<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, 1997
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 SEPTEMBER 30, 1995
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, 1997 AND DECEMBER 31, 1996
ASSETS
------
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $424,000 $590,000
Accounts receivable, net 230,000 237,000
Inventory 339,000 394,000
Prepaid expenses and other current assets 19,000 40,000
---------- ----------
Total current assets 1,012,000 1,261,000
Goodwill, net of accumulated amortization
of $874,000 4,680,000 4,749,000
Property and equipment, net 407,000 439,000
Deposits 17,000 18,000
Total assets $6,116,000 $6,467,000
========== ==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<S> <C> <C>
Current liabilities:
Accounts payable $240,000 $134,000
Accounts payable-intercompany 0 0
Accrued payroll and related expenses 83,000 79,000
Accrued expenses 24,000 24,000
Income taxes payable 0 0
---------- ----------
Total current liabilities 347,000 237,000
---------- ----------
Commitments
Stockholders' equity
Common stock (par value $.01) 31,000 31,000
Additional paid in capital 10,710,000 10,710,000
Accumulated deficit (3,972,000) (3,511,000)
Note Receivable from Styles (1,000,000) (1,000,000)
---------- ----------
Total shareholders' equity 5,769,000 6,230,000
---------- ----------
Total liabilities and shareholders' equity $6,116,000 $6,467,000
========== ==========
</TABLE>
2
<PAGE>
DYCAM INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997 March 31, 1996
<S> <C> <C>
Revenues
Camera Sales $355,000 $763,000
Contract engineering fees $ 28,000 $ 66,000
License fees $ $ 16,000
--------- ---------
$383,000 $845,000
--------- ----------
Cost of revenues
Camera Sales 268,000 487,000
Contract engineering fees 18,000 45,000
License fees 11,000
286,000 543,000
--------- ---------
Gross profit 97,000 302,000
--------- ---------
Operating expenses:
Selling, general & administrative expenses 344,000 285,000
Research and Development 123,000 159,000
Depreciation and amortization 121,000 109,000
--------- ---------
588,000 553,000
Income before
Non - operating income and taxes (491,000) (251,000)
Non - operating income 30,000 41,000
--------- ---------
Income (loss) before taxes (461,000) (210,000)
Provision for income taxes 0 0
--------- ---------
Net income (loss) ($461,000) ($210,000)
========= =========
Net income (loss) per share: ($0.15) ($0.07)
Weighted average shares of common
stock outstanding 3,120,836 3,120,836
</TABLE>
3
<PAGE>
DYCAM INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED 1996 AND THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Common Stock Note Receivable Accumulated Stockholders
No. of shares Par value Addtl. pd in Cap. from Styles Deficit Equity
------------- --------- ----------------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 3,120,836 $31,000 $10,710,000 ($1,000,000) ($2,204,000) $7,537,000
Accumulated deficit (1,307,000) (1,307,000)
Balance at December 31, 1996 3,120,836 31,000 10,710,000 (1,000,000) (3,511,000) 6,230,000
Net loss for first three months (461,000) (461,000)
--------- ------- ----------- ----------- ----------- ----------
Balance at March 31, 1997 3,120,836 $31,000 $10,710,000 ($1,000,000) ($3,972,000) $5,769,000
========= ======= =========== =========== =========== ==========
</TABLE>
4
<PAGE>
DYCAM INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ($461,000) ($210,000)
--------- ----------
Adjustments to reconcile Net Income (loss)
to Net Cash provided by (used in) operating activites:
Depreciation 51,000 39,000
Amortization of goodwill 69,000 69,000
Allowance for doubtful accounts
Changes in assets and liabilities:
(Increase)/decrease in accounts receivable 7,000 (86,000)
(Increase)/decrease in royalty receivable 0 0
(Increase)/decrease in inventories 55,000 74,000
(Increase)/decrease in prepaid expenses 0 3,000
(Increase)/decrease in other current assets 21,000 1,000
Increase/(decrease) in accounts payable 106,000 135,000
Increase/(decrease) in accounts payable-intercompany 0 0
Increase/(decrease) in accrued expenses 0 10,000
Increase/(decrease) in accrued payroll and related expenses 4,000 0
Increase/(decrease) in deferred revenue 0 0
Increase/(decrease) in income taxes payable 0 0
--------- ----------
Total adjustments 193,000 137,000
--------- ----------
Net cash provided by (used in) operating activites (148,000) 35,000
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase)/decrease in property and equipment (19,000) (24,000)
(Increase)/decrease in Note receivable from SOV 0 0
(Increase)/decrease in deposits 1,000 0
--------- ----------
Net cash used in investing activites (18,000) (24,000)
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 (166,000) 11,000
CASH, BEGINNING BALANCE 590,000 1,374,000
--------- ----------
CASH, ENDING BALANCE $424,000 $1,385,000
========= ==========
</TABLE>
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 three 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, 1996 as filed with the U.S. Securities and Exchange Commission.
