-----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, O+nP+XNN8zwXUM4yIcBmIDsSFM10FT9C9LhBjbmAblfCWIQu5ozN6Fmm7A2daEXR C0woVmEZuCMLDGXQubi61g== 0000350644-00-000003.txt : 20000516 0000350644-00-000003.hdr.sgml : 20000516 ACCESSION NUMBER: 0000350644-00-000003 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: SEC FILE NUMBER: 000-10690 FILM NUMBER: 631099 BUSINESS ADDRESS: STREET 1: 1919 SPRINGDALE RD CITY: CHERRY HILL STATE: NJ ZIP: 08003 BUSINESS PHONE: 6094240068 MAIL ADDRESS: STREET 1: SCIENCE DYNAMICS CORP STREET 2: 1919 SPRINGDALE RD CITY: CHERRY HILL STATE: NJ ZIP: 08003 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, 2000 ------------------ [ ] 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) ( 856 ) 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: 05/15/2000 17,444,151 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, 2000 1 (unaudited) and December 31, 1999 (audited) Consolidated Statements of Operations for three months 2 ended March 31, 2000 (unaudited) and three months ended March 31, 1999 (unaudited) Consolidated Statements of Cash Flows for three months 3 ended March 31, 2000 (unaudited) and three months ended March 31, 1999 (unaudited) Notes to Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 4 - 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 13 Item 2. Changes in Securities 13 Item 3. Defaults upon Senior Securities 13 Item 4. Submission of Matters to Vote of Security Holders 13 Item 5. Other Information 13 Item 6. Exhibits and Reports 13 Item 7. Signatures 14 SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
PART I. FINANCIAL INFORMATION Item 1. Financial Statements: ASSETS March 31 December 31, 2000 1999 Unaudited Audited --------- ------- Current assets: Cash and cash equivalents $ 136,868 $ 674,793 Accounts receivable - trade 654,204 157,040 Accounts receivable - other 50,987 63,677 Inventories 226,666 361,039 Other current assets 76,075 50,185 ----------- ----------- Total current assets 1,144,800 1,306,734 ----------- ----------- Property and equipment, net 394,289 260,543 Deferred income taxes 308,000 308,000 Intangible Assets, net of accumulated amortization of $975,000 in 2000 and $900,000 in 1999. 525,000 600,000 Other assets 131,865 133,776 ----------- ----------- Total assets $ 2,503,954 $ 2,609,053 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Loan Payable $ - $ - Accounts payable 315,263 215,409 Accrued expenses 52,453 424,677 ----------- ----------- Total current liabilities 367,716 640,086 ----------- ----------- Commitments Shareholders' equity - Common stock - .01 par value, 45,000,000 shares authorized, 17,569,951 and 17,286,278 issued 17,444,151 and 17,160,478 outstanding in 2000 and 1999 respectively. 175,700 172,862 Additional paid-in capital 12,707,275 12,556,205 (Deficit) (10,348,904) (10,362,267) ----------- ----------- 2,534,071 2,366,800 Common stock held in treasury, at cost (397,833) (397,833) ----------- ----------- Total shareholders' equity 2,136,238 1,968,967 ----------- ----------- Total liabilities and shareholders' equity $ 2,503,954 $ 2,609,053 =========== ===========
- -1- SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) --------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements(Continued):
Three Months Ended March 31, --------------------------- 2000 1999 ---- ---- NET SALES $1,443,482 $ 767,859 ---------- --------- Operating costs and expenses: Cost of sales 572,042 248,399 Research and development 255,707 317,599 Selling, general and administrative 605,266 561,574 ---------- --------- 1,433,015 1,127,572 ---------- --------- Operating Income/Loss 10,467 (359,713) Other income/expenses: Interest income 2,898 (3,091) ---------- --------- Net Income/Loss $ 13,365 $(362,804) ========== ========= Net Income / (Loss) per common share basic and diluted $ 0.00 $ (0.02) ========== =========
- -2- SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ---------
PART I. FINANCIAL INFORMATION Item 1. Financial Statements(Continued): Three Months Ended March 31 2000 1999 ---- ---- Cash flows from operating activities: Net Income (loss) $ 13,365 $(362,804) -------- --------- Adjustments to reconcile net (loss) to net cash provided by (used for) operating activities: Depreciation 24,509 21,984 Amortization of capitalized software 76,910 34,749 Amortization of Intangible assets 75,000 Changes in operating assets and liabilities: (Increase) decrease in: Accounts receivable (497,164) (311,635) Other receivable 12,689 474,825 Inventories 134,373 23,172 Other current assets (25,890) 16,635 Other assets (98,089) Increase (decrease) in: Accounts Payable and - - accrued expenses (272,368) (239,877) -------- --------- Total adjustments (546,940) (3,236) -------- --------- Net cash provided by (used for) operating activities (533,576) (366,040) -------- --------- Cash flows from investing activities: Purchase of property and equipment - net (158,256) (10,146) -------- --------- Net cash (used) in investing activities (158,256) (10,146) -------- --------- Cash flows from financing activities: - Increase (decrease) in Loan Payable 153,801 Issuance of common stock 153,907 250,000 -------- --------- Net cash provided by financing activities 153,907 403,801 -------- --------- Net increase (decrease) in cash and cash equivalents (537,925) 27,615 Cash and cash equivalents - beginning of period 674,793 32,249 -------- --------- Cash and cash equivalents - end of period $136,868 $ 59,864 ======== =========
