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
June 30, 1997
[ ] 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
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(State or other jurisdiction of incorporation or organization)
22-2011859
-------------------------------
(IRS Employer Identification No.)
1919 Springdale Road, Cherry Hill, New Jersey 08003
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(Address of principal executive offices)
( 609 ) 424-0068
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(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:
06/30/97 14,535,649 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 June 30, 1997 1
(unaudited) and December 31, 1996 (audited)
Consolidated Statements of Income (loss) for 2
three months ended June 30, 1997 (unaudited) and
three months ended June 30, 1996 (unaudited)
Consolidated Statements of Cash Flows for 3
three months ended June 30, 1997 (unaudited) and
three months ended June 30, 1996 (unaudited)
Consolidated Statements of Shareholders' Equity 4
for the period ending December 31, 1996 (audited)
and the three months ending June 30, 1997 (unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5 - 7
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 9
Item 6. Exhibits 9
Item 7. Signatures 10
<PAGE>
<TABLE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements:
SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS
June 30 December 31,
1997 1996
Unaudited Audited
--------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 505,208 $ 830,229
Accounts receivable - trade 640,758 87,726
- other 150,000 200,000
Inventories 456,222 581,277
Other current assets 25,467 42,095
------------- -----------
Total current assets 1,777,655 1,741,327
------------- -----------
Property and equipment, net 220,662 208,376
Software development costs, net of
accumulated amortization of $225,868
in 1997 and $173,745 in 1996 296,409 347,489
Deferred income taxes 308,000 308,000
Intangible Assets, net of accumulated
amortization of $150,000 1,350,000 1,500,000
Other assets 41,295 41,295
------------- -----------
Total assets $ 3,994,021 $ 4,146,487
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 374,992 372,913
Accrued expenses, principally
payroll related 69,403 184,702
------------- -----------
Total current liabilities 444,395 557,615
------------- -----------
Long term debt:
Long term debt payable - 500,000
------------- -----------
Total liabilities 444,395 1,057,615
============= ===========
Shareholders' equity -
Common stock - .01 par value,
25,000,000 shares authorized,
14,661,449 and 12,055,861 issued
14,535,649 and 11,930,061 outstanding
in 1997 and 1996 146,614 120,558
Additional paid-in capital 10,166,429 9,615,191
Retained earnings (deficit) (6,365,584) (6,249,045)
------------- -----------
3,947,459 3,486,704
Common stock held in treasury,
at cost (397,833) (397,833)
Total shareholders' equity 3,549,626 3,088,871
------------- -----------
Total liabilities and shareholders'
equity $ 3,994,021 $ 4,146,487
============= ===========
- -1-
</TABLE>
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<TABLE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Continued):
SCIENCE DYNAMICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 2,818,512 $ 1,176,942 $ 1,702,032 $ 628,461
----------- ----------- ----------- -----------
Operating costs and expenses:
Cost of sales 1,323,038 948,042 799,352 435,400
Research and development 404,394 344,641 207,207 164,696
Selling, general
and administrative 1,189,993 1,222,623 603,273 534,967
----------- ----------- ----------- -----------
2,917,424 2,515,306 1,609,832 1,135,063
----------- ----------- ----------- -----------
Operating income (loss) (98,912) (1,338,364) 92,200 (506,602)
Other income (expenses):
Interest and other
investment income 11,774 - 7,780 -
Interest expense (29,401) (26,998) (7,292) (16,815)
----------- ----------- ----------- -----------
Net Income (Loss) $ (116,539) $(1,365,362) $ 92,689 $ (523,417)
=========== =========== =========== ===========
Net Income (Loss) per common share $ (0.01) $ (0.17) $ 0.01 $ (0.07)
=========== =========== =========== ===========
- -2-
</TABLE>
<PAGE>
<TABLE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Continued):
SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss) $ (116,539) $ (1,365,362) $ 92,689 $(523,417)
----------- ------------ ---------- ---------
Adjustments to reconcile
net (loss) to net cash
provided by (used for)
operating activities:
Depreciation 31,420 29,538 15,547 14,771
Amortization of
capitalized software 52,123 91,432 26,062 45,716
Amortization of
Intangible assets 150,000 75,000
Changes in operating assets
and liabilities:
(Increase) decrease in:
Accounts receivable (503,032) 183,378 (447,919) (99,052)
Inventories 125,055 226,697 185,638 (41,346)
Other current assets 16,628 46,648 10,084 33,387
Other assets - 3,915 - 3,912
Increase (decrease) in:
Accounts payable and
accrued expenses (68,954) 278,098 (806,473) 121,427
----------- ------------ ---------- ---------
Total adjustments (196,759) 859,706 (942,060) 78,815
----------- ------------ ---------- ---------
Net cash provided by
(used for) operating
activities (313,298) (505,656) (849,371) (444,602)
----------- ------------ ---------- ---------
Cash flows from investing
activities:
Purchase of property and