Basis of Presentation
Since 1994, the Company has suffered substantial recurring losses from
operations and has an accumulated deficit as of March 31, 1997. These matters
raise substantial doubt about the Company's ability to continue as a going
concern. The Company's continuation as a going concern is dependent on its
ability to generate sufficient cash flow to meet its obligations on a timely
basis, to obtain additional financing as may be required, and ultimately to
attain profitable operations. The Company's operating plan for calendar year
1997 includes increased sales, higher margins on certain segments of the custom
products and licensing business, reduced expenses as a percentage of revenues,
collections of receivables due from a subsidiary of Styles from the proceeds of
the sale of such subsidiary, and improved cash flows sufficient to cover the
Company's financing needs. There can be no assurance that the Company will be
successful in these regards. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Property and Equipment
Included in property and equipment is camera equipment held under lease to a
subsidiary of Styles in the amount of $255,000. 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 1996
and 1995 Dycam recorded $278,000 and $278,000 of amortization expense,
respectively. Goodwill amortization of $69,000 was recorded for the three
months ended March 31, 1997 and 1996, respectively. At March 31, 1997 no
impairment of goodwill was determined by management.
6
<PAGE>
DYCAM INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
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.
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. The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards 128, Earnings per Share ("SFAS 128"), which is
effective for financial statements issued for periods ending after December 15,
1997. The effect of adopting SFAS 128 has not yet been determined.
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, 1997 or 1996.
Dycam purchased materials from one vendor for $73,000 and $280,000, which
represented 30% and 55% of all materials purchased during the three months ended
March 31, 1997 and 1996, 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, 1997 statement
of operations related to the Styles loan. The note receivable has been
reflected as an offset to stockholders' equity in the accompanying statements of
stockholders' equity due to uncertainty regarding its ultimate collectability.
As of May 9, 1997 interest payments for March and April of 1997 are past due.
Styles has informed Dycam that it will satisfy all past due payments and related
penalties due under the Note from the proceeds of the sale of Forever Yours,
which is expected to be completed in June 1997.
Accounts Receivable From Subsidiary of Styles
Included in accounts receivable at March 31, 1997 is approximately $140,000 due
from a subsidiary of Styles.
Revenues
Included in the accompanying March 31, 1997 and 1996 statement of operations
under camera sales and license fees is $73,000 and $33,000, respectively, of
revenues related to camera equipment leased to a subsidiary of Styles.
Deferred revenues
Commencing April 1996, Dycam and a subsidiary of Styles entered into an
agreement to defer certain license revenues due Dycam for a period of up to 12
months. Such revenues will be recognized when received. As of March 31, 1997,
approximately $215,000 had been deferred under this agreement.
Sale of Forever Yours Inc.
On December 13, 1996, Styles signed a letter of intent to sell substantially all
of the net assets of Forever Yours, the subsidiary of Styles that leases the
cameras. The buyer is Hasco International ("Hasco"), a competitor of Forever
Yours in the newborn hospital photographic business. Effective January 31,
1997, Styles executed definitive agreements with the buyer for the sale, which
is expected to close in June, 1997.
At the closing, Forever Yours and Dycam will terminate their existing
contractual relationships involving the use of Dycam's cameras, software, and
other supporting goods and services, and Hasco and Dycam will enter into a Dycam
Master Agreement (the "Dycam Master Agreement") with respect to the assumption
of Forever Yours' digital camera lease obligations to Dycam, the leasing by
Hasco of additional Dycam digital cameras, and a royalty-free license of certain
digital camera technology by Dycam to Hasco, certain hardware and software
support services to be provided by Dycam for a three-year period commencing on
the closing date and certain additional terms. Under the Dycam Master
Agreement, Hasco will be required to pay Dycam specified leasehold payments for
leased cameras, a $300,000 fee (payable quarterly over a three-year period) for
the support services, and the cost of certain hardware upgrades.
