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, 1998
------------------
[ ] 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
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(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
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(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:
09/30/98 14,661,449 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
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PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1998 1
(unaudited) and December 31, 1997 (audited)
Consolidated Statements of Operations for nine months 2
and three months ended September 30, 1998 (unaudited)
and nine months and three months ended September 30,
1997 (unaudited)
Consolidated Statements of Cash Flows for nine months 3
and three months ended September 30, 1998 (unaudited)
and nine months and three months ended September 30,
1997 (unaudited)
Consolidated Statements of Shareholders' Equity for 4
the year ended December 31, 1997 (audited) and the
nine months ending September 30, 1998 (unaudited)
Notes to Consolidated Financial Statements 5 - 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports 13
Item 7. Signatures 14
<PAGE>
SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
ASSETS
September 30 December 31,
1998 1997
Unaudited Audited
--------- -------
Current assets:
Cash and cash equivalents $ 17,416 $ 21,181
Accounts receivable - trade 589,906 613,916
Inventories 377,381 322,530
Other current assets 36,844 52,200
------------- -----------
Total current assets 1,021,547 1,009,827
------------- -----------
Property and equipment, net 249,828 220,060
Software development costs, net of
accumulated amortization of $356,176
in 1998 and $277,992 in 1997 165,058 243,243
Deferred income taxes 308,000 308,000
Intangible Assets, net of accumulated
amortization of $525,000 in 1998 and
$300,000 in 1997. 975,000 1,200,000
Other assets 44,936 39,239
------------- -----------
Total assets $ 2,764,369 $ 3,020,369
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 180,521 $ -
Accounts payable 470,175 289,188
Accrued expenses, principally
payroll related 95,993 87,046
------------- -----------
Total current liabilities 746,689 376,234
------------- -----------
Commitments
Shareholders' equity -
Common stock - .01 par value,
45,000,000 shares authorized,
14,661,449 issued and
outstanding in 1998 and 1997
respectively. 146,614 146,614
Additional paid-in capital 10,166,429 10,166,429
Retained earnings (deficit) (7,897,530) (7,271,075)
------------- -----------
2,415,513 3,041,968
Common stock held in treasury,
at cost (397,833) (397,833)
------------- -----------
Total shareholders' equity 2,017,680 2,644,135
------------- -----------
Total liabilities and shareholders'
equity $ 2,764,369 $ 3,020,369
============= ===========
- -1-
<PAGE>
<TABLE>
SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
---------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements(Continued):
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $3,400,297 $3,366,792 $1,074,991 $ 548,280
---------- ---------- ---------- ---------
Operating costs and expenses:
Cost of sales 1,299,739 1,626,411 402,096 303,373
Research and development 954,416 791,169 341,287 386,776
Selling, general
and administrative 1,770,243 1,678,863 527,750 488,870
----------- ---------- ---------- ----------
4,024,398 4,096,443 1,271,133 1,179,019
---------- ---------- ---------- ---------
Operating income (loss) (624,101) (729,651) (196,142) (630,739)
Other income (expenses):
Interest and other
investment income - 15,434 - 3,660
Interest expense (2,354) (29,402) (2,354) -
---------- ---------- ---------- ---------
Net (Loss) $ (626,455) $ (743,619) $ (198,496) $(627,079)
========== ========== ========== =========
Net (Loss) per common share $ (0.04) $ (0.06) $ (0.01) $ (0.05)
========== ========== ========== =========
</TABLE>
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<PAGE>
<TABLE>
SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
---------
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements(Continued):
Nine Months Ended Three Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net (loss) $ (626,455) $(743,619) $(198,496) $ (627,079)
---------- --------- --------- ----------
Adjustments to reconcile
net (loss) to net cash
provided by (used for)
operating activities:
Depreciation 52,981 49,387 20,384 17,967
Amortization of
capitalized software 78,185 78,185 26,062 26,062
Amortization of
Intangible assets 225,000 225,000 75,000 75,000
Other non-cash expense 29,402 -
Changes in operating assets
and liabilities:
(Increase) decrease in:
