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Previous: SANCHEZ O BRIEN OIL & GAS CORP, 10-Q, 1996-11-14 |
Next: BIOSEARCH MEDICAL PRODUCTS INC, 10QSB, 1996-11-14 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly Period Ended
September 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________ to ______________
Commission file number 010690
____________________
Science Dynamics Corporation
-------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware
------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
22-2011859
-------------------------------
(IRS Employer Identification No.)
1919 Springdale Road, Cherry Hill, New Jersey 08003
-----------------------------------------------------
(Address of principal executive offices)
( 609 ) 424-0068
-----------------------------------------------------
(Issuer's telephone number)
N/A
---------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
9/30/96 9,736,728 shares of common stock were outstanding.
<PAGE>
S C I E N C E D Y N A M I C S C O R P O R A T I O N
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance sheets as of September 30, 1
1996 and December 31, 1995
Consolidated Statements of Income (loss) for three 2
months ended September 30, 1996 (unaudited) and three
months ended September 30, 1995
Consolidated Statements of Cash Flows for three 3
months ended September 30, 1996 (unaudited) and three
months ended September 30, 1995
Consolidated Statements of Shareholders' Equity for 4
the period ending September 30, 1996 (unaudited) and
the three months ending December 31, 1995 (audited)
Item 2. Management's Discussion and Analysis of Financial 5 - 7
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceeding 8
Item 2. Changes in Securities 8
Item 3. Defaults upon Senior Securities 8
Item 4. Submission of Matters to Vote of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits 8
Item 7. Signatures 8
<PAGE>
<TABLE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements:
SCIENCE DYNAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS
------
SEPTEMBER 30 DECEMBER 31,
1996 1995
Unaudited Audited
<S> <C> <C>
Current assets:
Cash and cash equivalents $50,567 $22,626
Accounts receivable - trade 528,453 683,642
Accounts receivable - other 500,000
Inventories 1,083,925 1,226,596
Other current assets 129,597 186,816
----------- -------------
Total current assets 2,292,542 2,119,680
----------- -------------
Property and equipment, net 216,088 243,038
Software development costs, net of
accumulated amortization of $526,815
in 1996 and $395,371 in 1995 387,501 518,945
Deferred income taxes 308,000 308,000
Other assets 37,506 39,056
----------- -------------
Total assets $3,241,637 $3,228,719
=========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable - bank $270,000 $280,000
Officers Loans 32,000
Deposits in Advance 6,758
Accounts payable 987,029 742,581
Other payables and accrued expenses,
principally payroll related 354,287 198,282
----------- -------------
Total current liabilities 1,650,074 1,220,863
Long term debt:
Long term debt payable 500,000 -
----------- -------------
Total liabilities 2,150,074 1,220,863
Shareholders' equity -
Common stock - .01 par value,
10,000,000 shares authorized,
9,862,528 and 8,048,778 issued
9,736,728 and 7,922,978 outstanding
in 1996 and 1995 respectively 98,625 80,488
Additional paid-in capital 7,801,261 6,955,899
Retained earnings (deficit) (6,410,490) (4,630,698)
----------- -------------
1,489,396 2,405,689
Common stock held in treasury,
at cost (397,833) (397,833)
----------- -------------
Total shareholders' equity 1,091,563 2,007,856
----------- -------------
Total liabilities and shareholders'
equity $3,241,637 $3,228,719
- -1-
</TABLE>
<PAGE>
<TABLE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Continued):
SCIENCE DYNAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $1,821,298 $5,198,786 $644,356 $2,058,485
---------- ---------- ---------- ----------
Operating costs and expenses:
Cost of sales 1,339,965 2,644,015 391,923 1,422,434
Research and
development 726,776 686,713 382,135 303,258
Selling, general
and administrative 1,471,370 2,212,181 248,747 780,924
---------- ---------- ---------- ----------
3,538,111 5,542,909 1,022,805 2,506,616
---------- ---------- ---------- ----------
