<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
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 95-420242495
(State or other jurisdiction (I.R.S. Employer
Identification Number) 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, 1998
Transitional Small Business Disclosure Format (Check one)
YES [_] NO [X]
<PAGE>
I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DYCAM INC.
BALANCE SHEETS
SEPTEMBER 30,1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS
------
September 30, 1998 December 31, 1997
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 407,000 $ 249,000
Accounts receivable, net 195,000 384,000
Inventory 151,000 72,000
Prepaid expenses and other current assets 3,000 0
------------------- -------------------
Total current assets 756,000 705,000
Property and equipment, net 118,000 234,000
Deposits 18,000 18,000
------------------- -------------------
Total assets $ 892,000 $ 957,000
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 201,000 $ 130,000
Accrued payroll and related expenses 86,000 78,000
Accrued expenses 328,000 43,000
Income taxes payable 0 0
------------------- -------------------
Total current liabilities 615,000 251,000
------------------- -------------------
Commitments
Stockholders' equity
Common stock (par value $.01) 31,000 31,000
Additional paid in capital 10,710,000 10,710,000
Accumulated deficit (10,264,000) (9,835,000)
Note Receivable from Styles (200,000) (200,000)
------------------- -------------------
Total shareholders' equity 277,000 706,000
------------------- -------------------
Total liabilities and shareholders' equity $ 892,000 $ 957,000
=================== ===================
</TABLE>
2
<PAGE>
DYCAM INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
Quarter ended Nine months ended
Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
<S> <C> <C> <C> <C>
Revenues
Camera Sales $ 377,000 $ 499,000 $1,251,000 $1,291,000
Contract engineering fees $ 102,000 $ 55,000 $ 338,000 $ 194,000
License fees $ 25,000 $ 25,000 $ 75,000 $ 253,000
---------- ---------- ---------- ----------
Total Revenues $ 504,000 $ 579,000 $1,664,000 $1,738,000
---------- ---------- ---------- ----------
Cost of revenues
Camera Sales 231,000 350,000 818,000 996,000
Contract engineering fees 76,000 27,000 236,000 77,000
License fees 5,000 5,000
---------- ---------- ---------- ----------
Total cost of revenues 307,000 382,000 1,054,000 1,078,000
---------- ---------- ---------- ----------
Gross profit 197,000 197,000 610,000 660,000
Operating expenses:
Selling, general &
administrative expenses 233,000 274,000 743,000 912,000
Research and Development 60,000 117,000 176,000 360,000
Depreciation and amortization 42,000 127,000 126,000 374,000
---------- ---------- ---------- ----------
Total operating expenses 335,000 518,000 1,045,000 1,646,000
---------- ---------- ---------- ----------
Loss from operations (138,000) (321,000) (435,000) (986,000)
Non - operating income 2,000 4,000 6,000 28,000
---------- ---------- ---------- ----------
Loss before taxes (136,000) (317,000) (429,000) (958,000)
Provision for income taxes 0 0 0 0
---------- ---------- ---------- ----------
Net loss ($136,000) ($317,000) ($429,000) ($958,000)
========== ========== ========== ==========
Net income (loss) per share: ($0.04) ($0.10) ($0.14) ($0.31)
Weighted average shares of common
stock outstanding 3,120,836 3,120,836 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 1997 AND NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Common Stock Additional Note Receivable Accumulated Stockholders
No. of shares Par value Paid-in Cap. from Styles Deficit Equity
--------------- ----------- ---------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 3,120,836 $31,000 $10,710,000 ($200,000) ($9,835,000) $ 706,000
Net loss for first nine months (429,000) (429,000)
--------------- ----------- ---------------- ---------------- ------------- --------------
Balance at September 30, 1998 3,120,836 31,000 10,710,000 (200,000) (10,264,000) 277,000
</TABLE>
4
<PAGE>
DYCAM, INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
SEPT. 30, 1998 SEPT. 30, 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ($429,000) ($958,000)
---------- ----------
Adjustments to reconcile Net Income (loss)
to Net Cash provided by (used in) operating activites:
Depreciation 126,000 165,000
Amortization of goodwill 0 208,000
Allowance for doubtful accounts
Changes in assets and liabilities:
(Increase) / decrease in accounts receivable 189,000 58,000
(Increase) / decrease in royalty receivable 0 0
(Increase) / decrease in inventories (79,000) 241,000
(Increase) / decrease in prepaid expenses (3,000) 0
(Increase) / decrease in other current assets 0 40,000
Increase / (decrease) in accounts payable 71,000 (19,000)
