-----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, Ck8nO+6LgP4Y7GAlCyNjjV6WtV2kl0uBygRYPbLhvIqucqZlZz1XfkoIURRV0bPZ RzeUhO659g+A64jLs8vdJQ== /in/edgar/work/0000350644-00-000007/0000350644-00-000007.txt : 20001115 0000350644-00-000007.hdr.sgml : 20001115 ACCESSION NUMBER: 0000350644-00-000007 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCIENCE DYNAMICS CORP CENTRAL INDEX KEY: 0000350644 STANDARD INDUSTRIAL CLASSIFICATION: [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: 764242 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 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-QSB (Mark One) [x] QUARTERLY REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2000 ------------------ [ ] 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: 11/14/2000 17,657,916 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 September 30, 2000 1 (unaudited) and December 31, 1999 (audited) Consolidated Statements of Operations for nine months 2 and three months ended September 30, 2000 (unaudited) and nine months and three months ended September 30, 1999 (unaudited) Consolidated Statements of Cash Flows for nine months 3 ended September 30, 2000 (unaudited) and nine months ended September 30, 1999 (unaudited) Notes to Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial 4 - 13 Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 2. Changes in Securities 14 Item 3. Defaults upon Senior Securities 14 Item 4. Submission of Matters to Vote of Security Holders 14 Item 5. Other Information 14 Item 6. Exhibits and Reports 14 Item 7. Signatures 15 SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
PART I. FINANCIAL INFORMATION Item 1. Financial Statements: ASSETS September 30, December 31, 2000 1999 Unaudited Audited --------- ------- Current assets: Cash and cash equivalents $ 906,598 $ 674,793 Accounts receivable - trade 1,800,671 157,040 Accounts receivable - other 74,521 63,677 Inventories 199,041 361,039 Other current assets 134,844 50,185 ----------- ----------- Total current assets 3,115,675 1,306,734 ----------- ----------- Property and equipment, net 652,308 260,543 Capitalized Software 144,355 - Deferred income taxes 308,000 308,000 Intangible Assets, net of accumulated amortization of $1,125,000 in 2000 and $900,000 in 1999. 375,000 600,000 Other assets 127,376 133,776 ----------- ----------- Total assets $ 4,722,714 $ 2,609,053 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of capital lease obligation $ 25,917 $ - Accounts payable 476,797 215,409 Accrued expenses 110,137 424,677 ----------- ----------- Total current liabilities 612,851 640,086 ----------- ----------- Long-term portion of capital lease obligation 62,327 - ----------- ----------- Commitments Shareholders' equity - Common stock - .01 par value, 45,000,000 shares authorized, 17,783,716 and 17,286,278 issued 17,657,916 and 17,160,478 outstanding in 2000 and 1999 respectively. 177,837 172,862 Additional paid-in capital 14,275,287 12,556,205 (Deficit) (10,007,755) (10,362,267) ----------- ----------- 4,445,369 2,366,800 Common stock held in treasury, at cost (397,833) (397,833) ----------- ----------- Total shareholders' equity 4,047,536 1,968,967 ----------- ----------- Total liabilities and shareholders' equity $ 4,722,714 $ 2,609,053 =========== ===========
- -1- SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) --------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements(Continued):
Nine Months Ended September 30, Three Months Ended September 30, 2000 1999 2000 1999 ---- ---- ---- ---- NET SALES $5,178,155 $1,828,559 $1,630,402 $ 620,335 ---------- ---------- ---------- --------- Operating costs and expenses: Cost of sales 1,807,158 881,072 522,886 447,124 Research and development 883,935 914,677 307,402 298,904 Selling, general and administrative 2,201,692 1,403,562 792,617 388,281 ---------- ---------- ---------- --------- 4,842,785 3,199,311 1,622,905 1,134,309 ---------- ---------- ---------- --------- Operating income (loss) 335,370 (1,370,752) 7,497 (513,974) Other (expenses): Interest income 22,044 - 13,606 - Interest expense (2,902) (8,728) (2,902) (1,823) ---------- ---------- ---------- --------- Net income (loss) $ 354,512 $(1,379,480) $ 18,201 $(515,797) ========== ========== ========== ========= Net income (loss) per common share $ 0.02 $ (0.08) $ 0.00 $ (0.03) ========== ========== ========== =========
- -2- SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ---------