Accounts receivable 24,010 (337,733) (189,406) 215,299
Other receivable - 200,000 - 150,000
Inventories (54,850) 255,727 175,819 130,672
Other current assets 15,356 5,242 (7,590) (11,386)
Other assets (5,697) (1,462) - (1,462)
Increase (decrease) in:
Accounts payable and
accrued expenses 189,934 (344,223) (80,848) (277,852)
---------- --------- --------- ----------
Total adjustments 524,919 159,525 19,421 324,300
---------- --------- --------- ----------
Net cash provided by
(used for) operating
activities (101,536) (584,094) (179,075) (302,779)
---------- --------- --------- ----------
Cash flows from investing
activities:
Purchase of property and
equipment - net (82,750) (67,738) (7,872) (24,032)
---------- --------- --------- ----------
Net cash (used) in
investing activities (82,750) (67,738) (7,872) (24,032)
---------- --------- --------- ----------
Cash flows from financing
activities:
Proceeds from Note Payable
Net cash (used in) provided
by financing activities 180,521 - 180,521 -
---------- --------- --------- ----------
Net increase (decrease) in
cash and cash equivalents (3,765) (651,832) (6,426) (326,811)
Cash and cash equivalents -
beginning of period 21,181 830,229 23,842 505,208
---------- --------- --------- ----------
Cash and cash equivalents -
end of period 17,416 $ 178,397 17,416 $ 178,397
========== ========= ========= ==========
</TABLE>
- -3-
<PAGE>
<TABLE>
SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
NINE MONTHS ENDED SEPTEMBER 30, 1998
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements(Continued):
Common Stock Additional
------------ Paid-In
Shares Amount Capital (Deficit) Shares Amount
------ ------ ------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
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 and related interest 2,605,588 26,056 551,238 - - -
Net loss - - - (1,022,030) - -
----------- -------- ---------- --------- ------- -------
Balance
December
31, 1997 14,661,449 146,614 10,166,429 (7,271,075) 125,800 397,833
----------- -------- ---------- --------- ------- -------
Net loss - - - (626,455) - -
----------- -------- ---------- --------- ------- -------
Balance
September
30, 1998 14,661,449 $ 146,614 $10,166,429 $ (7,897,530) 125,800 $ 397,833
----------- -------- ---------- --------- ------- -------
</TABLE>
- -4-
<PAGE>
SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
PART I
Item 1. (continued)
Basis of Presentation
---------------------
The unaudited financial statements included in the Form 10-QSB have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-QSB and Item 310(b) of Regulation SB. The
financial information furnished herein reflects all adjustments,
which in the opinion of management are necessary for a fair
presentation of the Company's financial position, the results of
operations and the cash flows for the periods presented.
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles, have been condensed, or omitted, pursuant to
such rules and regulations.
These interim statements should be read in conjunction with the
audited financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997. The Company presumes that users of the interim
financial information herein have read or have access to the audited
financial statements for the preceding fiscal year and that the
adequacy of additional disclosure needed for a fair presentation may
be determined in that context. The results of operations for any
interim period are not necessarily indicative of the results for the
full year.
Income per share
----------------
Per-share data has been computed on the basis of the weighted average
number of shares of common stock outstanding during the periods.
Shares issuable upon exercise of common stock options and warrants
are not included for the periods presented, as they would be
anti-dilutive.
New Accounting Pronouncements
-----------------------------
The Company adopted Statement of Financial Accounting Standards
No. 128,"Earnings Per Share" ("SFAS No. 128") for the year ended
December 31, 1997. SFAS No. 128 requires the Company to change its
method of computing, presenting and disclosing earnings per share
information. Upon adoption, all prior period data presented must be
restated to conform to the provisions of SFAS No. 128. The Company
has presented basic earnings per share. The basic earnings per
common share would be the same as the net loss per share shown in the
Statements of Operations included in Item 1 of Part I of this
Quarterly Report on Form 10-QSB. As the computation of diluted
earnings per common share would be anti-dilutive, the diluted
earnings per common share would be the same as the basic income per
common share.