Increase / (decrease) in accounts payable-intercompany 0 0
Increase / (decrease) in accrued expenses 285,000 7,000
Increase / (decrease) in accrued payroll and related expenses 8,000 29,000
Increase / (decrease) in deferred revenue 0 17,000
Increase / (decrease) in income taxes payable 0 0
---------- ----------
Total adjustments 471,000 373,000
---------- ----------
Net cash provided by (used in) operating activites 168,000 (212,000)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) / decrease in property and equipment (10,000) (23,000)
(Increase) / decrease in Note receivable from SOV 0 0
(Increase) / decrease in deposits 0 1,000
---------- ----------
Net cash used in investing activites (10,000) (22,000)
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 158,000 (234,000)
CASH, BEGINNING BALANCE 249,000 590,000
---------- ----------
CASH, ENDING BALANCE $ 407,000 $ 356,000
========== ==========
</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
Dycam Inc. (the "Company"), a Delaware corporation, was incorporated in June
1988. The Company maintains its operating facilities in Chatsworth, California.
The Company has historically designed and developed digital cameras and
associated hardware and software products primarily for use with personal
computers. During the year ended December 31, 1997, however, the Company
changed its business strategy and focused its product business primarily on
reselling of digital cameras and associated service and maintenance agreements,
and focused its technology business on the sales of engineering services and
licensing agreements. The Company was owned 61% by Styles on Video, Inc., a
publicly-traded Delaware corporation ("Styles"). During the year ended December
31, 1997, Styles declared Chapter 11 bankruptcy.
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 September
30, 1998 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, 1997 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 September 30, 1998. 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
1998 includes increased sales, higher margins on certain segments of the custom
products and licensing business, reduced expenses as a percentage of revenues,
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
Hasco International ("Hasco") in the amount of $93,000. 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. The Company assesses the recoverability of this
intangible asset by determining whether the amortization of the goodwill balance
over its remaining life could be recovered through projected undiscounted future
cash flows. The amount of goodwill impairment, if any, is measured based on fair
value (projected discounted future cash flows) and is charged to operations in
the period in which goodwill impairment is determined by management. Goodwill
was being amortized on a straight-line basis over the expected 20 year life.
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
During each of the years ended December 31, 1997 and 1996, the Company
recorded $278,000 of amortization expense. During the fourth quarter of 1997,
management of the Company determined that the goodwill was impaired in its
entirety because of the Company's change in business strategy and focus (see
"General" above) and therefore, wrote the goodwill (carrying value of
$4,471,000) down to zero. Goodwill amortization of $0 and $209,000 was recorded
for the nine months ended September 30, 1998 and 1997, respectively.
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 Hasco
is included in camera sales and is being recognized when earned.
Loss Per Common Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 ("SFAS No.128"), "Earnings
Per Share" ("EPS"). SFAS No. 128 requires dual presentation of basic EPS and
diluted EPS on the face of all income statements issued after December 15, 1997
for all entities with complex capital structures. Basic EPS is computed as net
income divided by the weighted average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur from
common shares issuable through stock options, warrants and other convertible
securities. There was no effect on EPS upon the adoption of the provisions of
SFAS No. 128 for all years presented. Loss per common share has been computed
on the weighted average number of common and equivalent shares outstanding.
Basic and diluted net loss per share are approximately the same.
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
One Customer accounted for 35% of camera sales for the three months ended
September 30, 1998. Two customers accounted for 25% and 11% respectively, of
camera sales for the nine months ended September 30, 1998. One customer
accounted for 22% of camera sales for the three month period ended September 30.
