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, 2000
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[ ] 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
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(IRS Employer Identification No.)
1919 Springdale Road, Cherry Hill, New Jersey 08003
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(Address of principal executive offices)
( 856 ) 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:
11/14/2000 17,657,916 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.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2000 1
(unaudited) and December 31, 1999 (audited)
Consolidated Statements of Operations for nine months 2
and three months ended September 30, 2000 (unaudited)
and nine months and three months ended September 30,
1999 (unaudited)
Consolidated Statements of Cash Flows for nine months 3
ended September 30, 2000 (unaudited) and nine months
ended September 30, 1999 (unaudited)
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial 4 - 13
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports 14
Item 7. Signatures 15
<PAGE>
<TABLE>
SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
ASSETS
<S> <C> <C>
September 30, December 31,
2000 1999
Unaudited Audited
--------- -------
Current assets:
Cash and cash equivalents $ 906,598 $ 674,793
Accounts receivable - trade 1,800,671 157,040
Accounts receivable - other 74,521 63,677
Inventories 199,041 361,039
Other current assets 134,844 50,185
----------- -----------
Total current assets 3,115,675 1,306,734
----------- -----------
Property and equipment, net 652,308 260,543
Capitalized Software 144,355 -
Deferred income taxes 308,000 308,000
Intangible Assets, net of accumulated
amortization of $1,125,000 in 2000 and
$900,000 in 1999. 375,000 600,000
Other assets 127,376 133,776
----------- -----------
Total assets $ 4,722,714 $ 2,609,053
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligation $ 25,917 $ -
Accounts payable 476,797 215,409
Accrued expenses 110,137 424,677
----------- -----------
Total current liabilities 612,851 640,086
----------- -----------
Long-term portion of capital lease obligation 62,327 -
----------- -----------
Commitments
Shareholders' equity -
Common stock - .01 par value,
45,000,000 shares authorized,
17,783,716 and 17,286,278 issued
17,657,916 and 17,160,478 outstanding
in 2000 and 1999 respectively. 177,837 172,862
Additional paid-in capital 14,275,287 12,556,205
(Deficit) (10,007,755) (10,362,267)
----------- -----------
4,445,369 2,366,800
Common stock held in treasury,
at cost (397,833) (397,833)
----------- -----------
Total shareholders' equity 4,047,536 1,968,967
----------- -----------
Total liabilities and shareholders'
equity $ 4,722,714 $ 2,609,053
=========== ===========
</TABLE>
-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 September 30, Three Months Ended September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $5,178,155 $1,828,559 $1,630,402 $ 620,335
---------- ---------- ---------- ---------
Operating costs and expenses:
Cost of sales 1,807,158 881,072 522,886 447,124
Research and development 883,935 914,677 307,402 298,904
Selling, general
and administrative 2,201,692 1,403,562 792,617 388,281
---------- ---------- ---------- ---------
4,842,785 3,199,311 1,622,905 1,134,309
---------- ---------- ---------- ---------
Operating income (loss) 335,370 (1,370,752) 7,497 (513,974)
Other (expenses):
Interest income 22,044 - 13,606 -
Interest expense (2,902) (8,728) (2,902) (1,823)
---------- ---------- ---------- ---------
Net income (loss) $ 354,512 $(1,379,480) $ 18,201 $(515,797)
========== ========== ========== =========
Net income (loss) per common share $ 0.02 $ (0.08) $ 0.00 $ (0.03)
========== ========== ========== =========
</TABLE>
-2-
<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 September 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 354,512 $(1,379,480)
---------- ----------
Adjustments to reconcile net income (loss)
to net cash used for
operating activities:
Depreciation 99,518 67,748
Amortization of capitalized software - 104,247
Amortization of Intangible assets 225,000 225,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (1,643,631) (227,479)
Other receivable (10,844) 632,677
Inventories 161,998 115,661
Other current assets (84,659) 7,569
Other assets 6,400 (94,268)
Increase (decrease) in:
Advance Deposits - 259,281
Accrued expenses (53,152) (289,093)
---------- ---------
Total adjustments (1,299,370) 801,343
---------- ---------
Net cash used for
operating activities (944,858) (578,137)
---------- ---------
Cash flows from investing activities:
Purchase of property and equipment (399,177) (39,568)
Capitalized software (144,355) -
---------- ---------
Net cash used in investing activities (543,532) (39,568)
---------- ---------
Cash flows from financing activities:
Increase (decrease) in
Payment on capitalized lease (3,862) -
Loan Payable 166,746
Issuance of common stock
and warrants 1,724,057 497,475
---------- ---------
Net cash provided
by financing activities 1,720,195 664,221
---------- ---------
Net increase in
cash and cash equivalents 231,805 46,516
Cash and cash equivalents -
beginning of period 674,793 32,249
---------- ---------
Cash and cash equivalents -
end of period $ 906,598 $ 78,765
========== =========
</TABLE>
-3-
<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, 1999. 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 included for the period ended 9/30/00 and excluded for the period
9/30/99 as they would be anti-dilutive during this period.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 2000 AND
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000.
