-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IBjTkQtkn4bdn1QpOmdRPc/V15CJAtjuCaCfwMXHHcNE8uAfk4QgzMjqX4OBTHe9 DwS2kJvJXwqmX418RCQIsQ== 0000944209-98-001475.txt : 19980814 0000944209-98-001475.hdr.sgml : 19980814 ACCESSION NUMBER: 0000944209-98-001475 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: DYCAM INC CENTRAL INDEX KEY: 0000850971 STANDARD INDUSTRIAL CLASSIFICATION: PHOTOGRAPHIC EQUIPMENT & SUPPLIES [3861] IRS NUMBER: 954202424 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 333-04597 FILM NUMBER: 98685462 BUSINESS ADDRESS: STREET 1: 9414 ETON AVE CITY: CHATSWORTH STATE: CA ZIP: 91311 BUSINESS PHONE: 8189988008 10QSB 1 FORM 10QSB FOR THE PERIOD ENDED JUNE 30, 1998 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 June 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 95-4202424 (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 June 30, 1998 Transitional Small Business Disclosure Format (Check one) YES [_] NO [X] PART I. FINANCIAL INFORMATION Item 1. Financial Statements DYCAM INC. BALANCE SHEETS JUNE 30, 1998 AND DECEMBER 31, 1997 ASSETS ------
June 30, 1998 December 31, 1997 Current assets: Cash and cash equivalents $ 269,000 $ 249,000 Accounts receivable, net 168,000 384,000 Inventory 75,000 72,000 Prepaid expenses and other current assets 1,000 0 ------------ ----------- Total current assets 513,000 705,000 Property and equipment, net 160,000 234,000 Deposits 18,000 18,000 ------------ ----------- Total assets $ 691,000 $ 957,000 ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable $ 82,000 $ 130,000 Accrued payroll and related expenses 99,000 78,000 Accrued expenses 97,000 43,000 Total current liabilities 278,000 251,000 ------------ ----------- Commitments Stockholders' equity Common stock (par value $.01) 31,000 31,000 Additional paid in capital 10,710,000 10,710,000 Accumulated deficit (10,128,000) (9,835,000) Note Receivable from Styles (200,000) (200,000) ------------ ----------- Total shareholders' equity 413,000 706,000 ------------ ----------- Total liabilities and shareholders' equity $ 691,000 $ 957,000 ============ ===========
2 DYCAM INC. STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Three Months Ended Six months ended June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997 Revenues Camera Sales $ 261,000 $ 437,000 $ 874,000 $ 792,000 Contract engineering fees $ 95,000 $ 111,000 $ 236,000 $ 139,000 License fees $ 25,000 $ 228,000 $ 50,000 $ 228,000 $ 381,000 $ 776,000 $1,160,000 $1,159,000 ---------- ---------- ---------- ---------- Cost of revenues Camera Sales 155,000 378,000 587,000 646,000 Contract engineering fees 78,000 32,000 160,000 50,000 License fees 233,000 410,000 747,000 696,000 ---------- ---------- ---------- ---------- Gross profit 148,000 366,000 413,000 463,000 ---------- ---------- ---------- ---------- Operating expenses: Selling, general & administrative expenses 242,000 294,000 510,000 638,000 Research and Development 52,000 120,000 116,000 243,000 Depreciation and amortization 42,000 126,000 84,000 247,000 ---------- ---------- ---------- ---------- 336,000 540,000 710,000 1,128,000 Income before Non - operating income and taxes (188,000) (174,000) (297,000) (665,000) Non - operating income 2,000 (6,000) 4,000 24,000 Income (loss) before taxes (186,000) (180,000) (293,000) (641,000) Provision for income taxes 0 0 0 0 ---------- ---------- ---------- ---------- Net income (loss) ($186,000) ($180,000) ($293,000) ($641,000) ========== ========== ========== ========== Net income (loss) per share: ($0.06) ($0.06) ($0.09) ($0.21) Weighted average shares of common stock outstanding 3,120,836 3,120,836 3,120,836 3,120,836
DYCAM INC. STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEAR ENDED 1997 AND SIX MONTHS ENDED JUNE 30, 1998
Common Stock Note Receivable Accumulated Stockholders No. of shares Par value Addtl. pd in Cap. from Styles Deficit Equity ------------- --------- ----------------- --------------- ----------- ------------ Balance, December 31, 1997 3,120,836 31,000 10,710,000 (200,000) (9,835,000) 706,000 Net loss for first six months (293,000) (293,000) --------- ------- ----------- --------- ------------ -------- Balance at June 30, 1998 3,120,836 $31,000 $10,710,000 ($200,000) ($10,128,000) $413,000 ========= ======= =========== ========= ============ ========
DYCAM INC. STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1998 and 1997
June 30, 1998 June 30, 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income ($293,000) ($641,000) --------- --------- Adjustments to reconcile Net Income (loss) to Net Cash provided by (used in) operating activites: Depreciation 84,000 108,000 Amortization of goodwill 0 139,000 Allowance for doubtful accounts Changes in assets and liabilities: (Increase) / decrease in accounts receivable 216,000 18,000 (Increase) / decrease in royalty receivable 0 0 (Increase) / decrease in inventories (3,000) 171,000 (Increase) / decrease in prepaid expenses (1,000) 0 (Increase) / decrease in other current assets 0 40,000 Increase / (decrease) in accounts payable (48,000) 3,000 Increase / (decrease) in accounts payable-intercompany 0 0 Increase / (decrease) in accrued expenses 54,000 8,000 Increase / (decrease) in accrued payroll and related expenses 21,000 19,000 Increase / (decrease) in deferred revenue 0 17,000 Increase / (decrease) in income taxes payable 0 0 --------- --------- Total adjustments 239,000 276,000 --------- --------- Net cash provided by (used in) operating activites 30,000 (118,000) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: (Increase) / decrease in property and equipment (10,000) (19,000) (Increase) / decrease in Note receivable from SOV 0 0 (Increase) / decrease in deposits 0 1,000 --------- --------- Net cash used in investing activites (10,000) (18,000) 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 20,000 (136,000) CASH, BEGINNING BALANCE 249,000 590,000 --------- --------- CASH, ENDING BALANCE $ 269,000 $ 454,000 ========= =========