Operating income (1,716,813) (344,123) (378,449) (448,131)
(loss)
Other income (expenses):
Interest and other
investment income - - - -
Interest expense (62,979) (54,111) (35,981) (24,880)
---------- ---------- ---------- ----------
Income (loss) before provision
(credit) for income taxes (1,779,792) (398,234) (414,430) (473,011)
Provision (credit) for
income taxes - - - -
---------- ---------- ---------- ----------
Net income (loss) $(1,779,792) $ (398,234) $ (414,430) (473,011)
============ ============= ============ ===========
Net income (loss) per
common share and
common share equivalent $ (0.20) $ (0.05) $ (0.05) $ (0.07)
============ ============= ============ ===========
- -2-
</TABLE>
<PAGE>
<TABLE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Continued):
SCIENCE DYNAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss) $(1,779,792) $(398,234) $(414,430) $(473,011)
------------ ----------- ----------- -----------
Adjustments to reconcile
net income (loss) to net
cash provided by (used
for) operating activities:
Depreciation 42,648 86,744 13,110 11,468
Amortization of
capitalized software 131,444 102,398 40,012 63,090
Changes in operating assets
and liabilities:
(Increase) decrease in:
Accounts receivable 155,189 (70,033) (28,189) 407,083
(Increase) decrease in other
Receivables (500,000) (500,000)
Inventories 142,671 (133,779) (84,026) 122,431
Other current assets 57,219 12,171 10,571 (10,292)
Other assets 1,550 501 (2,365)
Increase (decrease) in:
Accounts payable, other payables,
accrued expenses, customer deposits 407,211 (805,244) (129,113) (277,303)
------------ ----------- ----------- -----------
Total adjustments 437,932 (807,242) (421,774) 316,477
------------ ----------- ----------- -----------
Net cash provided by
(used for) operating
activities (1,341,860) (1,205,476) (836,204) (156,534)
------------ ----------- ----------- -----------
Cash flows from investing
activities:
Capitalized software (83,219) - -
Purchase of property and
equipment - net (15,698) (136,951) (4,829) (99,635)
------------ ----------- ----------- -----------
Net cash (used) in
investing activities (15,698) (220,170) (4,829) (99,635)
------------ ----------- ----------- -----------
Cash flows from financing
activities:
Increase (decrease) in
notes payable 490,000 (141,000) - (62,000)
Increase (decrease)in
Loans Payable 32,000 - - -
Issuance of common stock
and warrants 863,499 1,619,336 852,000 347,530
------------ ----------- ----------- -----------
Net cash (used in) provided
by financing activities 1,385,499 1,478,336 852,000 285,530
------------ ----------- ----------- -----------
Net increase (decrease) in
cash and cash equivalents 27,941 52,690 42,967 29,361
Cash and cash equivalents -
beginning of period 22,626 2,262 7,600 25,591
------------ ----------- ----------- -----------
Cash and cash equivalents -
end of period $50,567 $54,952 50,567 $54,952
============ =========== ============ ===========
- -3-
</TABLE>
<PAGE>
<TABLE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Continued):
SCIENCE DYNAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
NINE MONTHS ENDED SEPTEMBER 30, 1996
<CAPTION>
Common Stock Additional Retained
------------ Paid-In Earnings Treasury Stock
Shares Amount Capital (Deficit) Shares Amount
------ ------ ------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance
December
31, 1994 4,443,274 $44,433 $5,102,544 $(3,695,742) 125,800 $397,833
Common stock
issued 3,605,504 36,055 1,853,355 - - -
Net loss - - - (934,956) - -
--------- -------- --------- ------------ --------- --------
Balance
December
31, 1995 8,048,778 80,488 6,955,899 (4,630,698) 125,800 397,833
Common stock
and warrants
issued to
obtain
financing 1,813,750 18,137 845,362 - - -
Net loss - - - (1,779,792) - -
--------- -------- --------- ------------ --------- --------
Balance
September 30,
1996 9,862,528 $98,625 $7,801,261 $(6,410,490) 125,800 $397,833
========== ======== ========== ============ ========= ========
- -4-
</TABLE>
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis, and Plan of
Operation
SCIENCE DYNAMICS CORPORATION AND SUBSIDIARIES
_____________________________________________
The following table summarizes the basic results of operations during
the third quarter of 1996 compared to the 1995 and 1994 quarters
(unaudited).