PART I. FINANCIAL INFORMATION Item 1. Financial Statements(Continued): Nine Months Ended September 30, 2000 1999 ---- ---- Cash flows from operating activities: Net income (loss) $ 354,512 $(1,379,480) ---------- ---------- Adjustments to reconcile net income (loss) to net cash used for operating activities: Depreciation 99,518 67,748 Amortization of capitalized software - 104,247 Amortization of Intangible assets 225,000 225,000 Changes in operating assets and liabilities: (Increase) decrease in: Accounts receivable (1,643,631) (227,479) Other receivable (10,844) 632,677 Inventories 161,998 115,661 Other current assets (84,659) 7,569 Other assets 6,400 (94,268) Increase (decrease) in: Advance Deposits - 259,281 Accrued expenses (53,152) (289,093) ---------- --------- Total adjustments (1,299,370) 801,343 ---------- --------- Net cash used for operating activities (944,858) (578,137) ---------- --------- Cash flows from investing activities: Purchase of property and equipment (399,177) (39,568) Capitalized software (144,355) - ---------- --------- Net cash used in investing activities (543,532) (39,568) ---------- --------- Cash flows from financing activities: Increase (decrease) in Payment on capitalized lease (3,862) - Loan Payable 166,746 Issuance of common stock and warrants 1,724,057 497,475 ---------- --------- Net cash provided by financing activities 1,720,195 664,221 ---------- --------- Net increase in cash and cash equivalents 231,805 46,516 Cash and cash equivalents - beginning of period 674,793 32,249 ---------- --------- Cash and cash equivalents - end of period $ 906,598 $ 78,765 ========== =========
- -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 periods. Shares issuable upon exercise of common stock options and warrants are included for the period ended 9/30/00 and excluded for the period 9/30/99 as they would be anti-dilutive during this period. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 2000 AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000. - -4- Business Overview ----------------- Science Dynamics, a designer and manufacturer of intelligent telecommunications platforms for over twenty years, has been trading publicly since 1981. In 1996, Science Dynamics acquired Innovative Communications Technology, Ltd. and refocused the business to take advantage of emerging packet network markets with a diversified product line to supplement the company's existing traditional market products. The company has restructured and repositioned itself to compete in the new global telecommunications marketplace. In recognition of this redirection, we adopted a new trademark, SciDyn. SciDyn is continuing to focus its strategy on becoming a key provider of enabling technologies required for the convergence of traditional and new communications media infrastructures. The global telecommunications industry transformation of shifting traditional circuit switched traffic such as voice and fax to new packet based networks is advancing rapidly. The lower cost of packet-switched networks initially drove this change, however, the improving quality and reliability of voice over these networks is accelerating the integration process. Over the next decade, it is anticipated that a large majority of voice networks in service today will be replaced by packet infrastructure. This should provide two major opportunities as the transition evolves. The first opportunity is a need to bridge the old circuit switched networks with newer packet based networks. This challenge demands high quality dependable gateway equipment and services. The second opportunity is that new emerging carriers building from the ground up on these advanced packet based networks require equipment that can help them offer the services and features that are currently deployed in the existing circuit switched networks. Certainly the deciding factor will be up to the public and corporate users of these networks. Traditional telecom carriers are currently in an intense battle to keep customers and prevent costly churning of user accounts. Offering more advanced features with realizable benefits to the end user is an important element. This will hold true as packet-based network providers attempt to lure customers to their new technology. One key factor here is the ability to provide new features at a faster pace than the competition. Packet based networks and much of the technology supporting this network rely more heavily on software driven systems. These systems along with the inherent ability of these networks to overcome distance and access to data obstacles means a greater ability to provide features quickly and more creatively then ever before. SciDyn's gateway system is based on a unique BubbleLINK(r) software architecture which allows multiple and varied applications to be designed and deployed quickly and effectively. Management believes that current products and development strategy teamed with SciDyn's strong telecommunications background will provide a solid product to meet customer needs and the advancements required for the packet based telecom revolution. PRODUCTS -------- IP Telephony SciDyn's IP Telephony products are designed to enhance the new operators' abilities to combine the technologies of the new IP based networks with the traditional feature rich circuit networks without forfeiting the key functionality of IP network-adaptability. - -5- The SciDyn system features a modular