineering fees 45,000
License fees 11,000
------------------ ----------------
Total cost of revenues 543,000 347,000
------------------ ----------------
Gross profit 302,000 61,000
------------------ ----------------
Operating expenses:
Selling, general & administrative expenses 285,000 330,000
Research and Development 159,000 199,000
Depreciation and amortization 109,000 83,000
------------------ ----------------
Total operating expenses 553,000 612,000
------------------ ----------------
Loss from operations (251,000) (551,000)
Non-operating income 41,000 41,000
------------------ ----------------
Loss before taxes (210,000) (510,000)
Provision for income taxes 0 0
------------------ ----------------
Net loss ($210,000) ($510,000)
================= ==============
Net income (loss) per share:
Primary (0.07) (0.16)
Fully diluted (0.07) (0.16)
Weighted average shares of common
stock outstanding
Primary 3,120,836 3,120,836
Fully diluted 3,120,836 3,120,836
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
DYCAM INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED 1995 AND THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Common Stock
--------------------- Additional Accumulated Stockholders
Shares Amount Paid-in Cap. Deficit Equity
----------- --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 3,120,836 $31,000 $10,710,000 ($852,000) $9,889,000
Net loss (1,352,000) (1,352,000)
Balance at December 31, 1995 3,120,836 31,000 10,710,000 (2,204,000) 8,537,000
Net loss for first three months (210,000) (210,000)
--------- ------- ---------- ---------- ---------
Balance at March 31, 1996 3,120,836 31,000 10,710,000 (2,414,000) 8,327,000
</TABLE>
4
<PAGE>
DYCAM, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 and 1995
<TABLE>
<CAPTION>
March 31, 1996 March 31, 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ($210,000) ($510,000)
---------- ----------
Adjustments to reconcile Net Income (loss)
to Net Cash provided by (used in) operating activities:
Depreciation 39,000 14,000
Amortization of goodwill 69,000 69,000
Allowance for doubtful accounts
Changes in assets and liabilities:
(Increase)/decrease in accounts receivable (86,000) (39,000)
(Increase)/decrease in royalty receivable 0 0
(Increase)/decrease in inventories 74,000 (41,000)
(Increase)/decrease in prepaid expenses 3,000 20,000
(Increase)/decrease in other current assets 1,000 0
Increase/(decrease) in accounts payable 135,000 (1,000)
Increase/(decrease) in accounts payable-intercompany 0 (129,000)
Increase/(decrease) in accrued expenses 10,000 0
Increase/(decrease) in accrued payroll and related expenses 0 0
Increase/(decrease) in deferred revenue 0 0
Increase/(decrease) in income taxes payable 0 0
---------- ----------
Total adjustments 137,000 (190,000)
---------- ----------
Net cash provided by operating activities 35,000 (617,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase)/decrease in property and equipment (24,000) (131,000)
(Increase)/decrease in Note receivable from SOV 0 (500,000)
(Increase)/decrease in deposits 0 (28,000)
---------- ----------
Net cash used in investing activities (24,000) (659,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Offering Expenses 0 0
Issuance of common stock 0 0
---------- ----------
Net cash provided by financing activities 0 0
NET INCREASE/(DECREASE) IN CASH 11,000 (1,276,000)
CASH, BEGINNING BALANCE 1,374,000 3,715,000
---------- ----------
CASH, ENDING BALANCE $1,385,000 $2,439,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
DYCAM INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - ---------------------------------------------------
General
The accompanying unaudited interim financial statements of Dycam Inc. (the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB. Certain notes and other information have been condensed or omitted from
the interim financial statements presented in this report. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the financial statements reflect all adjustments considered
necessary for a fair presentation and all such adjustments are of a normal and
recurring nature. The results of operations for the nine months ended are not
necessarily indicative of the results to be expected for the full year. For
further information refer to the financial statements and footnotes thereto
included in the Company's annual report on form 10-KSB for the year ended
December 31, 1995 as filed with the U.S. Securities and Exchange Commission.
Property and Equipment
Included in property and equipment is camera equipment held under lease to a
subsidiary of Styles in the amount of $206,000. Equipment under operating
leases is recorded at cost, net of accumulated depreciation. Such camera
equipment is being depreciated over four years.