- -5-
<PAGE>
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes
standards for the reporting and displaying of comprehensive income
and its components (revenues, expenses, gains and losses) in a full
set of general-purpose financial statements. SFAS No. 130 requires
the disclosure of an amount that represents total comprehensive
income and the components of comprehensive income in a financial
statement. The adoption of SFAS No. 130 required no additional
disclosure for the Company and did not have a material effect on the
Company's financial position or results of operations.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS
No. 131"). SFAS No. 131 establishes standards for determining an
entity's operating segments and the type and level of financial
information to be disclosed in both annual and interim financial
statements. SFAS No. 131 also establishes standards for related
disclosures about products and services, geographic areas and
major customers. The pronouncement is effective for periods beginning
after December 15, 1997. The adoption of SFAS No. 131 required no
additional disclosure for the Company and did not have a material
effect on the Company's financial position or results of operations.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998.
Business Overview
-----------------
Science Dynamics Corporation designs, develops and markets a variety
of Telecommunication products and applications, including intelligent
call processing platforms which provide telecommunications service
capabilities to the public switched telephone network. These
platforms are sophisticated software based systems that satisfy a
wide range of computer telephony integration applications.
The VFX-250 product provides users of frame relay with a method of
video conferencing over their existing network at a typically lower
cost than equivalent leased line networks. The VFX-250 is capable of
supporting any continuous data bit-stream traffic over a Frame Relay
network. The system has been successfully tested with the Frame
Relay product lines of leading manufacturers in this field, which
should provide additional opportunities for this technology.
During the third quarter the Company has revised and developed the
VFX product in concert with our customers' requirements. In July,
version 2.1 of the VFX-250S was released, adding more flexibility and
functionality to the existing version 2.0 product. The 2.1 version
includes a number of features to increase flexibility and compatibility
with existing frame relay networks. Among the new features included
in the 2.1 release are an external TT Clock that enables the use of
devices requiring an external clock; the addition of local and remote
- -6-
<PAGE>
loop-back facilities to aid in trouble-shooting network installations;
and changes in internal clock speed and the automatic variable buffer
length. This product has been technologically endorsed, although
the demand ramp-up has been slower than management originally
anticipated.
In a recent independent test of videoconferencing via frame relay
technology equipment, three vendors' products were evaluated and
the results published in the September 15, 1998 issue of Network
Computing Magazine. The Network Computing Editor's Choice was
awarded to the Memotec CX900e system which uses the VFX-250S Frame
Relay Access Device developed by Science Dynamics. This article has
created a market awareness of the Company's VFX product's performance
which management perceives will result in increased sales of this
product in the future.
The Company continues to expend research and continuing development
efforts on this product to further enhance capabilities. Recent
customer feedback has suggested that the Company investigate
development of 'internal' versions of the technology, for inclusion
into several Frame Relay vendor's equipment.
The new COMMANDER II inmate-calling system, which was being tested
at a RBOC technology laboratory, passed all inmate call control,
Windows NT security and call processing thresholds. This product line
acceptance certification allowed the company to enter into a major
purchasing agreement for thirty-seven new COMMANDER II conversion
systems. Additionally, it is anticipated that fifty additional
conversion systems will be ordered during the first half of 1999.
The Company's new Commander I inmate calling system is currently
being tested at a RBOC. It is expected that the Commander I system
will receive full acceptance certification in early December with
delivery by the end of the year.
The Company believes that the new Commander I & II inmate calling
systems which are based on the Company's Integrator-C2000(tm) platform
provide one of the correctional industries finest inmate phone
control systems.
During the third quarter, the world of IP Telephony changed greatly,
as it will continue to change throughout the upcoming months.