-4-
<PAGE>
Business Overview
-----------------
Science Dynamics, a designer and manufacturer of intelligent
telecommunications platforms for over twenty years, has been trading
publicly since 1981. In 1996, Science Dynamics acquired Innovative
Communications Technology, Ltd. and refocused the business to take
advantage of emerging packet network markets with a diversified
product line to supplement the company's existing traditional market
products. The company has restructured and repositioned itself to
compete in the new global telecommunications marketplace. In
recognition of this redirection, we adopted a new trademark, SciDyn.
SciDyn is continuing to focus its strategy on becoming a key provider
of enabling technologies required for the convergence of traditional
and new communications media infrastructures.
The global telecommunications industry transformation of shifting
traditional circuit switched traffic such as voice and fax to new
packet based networks is advancing rapidly. The lower cost of
packet-switched networks initially drove this change, however, the
improving quality and reliability of voice over these networks is
accelerating the integration process.
Over the next decade, it is anticipated that a large majority of
voice networks in service today will be replaced by packet
infrastructure. This should provide two major opportunities as the
transition evolves. The first opportunity is a need to bridge the
old circuit switched networks with newer packet based networks. This
challenge demands high quality dependable gateway equipment and
services.
The second opportunity is that new emerging carriers building from
the ground up on these advanced packet based networks require
equipment that can help them offer the services and features that are
currently deployed in the existing circuit switched networks.
Certainly the deciding factor will be up to the public and corporate
users of these networks. Traditional telecom carriers are currently
in an intense battle to keep customers and prevent costly churning of
user accounts. Offering more advanced features with realizable
benefits to the end user is an important element. This will hold
true as packet-based network providers attempt to lure customers to
their new technology. One key factor here is the ability to provide
new features at a faster pace than the competition. Packet based
networks and much of the technology supporting this network rely
more heavily on software driven systems. These systems along with
the inherent ability of these networks to overcome distance and
access to data obstacles means a greater ability to provide features
quickly and more creatively then ever before.
SciDyn's gateway system is based on a unique BubbleLINK(r) software
architecture which allows multiple and varied applications to be
designed and deployed quickly and effectively.
Management believes that current products and development strategy
teamed with SciDyn's strong telecommunications background will provide
a solid product to meet customer needs and the advancements required
for the packet based telecom revolution.
PRODUCTS
--------
IP Telephony
SciDyn's IP Telephony products are designed to enhance the new
operators' abilities to combine the technologies of the new IP based
networks with the traditional feature rich circuit networks without
forfeiting the key functionality of IP network-adaptability.
-5-
<PAGE>
The SciDyn system features a modular architecture that permits our
customers to add new product and service features without significant
cost or development time. Based on publicly available data
provided by large telecommunications service providers, we believe
our modular architecture enables the provision of new and existing
communications services at a lower cost than the provision of
communications services by traditional telephone companies. The IP
Integrator product range addresses the various market segments. The
IntegratorC-2100(r) Series focus is corporate enterprises, the
IntegratorC-2300(r) focus is for large ISPs and Telco Carriers and
the IntergratorC-2500(r) Series focus is intended to address the
needs of PTT/Telco Carriers.