architecture that permits our customers to add new product and service features without significant cost or development time. Based on publicly available data provided by large telecommunications service providers, we believe our modular architecture enables the provision of new and existing communications services at a lower cost than the provision of communications services by traditional telephone companies. The IP Integrator product range addresses the various market segments. The IntegratorC-2100(r) Series focus is corporate enterprises, the IntegratorC-2300(r) focus is for large ISPs and Telco Carriers and the IntergratorC-2500(r) Series focus is intended to address the needs of PTT/Telco Carriers. The SciDyn differentiator for the carrier class IP Telephony market is our proprietary software solution, BubbleLink(r). This software enhances the IntegratorC-2000(r) series of IP Gateways by providing functionality, such as easily manipulated voice response announcements and adaptability, i.e. the integration of third party software applications quickly and efficiently giving operators the ability to stay ahead of the competition. SciDyn offers BubbleLink(r) throughout its current IP Telephony Gateway product range. This includes our high capacity versatile IntegratorC-2308(r), which has one of the smallest footprints in the industry. The IntegratorC-2500(r) series is capable of housing anywhere from 3360 lines up to over 5,000 lines to meet the largest carrier requirements. SciDyn continues to fulfill its first contract for its new C-2308 Integrators. Our supply agreement with Cascadent Communications, Inc. is moving forward with the insertion of Hewlett Packard as prime procurer of SciDyn's product line for the next generation IP Telephony network. To date we have shipped $4,370,520 of the anticipated $13,000,000 contract. We are seeking partners to expand our distribution base and are pursuing prospects in Europe and Asia. In October 2000 Scidyn signed a distribution agreement with Telecommunications and Security Systems Limited (TSSL). TSSL will distribute Scidyn's IP Telephony Gateway products for use in customer projects in China, Philippines and Malaysia. Continuing business development in the region has yielded a number of relationships and potential partnerships, which provide access to key players within each region. SciDyn plans to introduce several new models into the IntegratorC-2000 gateway family, as well as, to provide enhancements to existing software. Future new models will include the IntegratorC-2312-F high-density gateway products targeted for high port count, Fax over IP applications, and the R-1000 products targeted for medium to large-scale enterprises requiring integrated routers. Some of the currently scheduled development efforts include simple network management protocol (SNMP) monitoring and configuration which will be completed by the middle of the fourth quarter, speech recognition, text to speech capabilities, and dynamic application deployment technology are scheduled for completion by the end of the first quarter of 2001. - -6- Video over Frame Relay In 1997 SciDyn launched their new way to carry video conferencing. The VFX-250S is a hardware based Frame Relay Access Device (FRAD) designed to carry video streams through the frame relay network. As the largest data network protocol in the world, frame relay seemed an obvious choice for adding video connectivity to its wide complement of features. Traditionally, video conferencing has been carried via leased lines or ISDN circuits. In the US market, due to the proliferation of ISDN availability, video conferencing has been able to take off with a relatively high growth curve. This is not true in the international markets where leased lines and ISDN circuits are either not readily available or prove to be rather costly. Video conferencing suite manufacturers such as PictureTel, the industry leader, found markets outside of ISDN enabled networks have proven to be slow and tedious. By leveraging the proliferation of frame relay networks throughout the world SciDyn intends to market the VFX-250 products in markets where ISDN and leased line services are not available. This has proven very successful in the past in markets such as Brazil. Recent discussions and visits to China, where three countrywide frame relay networks are presently under construction, have created opportunities with all of the new network operators. Trials are continuing and we continue to anticipate possible business opportunities in the latter part of 2000 or the early part of 2001. SciDyn continues to build on the relationships it has developed with data networking partners and continues to be a component of their network offering. A recent acquisition of one of our distribution partners has forced SciDyn to look for alternative distribution arrangements. Sales of the VFX-250S have been slow throughout 2000. There are a number of large-scale