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, 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:
08/14/2000 17,783,716 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 June 30, 2000 1
(unaudited) and December 31, 1999 (audited)
Consolidated Statements of Income (loss) for the 2
six months and three months ended June 30, 2000
(unaudited) and the six and three months ended
June 30, 1999 (unaudited)
Consolidated Statements of Cash Flows for six months 3
and Three months ended June 30, 2000 (unaudited) and
for the six and three months ended June 30, 1999
(unaudited)
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial 4-12
Condition and Results of Operations
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>
<TABLE>
SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
ASSETS
<S> <C> <C>
June 30, December 31,
2000 1999
Unaudited Audited
--------- -------
Current assets:
Cash and cash equivalents $ 1,130,534 $ 674,793
Accounts receivable - trade 1,570,817 157,040
Accounts receivable - other 61,715 63,677
Inventories 392,575 361,039
Other current assets 129,250 50,185
----------- -----------
Total current assets 3,284,891 1,306,734
----------- -----------
Property and equipment, net 506,047 260,543
Deferred income taxes 308,000 308,000
Intangible Assets, net of accumulated
amortization of $1,050,000 in 2000 and
$900,000 in 1999. 450,000 600,000
Other assets 129,955 133,776
----------- -----------
Total assets $ 4,678,893 $ 2,609,053
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 566,610 215,409
Accrued expenses 82,177 424,677
----------- -----------
Total current liabilities 648,787 640,086
----------- -----------
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) (10,025,185) (10,362,267)
----------- -----------
4,427,939 2,366,800
Common stock held in treasury,
at cost (397,833) (397,833)
----------- -----------
Total shareholders' equity 4,030,106 1,968,967
----------- -----------
Total liabilities and shareholders'
equity $ 4,678,893 $ 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>
Six Months Ended June 30, Three Months Ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $3,547,753 $1,208,224 $2,104,271 $ 440,365
---------- ---------- ---------- ---------
Operating costs and expenses:
Cost of sales 1,284,270 433,948 712,227 185,549
Research and development 526,534 615,773 270,826 298,174
Selling, general
and administrative 1,408,305 1,015,281 803,039 453,707
---------- ---------- ---------- ---------
3,219,109 2,065,002 1,786,092 937,430
---------- ---------- ---------- ---------
Operating income (loss) 328,644 (856,778) 318,179 (497,065)
Other (expenses):
Interest income 8,438 - 5,540 -
Interest expense - (6,905) - (3,814)
---------- ---------- ---------- ---------
Net income (loss) $ 337,082 $ (863,683) $ 323,719 $(500,879)
========== ========== ========== =========
Net income per share-basic and diluted,
and net loss per common share $ 0.02 $ (0.05) $ 0.02 $ (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):
Six Months Ended June 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 337,082 $(863,683)
---------- ---------
Adjustments to reconcile net income (loss)
to net cash (used for) provided by
operating activities:
Depreciation 59,880 44,630
Amortization of capitalized software - 69,498
Amortization of Intangible assets 150,000 150,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (1,413,777) (61,520)
Other receivable 1,962 458,801
Inventories (31,536) 35,740
Other current assets (79,065) 32,045
Other assets 3,821 (96,179)
Increase (decrease) in:
Accounts Payable and - -
accrued expenses 8,701 (363,040)
---------- ---------
Total adjustments (1,300,014) 269,975
---------- ---------
Net cash provided by (used for)
operating activities (962,932) (593,708)
---------- ---------
Cash flows from investing activities:
Purchase of property and equipment - net (305,384) (19,311)
---------- ---------
Net cash (used) in investing activities (305,384) (19,311)
---------- ---------
Cash flows from financing activities:
Increase (decrease) in
Loan Payable 143,224
Issuance of common stock
and warrants 1,724,057 504,975
---------- ---------
Net cash (used in) provided
by financing activities 1,724,057 648,199
---------- ---------
Net increase (decrease) in
cash and cash equivalents 455,741 35,180
Cash and cash equivalents -
beginning of period 674,793 32,249
---------- ---------
Cash and cash equivalents -
end of period $1,130,534 $ 67,429
========== =========
</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 period.
Common equivalent shares, including warrants and stock options, are
included in the calculation of diluted earnings per common and
common equivalent shares to the extent that they are dilutive and
excluded to the extent they are anti-dilutive.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS FOR SIX MONTHS ENDED JUNE 30, 2000 AND FOR THE THREE
MONTHS ENDED JUNE 30, 2000.
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.
-4-
<PAGE>
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 with Bellcore-level
reliability.