Goodwill
Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over the expected periods
to be benefited. Dycam assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through projected undiscounted future cash flows. The
amount of goodwill impairment, if any, is measured based on projected
undiscounted future cash flows and is charged to operations in the period in
which goodwill impairment is determined by management. Goodwill is being
amortized on a straight-line basis over the expected 20 year life. During 1995
and 1994 Dycam recorded $278,000 and $249,000 of amortization expense,
respectively. Goodwill amortization of $69,000 was recorded for the three
months ended March 31, 1996 and 1995, respectively. At March 31, 1996 no
impairment of goodwill was determined by management.
Revenue Recognition
Revenue from camera sales is recognized upon shipment of products. Contract
engineering fees are recognized when the service is performed. License fee
revenue is recognized when earned. Revenue from camera equipment leased to a
subsidiary of Styles is included in camera sales and is being recognized when
earned.
6
<PAGE>
DYCAM INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- - --------------------------------------------------------------
Loss Per Common Share
Loss per common share has been computed on the weighted average number of common
and equivalent shares outstanding. Primary and fully diluted net loss per share
are approximately the same. Dycam has granted certain options which have been
treated as common share equivalents in calculating net loss per share, unless
antidilutive.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles ("GAAP") 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 and expenses during the reported
period. Actual results could materially differ from those estimates.
NOTE 2 - CONCENTRATIONS
- - -----------------------
Major Customers/Vendors
No customer accounted for more than 10% of camera sales for the three months
ended March 31, 1996 or 1995.
Dycam purchased materials from one vendor for $280,000 and $50,000, which
represented 55% and 17% of all materials purchased during the three months ended
March 31, 1996 and 1995, respectively.
Concentration of Credit Risk
Financial investments which potentially expose the Company to a concentration of
credit risk as defined by Statement of Financial Accounting Standards No. 105,
consist primarily of cash and accounts receivable. The Company places its cash
with high credit quality institutions but at times has amounts in one
institution in excess of the federally insured limit of $100,000. Concentration
of credit risk with respect to trade receivables is limited due to the diversity
of the Company's customer base. Generally, the Company does not require
collateral or other security to support customer receivables. Management
consistently monitors the financial condition of its customers to reduce the
risk of loss.
7
<PAGE>
DYCAM INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 3 - TRANSACTIONS WITH STYLES
- - ---------------------------------
Note Receivable from Styles on Video Inc.
On December 14, 1994, Dycam loaned to Styles $500,000. On January 25, 1995,
Dycam loaned an additional $500,000 to Styles. Styles signed an amended and
restated promissory note dated January 25, 1995 for the full $1,000,000 note,
bearing interest at 2% above a bank's prime rate, interest payable monthly, with
a maturity date of September 1, 1995. Dycam subsequently extended the maturity
date of the note to December 31, 1998, and fixed the interest rate at 10%. The
interest is payable monthly. The Note is secured by a pledge of 1,916,667
shares of the common stock of Dycam owned by Styles. Interest income of
approximately $25,000 is included in the accompanying March 31, 1996 statement
of operations related to the Styles loan. The carrying amount of the note
receivable approximates its fair market value at December 31, 1995.
Accounts Receivable From Subsidiary of Styles
Included in accounts receivable at March 31, 1996 is approximately $35,000 due
from a subsidiary of Styles.
Revenues
Included in the accompanying March 31, 1996 statement of operations under camera
sales and license fees is $33,000 and $16,000, respectively, of revenues related
to camera equipment leased to a subsidiary of Styles.
NOTE 4 - PROPERTY AND EQUIPMENT
- - -------------------------------
Property and equipment at March 31, 1996 consists of the following:
<TABLE>
<S> <C>
Machinery and equipment $289,000
Camera equipment 223,000
Office equipment 105,000
-----------
617,000
Less: accumulated depreciation (180,000)
-----------
$ 437,000
===========
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
General
The Company commenced operations in April 1988, and was incorporated in
Delaware in July, 1988. The Company became a wholly owned subsidiary of Styles
on Video Inc. a publicly traded Delaware corporation (Styles) on February 7,
1994. Effective September 21, 1994, the Company effected an underwritten Rights
Offering of 1,000,000 shares of its Common Stock. From and after the close of
the Rights Offering, Styles owned approximately 55% of the Company's common
stock. Since its inception, the Company's business has been the design,
manufacture and sale of digital cameras and associated hardware and software
products primarily for use with personal computers. Substantially all of the
Company's revenues are derived from sales of digital cameras and supporting
software and accessory products, technology licensing fees, and contract
engineering work.