The SciDyn differentiator for the carrier class IP Telephony market
is our proprietary software solution, BubbleLink(r). This software
enhances the IntegratorC-2000(r) series of IP Gateways by providing
functionality, such as easily manipulated voice response announcements
and adaptability, i.e. the integration of third party software
applications quickly and efficiently giving operators the ability to
stay ahead of the competition.
SciDyn offers BubbleLink(r) throughout its current IP Telephony
Gateway product range. This includes our high capacity versatile
IntegratorC-2308(r), which has one of the smallest footprints in the
industry.
The IntegratorC-2500(r) series is capable of housing anywhere from
3360 lines up to over 5,000 lines to meet the largest carrier
requirements.
SciDyn continues to fulfill its first contract for its new C-2308
Integrators. Our supply agreement with Cascadent Communications, Inc.
is moving forward with the insertion of Hewlett Packard as prime
procurer of SciDyn's product line for the next generation IP
Telephony network. To date we have shipped $4,370,520 of the
anticipated $13,000,000 contract.
We are seeking partners to expand our distribution base and are
pursuing prospects in Europe and Asia. In October 2000 Scidyn
signed a distribution agreement with Telecommunications and Security
Systems Limited (TSSL). TSSL will distribute Scidyn's IP Telephony
Gateway products for use in customer projects in China, Philippines
and Malaysia. Continuing business development in the region has
yielded a number of relationships and potential partnerships, which
provide access to key players within each region.
SciDyn plans to introduce several new models into the
IntegratorC-2000 gateway family, as well as, to provide enhancements
to existing software. Future new models will include the
IntegratorC-2312-F high-density gateway products targeted for high
port count, Fax over IP applications, and the R-1000 products targeted
for medium to large-scale enterprises requiring integrated routers.
Some of the currently scheduled development efforts include simple
network management protocol (SNMP) monitoring and configuration which
will be completed by the middle of the fourth quarter, speech
recognition, text to speech capabilities, and dynamic application
deployment technology are scheduled for completion by the end of the
first quarter of 2001.
-6-
<PAGE>
Video over Frame Relay
In 1997 SciDyn launched their new way to carry video conferencing.
The VFX-250S is a hardware based Frame Relay Access Device (FRAD)
designed to carry video streams through the frame relay network. As
the largest data network protocol in the world, frame relay seemed an
obvious choice for adding video connectivity to its wide complement
of features.
Traditionally, video conferencing has been carried via leased lines
or ISDN circuits. In the US market, due to the proliferation of ISDN
availability, video conferencing has been able to take off with a
relatively high growth curve. This is not true in the international
markets where leased lines and ISDN circuits are either not readily
available or prove to be rather costly. Video conferencing suite
manufacturers such as PictureTel, the industry leader, found markets
outside of ISDN enabled networks have proven to be slow and tedious.
By leveraging the proliferation of frame relay networks throughout
the world SciDyn intends to market the VFX-250 products in markets
where ISDN and leased line services are not available. This has
proven very successful in the past in markets such as Brazil.
Recent discussions and visits to China, where three countrywide frame
relay networks are presently under construction, have created
opportunities with all of the new network operators. Trials are
continuing and we continue to anticipate possible business
opportunities in the latter part of 2000 or the early part of 2001.
SciDyn continues to build on the relationships it has developed with
data networking partners and continues to be a component of their
network offering. A recent acquisition of one of our distribution
partners has forced SciDyn to look for alternative distribution
arrangements.
Sales of the VFX-250S have been slow throughout 2000. There are a
number of large-scale projects quoted late last year, which have not
yet been awarded. These include opportunities in China and Russia.
Brazil continues to proceed steadily and is anticipated to provide
sales. With some expected further development of the VFX family and
some investment in the promotion of the product line we continue to
anticipate an overall increase in sales over the next twelve months.
In order to maximize our market potential, Scidyn is working on
making the VFX product interoperable with Sony equipment.