projects quoted late last year, which have not yet been awarded. These include opportunities in China and Russia. Brazil continues to proceed steadily and is anticipated to provide sales. With some expected further development of the VFX family and some investment in the promotion of the product line we continue to anticipate an overall increase in sales over the next twelve months. In order to maximize our market potential, Scidyn is working on making the VFX product interoperable with Sony equipment. Commander Inmate Telephone Control System (ITCS) The Commander product lines are based on the Company's new IntegratorC-2000(r) platform. This open system platform is a combination of integrated Computer Telephony (CTI) hardware and software, which can handle thousands of call transactions per hour and provide correctional facility officials with effective tools to manage and control inmate telephone calls using the Commander system software. The Commander I products are generally wall mounted platforms that have been designed for the small to mid sized municipal and county correctional facilities requiring control for up to 40 inmate telephone lines. The Commander I base system provides telephone control for 4 lines and can be expanded in 4 line increments. This modular design provides a cost effective solution with an abundance of inmate phone control features. Commander II platforms are generally rack mounted and can house up to 96 inmate telephone lines. Multiple platforms can be daisy-chained for systems requiring control of more than 96 lines. The Commander I and II systems can be configured using one or more AdminManager workstations. The AdminManager provides real-time administration of the Commander system through an Ethernet Local Area Network (LAN) or a Wide Area Network (WAN). During this year the company released a new Commander II AdminManager software module. This new software module provides the Commander II with a sophisticated Graphical User Interface (GUI) with new inmate phone control features. These new features were based on recommendations by several of the Company's major customers. Additionally, the Company completed development on the Commander II Voice Recognition feature. The Company expects to complete the Commander II Integrated Recording and Inmate debit systems by the second quarter of 2001. - -7- The Company continues to explore business opportunities with large telephone companies in providing the Commander II inmate phone control system with call transaction (price per call) programs. Scidyn believes that such a collaboration will allow Scidyn to bid on much larger projects and open doors to projects to which we were heretofore precluded from bidding because we could not provide a complete solution. Such an arrangement would greatly enhance the Commanders utility in the marketplace, as well as, provide an additional stream of revenue from an existing product. Error Correction Algorithm The Company acquired the "Error Detection and Correction System for Use with Address Translation Memory Controller" patent, in exchange for 172,029 shares of common stock then valued at $100,000. Such patent provides the Company with the ability to embed in certain technology an error correction method that should substantially reduce data transmission errors. This correction device is designed to reduce costly retransmission and can be utilized across various data transport mediums. The patent, which we intend to make available to others on a royalty basis, can be utilized on virtually any data transmitting system, from fiber optics to satellite transmission. Since both transmitting and receiving stations must utilize the same algorithm, the Company's primary task is to initially convince new or redesigned applications to utilize SciDyn's patent for each end of the application. Scidyn continues to pursue a third party to undertake the implementation of this algorithm. If a suitable entity is not found in the near term to exploit this new technology the carrying value of the patent may be impaired. The Patent, which has been issued in the United States with application in many foreign countries, is for a data transmission system for use in a mass memory system, which includes an EDAC that corrects all single component errors and detects all double component errors. High-speed operation permits use of the EDAC on address and control lines as well as on data lines. In memory systems, which use virtual memory addressing, further efficiency and economy is achieved by incorporating a partial implementation of the EDAC encoding in the same virtual memory address translation unit in which the virtual memory address is calculated. We believe the Error Detection and Correction Device is directly applicable to SciDyn's business including landline, internet, and radio frequency uses such as wireless (local area networks) LAN's and satellite transmissions. The SciDyn Forward Error