-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WaAdeaLNbUWo5P8fGQbcP7V/iAV9XGgufTfSsRyXekX4J+/0OwE0NR9uoXZPvT6v HhDMDwfesP3uyOYisZTF/Q== 0000350644-97-000006.txt : 19970515 0000350644-97-000006.hdr.sgml : 19970515 ACCESSION NUMBER: 0000350644-97-000006 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCIENCE DYNAMICS CORP CENTRAL INDEX KEY: 0000350644 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 222011859 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-10690 FILM NUMBER: 97603613 BUSINESS ADDRESS: STREET 1: 1919 SPRINGDALE RD CITY: CHERRY HILL STATE: NJ ZIP: 08003 BUSINESS PHONE: 6094240068 10QSB 1 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 March 31, 1997 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from ______________ to ______________ Commission file number 010690 ____________________ Science Dynamics Corporation ------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Delaware ------------------------------------------------------------ (State or other jurisdiction of incorporation or organization) 22-2011859 ------------------------------- (IRS Employer Identification No.) 1919 Springdale Road, Cherry Hill, New Jersey 08003 ----------------------------------------------------- (Address of principal executive offices) ( 609 ) 424-0068 ----------------------------------------------------- (Issuer's telephone number) N/A --------------------------------------------------------------- (Former name, former address, and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 03/31/97 11,930,061 shares of common stock were outstanding. S C I E N C E D Y N A M I C S C O R P O R A T I O N INDEX PAGE NO. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance sheets as of March 31, 1997 and December 31, 1996 1 Consolidated Statements of Income (loss) for three 2 months ended March 31, 1997 (unaudited) and three months ended March 31, 1996 Consolidated Statements of Cash Flows for three 3 months ended March 31, 1997 (unaudited) and three months ended March 31, 1996 Consolidated Statements of Shareholders' Equity 4 for the period ending December 31, 1996 (audited) and the three months ending March 31, 1997 (unaudited) Item 2. Management's Discussion and Analysis of Financial 5 - 7 Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceeding 8 Item 2. Changes in Securities 8 Item 3. Defaults upon Senior Securities 8 Item 4. Submission of Matters to Vote of Security Holders 8 Item 5. Other Information 8 Item 6. Exhibits 8 Item 7. Signatures 9 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements: SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
ASSETS MARCH 31, DECEMBER 31 1997 1996 Unaudited Audited --------- ------- Current assets: Cash and cash equivalents $ 1,356,766 $ 830,229 Accounts receivable - trade 142,839 87,726 - other 200,000 200,000 Inventories 641,860 581,277 Other current assets 35,551 42,095 -------------- --------------- Total current assets 2,377,016 1,741,327 -------------- --------------- Property and equipment, net 202,039 208,376 Software development costs, net of accumulated amortization of $199,806 in 1997 and $173,745 in 1996 321,428 347,489 Deferred income taxes 308,000 308,000 Intangible Assets, net of accumulated amortization of $75,000 1,425,000 1,500,000 Other assets 41,294 41,294 -------------- -------------- Total assets $ 4,674,777 $ 4,146,487 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable 484,433 372,913 Interest payable 70,002 47,892 Deposits in advance 673,141 - Accrued expenses, principally payroll related 67,559 136,810 Current portion of long term debt 100,000 - -------------- -------------- Total current liabilities 1,395,135 557,615 -------------- -------------- Long term debt: Long term debt payable, net of current portion 400,000 500,000 Total liabilities 1,795,135 1,057,615 =============== ============== Shareholders' equity - Common stock - .01 par value, 25,000,000 shares authorized, 12,055,861 issued, 11,930,061 outstanding in 1997 and 1996 120,558 120,558 Additional paid-in capital 9,615,191 9,615,191 Retained earnings (deficit) (6,458,274) (6,249,045) -------------- -------------- 3,277,475 3,486,704 Common stock held in treasury, at cost (397,833) (397,833) Total shareholders' equity 2,879,642 3,088,871 -------------- -------------- Total liabilities and shareholders' equity $ 4,674,777 $ 4,146,486 =============== ============== - -1-
PART 1. FINANCIAL INFORMATION Item 1. Financial Statements (Continued): SCIENCE DYNAMICS CORPORATION CONSOLIDATED STATEMENTS OPERATIONS (UNAUDITED)
Three Months Ended March 31, 1997 1996 ---- ---- NET SALES $ 1,116,480 $ 548,481 ------------ ------------- Operating costs and expenses: Cost of sales 523,686 512,642 Research and development 197,187 179,945 Selling, general and administrative 586,720 687,656 ------------ ------------- 1,307,593 1,380,243 ------------ ------------- Operating income (loss) (191,113) (831,762) Other income (expenses): Interest and other investment income 3,994 - Interest expense (22,110) (10,183) ------------ ------------- Net (loss) $ (209,229) $ (841,945) ============ ============= Net (loss) per common share $ (0.02) $ (0.10) ============ ============= - -2-