Technology that fits in this market is often known as "bleeding edge"
due to the fact that the market is changing so rapidly. Participants
in this market have to put a great deal of development effort in for
possibly little initial return.
The development effort providing Voice over IP based on the
IntegratorC-2000(tm) platform continued in the third quarter.
Currently under development are additional service modules for the
IntegratorC-2000(tm) product including a real-time interface into a
Billing/Debit Based Calling Card Platform. This interface provides a
complete solution for Debit based or Credit based Internet phone
systems. The SS7 Interface will allow an Integrator Gateway to
connect to Carrier networks as an End Office Gateway. The H323
Interface, which has been inaugurated into the platform, allows
interoperability between Gateways of various vendors as well as
desktop clients such as Microsoft(r) NetMeeting.
- -7-
<PAGE>
Additional products in development are a new release of the
Commander Inmate calling platform. This release expands the
capabilities of the Commander system as well as introduces the
AdminManager II, a totally new 32bit Windows NT administration system
for the Commander I and II. Other features of this release include
Recording Interface, Speech Recognition, Increased System Security
and numerous feature enhancements. Another product under development
is the CIMS II, a new Windows NT based system for polling and
administration of Voice Response Intercept Systems.
The Company received notice from the National Association of
Securities Dealers (NASD) that the Company's common stock was
subject to delisting as the stock failed to maintain a closing bid
price greater than or equal to $1.00. The Company has requested and
received approval for a hearing to review the delisting and a
tentative hearing date of December 3, 1998 has been assigned. The
Company is presently formulating a definitive plan to submit to the
Nasdaq Lisiting Qualifications Panel. The Company is working toward
implementing the plan to be able to maintain its Nasdaq listing,
although the Company is unable to predict how Nasdaq will rule at
the hearing. If the plan is denied or a temporary exception is not
granted, the Company's shares may be traded on the OTC Bulletin Board.
Year 2000 Technology
--------------------
The investigation of the Y2000 problem as it affects the Company's
products and internal operations has been ongoing for sometime. The
Company is addressing this issue in a comprehensive manner committing
resources as necessary. The following highlights outline the
Company's Y2000 approach.
PRODUCTS - All current software development for our products is
Year 2000 compliant. Only three of the Company's products are
involved in the Y2000 question with the preponderance of the issues
relegated to suppliers to the Company. Efforts to date have entailed
working with customers to determine if older installations are still
being utilized, i.e., is the unit in service and will it continue to
be in service through December 1999.
SUPPLIERS - The Company is assessing the possible effects on the
Company's operations of Year 2000 compliance related to key suppliers
and subcontractors. The Company has identified three critical
suppliers that could cause significant problems and has requested
information as to their plans and progress in addressing the Year 2000
problem. The Company expects to complete its evaluation of its
suppliers by December 31, 1998. Based upon its evaluations, the
Company will develop alternative sourcing or other contingency plans by
mid-1999. Component suppliers are to follow closely behind the above
effort.
IN-HOUSE SYSTEMS AND SOFTWARE - During Fiscal 1998, for operational
purposes, the Company made the decision to upgrade its internal
financial and operational software systems. The Company has
substantially completed the identification of other internal
computer-based systems it uses which may require upgrading to insure
operational continuity beyond December 31, 1999. The Company plans to
complete such identification, the upgrading of necessary applications
and the testing of all application software for Year 2000 compliance
by December 31, 1998.
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<PAGE>
COSTS - The total cost associated with the Year 2000 issue is not
expected to be material to the Company's financial position. The
Company's current out-of-pocket cost expended to date has been an
immaterial amount. As the upgrade of the Company's internal software
will be done for operational purposes, the cost of such upgrade has
not been included in the Company's estimates.
Results of Operations
---------------------
The following table summarizes the basic results of operations for
the periods indicated in the Consolidated Statement of Operations.