Commander Inmate Telephone Control System (ITCS)
The Commander product lines are based on the Company's new
IntegratorC-2000(r) platform. This open system platform is a
combination of integrated Computer Telephony (CTI) hardware and
software, which can handle thousands of call transactions per hour
and provide correctional facility officials with effective tools to
manage and control inmate telephone calls using the Commander system
software.
The Commander I products are generally wall mounted platforms that
have been designed for the small to mid sized municipal and county
correctional facilities requiring control for up to 40 inmate
telephone lines. The Commander I base system provides telephone
control for 4 lines and can be expanded in 4 line increments. This
modular design provides a cost effective solution with an abundance
of inmate phone control features.
Commander II platforms are generally rack mounted and can house up to
96 inmate telephone lines. Multiple platforms can be daisy-chained
for systems requiring control of more than 96 lines.
The Commander I and II systems can be configured using one or more
AdminManager workstations. The AdminManager provides real-time
administration of the Commander system through an Ethernet Local
Area Network (LAN) or a Wide Area Network (WAN). During this year
the company released a new Commander II AdminManager software module.
This new software module provides the Commander II with a
sophisticated Graphical User Interface (GUI) with new inmate phone
control features. These new features were based on recommendations
by several of the Company's major customers. Additionally, the
Company completed development on the Commander II Voice Recognition
feature. The Company expects to complete the Commander II Integrated
Recording and Inmate debit systems by the second quarter of 2001.
-7-
<PAGE>
The Company continues to explore business opportunities with large
telephone companies in providing the Commander II inmate phone
control system with call transaction (price per call) programs.
Scidyn believes that such a collaboration will allow Scidyn to bid on
much larger projects and open doors to projects to which we were
heretofore precluded from bidding because we could not provide a
complete solution. Such an arrangement would greatly enhance the
Commanders utility in the marketplace, as well as, provide an
additional stream of revenue from an existing product.
Error Correction Algorithm
The Company acquired the "Error Detection and Correction System
for Use with Address Translation Memory Controller" patent, in
exchange for 172,029 shares of common stock then valued at
$100,000. Such patent provides the Company with the ability to
embed in certain technology an error correction method that should
substantially reduce data transmission errors. This correction
device is designed to reduce costly retransmission and can be
utilized across various data transport mediums.
The patent, which we intend to make available to others on a royalty
basis, can be utilized on virtually any data transmitting system,
from fiber optics to satellite transmission. Since both transmitting
and receiving stations must utilize the same algorithm, the Company's
primary task is to initially convince new or redesigned applications
to utilize SciDyn's patent for each end of the application. Scidyn
continues to pursue a third party to undertake the implementation of
this algorithm. If a suitable entity is not found in the near term
to exploit this new technology the carrying value of the patent may
be impaired.
The Patent, which has been issued in the United States with
application in many foreign countries, is for a data transmission
system for use in a mass memory system, which includes an EDAC that
corrects all single component errors and detects all double component
errors. High-speed operation permits use of the EDAC on address and
control lines as well as on data lines. In memory systems, which use
virtual memory addressing, further efficiency and economy is achieved
by incorporating a partial implementation of the EDAC encoding in the
same virtual memory address translation unit in which the virtual
memory address is calculated.
We believe the Error Detection and Correction Device is directly
applicable to SciDyn's business including landline, internet, and
radio frequency uses such as wireless (local area networks) LAN's and
satellite transmissions.
The SciDyn Forward Error Correction algorithm is the first truly new
advancement in the field of digital error detection and correction in
several decades. This algorithm is a class of computable codes that
were previously generally believed not to exist.
At the present time there is one issued patent. There are many
upgrades to the patented material that can be patented that are now
trade secrets. These include both revisions to the algorithm and
implementation approaches.
-8-
<PAGE>
Voice Response System
The Company's Voice Response System (VRS) is an automatic intercept
product designed to provide a cost-effective solution for
implementing announcement capabilities at the central office
location. This product is in the mature stage of the product life
cycle and we anticipate it will be discontinued shortly. A base line
revenue stream will be generated from support of this product.
Future Product Development
To better enable future product development, SciDyn has opened an
Internet development lab in its Cherry Hill facility. This facility
is designed to provide cooperative multi-vendor development as well
as to provide SciDyn with a complete R&D test bed.