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 contract agreements, and focused its technology business on the sales of engineering services and licensing agreements. The Company is 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 six months ended June 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 June 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 $120,000. 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 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 $139,000 was recorded for the six months ended June 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 27% of camera sales for the three months ended June 30, 1998. Two customers accounted for 16% and 13% respectively, of camera sales for the six months ended June 30, 1998. No customer accounted for more than 10% of camera sales for the three or six month periods ended June 30, 1997. One customer accounted for $35,000 of contract engineering fees (37% of contract engineering fees) and a different customer accounted for $25,000 of contract engineering fees (26% of contract engineering fees) for the three months ended June 30, 1998. One customer accounted for $90,000 of contract engineering fees (38% of contract engineering fees) and another customer accounted for $68,000 of contract engineering fees (29% of contract engineering fees) for the six months ended June 30, 1998. One customer accounted for $75,000 of contract engineering fees (69% of contract engineering fees) for the three months ended June 30, 1997, and $75,000 of contract engineering fees (54% of contract engineering fees) for the six months ended June 30, 1997. Dycam purchased materials from one vendor for $40,000 and from a different vendor for $53,000, which represented 27% and 15% of all materials purchased during the three months ended June 30, 1998 and 1997, respectively. Substantially all of such purchases are related to standard digital camera products. 7 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 is 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 reflects 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 has been delayed pending the outcome of Styles' Chapter 11 bankruptcy proceedings. Styles currently holds 61% of the Company's common stock, all of which is pledged as collateral for the note underlying the indebtedness. Until such time as the indebtedness is satisfied, voting rights for the pledged stock remains with the Company. Revenues Included in the accompanying June 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 June 30, 1998 consists of the following: Machinery and equipment $292,000 Camera equipment 367,000 Office equipment 119,000 -------- 778,000 Less: accumulated depreciation (618,000) -------- $160,000 ========
8 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 contract 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 on Video ("Styles") filed for protection under Chapter 11 of the U.S. Bankruptcy Court. Styles owns 61% of Dycam's outstanding shares of common stock. Styles is in default on indebtedness owed to Dycam in the amount of approximately $1,100,000. The indebtedness is collateralized by the shares of Dycam common stock owned by Styles. Dycam has the right to exercise all voting rights with respect to such shares as a result of the default. Dycam has entered into an agreement in principle to recover 78% of the shares held by Styles in exchange for the indebtedness owed to Dycam. Certain executive officers of Dycam have agreed to purchase the balance of the Dycam shares. These agreements however, are subject to bankruptcy court approval. 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, the outcome of Styles on Video's bankruptcy proceedings and its related ability to satisfy 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. The Company believes that its existing cash balances and cash flow from operations will be sufficient to meet its cash requirements through December 1998, 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 June 30, 1998 compared to the three months ended June ------------------------------------------------------------------------ 30, 1997 - -------- Total revenues for the three months ended June 30, 1998 were $381,000. Total revenues decreased $395,000 (51%) from revenues of $776,000 for the three months ended June 30, 1997. Revenues from camera sales were $261,000 (69% of total revenue) in the three months ended June 30, 1998 as compared to $437,000 in 1997 (56% of total revenue). Revenues from contract engineering were $95,000 (25% of revenue) in the period as compared to $111,000 (14% of revenue) in the same period of 1997. $25,000 (7% of revenues) of license fee revenues were recognized in the period ended June 30, 1998 as compared to $228,000 (29% of revenues) in the period ended June 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 complementary products such as photo printers and film scanners, and support services to selected targeted markets. Dycam will also continue to increase 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, 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 June 30, 1998 decreased to 39%, compared to 47% in the three months ended June 30, 1997, primarily as a result of the deferred license payment received in the 1997 period. Without the deferred license fee payment, gross profits as a percentage of revenues would have been approximately 37% for the three months ended June 30, 1997. 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 $52,000 for the three months ended June 30, 1998 to $242,000 (64% of revenues) from $294,000 (38% 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 $68,000 to $52,000 (14% of revenues) in the three months ended June 30, 1998 compared to $120,000 (15% 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 essential to maintaining its competitive position, and expects to continue to expend funds in this area. Inventories increased by $3,000 to $75,000 at June 30, 1998 when compared to December 31, 1997. The net loss per common share was ($0.06) for the three months ended June 30, 1998 compared to net loss per common share of ($0.06) for the three months ended June, 1997. Six months ended June 30, 1998 compared to the Six months ended June 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 six month period ended June 30, 1998 were $1,160,000. Total sales increased by $1,000 from $1,559,000 for the period ended June 30, 1997. Gross profits are comprised of revenues less direct costs of products and services. Gross profits as a percentage of revenues decreased to 36% in the first six months of 1998, compared to 40% in the first six 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 32% in the first six 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 10 $128,000 for the first six months of 1998 to $510,000 (44% of revenues) from $638,000 (55% of revenues) for the first six months of 1997. The decrease resulted primarily from decreased headcount and reductions in insurance expenses. Product development expenses decreased $127,000 to $116,000 (10% of revenues) for the six month period compared to $243,000 (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 six months of 1998 were $84,000 as compared to $247,000 in the same period for 1997. Net loss per common share was ($0.09) for the first six months of 1998 and ($0.21) for the first six months of 1997. Liquidity and Capital Resources At June 30, 1998, Dycam had cash and short-term investments on hand of $269,000, an increase of $20,000 from $249,000 at December 31, 1997. Accounts receivable, net of allowance for doubtful accounts, decreased $216,000 during the six months ended June 30, 1998. Current liabilities during the six months ended June 30, 1998 increased by $27,000 to $278,000, primarily as a result of increases in accrued expenses. Dycam's working capital at June 30, 1998 was $235,000 a decrease of $219,000 when compared to $454,000 at December 31, 1997. Working capital decrease was primarily the result of net losses of $293,000. The current ratio at June 30, 1998 was 1.8 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 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 $0 and $17,000 respectively is included in the accompanying 1998 and 1997 statements of operations related to the Styles loan. In the fourth quarter of 1997, Styles on Video ("Styles") filed for protection under Chapter 11 of the U.S. Bankruptcy Court. Styles owns 61% of Dycam's outstanding shares of common stock. Styles is in default on indebtedness owed to Dycam in the amount of approximately $1,100,000. The indebtedness is collateralized by the shares of Dycam common stock owned by Styles. Dycam has the right to exercise all voting rights with respect to such shares as a result of the default. Dycam has entered into an agreement in principle to recover 78% of the shares held by Styles in exchange for the indebtedness owed to Dycam. Certain executive officers of Dycam have agreed to purchase the balance of the Dycam shares for $30,000. These agreements however, are subject to bankruptcy court approval. 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 December 1998, 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 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. August 13, 1998 By: John Edling /s/ John Edling ----------------------- John Edling, Chief Financial Officer 12 EX-27 2 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1997 MAR-01-1998 JUN-30-1998 269,000 0 173,000 5,000 75,000 513,000 778,000 618,000 691,000 278,000 0 0 0 31,000 0 691,000 381,000 381,000 233,000 0 336,000 0 0 (186,000) 0 0 0 0 0 (186,000) (0.06) (0.06)
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