Nine Months ended September 30, 1998 compared to the Nine Months
ended September 30, 1997 (unaudited).
Nine Months Ended
September 30,
1998 1997
---- ----
Sales $3,400,297 $3,366,792
Net Loss (626,455) (743,619)
Net Loss Per Share $(0.04) $(.06)
- -9-
<PAGE>
OPERATING EXPENSES PERCENT OF SALES
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
Cost of Goods Sold $1,299,739 $1,626,411 38.2% 48.3%
Research & Development 954,416 791,169 28.1% 23.5%
Sales, General & Admin 1,770,243 1,678,863 52.1% 49.9%
Total Operating Costs
and Expenses $4,024,398 $4,096,443 118.4% 121.7%
Sales for the nine-month period of 1998 were $3,400,297 an increase
of $33,505 from sales of $3,366,792 in the corresponding period in
1997. The increase in sales revenues was attributable to continuing
sales of the Commander inmate call control systems and initial sales
of the VFX-250S product. The sales of the VFX-250 have been lower
than originally anticipated due to the lack of market awareness of the
product. The press article in the Network Computing Magazine
identifying the product's successful performance and the continual
sales and marketing efforts devoted to the product is expected to
obtain notable improvement in market acceptance resulting in
increased sales.
Management of the Company believes that historically, interim
results and period-to-period comparisons have been neither
predictable nor an accurate measure of the annual performance of the
Company. The Company has experienced a trend of crests and ebbs in
the sales performance resulting from the revenues of the Company
being reliant on a single product area and customer base. This
recognition has been the basis of the diversification strategy of
the Company developing products allowing penetration of new market
opportunities.
Cost of Goods sold decreased to $1,299,739 in the first nine months
of 1998 from $1,626,411 in the corresponding nine-month period of
1997. The decrease in the cost of goods sold is attributable to
maximizing purchasing power through partnerships with selected
vendors.
Research & Development expenses increased to $954,416 in the first
nine months of 1998 as compared to $791,169 in the comparable
nine-month period of 1997. The increased costs are attributable to
the development of new products and enhancements and the reallocation
of duties of certain personnel as the development efforts were
focused to expand our product offerings into the VFX-250 and the IP
Telephony marketplace. The Company's ability to manage any future
growth effectively will require it to prudently invest significant
resources to attract, train, motivate and manage its employees
successfully as the market acceptance of the new product offerings
comes to fruition.
- -9-
<PAGE>
Sales, General & Administrative expenses increased to $1,770,243 in
the first nine months of 1998, compared to $1,678,863 in the
corresponding period of 1997. The increase is related to the
increase in the international sales force and related expenses to
penetrate new sales opportunities.
Interest expenses were incurred as part of the cost of the financing
agreement with The CIT Group/Commercial Services. The agreement, for
a revolving credit facility has provided a solution to cash flow
situations that occur due to the fluctuations in sales revenue.
Three Months ended September 30, 1998 compared to the Three Months
ended September 30, 1997 (unaudited).
For the Quarter Ended
September 30,
1998 1997
---- ----
Sales $1,074,991 $548,280
Net Loss $(198,496) $(627,079)
Net Loss Per Share $(0.01) $(0.05)
OPERATING EXPENSES PERCENT OF SALES
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
Cost of Goods Sold $402,096 $303,373 37.4% 55.3%
Research & Development 341,287 386,776 31.7% 70.5%
Selling, General & Admin 527,750 488,870 49.1% 89.2%
Total Operating Costs
and Expenses $1,271,133 $1,179,019 118.2% 215.0%
Cost of Goods sold in the three months ended September 30, 1998 was
$402,096 as compared to $303,373 in the corresponding period of 1997.
The increase in absolute dollars in the comparative analysis is
directly attributable to the increased sales captured in the third
quarter of 1998. The costs of goods sold as a percentage of sales
amounted to 37.4% and 55.3% for the three months periods ending
September 30, 1998 and September 30, 1997 respectively. The decrease
was due to the increased sales captured in the third quarter of 1998
as well as the continual efforts to increase purchasing power.