Correction algorithm is the first truly new advancement in the field of digital error detection and correction in several decades. This algorithm is a class of computable codes that were previously generally believed not to exist. At the present time there is one issued patent. There are many upgrades to the patented material that can be patented that are now trade secrets. These include both revisions to the algorithm and implementation approaches. - -8- Voice Response System The Company's Voice Response System (VRS) is an automatic intercept product designed to provide a cost-effective solution for implementing announcement capabilities at the central office location. This product is in the mature stage of the product life cycle and we anticipate it will be discontinued shortly. A base line revenue stream will be generated from support of this product. Future Product Development To better enable future product development, SciDyn has opened an Internet development lab in its Cherry Hill facility. This facility is designed to provide cooperative multi-vendor development as well as to provide SciDyn with a complete R&D test bed. Current participants in addition to Cascadent Communications, Inc., include Cisco, Hewlett-Packard, Belle Systems, Oracle, Natural MicroSystems, and ComPro Technology. Utilizing the lab with full cooperation of the various participants, SciDyn is able to completely test interoperability across vendor platforms and systems. The lab is comprised of three major data hubs simulating a live worldwide data network. Additional network facilities include several regional and corporate enterprise WAN segments. The major network has over 800 MBits of bandwidth plus a live data connection to a major worldwide Internet backbone provider. SciDyn has full access to this facility and provides full-time development support to all of the participating vendors. Using this facility, SciDyn can co-develop applications with major industry leaders. The lab also provides a showcase to current and potential customers. It allows a place for customers to present and test new ideas with the guidance and support of participating industry leaders such as SciDyn, Cisco, and Hewlett-Packard. IntegratorC-2000(r) Gateway Future Development Future SciDyn development strategies will involve the exploration of new Internet data and telephony standards. SciDyn would like to position technical staff members on appropriate standards committees. In addition, SciDyn is investigating the generation of a working standard to embody the core concepts of BubbleLINK(r). Such a standard will open the door for other vendors to develop applications that can reside within a BubbleLINK(r) network. Also under review is the feasibility of standardizing the Integrator call-processing engine as a platform-independent means to create and deliver new services on an IP media gateway. As new hardware technology becomes available, SciDyn will incorporate the capabilities of advanced system designs to increase the scope of the current product. Specifically, SciDyn continues to explore the integration of a high-density DS3 network interface card. SciDyn will also continue to explore the creation of new Internet-based service offerings. Results of Operations --------------------- The following table summarizes the basic results of operations for the periods indicated in the Consolidated Statement of Operations. Nine Months ended September 30, 2000 (unaudited) compared to the Nine Months ended September 30, 1999 (unaudited). Nine Months Ended September 30, 2000 1999 ---- ---- Sales $ 5,178,155 $ 1,828,559 Net Income (Loss) $ 354,512 $(1,379,480) Net Income (Loss) Per Share $ 0.02 $(0.08) OPERATING EXPENSES PERCENT OF SALES 2000 1999 2000 1999 ---- ---- ---- ---- Cost of Goods Sold $1,807,158 $ 881,072 35% 48% Research & Development $ 833,935 $ 914,677 16% 50% Sales, General & Admin $2,201,692 $1,403,562 43% 77% Total Operating Costs and Expenses $4,842,785 $3,199,311 94% 175% Sales for the nine-month period of 2000 were $5,178,155 an increase of $3,349,596 from sales of $1,828,559 in the corresponding period in 1999. This increase is directly related to the sales of the Integrator Series during 2000. The business focus has continued undaunted to initiate and promote a full-scale sales and marketing program aimed at obtaining commitments and eventual orders for the Voice over IP Gateways from those customers who have already evaluated the IP technology. Cost of Goods sold increased to $1,807,158 in the first nine months of 2000 from $881,072 in the corresponding nine-month period of 1999. The increase in the cost of goods sold was directly related to the increase in sales revenue. The improvement of the gross margin is related to the low sales volume and the increase in the unit price of replacement boards procured at low volumes during 1999. - -10- Research & Development expenses decreased to $833,935 in the first nine months