Except for the historical information contained herein, the matters discussed
in this Management's Discussion and Analysis are forward-looking statements that
involve risks and uncertainties and, in some cases, are based upon various
factors beyond Dycam's control. These factors include, among other things, the
ability of Forever Yours to execute its business plan for the purchase and
utilization of Dycam's digital cameras pursuant to their existing agreement, the
ability of SOV to continue to service its outstanding indebtedness owed to
Dycam, the market reception for digital cameras in general and Dycam's products
specifically, the impact of competition from other companies in the digital
camera industry, developments which may render Dycam's products and services
obsolete or less attractive, Dycam's financial constraints, and overall economic
conditions.
Results of Operations
Three months ended March 31, 1996 compared to the three months ended March
--------------------------------------------------------------------------
31, 1995
- - --------
Total revenues for the three months ended March 31, 1996 were $845,000.
Total revenues increased $437,000 (107%) from revenues of $408,000 for the three
months ended March 31, 1995. The increase in revenue was primarily associated
with increased camera sales and contract engineering services. Revenues from
camera sales were $763,000 (90% of total revenue) in the three months ended
March 31, 1996 as compared to $405,000 in 1994 (99% of total revenue). Revenues
from contract engineering were $66,000 (8% of revenue) in the period as compared
to negligible contract engineering revenues in the same period of 1995. License
fee revenues in the period ended March 31, 1996 of $16,000 (2% of revenue) were
realized from one customer, Forever Yours Inc.
Dycam continues to pursue its standard product strategy by facilitating the use
of general purpose digital cameras, and selling a range of Dycam branded and
third party digital camera products, software, and accessories to selected
target markets. Dycam, however, will continue to devote the majority of its
engineering efforts in the custom product lines to exploit the opportunities to
design products that combine custom built digital cameras with specialized
software, hardware or packaging in order to satisfy an identified business
opportunity. During 1995, Dycam devoted a substantial portion of its resources
to pursuing custom and contract engineering business with the goal of generating
future sales. One example of this strategy is Dycam's relationship with Forever
Yours. Dycam believes that during 1996 a substantial portion of its revenues
will be comprised of revenues derived from the sale of cameras to, and licensing
revenues from, Forever Yours. The core element of the Forever Yours camera
system is a specialized digital camera subsystem engineered and produced by
Dycam under an exclusive contract with Forever Yours.
Gross profits are comprised of revenues less direct costs of products and
services. Gross profits as a percentage of revenues for the three months ended
March 31, 1996 increased to 36%, compared to 15% in the three months ended March
31, 1995, primarily as a result of the increased revenue from mature camera
product sales, decreases in new product startup costs, and increased revenues
from licenses and contract engineering. Also contributing to the improvement is
the improved absorption of fixed costs afforded by the overall increase in
revenues. Gross margins however, may continue to remain at lower levels if the
Company's custom products business does not contribute a significant portion to
the Company's revenues.
9
<PAGE>
Selling, general and administrative expenses consist of administrative
expenses at the Company headquarters, the salaries of corporate officers and
sales personnel, advertising and promotion, accounting, legal and other
professional expenses, rent and occupancy costs. Selling, general and
administrative expenses decreased $45,000 for the three months ended March 31,
1996 to $285,000 (34% of revenues) from $330,000 (81% of revenues) for the same
period in 1995. The decrease resulted primarily from reductions in personnel
and expenditures in the 1996 period, and continuing efforts to control costs.
Product development and research expenses decreased $40,000 to $159,000 (19%
of revenues) in the three months ended March 31, 1996 compared to $199,000 (49%
of revenues) in 1995. This decrease is attributable to reductions in personnel,
and the completion of certain developments of products introduced for sale in
1995, including the camera developed in conjunction with Forever Yours, Inc..
The Company believes that continuing research and development is essential to
maintaining its competitive position, and expects to continue to expend funds in
this area.
Inventories decreased by $74,000 to $624,000 at March 31, 1996 when compared
to December 31, 1995, primarily as a result of the increase in camera shipments,
including the Forever Yours camera system, and continuing sales of older
products from inventory. The acceptance and success of the Forever Yours
business is not yet assured, and if unsuccessful may result in lower than
anticipated revenues for the Company and a write down of the carrying value of
that unique inventory associated with the Forever Yours camera system.