- -3- 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 THREE MONTHS ENDED MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999. 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- 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- 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 quarter of 2000 has been an exciting one for SciDyn. Following the success of the launch of our new IntegratorC-2308 at the VON show (Voice on the Net) in San Jose in March we have successfully shipped our first C-2308 Integrators for the new IP Telephony network. In addition, we are currently expanding our distribution network for IP telephony working with Information Technology Services (ITS) a UK based distributor of networking equipment. ITS's customer list includes Vodaphone, EuroBell, National Westminster Bank and British Broadcasting Corporation (BBC). Initial feedback has proven positive. Our supply agreement with our IP Telephony client has moved forward with the insertion of Hewlett Packard as prime procurer of SciDyn's product line for the next generation IP Telephony network. This provides SciDyn with a further distribution arrangement giving SciDyn access to HP's worldwide network of service and provisioning, giving our customer base a strong support network. In addition to the distribution arrangement HP is currently on site in our Cherry Hill facility supervising and maintaining the IP test lab, providing continual support in the development of new applications. Recent work in Hong Kong has opened possibilities 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 range we have been able to promote SciDyn in a far more aggressive manner producing a great deal of initial interest. Over the next eight months, SciDyn plans to introduce several new models into the IntegratorC-2000 gateway family. These 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. An ongoing activity is the development of new capabilities and technology for the IntegratorC-2000 platform. Some of the currently scheduled development efforts include simple network management protocol (SNMP) monitoring and configuration, speech recognition, text to speech capabilities, and dynamic application deployment technology. - -6- 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. 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 markets such as Brazil where SciDyn has shipped in excess of a hundred units over the past year. 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. By selling via the network suppliers, such as Lucent, SciDyn is able to serve a far broader customer base and reach additional markets that would not have been addressable. The first quarter sales of the VFX-250S have been slow moving. 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 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. - -7- 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 company has configured and installed several 432 line Commander ITCS during 1998. 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 12 months. During this year, the Company will be exploring business opportunities with the major telephone companies in providing the Commander II inmate phone control system with call transaction (price per call) programs. 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. We believe the Error Detection and Correction (EDAC) patented algorithm is superior to the presently used Reed-Soloman System, both in cost and capability. 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. 