1997. No customer accounted for more than 10% of camera sales for the nine
month period ended September 30, 1997.
One customer accounted for 42% of contract engineering fees and a different
customer accounted for 24% of contract engineering fees for the three months
ended September 30, 1998. One customer accounted for 29% of contract
engineering fees and another customer accounted for 21% of contract engineering
fees for the nine months ended September 30, 1998. One customer accounted for
75% of contract engineering fees for the three months ended September 30, 1997,
and 65% of contract engineering fees for the nine months ended September 30,
1997.
Dycam purchased materials from one vendor for $93,000 and from a different
vendor for $72,000, which represented 40% and 21% of all materials purchased
during the three months ended September 30, 1998 and 1997, respectively.
Substantially all of such purchases are related to standard digital camera
products.
7
<PAGE>
DYCAM INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 2 - CONCENTRATIONS, continued
- ----------------------------------
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.
NOTE 3 - TRANSACTIONS WITH STYLES
- ---------------------------------
Note Receivable from Styles on Video Inc.
On December 14, 1994, the Company loaned to Styles $500,000. On January 25,
1995, the Company loaned an additional $500,000 to Styles. The two notes were
memorialized into an amended and restated promissory note dated January 25, 1995
for the full $1,000,000, bearing interest at 2% above a bank's prime rate,
interest payable monthly with the entire principal balance plus any accrued
interest thereon due and payable on September 1, 1995. The Company subsequently
amended the note thereby extending the maturity date to December 31, 1998 and
changing the interest rate to a flat 10%. The note was secured by a pledge of
1,916,667 shares of the common stock of the Company owned by Styles. During the
fourth quarter of 1997, the Company determined that the note receivable from
Styles was impaired and, therefore, recorded a loss in the amount of $800,000.
The remaining balance of $200,000 reflected the Company's estimate of the fair
market value of the collateral (the pledged shares of the Company). The note
receivable is shown as an offset to stockholders' equity in the accompanying
statements of stockholders' equity.
The settlement of Styles' outstanding indebtedness to the Company was
previously delayed pending the outcome of Styles' Chapter 11 bankruptcy
proceedings. During October 1998, Styles' Chapter 11 bankruptcy plan was
finalized and all claims settled through bankruptcy court. As a result of the
final settlement, during its fiscal fourth quarter, the Company expects to
retire 1,250,000 shares of stock.
Revenues
Included in the accompanying September 30, 1998 and 1997 statements of
operations under camera sales is $71,000 and $71,000, respectively, of revenues
related to camera equipment formerly leased to a subsidiary of Styles and
currently leased to Hasco.
NOTE 4 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment at September 30, 1998 consists of the following:
<TABLE>
<S> <C>
Machinery and equipment $ 292,000
Camera equipment 367,000
Office equipment 119,000
---------
778,000
Less: accumulated depreciation (660,000)
---------
$ 118,000
=========
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
General
Dycam Inc. (the "Company"), a Delaware corporation, was incorporated in
June 1988. The Company maintains its operating facilities in Chatsworth,
California. The Company has historically designed and developed digital cameras
and associated hardware and software products primarily for use with personal
computers. During the year ended December 31, 1997, however, the Company changed
its business strategy and focused its product business primarily on reselling of
digital cameras and associated service and maintenance agreements, and focused
its technology business on the sales of engineering services and licensing
agreements. 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.
In the fourth quarter of 1997, Styles filed for protection under Chapter 11
of the U.S. Bankruptcy Court. Styles owned 61% of Dycam's outstanding shares of
common stock, and was in default on indebtedness owed to Dycam in the amount of
approximately $1,100,000. The indebtedness was collateralized by the shares of
Dycam common stock owned by Styles. During Styles' Chapter 11 bankruptcy
proceedings, Dycam entered into an agreement whereby it was able to recover 65%
of the shares held by Styles in exchange for the indebtedness owed to Dycam.