The net loss per common share was ($0.07) for the three months ended March
31, 1996 compared to net loss per common share of ($0.16) for the three months
ended March 31, 1995.
Liquidity and Capital Resources
At March 31, 1996, Dycam had cash and short-term investments on hand of
$1,385,000, up $11,000 from $1,374,000 at December 31, 1995.
Accounts receivable, net of allowance for doubtful accounts of $5,000,
increased $86,000 during the three months ended March 31, 1996.
Camera equipment related to operating leases to Forever Yours, increased by
$23,000 during the three months ended March 31, 1996. Such camera equipment
will be depreciated over the life of the leases.
Current liabilities increased by $145,000 to $344,000, primarily as a result
of increases in accounts payable of $135,000.
Dycam's working capital at March 31, 1996 was $1,900,000 a decrease of
$125,000 when compared to $2,025,000 at December 31, 1995. Working capital
decrease was primarily the result of net losses of $210,000. The current ratio
at March 31, 1996 was 6.5 to 1 compared to 11.2 to 1 at December 31, 1995.
Dycam does not have any long term indebtedness and does not currently
maintain any credit facilities.
In December 1994 Dycam made a secured loan of $500,000 to Styles. Dycam
determined that it was in the best interests of Dycam and its shareholders that
it make this loan, which enabled Styles to continue funding Forever Yours, and
thus the development and manufacture of the Forever Yours digital camera by
Forever Yours and Dycam. In January 1995 Dycam approved an additional secured
loan of $500,000 to Styles. The two loans were memorialized in a single note
bearing interest at the Bank of America NS&TA prime rate plus two percentage
points and was payable interest only for seven months with the entire principal
balance plus accrued and unpaid interest thereon due and payable on September 1,
1995. Dycam subsequently extended the maturity date of the note to December 31,
1998, and fixed the interest rate at 10% per year. All interest payments due
have been paid. The note is secured by 1,916,667 shares of Dycam's Common Stock
owned by Styles. If Styles is
10
<PAGE>
unable to satisfy its obligations under the note, Dycam may not be repaid and
will exercise its right to acquire the 1,916,667 shares of Dycam Common Stock
owned by Styles.
Since the closing of the Rights Offering, Dycam has expended approximately
$3,500,000 of the moneys raised in that offering, which amount includes the
above-referenced $1,000,000 secured loan to Styles. Commencing in the second
quarter of 1994, Dycam embarked on a program to market and sell its standard
digital camera products to select markets. Although Dycam was able to generate
short term increases in sales in these markets, it has determined that a large
market does not currently exist for its standard digital camera systems.
Consequently, during the first quarter of 1995, Dycam decided to de-emphasize
the sale of its internally designed standard products and will, in the future,
concentrate its efforts on custom product development, value added distribution
of standard digital cameras produced by others for Dycam, and cooperative
ventures. These cooperative ventures include Dycam's ongoing relationship with
Forever Yours, for whom Dycam has developed a digital imaging system designed
for taking photographs of newborn infants.
Dycam anticipates that its operating and research and development activities
in fiscal 1996 will continue to use cash and expects that its cash balance in
fiscal 1996 will continue to decline. However, Dycam believes that its existing
cash balances, the payments due under the intercompany loan and cash flow from
operations will be sufficient to meet its cash requirements through December
1996, after which time it may be required to raise additional capital. In
addition, to the extent Dycam experiences growth in the future, or its cash flow
from operations is less than anticipated, Dycam may be required to obtain
additional sources of cash. There is no assurance that such sources will be
available.
11
<PAGE>
DYCAM INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Issuer has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Dycam Inc.
May 13, 1996 By: John Edling
------------------
John Edling, President
and Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,385,000
<SECURITIES> 0
<RECEIVABLES> 206,000
<ALLOWANCES> 5,000
<INVENTORY> 624,000
<CURRENT-ASSETS> 2,244,000
<PP&E> 617,000
<DEPRECIATION> 180,000
<TOTAL-ASSETS> 8,671,000
<CURRENT-LIABILITIES> 344,000
<BONDS> 0
0
0
<COMMON> 31,000
<OTHER-SE> 8,296,000
<TOTAL-LIABILITY-AND-EQUITY> 8,671,000
<SALES> 845,000
<TOTAL-REVENUES> 845,000
<CGS> 543,000
<TOTAL-COSTS> 543,000
<OTHER-EXPENSES> 553,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (210,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (210,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (210,000)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