8
<PAGE>
DYCAM INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 3 - TRANSACTIONS WITH STYLES - CONTINUED
- ---------------------------------------------
Styles has agreed to deliver to Hasco an option permitting Hasco to purchase
from shares owned by Styles that number of shares of Dycam common stock equal to
4.9% of the outstanding shares of the common stock of Dycam on the closing date
(approximately 152,921 shares as of March 31, 1997). The exercise price of this
three year option to be granted to the buyer will be equal to the average
closing price for Dycam common stock during the period from January 31, 1997
through the closing date.
The sale is subject to the approval of the shareholders of Styles. Styles
expects to receive the requisite approval of its stockholders at a meeting
planned to be held in May 1997.
NOTE 4 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment at March 31, 1997 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Machinery and equipment $293,000
Camera equipment 367,000
Office equipment 109,000
--------
769,000
Less: accumulated depreciation (362,000)
--------
$407,000
========
</TABLE>
9
<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.
Certain statements made in this Form 10-QSB which are not historic facts
constitute forward looking statements within the meaning of the Securities
Reform Act of 1995. Such forward looking statements involve risks and
uncertainties and, in some cases, are based upon various factors beyond Dycam's
control. These risks and uncertainties include, among other things, the ability
of Styles on Video 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 ability to finance growth from its working
capital, and its ability to obtain third party financing if its working capital
is not sufficient to meet its needs. Furthermore, Styles on Video and Hasco
International ("Hasco"), have entered into a definitive agreement under which
substantially all of the assets of Forever Yours are to be purchased by Hasco.
Concurrently with the closing of this asset purchase transaction, Dycam and
Hasco will enter into a 3 year agreement under which Dycam will receive
quarterly payments for continuing camera maintenance and development services,
and camera lease payments from certain leased camera payment obligations assumed
by Hasco. Payment of deferred license fees due Dycam from Forever Yours is
expected to be satisfied from the proceeds of the Forever Yours sale. This
transaction and the continuing agreement with Hasco may result in substantially
lower revenues to Dycam than would have been realized under the original
agreements with Forever Yours.
The Company believes that its existing cash balances, the payments due
under the intercompany loan, payments of the accrued license fees and
receivables from the sale of Forever Yours, and cash flow from operations will
be sufficient to meet its cash requirements through September 1997, 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.
The ability of the Company to raise additional funds and ultimately achieve
positive operating cash flow is uncertain and, therefore, this raises doubt
about the Company's ability to continue as a going concern. The accompanying
consolidated financial statements have been prepared assuming that the Company
will continue as a going concern and do not include any adjustments that might
result from the outcome of this uncertainty.
Results of Operations
Three months ended March 31, 1997 compared to the three months ended March
31, 1996
Total revenues for the three months ended March 31, 1997 were $383,000.
Total revenues decreased $462,000 (55%) from revenues of $845,000 for the three
months ended March 31, 1996. The decrease in revenue was primarily associated
with decreased camera sales and contract engineering services. Sales of the
Dycam Model 10-C digital camera decreased from $600,000 in the three months
ended March 31, 1996 to $100,000 in the three months ended March 31, 1997
primarily due to increased competition, lower sales prices, and phase out of the
Model 10-C product as it approaches end of life. Revenues from camera sales were
$355,000 (93% of total revenue) in the three months ended March 31, 1997 as
compared to $763,000 in 1996 (90% of total revenue). Revenues from contract
engineering were $28,000 (7% of revenue) in the period as compared to $66,000
(8% of revenue) in the same period of 1996. No license fee revenues were
recognized in the period ended March 31, 1997. 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 intends to continue 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 cameras products, software, and
accessories to selected targeted markets. Dycam, however, will continue to
increase its efforts to license its technology to others and expand the custom
product
10
<PAGE>
line 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 1996, 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. 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. In addition to
the sale of cameras to Forever Yours, Dycam's arrangement with Forever Yours
provides that, in exchange for certain development and maintenance services,
Dycam is entitled to a 7.5% royalty on all Forever Yours sales. Subsequent to
the sale of Forever Yours to Hasco International, such fees will be fixed at
$25,000 per quarter for 12 quarters, after which time Dycam's service
obligations expire and no further license fees will be paid by Hasco. However,
Dycam believes arrangements such as its Forever Yours agreement and the ongoing
agreement with Hasco International may lead to additional contract engineering
revenues and custom camera sales opportunities.