equipment - net (11,723) (10,869) (2,187) (2,356)
----------- ------------ ---------- ---------
Net cash (used) in
investing activities (11,723) (10,869) (2,187) (2,356)
----------- ------------ ---------- ---------
Cash flows from financing
activities:
Increase (decrease) in
notes payable - 490,000 - 430,000
Issuance of common stock
and warrants - 11,499 - 11,499
----------- ------------ ---------- ---------
Net cash (used in) provided
by financing activities - 501,499 - 441,499
----------- ------------ ---------- ---------
Net increase (decrease) in
cash and cash equivalents (325,021) (15,026) (851,558) (5,459)
Cash and cash equivalents -
beginning of period 830,229 22,626 1,356,766 13,059
----------- ------------ ---------- ---------
Cash and cash equivalents -
end of period $ 505,208 $ 7,600 $ 505,208 $ 7,600
=========== ============ =========== =========
- -3-
</TABLE>
<PAGE>
<TABLE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Continued):
SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
SIX MONTHS ENDED JUNE 30, 1997
------------------------------
<CAPTION>
Common Stock Additional Retained
------------ Paid-In Earnings
Shares Amount Capital (Deficit) Shares Amount
------ ------ ------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance
December
31, 1995 8,048,778 80,488 6,955,899 (4,630,698) 125,800 $ 397,833
Issuance of common
stock and warrants 2,047,083 20,470 943,019 - - -
Issuance of common
stock for acquisition of
intellectual property 1,500,000 15,000 1,485,000 - - -
Issuance of common
stock to pay note
payable to investment
company 460,000 4,600 231,273 - - -
Net loss - - - (1,618,347) - -
--------- -------- --------- --------- ------- ---------
Balance
December
31, 1996 12,055,861 $ 120,558 $9,615,191 (6,249,045) 125,800 $ 397,833
--------- -------- --------- --------- ------- ---------
Issuance of common
stock to pay
long term debt 2,605,588 26,056 551,238 - - -
Net loss - - - (116,539) - -
--------- -------- --------- --------- ------- ---------
Balance
June
30, 1997 14,661,449 146,614 10,166,429 (6,365,584) 125,800 397,833
--------- -------- --------- --------- ------- ---------
- -4-
</TABLE>
<PAGE>
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 second quarter of 1997 (unaudited) compared to the 1996 quarter
(unaudited).
2nd Qtr. 2nd Qtr.
1997 1996
---- ----
Sales 1,702,032 $628,461
Net Income (Loss) 92,689 (523,417)
Net Income Per Share $ 0.1 $ (0.07)
COSTS & OPERATING EXPENSES PERCENT OF SALES
-------------------------- ----------------
1997 1996 1997 1996
---- ---- ---- ----
Cost of Goods Sold $799,352 $435,400 47.0% 69.3%
Research & Development 207,207 164,696 12.2% 26.2%
Sales, General & Admin. 603,273 534,967 35.4% 85.1%
-------- -------- ----- -----
Total Operating Costs $1,609,832 $1,135,063 94.6% 180.6%
and Expenses
Sales for the second quarter of 1997 were almost triple compared to
the second quarter of 1996. The increase in Sales and Net Income for the
second quarter 1997 was due primarily to increased sales of the Commander
Plus prison inmate phone control systems which included the newly developed
automated operator services software. The Sales and Net Income for the
corresponding quarter 1996 were negatively impacted by the patent
infringement lawsuit instituted by a third party against one of the Company's
adjunct suppliers. Management believes the significant increase reflects the
efforts devoted to increasing its operating efficiencies and focusing its
expertise in developing solutions to satisfy customer requirements on a
timely basis.
- -5-
<PAGE>
The Company has undertaken decisive steps to revitalize its sales
performance, streamline its internal operations and expand its geographic
presence to accommodate future growth.
Cost of Goods sold as a percentage of sales was 47% compared to 69.3%
in the second quarter of 1996. The decrease in the cost of goods percentage
in a horizontal analysis is essentially attributed to the low sales level in
the second quarter of 1996. The increase in absolute dollars is directly
attributable to the volume of sales captured in the second quarter of 1997.
The gross margin of 53% of sales in the six months ending 1997, and the
three months ending June 30, 1997, is a more applicable indicator of a
consistent performance level throughout the first half of 1997.
The Company continually strives to increase its gross margins by
diversifying its product offerings and services and establishing volume
purchasing agreements. The gross margins, however, are continually affected
by changes in business segment mix, product mix, competition and other
external factors.
Research & Development expenses, as a percentage of revenue, decreased
to 12.2% in the second quarter of 1997 compared with 26.2% in the second
quarter 1996. The expenses in absolute dollars increased to $207,207 in
the second quarter 1997, compared to $164,696 in the corresponding quarter
of 1996. This increase in R&D was due in part to the continual development
of new software enhancements to serve our existing markets and developing
new applications for expansion into the international marketplace.
The Company expects R&D expenses will continue to increase in absolute
dollars but may decline as a percentage of revenue. Management believes
that investment in its research and development areas is essential in
maintaining a competitive position in a rapidly changing marketplace.