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.
The SciDyn system features a modular architecture that permits our
customers to add new product and service features without extensive
product 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.
-5-
<PAGE>
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. This compact gateway offering provides up to 240 lines
in half the space of its closest competitor.
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.
The first half of 2000 has been an exciting time for SciDyn as we
began to fulfill our first contract for our 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 $3,102,690 of the anticipated $13,000,000
contract. HP remains on site in our Cherry Hill facility supervising
and maintaining the IP test lab, providing continual support in the
development of new applications.
We are seeking partners to expand our distribution base and are
pursuing prospects in Europe and South Africa. We continue to work
in Hong Kong in hopes of gaining access to distribution partners
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.
With the launch and first shipments of our new product we have been
able to promote SciDyn in a far more aggressive manner producing a
great deal of initial interest.
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 beginning of the fourth quarter, speech
recognition, text to speech capabilities, and dynamic application
deployment technology are scheduled for completion by the end of
the year.
Video over Frame Relay
In 1997 SciDyn launched a 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.
-6-
<PAGE>
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.
Canada's Provincial Government of the Northwest Territories (GNWT)
signed a contract with Lucent to supply video conferencing via their
data network over an 18-month period. SciDyn collaborated with
Lucent Technologies to supply our VFX-250 products in 1999.
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 anticipate possible business opportunities in the
latter part of 2000.
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
strong 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, it is planned to have a
combined frame-relay and ISDN interface developed into the product
before the end of the year.
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 during the next 9 months.
-7-
<PAGE>
The Company has begun exploring 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 completed the acquisition of 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. To date
Scidyn has been unable to convince any 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. SciDyn currently has two
efforts already underway. We are working with Cisco to provide
advanced voice applications and with Oracle to create unified
messaging. In addition, efforts to create services with Belle Systems
and ComPro are under investigation.
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 is working with a telecom
hardware vendor on the integration and deployment of a high-density
DS3 network interface card. SciDyn will also be breaking ground in
the creation of new Internet-based service offerings such as Online
Call Forwarding, Reverse dial tone, and Dynamic Network Adaptation.
-9-
<PAGE>
Results of Operations
---------------------
The following table summarizes the basic results of operations for
the periods indicated in the Consolidated Statement of Operations.
Six Months ended June 30, 2000 compared to the Six Months ended
June 30, 1999 (unaudited).
Six Months Ended
June 30,
2000 1999
---- ----
Sales $ 3,547,753 $1,208,224
Net Income / (Loss) 337,082 (863,683)
Net Income / (Loss) Per Share $ 0.02 $(0.05)
OPERATING EXPENSES PERCENT OF SALES
2000 1999 2000 1999
---- ---- ---- ----
Cost of Goods Sold $1,284,270 $ 433,948 36% 36%
Research & Development 526,534 615,773 15% 51%
Sales, General & Admin 1,408,305 1,015,281 40% 84%
Total Operating Costs
and Expenses $3,219,109 $2,065,002 91% 171%
Sales for the six-month period of 2000 were $3,547,753 an increase of
2,339,529 from sales of $1,208,224 in the corresponding period in
1999. This increase was directly attributable to the shipments of
C-2308 Integrators for the new IP Telephony network. Service and
maintenance sales currently make up a small percentage of our net
revenue. We have revamped our service and maintenance department
and we expect the proportion of service and maintenance revenue to
increase in the future. As we continue to initiate further
distribution arrangements we expect to derive an increasing amount
of our revenue from the sale of our products through distribution
channels. Revenue derived from indirect sales typically carries a
lower gross margin than direct sales. As a result, we expect future
fluctuations on our total gross margin in the future.
Cost of Goods sold increased to $1,284,270 in the first six months
of 2000 from $433,948 in the corresponding six-month period of 1999.
The increase in the cost of goods sold was directly related to the
increase in sales revenue.
-10-
<PAGE>
Research & Development expenses decreased to $526,534 in the first
six months of 2000 as compared to $615,773 in the comparable
six-month period of 1999. The decrease in research and development
expenses during the first six months of 2000 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 are currently working on expanding our engineering team
and intend to continue to make significant investments in research
and development.
Sales, General & Administrative expenses increased to $1,408,305 in
the first six months of 2000, compared to $1,015,281 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 and the addition of
administrative staff. We expect to incur substantial expenditures
related to sales and marketing activities, the recruitment of
additional sales and marketing personnel and the expansion of our
domestic and international distribution channels.
Three Months ended June 30, 2000 compared to the Three Months ended
June 30, 1999 (unaudited).