Certain executive officers of Dycam agreed to purchase the balance of the Dycam
shares as part of the settlement. These agreements were subject to bankruptcy
court and creditor approvals. Such approvals were received in October 1998,
and, as a result of the final settlement, during its fiscal fourth quarter the
Company expects to retire 1,250,000 shares of its stock (approximately 40% of
the shares outstanding). The indebtedness owed by Styles had previously been
reflected as an offset to stockholders equity. During the fourth quarter of
1997, Dycam determined that the Note receivable from Styles was impaired due to
decline in value of the common stock underlying the Note, and a loss of $800,000
was recorded.
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, Styles's
bankruptcy settlement and its related effects on 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.
The Company believes that its existing cash balances and cash flow from
operations will be sufficient to meet its cash requirements through March 1999,
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 September 30, 1998 compared to the three months ended
------------------------------------------------------------------------
September 30, 1997
------------------
Total revenues for the three months ended September 30, 1998 were $504,000.
Total revenues decreased $75,000 (13%) from revenues of $579,000 for the three
months ended September 30, 1997, primarily as a result of lower average sales
prices and decreased sales of custom cameras. Revenues from camera sales were
$377,000 (75% of total revenue) in the three months ended September 30, 1998 as
compared to $499,000 in 1997 (86% of total revenue). Revenues from contract
engineering were $102,000 (20% of revenue) in the period as compared to $55,000
(9% of revenue) in the same period of 1997. $25,000 (5% of revenues) of license
fee revenues were recognized in the period ended September 30, 1998 as compared
to $25,000 (4% of revenues) in the period ended September 30, 1997.
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, accessories,
9
<PAGE>
complementary products such as photo printers and film scanners, and support
services to selected targeted markets. Dycam will also continue its efforts to
license its technology to others, sell contract engineering services, and to
exploit 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 1997, Dycam devoted a substantial portion of its resources to
pursuing custom and contract engineering business with the goal of generating
future sales and licensing business. One example of this strategy is Dycam's
former relationship with Forever Yours and continuing relationship with Hasco
International which purchased substantially all of the assets of 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 provided that, in exchange for certain
development and maintenance services, Dycam would receive a 7.5% royalty on all
Forever Yours sales. Subsequent to the sale of Forever Yours to Hasco
International in June 1997, such fees have been 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
September 30, 1998 increased to 39%, compared to 34% in the three months ended
September 30, 1997, primarily as a result of decreased sales of lower margin
products. Gross margins may return to 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 decreased $41,000 for the three months ended September
30, 1998 to $233,000 (46% of revenues) from $274,000 (47% of revenues) for the
same period in 1997. The decrease resulted primarily from reductions in
personnel, decreased Sales and Marketing expenses, and decreased insurance
expenses.
Product development and research expenses decreased $57,000 to $60,000 (12%
of revenues) in the three months ended September 30, 1998 compared to $117,000
(20% of revenues) in 1997, primarily due to allocating personnel to support the
increased contract engineering revenues. The Company believes that continuing
research and development is important to maintaining its competitive position,
and expects to continue to expend funds in this area.
Inventories increased by $79,000 to $151,000 at September 30, 1998 when
compared to December 31, 1997.
The net loss per common share was ($0.04) for the three months ended
September 30, 1998 compared to net loss per common share of ($0.10) for the
three months ended September, 1997.
Nine months ended September 30, 1998 compared to the Nine months ended
----------------------------------------------------------------------
September 30, 1997
------------------
Revenues are derived from sales of digital cameras and supporting software
and accessory products, technology licensing fees, and contract engineering
work. Sales during the nine month period ended September 30, 1998 were
$1,664,000. Total sales decreased by $74,000 from $1,738,000 for the nine month
period ended September 30, 1997.
Gross profits are comprised of revenues less direct costs of products and
services. Gross profits as a percentage of revenues decreased to 37% in the
first nine months of 1998, compared to 38% in the first nine months of 1997,
primarily as a result of the favorable impact of the receipt of deferred license
revenues in 1997. Without receipt of the deferred license fee payment, gross
profits as a percentage of revenues would have decreased to approximately 31% in
the first nine months of 1997.