Current participants in addition to Cascadent Communications, Inc.,
include Cisco, Hewlett-Packard, Belle Systems, Oracle, Natural
MicroSystems, and ComPro Technology. Utilizing the lab with full
cooperation of the various participants, SciDyn is able to completely
test interoperability across vendor platforms and systems.
The lab is comprised of three major data hubs simulating a live
worldwide data network. Additional network facilities include several
regional and corporate enterprise WAN segments. The major network has
over 800 MBits of bandwidth plus a live data connection to a major
worldwide Internet backbone provider. SciDyn has full access to this
facility and provides full-time development support to all of the
participating vendors. Using this facility, SciDyn can co-develop
applications with major industry leaders.
The lab also provides a showcase to current and potential customers.
It allows a place for customers to present and test new ideas with
the guidance and support of participating industry leaders such as
SciDyn, Cisco, and Hewlett-Packard.
IntegratorC-2000(r) Gateway Future Development
Future SciDyn development strategies will involve the exploration of
new Internet data and telephony standards. SciDyn would like to
position technical staff members on appropriate standards committees.
In addition, SciDyn is investigating the generation of a working
standard to embody the core concepts of BubbleLINK(r). Such a
standard will open the door for other vendors to develop applications
that can reside within a BubbleLINK(r) network. Also under review is
the feasibility of standardizing the Integrator call-processing
engine as a platform-independent means to create and deliver new
services on an IP media gateway.
As new hardware technology becomes available, SciDyn will incorporate
the capabilities of advanced system designs to increase the scope of
the current product. Specifically, SciDyn continues to explore the
integration of a high-density DS3 network interface card. SciDyn will
also continue to explore the creation of new Internet-based service
offerings.
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, 2000 (unaudited) compared to the
Nine Months ended September 30, 1999 (unaudited).
Nine Months Ended
September 30,
2000 1999
---- ----
Sales $ 5,178,155 $ 1,828,559
Net Income (Loss) $ 354,512 $(1,379,480)
Net Income (Loss) Per Share $ 0.02 $(0.08)
OPERATING EXPENSES PERCENT OF SALES
2000 1999 2000 1999
---- ---- ---- ----
Cost of Goods Sold $1,807,158 $ 881,072 35% 48%
Research & Development $ 833,935 $ 914,677 16% 50%
Sales, General & Admin $2,201,692 $1,403,562 43% 77%
Total Operating Costs
and Expenses $4,842,785 $3,199,311 94% 175%
Sales for the nine-month period of 2000 were $5,178,155 an increase of
$3,349,596 from sales of $1,828,559 in the corresponding period in
1999. This increase is directly related to the sales of the
Integrator Series during 2000. The business focus has continued
undaunted to initiate and promote a full-scale sales and marketing
program aimed at obtaining commitments and eventual orders for the
Voice over IP Gateways from those customers who have already
evaluated the IP technology.
Cost of Goods sold increased to $1,807,158 in the first nine months
of 2000 from $881,072 in the corresponding nine-month period of 1999.
The increase in the cost of goods sold was directly related to the
increase in sales revenue. The improvement of the gross margin is
related to the low sales volume and the increase in the unit price
of replacement boards procured at low volumes during 1999.
-10-
<PAGE>
Research & Development expenses decreased to $833,935 in the first
nine months of 2000 as compared to $914,677 in the comparable
nine-month period of 1999. The decrease in research and development
expenses during this period is a combined result of a decrease in
engineering consulting services and related expenses. We believe our
success will depend, in part, on our ability to develop and introduce
new products and enhancements to our existing products. We have
expanded our development team during October 2000 and intend to
continue to make, significant investments in research and development.
Sales, General & Administrative expenses increased to $2,201,692 for
the nine-month period of 2000, compared to $1,403,562 in the
corresponding period of 1999. The primary reason for the increase
is the costs associated with the services of Altus Group, the
Philadelphia based public relations and marketing company, plus
increased presence at industry trade shows, marketing materials,
additional sales people hired during the second and third quarter and
the addition of administrative staff. We expect to incur
substantial expenditures related to sales and marketing activities and
in the expansion of our domestic and international distribution
channels.