3rd Qtr. 3rd Qtr. 3rd Qtr.
1996 1995 1994
---- ---- ----
Sales $644,356 $2,058,485 $1,100,942
Net Income (Loss) $414,430 $ (473,011) $ (421,822)
Net Income Per Share $ (0.05) $ (0.07) $ (0.11)
<TABLE>
<CAPTION>
OPERATING EXPENSES PERCENT OF SALES
------------------ ----------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C>
$ 391,923 $ 1,422,434 $757,549 Cost of Goods Sold 60.8% 69.1% 68.8%
$ 382,135 $ 303,258 $256,997 Research & Development 59.3% 14.7% 23.3%
$ 248,747 $ 780,924 $493,616 Sales, General & Admin. 38.6% 37.9% 44.8%
$ 1,022,805 $ 2,506,616 $1,508,162 Total Operating Costs 158.7% 121.7% 136.0%
and Expenses
</TABLE>
The comparisons of Operating Expenses for third quarter 1996 to 1995 are
shown above. Even though the 1996 third quarter percentages of Operating
Expenses shown seem excessive (e.g. R & D) , the percentages are skewed
because of the low level of sales. The Company's restructuring during 1996 is
beginning to become apparent. The Company changed from a product manufacturing
entity to an O.E.M. product company providing software designs to overlay on
purchased hardware. As a result of this restructuring, the Company has reduced
overhead during 1996, which should have a favorable effect on future
expenditures.
Because the third quarter sales have been reduced to approximately one
third of the sales of the comparable 1995 quarter (primarily as a result of
the Company's inability to ship products utilizing the three-way call
detection system), the operating expense comparisons, both in terms of
dollars and percentages, should be viewed accordingly. The percentages of
each expense category are distorted in comparison to the previous year's
quarter due to the low sales. However, the actual dollars expended for R&D
shows an increase, with sales and general administration reduced as a result
of the Company's previously reported restructuring.
The nine months of 1996 shows a reduction in sales of 35% compared to
1995 sales. Ongoing operating expenses were 65% of the 1995 expenses. For
the nine months 1995-1994 comparison, 1995 sales were increased 45%, with
operating expenses increasing by only 27.7%, compared to 1994.
GENERAL BUSINESS DISCUSSION
- ---------------------------
As can be seen from the low level of sales during the third quarter,
the Company was still suffering from the patent infringement suit lodged
against one of the Company's adjunct suppliers. That supplier, while not
selling directly to SDC, was supplying units to our customers that operated
in conjunction with the Company's Inmate System. The lack of availability
of the 3 way call detection device effectively stopped all sales of SDC's
Inmate System from September 1995 to September 1996. Prison wardens refused
to accept telephone control systems without that fraud detection system.
Upon becoming aware of the suit, the Company began design of the
Company's own 3 way call detection system. The intricacies of the system,
coupled with the necessity of avoiding infringing on outstanding patents,
require a substantial amount of design time and Beta testing with Bell
Operating Companies.
As a subsequent event -- SDC began shipping its new 3 way call detection
system at the end of September and continues shipping during the fourth
quarter. A recent press release stated that the Company has orders and
committments in the amount of four million dollars for the 3 way call
detection system and Inmate systems.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash used in operating activities was $1,341,860 for the nine months
ended September 30, 1996. Negative cash flow from operations was the result
of the Company's net loss of $1,779,792. Trade accounts receivable decreased
by $155,189 from December 31, 1995 reflecting lower shipments for the nine
months ended September 30, 1996. Other receivables increased by $500,000 for
the same period, from the purchase agreement between ICT and SDC.
Cash used in investing activities for 1996 was $15,698 versus $220,170
in 1995. which reflects the constrained purchase of equipment necessary to
increase productivity of personnel.
Cash provided by financing activities was $1,385,499 in 1996 compared to
$1,478,336 in 1995. The cash was generated from the long term debt arrangement
along with the proceeds generated from the sale of the Company's common stock.