Sales, General & Administrative expenses, as a percentage of sales,
decreased in the second quarter of 1997 over the same period in 1996, and
represents a 35.4% of sales as compared with 85.1% of sales for the same
period of 1996. The expenses in absolute dollars increased $68,306 in 1997
over the corresponding quarter in 1996. The Company expects to make
additional investments in sales, general and administrative areas to further
develop international markets, introduce products to our existing markets,
to new international markets, and to develop distribution channels on a
global basis.
GENERAL BUSINESS DISCUSSION
- ---------------------------
At the June 17, 1997 stockholders meeting the following items were
approved:
* Directors Elected:
Lyndon A. Keele
Alan C. Bashforth
Joy C. Hartman
Michael Hershey
Ken Ray
- -6-
<PAGE>
* Cosmas and Company were ratified as Independent Auditors for the
1997 fiscal year.
* The change of the corporate name to CI-TECH, INC. was authorized,
The Board of Directors has the consent of the stockholders to choose
another name if the name CI-TECH is not feasible.
An international sales office, CI-TECH (INTERNATIONAL) LTD., has been
established in Kent, England with the charter to service International Sales.
Considerable interest has been received from many foreign companies regarding
the Video-Over-Frame-Relay product. That production ready product is part of
the intellectual property recently acquired from Innovative Communications
Technology, Ltd. The product enables corporate network managers to upgrade
existing Frame Relay Networks to provide cost effective intracompany video
conferencing.
The Company's established website may be visited at www.scidyn.com.
LIQUIDITY AND CAPITAL RESOURCES:
- -------------------------------
Cash and cash equivalents decreased to $505,208 from $830,229 at
December 31, 1996. Cash and cash equivalents consist of cash on deposit and
highly liquid investments with a maturity from date of purchase of 90 days
or less.
The current ratio is 4.0 to 1 at June 30, 1997, compared to 3.1 to 1
at December 31, 1996. The increase is a result of the substantial increase
in trade accounts receivable offset by the decrease in cash and cash
equivalents and the reduction of inventory due to the increased sales
activity.
The long-term debt has been negotiated and converted into equity.
The $500,000 note payable and related interest, which had accrued, was
converted into 2,605,588 of common stock of the Company. Such stock is
subject to the restriction imposed upon affiliates of the Company by the
1933 and 1934 Securities Acts.
Net cash used for operating activities increased $404,769 in the three
months ending June 30, 1997, over the corresponding quarter of 1996. The
primary contributing factor was the increase in accounts receivable offset
by the decrease in inventory and the accrued expenses.
The Company currently believes that the liquidity provided by its
ongoing operations and existing cash and cash equivalents will be sufficient
to meet its projected working capital and capital expenditure requirements
through December 31, 1997.
The opening of the international sales office to pursue worldwide sales
opportunities and forming strategic partnerships to promote our product
lines should facilitate growth in 1997 and beyond. The augmentation of the
Commander series with the introduction of the Commander I, along with
additional Commander system features currently in development should also be
contributing factors to the overall growth strategy.
- -7-
<PAGE>
The Company continues to pursue and investigate opportunities suitable
with its overall business approach and may require the utilization of some
form of financing instrument to realize its growth potential.
Certain statements contained in the 10QSB concerning the Company's
business outlook on future performance and statements concerning assumptions
made or expectations as to any future events, conditions or other matters
are "forward-looking statements" as that term is defined under the Federal
Securities Laws. Forward-looking statements are subject to risks,
uncertainties and other factors, which may cause actual results to differ
materially from those set forth in this report. The Company may encounter
competitive, technological, financial and business challenges making it more
difficult to market its products and services, the impact of which may in
turn affect the Company's results of operations and financial position.
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 neither 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.
Item 3. Defaults Upon Senior Securities
There has been no default of any nature upon any form neither of
senior security nor in payment of interest or sinking or purchase
fund installment with respect to any indebtedness of the registrant,
nor any other form of default upon any financial obligation.
Item 4. Submission of Matters to a Vote of Security Holders
Refer to General Business Discussion in Part 1, Item 2 of this 10-QSB.
Item 5. Other Information
None.
Item 6. Exhibits and Reports
None.
- -9-
<PAGE>
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/ ALAN C. BASHFORTH
---------------------------------
Alan C. Bashforth
President, CEO and Director
By: /s/ JOY C. HARTMAN
---------------------------------
Joy C. Hartman
Executive Vice President,
Chief Financial Officer,
Treasurer and Director
Dated: July 30,1997
- -10-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Apr-01-1997
<PERIOD-END> Jun-30-1997
<CASH> 505
<SECURITIES> 0
<RECEIVABLES> 641
<ALLOWANCES> 0
<INVENTORY> 456
<CURRENT-ASSETS> 1778
<PP&E> 221
<DEPRECIATION> 226
<TOTAL-ASSETS> 3994
<CURRENT-LIABILITIES> 444
<BONDS> 0
<COMMON> 147
0
0
<OTHER-SE> 3550
<TOTAL-LIABILITY-AND-EQUITY> 3994
<SALES> 1702
<TOTAL-REVENUES> 1702
<CGS> 799
<TOTAL-COSTS> 799
<OTHER-EXPENSES> 810
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73
<INCOME-PRETAX> 93
<INCOME-TAX> 0
<INCOME-CONTINUING> 93
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