Three Months ended September 30, 2000 (unaudited) compared to the
Three Months ended September 30, 1999 (unaudited).
Three Months Ended
September 30,
2000 1999
---- ----
Sales $ 1,630,402 $ 620,335
Net Income (Loss) $ 18,201 $ (515,797)
Net Income (Loss) Per Share $ 0.00 $(0.03)
OPERATING EXPENSES PERCENT OF SALES
2000 1999 2000 1999
---- ---- ---- ----
Cost of Goods Sold $ 522,886 $ 447,124 32% 72%
Research & Development $ 307,402 $ 298,904 19% 48%
Sales, General & Admin $ 792,617 $ 388,281 49% 63%
Total Operating Costs
and Expenses $1,622,905 $1,134,309 100% 183%
-11-
<PAGE>
Cost of Goods sold in the three months ended September 30, 2000 was
$522,886 as compared to $447,124 in the corresponding period of 1999.
The cost of goods sold as a percentage of sales amounted to 32% and
72% for the three months periods ending September 30, 2000 and
September 30, 1999, respectively. The decrease in the cost of sales
as a percentage of sales was due to the low sales volume and the
increase in the unit price of replacement boards procured at low
volumes during 1999.
Research & Development expenses increased from $298,904 in the second
quarter of 1999 to $307,402 in the corresponding quarter of 2000. We
believe our success will depend, in part, on our ability to develop
and introduce new products and enhancements to our existing products.
Due to the technological nature of the Company's business and the
anticipated expansion of its technology into new applications,
management expects continual investment for development and
engineering expenses.
Sales, General & Administrative expenses increased to $792,617 for
the three-month period of 2000, compared to $388,281 in the
corresponding period of 1999. The primary reason for the increase
is the costs associated with the services of Altus Group, the
Philadelphia based public relations and marketing company, plus
increased presence at industry trade shows, marketing materials,
additional sales people hired during the second and third quarter and
the addition of administrative staff. We expect to incur
substantial expenditures related to sales and marketing activities
and in the expansion of our domestic and international distribution
channels.
LIQUIDITY AND CAPITAL RESOURCES:
--------------------------------
Cash and cash equivalents increased to $906,598 for the period ended
September 30, 2000 from $674,793 at December 31, 1999. Net cash used
for operating activities was $944,858 during the nine-month period
ended September 30, 2000 compared to $578,137 in the corresponding
period of 1999.
Cash used in investing activities was $543,532 for the nine-month
period ended September 30, 2000 compared to $39,568 in the
corresponding period of 1999. The outlay reflects the continual
investment in computer related equipment, leasehold improvements,
and further development efforts.
Net cash provided by financing activities was $1,720,195 for the
nine-month period ended September 30, 2000. This amount is related
to the sale of 200,650 common shares at $8.50 per share which netted
$1,570,149, the finders fee from this transaction included the
issuance of 13,115 warrants to purchase common shares. The remaining
increase in financing activities of $153,908 was related to the
exercise of stock options by employees of the Company, offset by
the payment on the capitalized lease.
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<PAGE>
The Company has financed its recent operations with cash from
operations and from the proceeds of private placements of its
securities. We believe that based on our future forecasts relating to
operations along with the commitments received to date the Company
will have sufficient cash to satisfy our estimated cash requirements
for working capital needs. However, SciDyn has committed itself to
developing best-in-class technology to pilot the IP revolution as the
Voice of IP Telephony. Our goal is to act as the catalyst for the
rapid deployment of new voice and data services. To implement our
business strategy the company may require resources greater than our
available cash or than are otherwise available. In such event, the
Company may be required to raise additional capital through equity
financing.
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, and 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
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports
(a) Exibit 27 FDS-Financial Data Schedule
(b) Reports on Form 8-K
None
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<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/ Joy C. Hartman CEO, President and November 14, 2000
--------------------- Director -----------------
Joy C. Hartman
BY: /s/ Robert O'Connor Vice President and November 14, 2000
--------------------- Chief Accounting Officer -----------------
Robert O'Connor
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