Current assets at September 30, 1996 were $2,292,542, 8 % more than
current assets of $2,119,680 in 1995, due primarily to the $500,000 increase
in other receivable, which in turn was offset by the decrease in trade account
receivable and the inventory decrease. Current liabilities at September 30,
1996 were $1,650,074, 35 % more than current liabilities of $1,220,863 in
1995.
COMMENTARY OF 1996 BUSINESS
- ---------------------------
Subsequent Event. A stockholders meeting was conducted on November 7,
1996. The following actions were taken by the stockholders:
1. The acquisition of Innovative Communications Technology, LTD
(ICT) was affirmed.
2. The directors elected were:
Alan Bashforth
Joy Hartman
Lyndon Keele
Kenneth Ray
3. Nemiroff, Cosmas & Company were appointed independent public
auditors for fiscal 1996.
4. The increase in common stock to 25,000,000 shares was authorized.
5. There were insufficient votes on Question Number 2 to provide
a quorum to approve the adoption of Preferred Stock..
6. The Board of Directors elected the following officers to serve
until the next stockholders meeting:
Chairman - Lyndon A. Keele
President and CEO - Alan C. Bashforth
Executive Vice President, Treasurer and Secretary - Joy C. Hartman
Vice President of Sales - Russell R. Angely
Stockholders approved an increase in the authorized common stock to 25
million shares at the Company's annual meeting on November 7, 1996, which
allowed SIDY to consummate the acquisition of Innovative Communications
Technology, LTD. (ICT) ICT is engaged principally in the business of digital
communications. It's products include a Frame Relay System, a File Transfer
System, and a Celerity System. The Frame Relay System enables any digital
data stream, (including audio and video) to be transmitted in packetized form
over dedicated telephone company data circuits, thus allowing intracompany
audio and video conferencing between computer users at any time. The File
Transfer System is designed for use via satellite networks so as to enable
computers to transfer data on a confidential broadcast basis to any one or
multiple addresses simultaneously. This system is compatible with Windows 3.1
(R) and Windows 95(R). The Celerity System design concepts are used to
increase access speed to private data services and the internet.
PART II. OTHER INFORMATION
SCIENCE DYNAMICS CORPORATION AND SUBSIDIARIES
_____________________________________________
Item 1. Legal Proceedings
No material developments.
Item 2. Changes in Securities
There has been no change or modification in the constituent
instruments defining the rights of holders of the corporation's
sole class of registered security nor any modification of the rights
evidenced by such class by issuance or modification of any other
class of securities. Refer to Commentary of 1996 Business on page 7.
Item 3. Defaults Upon Senior Securities
No material developments.
Item 4. Submission of Matters to a Vote of Security Holders
Refer to Commentary of 1996 Business on page 7.
Item 5. Other Information
None.
Item 6. Exhibits and Reports
None.
Item 7. Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, registrant has duly caused this
report to be signed in its behalf by the undersigned thereunto
duly authorized.
SCIENCE DYNAMICS CORPORATION
By: /s/ LYNDON A. KEELE
---------------------------------
Lyndon A. Keele
President, Treasurer and
Director (Principal Executive
and Chief Financial Officer)
By: /s/ JOY C. HARTMAN
---------------------------------
Joy C. Hartman
Executive Vice President and
Director (Principal Accounting
Officer)
Dated: November 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Sep-30-1996
<CASH> 51
<SECURITIES> 0
<RECEIVABLES> 1028
<ALLOWANCES> 0
<INVENTORY> 1083
<CURRENT-ASSETS> 2293
<PP&E> 1221
<DEPRECIATION> 1005
<TOTAL-ASSETS> 3242
<CURRENT-LIABILITIES> 1650
<BONDS> 500
<COMMON> 99
0
0
<OTHER-SE> 1092
<TOTAL-LIABILITY-AND-EQUITY> 3242
<SALES> 1821
<TOTAL-REVENUES> 1821
<CGS> 1340
<TOTAL-COSTS> 1340
<OTHER-EXPENSES> 2198
<LOSS-PROVISION> 1717
<INTEREST-EXPENSE> 63
<INCOME-PRETAX> (1780)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1780)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1780)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
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