<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 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]
<PAGE>
 
PART I.   FINANCIAL INFORMATION

Item 1.    Financial Statements


                                  DYCAM INC.

                                BALANCE SHEETS

                      JUNE 30, 1998 AND DECEMBER 31, 1997


                                    ASSETS
                                    ------
<TABLE>
<CAPTION>
                                                                        June 30, 1998     December 31, 1997
    <S>                                                                 <C>               <C>
    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
                                                                         ============           ===========
</TABLE> 

                     LIABILITIES AND STOCKHOLDERS' EQUITY
                     ------------------------------------
<TABLE> 
    <S>                                                                      <C>                   <C>
    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
                                                                         ============           ===========
</TABLE> 

                                       2
<PAGE>
 
                                  DYCAM INC.

                           STATEMENTS OF OPERATIONS

          FOR THE THREE AND SIX MONTHS  ENDED JUNE 30, 1998 AND 1997

<TABLE>
<CAPTION>
                                                               Three Months Ended                    Six months ended

                                                         June 30, 1998     June 30, 1997     June 30, 1998      June 30, 1997
<S>                                                      <C>               <C>               <C>                <C>
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
</TABLE> 
<PAGE>
 
                                  DYCAM INC.

                       STATEMENT OF STOCKHOLDERS' EQUITY

          FOR THE YEAR ENDED 1997 AND SIX MONTHS ENDED JUNE 30, 1998

<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, 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
                                    =========      =======          ===========         =========   ============      ========
</TABLE> 
<PAGE>
 
                                  DYCAM INC.

                            STATEMENT OF CASH FLOWS

                FOR THE SIX MONTHS ENDED JUNE 30, 1998 and 1997

<TABLE>
<CAPTION>
                                                                                               June 30, 1998       June 30, 1997
<S>                                                                                            <C>                 <C>
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
                                                                                                   =========           =========
</TABLE> 
<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 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
<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 $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
<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 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:

<TABLE>
         <S>                                   <C>
         Machinery and equipment               $292,000
         Camera equipment                       367,000
         Office equipment                       119,000
                                               --------
                                                778,000

         Less: accumulated depreciation        (618,000)
                                               --------

                                               $160,000
                                               ========
</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 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
<PAGE>
 
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
<PAGE>
 
$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.

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<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.



August 13, 1998                         By: John Edling


                                        /s/ John Edling
                                        -----------------------
                                        John Edling,
                                        Chief Financial Officer

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