Research & Development expenses, as a percentage of revenue, decreased
to 31.7% in the third quarter of 1998 compared with 70.5% in the
third quarter 1997. The expenses in absolute dollars decreased
$45,489 in the third quarter 1998, compared to the corresponding
quarter of 1997. The decrease in the percentage of revenue was due to
the increased sales in the third quarter of 1998. The decrease in
absolute dollars was attributable to a decrease in variable expenses,
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<PAGE>
which occur sporadically from period to period. Due to the
technological nature of the Company's business and the anticipated
expansion of its technology into new applications, management expects
to continue to expend significant resources for continued development
and engineering expenses.
Sales, General & Administrative expenses, as a percentage of sales,
decreased in the third quarter of 1998 over the same period in 1997,
and represents a 49.1% of sales as compared with 89.2% of sales for
the same period of 1997 due to the increased sales revenue in the
third quarter of 1998. The expenses in absolute dollars increased
$38,880 in 1998 over the corresponding quarter in 1997. This increase
was primarily due to advertising and tradeshow expenses to increase
market awareness of the Company's initiatives into the Voice over
IP market.
LIQUIDITY AND CAPITAL RESOURCES:
-------------------------------
Cash and cash equivalents marginally decreased to $17,416 for the
period ended September 30, 1998 from $21,181 at December 31, 1997.
The current ratio is 1.4 to 1 for the period ended September 30, 1998
compared to 2.7 to 1 at December 31, 1997.
Cash used for operations during the nine-month period ended
September 30, 1998 was $101,536 compared to $584,094 in the
corresponding period of 1997. The change was primarily the result of
the increase in accounts payable and accrued expenses in the
nine-month period ended in 1998 compared to a significant decrease in
accounts payable and accrued expenses in the corresponding 1997
period.
Cash used for operations for the three months ended September 30, 1998
amounted to $179,075 compared to cash used in operations of $302,779
for the comparable three months ended September 30, 1997. The
decrease in cash used for operations was primarily due to the
decrease in accounts payable and the increase in the accounts
receivable compared to the significant decrease in accounts payable
and accrued expenses resulting from the collections of accounts
receivable and other receivables during the corresponding period of
1997.
Cash used for investing activities during the nine month period ended
September 30, 1998 amounted to $82,750 compared to $67,738 in the
corresponding nine month period of 1997. The increase reflects the
continual investment in computer related equipment to further
development efforts.
Cash used for investing activities for the three months ended
September 30, 1998 amounted to $7,872 compared to $24,032 in the
comparable period of 1997. The expenditures in both periods were for
development applications for product development and enhancement.
Cash provided by financing activities amounted to $180,521 in the
nine-month period and three-month period ended September 30, 1998.
The increase was the funds provided by the financing arrangement with
CIT to assist in the management of cash flows as necessary.
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<PAGE>
The preliminary financing agreement with CIT was a ninety-day
contract in which all terms were satisfactorily met. The Company is
currently renegotiating a credit vehicle with CIT to subsidize its
future working capital needs to bridge the periods of revenue
fluctuation. Management cannot give assurance as to the success of
these efforts but believes that negotiations will have a positive
outcome.
The Company believes that funds generated by operations and
the additional borrowings that will be available under the credit
facility will be sufficient to meet its current working capital
needs. Management is committed to exploring both product opportunities
and strategic alliances to enable sustained growth to promote
investor interest and confidence.
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.
- -12-
<PAGE>
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
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports
None.
- -13-
<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.
Signature Title Date
--------- ----- ----
By: /s/ Alan C. Bashforth CEO, President, Director November 13, 1998
---------------------
Alan C. Bashforth
By: /s/ Joy C. Hartman Exec. Vice President, CFO, November 13, 1998
--------------------- Treasurer, Secretary and
Joy C. Hartman Director
- -14-
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