PART 1. FINANCIAL INFORMATION Item 1. Financial Statements (Continued): SCIENCE DYNAMICS CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, 1997 1996 ---- ---- Cash flows from operating activities: Net income (loss) $ (209,229) $ (841,945) ------------- ----------- Adjustments to reconcile net (loss) to net cash provided by (used for) operating activities: Depreciation 15,873 14,767 Amortization of capitalized software 26,061 45,716 Amortization of Intangible assets 75,000 Changes in operating assets and liabilities: (Increase) decrease in: Accounts receivable (55,113) 282,430 Inventories (60,583) 268,043 Other current assets 6,544 13,261 Other assets - 3 Increase (decrease) in: Capital lease obligation 6,734 Interest payable 70,002 10,266 Accounts payable, accrued expenses and customer deposits 667,518 139,672 ------------- ----------- Total adjustments 745,302 780,892 ------------- ----------- Net cash provided by (used for) operating activities 536,073 (61,053) ------------- ----------- Cash flows from investing activities: Purchase of property and equipment - net (9,536) (8,513) ------------- ----------- Net cash (used) in investing activities (9,536) (8,513) ------------- ----------- Cash flows from financing activities: Increase (decrease) in notes payable - 60,000 ------------- ----------- Net cash (used in) provided by financing activities - 60,000 ------------- ----------- Net increase (decrease) in cash and cash equivalents 526,537 (9,566) Cash and cash equivalents - beginning of period 830,229 22,626 ------------- ----------- Cash and cash equivalents - end of period $ 1,356,766 $ 13,060 ============ =========== - -3-
PART 1. FINANCIAL INFORMATION Item 1. Financial Statements (Continued): SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1996 AND THREE MONTHS ENDED MARCH 31, 1997 ---------------------------------
Common Stock Additional Retained ------------ Paid-In Earnings Shares Amount Capital (Deficit) Shares Amount ------ ------ ------- --------- ------ ------ Balance December 31, 1995 8,048,778 $ 80,488 $ 6,955,899 $ (4,630,698) 125,800 $ 397,833 Issuance of common stock and warrants 2,047,083 $ 20,467 $ 943,022 $ - - $ - Issuance of common stock for acquisition of intellectual property 1,500,000 $ 15,000 $ 1,485,000 $ - - $ - Issuance of common stock to pay note payable to investment company 460,000 $ 4,600 $ 231,273 $ - - $ - Net loss - $ - $ - $ (1,618,347) - $ - --------- -------- ----------- ------------- ------- ---------- Balance December 31, 1996 12,055,861 $120,555 $ 9,615,194 $ (6,249,045) 125,800 $ 397,833 --------- -------- ----------- ------------- ------- ---------- Net loss - $ - $ - $ (209,229) - $ - --------- -------- ----------- ------------- ------- ---------- Balance March 31, 1997 12,055,861 $120,555 $ 9,615,194 $ (6,458,274) 125,800 $ 397,833 --------- -------- ----------- ------------- ------- ---------- - -4-
Item 2. Management's Discussion and Analysis, and Plan of Operation SCIENCE DYNAMICS CORPORATION AND SUBSIDIARIES _________________________________________ The following table summarizes the basic results of operations during the first quarter of 1997 compared to the 1996 and 1995 quarters (unaudited). 1st Qtr. 1st Qtr. 1st Qtr. 1997 1996 1995 ---- ---- ---- Sales 1,116,480 $548,481 $1,390,806 Net Income (Loss) (209,229) (841,945) 27,327 Net Income Per Share $ (0.02) $ (0.10) $ 0.01 COST & OPERATING EXPENSES PERCENT OF SALES ------------------------- ---------------- 1997 1996 1995 1997 1996 1995 ---- ---- ---- ---- ---- ---- Cost of Goods Sold $523,686 $512,642 $593,225 46.9% 93.5% 42.7% Research & Development 197,187 179,945 138,896 17.7% 32.8% 10.0% Sales, General & Admin. 586,720 687,656 617,351 52.7% 125.4% 44.4% Total Operating Costs and Expenses $1,307,593 $1,380,243 $1,349,472 117.1% 251.6% 97.1% The Company's sales more than doubled over the first quarter sales of 1996, even though the Company's first quarter is historically the lowest of the year's quarters. It should be remembered that the first three quarters of 1996 suffered from the impact of a patent infringement suit against an adjunct supplier. The adjunct supplier provided complementary equipment to the Company's Institutional Inmate System and as part of their settlement such adjunct supplier agreed to stop providing sales of such equipment. The consequent lack of available equipment for a 3-way-call detection system severely constrained the Company's revenue in the first quarter of 1996 while the Company continued the design of its own replacement system. The introduction of the Company's 3-Way Call Detection system in the latter part of 1996 resulted in significant sales revenue for the fourth quarter 1996. This background information is presented to explain the extreme difference in the 1997 and 1996 first quarters. - -5- Cost of Goods Sold at 46.9% of Sales and the resulting 53.1% gross margin is a respectable performance for a software innovator company. The Company's strategy to improve margins includes expanding its product offerings, expand the number of markets in which its products are sold and increasing the volume of existing products. Research and Development costs increased to $197,187 for the first quarter of 1997 as compared to $179,945 in 1996. These expenditures consisted of personnel expenses, independent subcontractors and supplies required