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. - -8- 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. Forward Error Correction Algorithm Target Markets: The requirement for highly reliable, low-overhead, and low-cost Forward Error Correction devices is large. This new FEC algorithm will have increased importance in the emerging 3rd generation wireless market as larger packets of information are sent over the networks; lower FEC overheads will be a requirement of this future market. This will also hold true for the future development of packet-based technology. The following markets are potential users of this new technology: * Wireless handset and wireless network manufacturers, OEM * Cable modem manufacturers, OEM * LAN and WAN product manufacturers, OEM * Digital communication original equipment manufacturers, OEM 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 our next general telco client 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. - -9- IntegratorC-2000(r) Gateway Future Development Future SciDyn development strategies will involve the exploration of new Internet data and telephony standards. SciDyn is positioning 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. Such a standard will open the door for other vendors to develop applications that can reside within a BubbleLINK 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. Results of Operations --------------------- The following table summarizes the basic results of operations for the periods indicated in the Consolidated Statement of Operations. Three Months ended March 31, 2000 compared to the Three Months ended March 31, 1999 (unaudited). Nine Months Ended March 31, 2000 1999 ---- ---- Sales $ 1,443,482 $ 767,859 Net Income / (Loss) 13,365 (362,804) Net Income / (Loss) Per Share $ 0.00 $(0.02) OPERATING EXPENSES PERCENT OF SALES 2000 1999 2000 1999 ---- ---- ---- ---- Cost of Goods Sold $ 572,042 $ 248,399 39.6% 32.4% Research & Development 255,707 317,599 17.8% 41.4% Sales, General & Admin 605,266 561,574 41.9% 73.2% Total Operating Costs and Expenses $1,433,015 $1,127,572 99.3% 147.0% - -10- Sales for the three-month period of 2000 were $1,443,482 an increase of 675,623 from sales of $767,859 in the corresponding period in 1999. This increase was directly attributable to the shipments of our first 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. The business focus has continued undaunted and we believe our strategic implementation plan will launch the Company into achieving significant sales revenue in the upcoming quarters and succeeding years. Cost of Goods sold increased to $572,042 in the first three months of 2000 from $248,399 in the corresponding three-month period of 1999. The increase in the cost of goods sold was directly related to the increase in sales revenue. Research & Development expenses decreased to $255,707 in the first three months of 2000 as compared to $317,599 in the comparable three-month period of 1999. The decrease in research and development expenses during the first three months of 2000 is a combined result of a decrease in engineering consulting services, decreased travel 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 $605,266 in the first three months of 2000, compared to $561,574 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. The major directive is to initiate and promote a full-scale sales and marketing program to bring the company above the radar screen to promote awareness and recognition of SciDyn in the marketplace. 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. LIQUIDITY AND CAPITAL RESOURCES: ------------------------------- Cash and cash equivalents increased to $136,868 for the period ended March 31, 2000 from $674,793 at December 31, 1999. Trade accounts receivable increased to $654,204 for the period ended March 31, 2000 compared to $157,040 at December 31, 1999. Net cash used for operating activities was $533,576 during the three-month period ended March 31, 2000 compared to $366,040 in the corresponding period of 1999. Net cash used for operating activities primarily reflects the increase in accounts receivable, and a decrease in inventory, accounts payable and accrued expenses. Cash used in investing activities was $158,256 for the three-month period ended March 31, 2000 compared to $10,146 in the corresponding period of 1999. The outlay reflects the continual investment in computer related equipment to further development efforts. Cash provided by financing activities in the three-month period ended March 31, 2000, amounted to $153,907, raised through the issuance on Common Stock pursuant to the Company's employee stock option plan. - -11- 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. 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. - -12- 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) Exhibit 27 FDS-Financial Data Schedule (b) Reports on Form 8-K None - -13- 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/ Joy C. Hartman CEO/President May 15, 2000 --------------------- Principal Financial Officer ------------ Joy C. Hartman - -14- EX-27 2 ART. 5 FDS FOR 1ST QTR 10-QSB
5 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 137 0 705 0 227 1145 643 249 2504 368 0 0 0 176 2136 2504 1443 1443 572 572 861 0 3 13 0 13 0 0 0 13 (.00) (.00)
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