Selling, general, and administrative expenses consist of administrative
expenses at the company's headquarters, the salaries of corporate officers and
sales personnel, advertising and promotion, accounting, legal and other
professional expenses, rent, and other occupancy costs. Selling, general, and
administrative costs decreased by $169,000 for the first nine months of 1998 to
$743,000 (45% of revenues) from $912,000 (52% of revenues) for the
10
<PAGE>
first nine months of 1997. The decrease resulted primarily from decreased
headcount and reductions in insurance expenses. Product development expenses
decreased $184,000 to $176,000 (11% of revenues) for the nine month period
compared to $360,000 (21% of revenues) for the same period in 1997, primarily
due to allocations of personnel to contract engineering services and projects.
Depreciation and amortization costs for the first nine months of 1998 were
$126,000 as compared to $374,000 in the same period for 1997.
Net loss per common share was ($0.14) for the first nine months of 1998 and
($0.31) for the first nine months of 1997.
Liquidity and Capital Resources
At September 30, 1998, Dycam had cash and short-term investments on hand of
$407,000, an increase of $158,000 from $249,000 at December 31, 1997.
Accounts receivable, net of allowance for doubtful accounts, decreased
$189,000 during the nine months ended September 30, 1998.
Current liabilities during the nine months ended September 30, 1998
increased by $364,000 to $615,000, primarily as a result of $285,000 of increase
in accrued expenses and $71,000 increase in accounts payable.
Dycam's working capital at September 30, 1998 was $277,000 a decrease of
$177,000 when compared to $454,000 at December 31, 1997. Working capital
decrease was primarily the result of net losses of $429,000. The current ratio
at September 30, 1998 was 1.2 to 1 compared to 2.8 to 1 at December 31, 1997.
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 (the "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 was payable monthly. The Note was secured
by a pledge of 1,916,667 shares of the common stock of Dycam owned by Styles.
In the fourth quarter of 1997, Styles filed for protection under Chapter 11
of the U.S. Bankruptcy Court. Styles owned 61% of Dycam's outstanding shares of
common stock, and was in default on indebtedness owed to Dycam in the amount of
approximately $1,100,000. The indebtedness was collateralized by the shares of
Dycam common stock owned by Styles. During Styles' Chapter 11 bankruptcy
proceedings, Dycam entered into an agreement whereby it was able to recover 65%
of the shares held by Styles in exchange for the indebtedness owed to Dycam.
Certain executive officers of Dycam agreed to purchase the balance of the Dycam
shares for approximately $40,000 as part of the settlement. These agreements
were subject to bankruptcy court and creditor approvals. Such approvals were
received in October 1998, and, as a result of the final settlement, during its
fiscal fourth quarter the Company expects to retire 1,250,000 shares of its
stock (approximately 40% of the shares outstanding). The indebtedness owed by
Styles had previously been reflected as an offset to stockholders equity.
During the fourth quarter of 1997, Dycam determined that the Note receivable
from Styles was impaired due to decline in value of the common stock underlying
the Note, and a loss of $800,000 was recorded.
Dycam anticipates that its operating and research and development
activities in fiscal 1998 will continue to use cash and expects that its cash
balance in fiscal 1998 may decline. However, Dycam believes that its existing
cash balances and cash flow from operations will be sufficient to meet its cash
requirements through March 1999, 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.
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.
November 13, 1998 By: John Edling
/s/ John Edling
_______________________
John Edling,
Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 407,000
<SECURITIES> 0
<RECEIVABLES> 200,000
<ALLOWANCES> 5,000
<INVENTORY> 151,000
<CURRENT-ASSETS> 756,000
<PP&E> 778,000
<DEPRECIATION> 660,000
<TOTAL-ASSETS> 892,000
<CURRENT-LIABILITIES> 615,000
<BONDS> 0
0
0
<COMMON> 31,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 892,000
<SALES> 504,000
<TOTAL-REVENUES> 504,000
<CGS> 307,000
<TOTAL-COSTS> 642,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (136,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (136,000)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