to conduct the Company's development efforts. The Company believes that continuing research and development is essential to maintaining a competitive position, and expects to continue to expend funds in this area. Sales, General & Administrative expenses decreased $100,936 for the three months ended March 31, 1997, a decrease of 14.7% over the same period in 1996. This decrease was attributed to an overall effort by management to decrease costs while increasing efficiency. It involved downsizing certain positions whose responsibilities were either reassigned or eliminated consistent with current and future organizational goals. Total Operating Costs were $1,307,593 for the three months ended March 31, 1997 as compared to $1,380,243 in 1996. The decrease was a result of the Company reviewing its infrastructure costs in relation to the redirection strategy and eliminating expenses that would not compromise its core business opportunities. Management believes that the restructuring and redirection of activities have properly positioned the Company for growth. The Company plans to research market opportunities with emphasis to determine the most expeditious means to maximize revenues to a level of profitability in the future. GENERAL BUSINESS DISCUSSION - --------------------------- The Company's focus is to provide open system Computer Telephony Integration (CTI) technologies for data, voice and video transmission. The Company provides an array of products providing intelligent network control and administration, prison inmate telecommunications systems, enhanced network security, interactive communications, call processing and voice response capabilities. Additional product developments are currently underway utilizing the technology acquired from Innovative Technologies Ltd. (ICT) and sales are anticipated from these product offerings in the latter portion of the year. Prototypes of these products have been supplied for beta testing in Europe, with every indication that the trials have been successful leading to deployment. LIQUIDITY AND CAPITAL RESOURCES: - ------------------------------- Cash and cash equivalents at March 31, 1997, increased $526,537 since December 31, 1996. Net cash provided by operating activities was $536,073 compared to cash used for operating activities of $61,053 in the first three months of 1996. The increase was directly attributable to substantial orders - -6- in excess of $1,300,000 received and paid for in March. The Company shipped a portion of these orders during the month with the remaining orders completed subsequent to the quarter ending. Trade accounts receivable increased $55,113 and inventory increased $60,583 over the corresponding quarter in 1996. These increases were offset by the material increase in customer deposits and accounts payable, which resulted from the prepayment of the orders, and the purchase of materials to fill these orders, respectively. The current ratio of 1.7 to 1 at March 31, 1997, compared to 1.4 to l at March 31, 1996, is a result of the Company's substantial increase in its cash position, offset by the customer deposits in advance, and the restatement of the current portion of long-term debt. Based on its current staffing levels and product development schedule, the Company believes that its existing working capital and funds anticipated to be derived from operations will satisfy the Company's projected working capital and capital expenditure requirements through December 31, 1997. Important product initiatives and the expansion of existing products into new markets should be significant contributors to growth in 1997 and beyond. The Company continues to investigate various business arrangements and may require the utilization of some form of financing instrument to realize its expansion. Certain statements contained in this 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. - -7- PART II. OTHER INFORMATION SCIENCE DYNAMICS CORPORATION AND SUBSIDIARIES _____________________________________________ Item 1. Legal Proceedings No material developments. Item 2. Changes in Securities There has been no change or modification in the constituent instruments defining the rights of holders of the corporation's sole class of registered security nor any modification of the rights evidenced by such class by issuance or modification of any other class of securities. Item 3. Defaults Upon Senior Securities There has been no default of any nature upon any form 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. - -8- Item 7. Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, registrant has duly caused this report to be signed in its behalf by the undersigned thereunto duly authorized. SCIENCE DYNAMICS CORPORATION By: /s/ ALAN C. BASHFORTH --------------------------------- Alan C. Bashforth President By: /s/ JOY C. HARTMAN --------------------------------- Joy C. Hartman Executive Vice President, Treasurer and Director (Chief Financial Officer) Dated: May 14,1997 EX-27 2 ARTICLE 5 FIN. DATA SCHEDULE FOR 1ST QTR 10-QSB
5 1,000 3-MOS Dec-31-1997 Jan-01-1997 Mar-31-1997 1357 0 343 0 642 2377 202 321 4675 1395 0 120 0 0 2880 4675 1116 1116 524 524 783 191 22 (209) 0 (209) 0 0 0 (209) (.02) (.02)
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