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, 1997 decreased to 25%, compared to 36% in the three months ended March
31, 1996, primarily as a result of the decreased revenues and margins from
mature camera product sales and decreased revenues from licenses and contract
engineering. Gross margins 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 or if increased service revenues are not realized.
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 increased $59,000 for the three months ended March 31,
1997 to $344,000 (90% of revenues) from $285,000 (34% of revenues) for the same
period in 1996. The increase resulted primarily from expenses associated with
reorganizing the Sales and Marketing functions of the Company, including the
hiring of a new Vice-President of Sales and Marketing, and increased legal and
professional expenses.
Product development and research expenses decreased $36,000 to $123,000
(32% of revenues) in the three months ended March 31, 1997 compared to $159,000
(19% of revenues) in 1996. This decrease is attributable to reductions in
personnel, and the completion of certain developments of products introduced for
sale in 1996. 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 $55,000 to $339,000 at March 31, 1997 when
compared to December 31, 1996, primarily as a result of continuing sales of
older products, including the Forever Yours camera system, from inventory. The
acceptance and success of the Forever Yours business and the related purchase
and management of said business by Hasco International 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, which at March 31, 1997 was valued at
approximately $53,000.
The net loss per common share was ($0.15) for the three months ended March
31, 1997 compared to net loss per common share of ($0.07) for the three months
ended March 31, 1996.
Liquidity and Capital Resources
At March 31, 1997, Dycam had cash and short-term investments on hand of
$424,000, a decrease of $166,000 from $590,000 at December 31, 1996.
Accounts receivable, net of allowance for doubtful accounts of $5,000,
decreased $7,000 during the three months ended March 31, 1997.
Camera equipment related to operating leases to Forever Yours, increased by
$19,000 during the three months ended March 31, 1997. Such camera equipment
will be depreciated over the life of the leases.
Current liabilities during the three months ended March 31, 1997 increased
by $110,000 to $347,000, primarily as a result of increases in accounts payable
of $106,000.
11
<PAGE>
Dycam's working capital at March 31, 1997 was $665,000 a decrease of
$359,000 when compared to $1,024,000 at December 31, 1996. Working capital
decrease was primarily the result of net losses of $461,000. The current ratio
at March 31, 1997 was 2.9 to 1 compared to 5.3 to 1 at December 31, 1996.
Dycam does not have any long term indebtedness and does not currently maintain
any credit facilities.
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 $25,000 and $25,000 respectively is
included in the accompanying 1997 and 1996 three month statement of operations
related to the Styles loan. The note receivable has been reflected as an offset
to stockholders' equity in the accompanying statements of stockholders' equity
due to uncertainty regarding its ultimate collectability. As of May 9, 1997
interest payments for March and April of 1997 are past due. Styles has informed
Dycam that it will satisfy all past due payments and related penalties due under
the Note from the proceeds of the sale of Forever Yours, which is expected to be
completed in June 1997.
Since the closing of the Rights Offering, Dycam has expended approximately
$4,700,000 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 1997 will continue to use cash and expects that its cash
balance in fiscal 1997 will continue to decline. However, Dycam believes that
its existing cash balances, the payments due under the intercompany loan,
payments of the accrued license fees and receivables from the sale of Forever
Yours, and cash flow from operations will be sufficient to meet its cash
requirements through September 1997, 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. The ability of the
Company to raise additional funds and ultimately achieve positive operating cash
flow is uncertain and, therefore, this raises doubt about the Company's ability
to continue as a going concern. The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going
concern and do not include any adjustments that might result from the outcome of
this uncertainty.
12
<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 14, 1997 By: John Edling
/s/ John Edling
---------------------------
John Edling, President
and Chief Financial Officer
13
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<PAGE>
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<S> <C>
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0
0
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