Three Months Ended
June 30,
2000 1999
---- ----
Sales $ 2,104,271 $ 440,365
Net Income / (Loss) 323,719 (500,879)
Net Income / (Loss) Per Share $ 0.02 $(0.03)
OPERATING EXPENSES PERCENT OF SALES
2000 1999 2000 1999
---- ---- ---- ----
Cost of Goods Sold $ 712,227 $ 185,549 34% 42%
Research & Development 270,826 298,174 13% 68%
Sales, General & Admin 803,039 453,707 38% 103%
Total Operating Costs
and Expenses $1,786,092 $ 937,430 85% 213%
-11-
<PAGE>
Sales for the three-month period of 2000 were $2,104,271 an increase
of 1,663,906 from sales of $440,365 in the corresponding period in
1999. This increase was directly attributable to the shipments of
C-2308 Integrators to Cascadent Communications for their new IP
Telephony network. Service and maintenance sales continue to make up
a small percentage of our net revenue. We have revamped our service
and maintenance department and we expect the proportion of service
and maintenance revenue to increase in the future. As we continue to
initiate further distribution arrangements we expect to derive an
increasing amount of our revenue from the sale of our products through
distribution channels. Revenue derived from indirect sales typically
carries a lower gross margin than direct sales. As a result, we
expect future fluctuations on our total gross margin in the future.
Cost of Goods sold in the three months ended June 30, 2000 was
$712,227 as compared to $185,549 in the corresponding period of 1999.
The increase is directly attributable to the increase in sales during
the second quarter of 2000.
Research & Development expenses decreased from $298,174 in the second
quarter of 1999 to $270,826 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.
We are currently working on expanding our engineering team and intend
to continue to make significant investments in research and
development.
Sales, General & Administrative expenses, increased $349,332 in 2000
over the corresponding quarter in 1999. This increase is attributable
to the use of a marketing firm during the second quarter along with
increased presence at trade shows and new administrative hires
during the quarter.
LIQUIDITY AND CAPITAL RESOURCES:
-------------------------------
Cash and cash equivalents increased to $1,130,534 for the period
ended June 30, 2000 from $674,793 at December 31, 1999. Net cash
used for operating activities was $962,932 for the six month period
ended June 30, 2000 compared to $593,708 cash used for operating
activities in the six month period ended June 30, 1999.
Net cash used in investing activities was $305,384 during the
six-month period of 2000 compared to $19,311 in the corresponding
six-month period of 1999.
Net cash provided by financing activities was $1,724,057 for the
six-month period ended June 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.
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.
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<PAGE>
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 positions.
Forward Looking and Cautionary Statements
Except for the historical information and discussions contained
herein, statements contained in this Form 10-QSB may constitute
"forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements involve
a number of risks, uncertainties and other factors that could cause
actual results to differ materially, including the company's failure
to continue to develop and market new and innovative products and
services and to keep pace with technological change; competitive
pressures; failure to obtain or protect intellectual property rights;
issues on the company's business, financial condition or results of
operations; quarterly fluctuations in revenues and volatility of
stock prices; the company's ability to attract and retain key
personnel; currency and customer financing risks; dependence on
certain suppliers; changes in the financial or business condition of
the company's distributors or resellers; the company's ability to
successfully manage acquisitions and alliances; legal, political
and economic changes and other risks, uncertainties and factors
discussed elsewhere in this Form 10-QSB, in the company's other
filings with the Securities and Exchange Commission or in materials
incorporated therein by reference.
PART II.OTHER INFORMATION
SCIENCE DYNAMICS CORPORATION AND SUBSIDIARIES
_____________________________________________
Item 1. Legal Proceedings
No material developments.
Item 2. Changes in Securities
During the three months ended June 30, 2000 the Company sold 200,650
shares of unregistered common stock to 8 accredited investors, as
defined by Rule 501(a) of Regulation D of the Securities Act of 1933,
as amended. The net proceeds from the sale were $1,570,149, which
are being used to meet the working capital needs of the Company.
The shares were subsequently registered on August 10, 2000.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
On June 7, 2000 the Company announced the elevation of
Alan C. Bashforth to chairman of the company's Board of Directors.
Bashforth replaced Lyndon A. Keele, who has retired.
Item 6. Exhibits and Reports
(a) Exhibit 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.
SCIENCE DYNAMICS CORPORATION
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and
on the date indicated.
Signature Title Date
--------- ----- ----
BY: /s/ Robert O'Connor Vice President and August 14, 2000
--------------------- Financial Officer ---------------
Robert O'Connor
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