of 2000 as compared to $914,677 in the comparable nine-month period of 1999. The decrease in research and development expenses during this period is a combined result of a decrease in engineering consulting services and related expenses. We believe our success will depend, in part, on our ability to develop and introduce new products and enhancements to our existing products. We have expanded our development team during October 2000 and intend to continue to make, significant investments in research and development. Sales, General & Administrative expenses increased to $2,201,692 for the nine-month period of 2000, compared to $1,403,562 in the corresponding period of 1999. The primary reason for the increase is the costs associated with the services of Altus Group, the Philadelphia based public relations and marketing company, plus increased presence at industry trade shows, marketing materials, additional sales people hired during the second and third quarter and the addition of administrative staff. We expect to incur substantial expenditures related to sales and marketing activities and in the expansion of our domestic and international distribution channels. Three Months ended September 30, 2000 (unaudited) compared to the Three Months ended September 30, 1999 (unaudited). Three Months Ended September 30, 2000 1999 ---- ---- Sales $ 1,630,402 $ 620,335 Net Income (Loss) $ 18,201 $ (515,797) Net Income (Loss) Per Share $ 0.00 $(0.03) OPERATING EXPENSES PERCENT OF SALES 2000 1999 2000 1999 ---- ---- ---- ---- Cost of Goods Sold $ 522,886 $ 447,124 32% 72% Research & Development $ 307,402 $ 298,904 19% 48% Sales, General & Admin $ 792,617 $ 388,281 49% 63% Total Operating Costs and Expenses $1,622,905 $1,134,309 100% 183% - -11- Cost of Goods sold in the three months ended September 30, 2000 was $522,886 as compared to $447,124 in the corresponding period of 1999. The cost of goods sold as a percentage of sales amounted to 32% and 72% for the three months periods ending September 30, 2000 and September 30, 1999, respectively. The decrease in the cost of sales as a percentage of sales was due to the low sales volume and the increase in the unit price of replacement boards procured at low volumes during 1999. Research & Development expenses increased from $298,904 in the second quarter of 1999 to $307,402 in the corresponding quarter of 2000. We believe our success will depend, in part, on our ability to develop and introduce new products and enhancements to our existing products. Due to the technological nature of the Company's business and the anticipated expansion of its technology into new applications, management expects continual investment for development and engineering expenses. Sales, General & Administrative expenses increased to $792,617 for the three-month period of 2000, compared to $388,281 in the corresponding period of 1999. The primary reason for the increase is the costs associated with the services of Altus Group, the Philadelphia based public relations and marketing company, plus increased presence at industry trade shows, marketing materials, additional sales people hired during the second and third quarter and the addition of administrative staff. We expect to incur substantial expenditures related to sales and marketing activities and in the expansion of our domestic and international distribution channels. LIQUIDITY AND CAPITAL RESOURCES: -------------------------------- Cash and cash equivalents increased to $906,598 for the period ended September 30, 2000 from $674,793 at December 31, 1999. Net cash used for operating activities was $944,858 during the nine-month period ended September 30, 2000 compared to $578,137 in the corresponding period of 1999. Cash used in investing activities was $543,532 for the nine-month period ended September 30, 2000 compared to $39,568 in the corresponding period of 1999. The outlay reflects the continual investment in computer related equipment, leasehold improvements, and further development efforts. Net cash provided by financing activities was $1,720,195 for the nine-month period ended September 30, 2000. This amount is related to the sale of 200,650 common shares at $8.50 per share which netted $1,570,149, the finders fee from this transaction included the issuance of 13,115 warrants to purchase common shares. The remaining increase in financing activities of $153,908 was related to the exercise of stock options by employees of the Company, offset by the payment on the capitalized lease. - -12- The Company has financed its recent operations with cash from operations and from the proceeds of private placements of its securities. We believe that based on our future forecasts relating to operations along with the commitments received to date the Company will have sufficient cash to satisfy our estimated cash requirements for working capital needs. However, SciDyn has committed itself to developing best-in-class technology to pilot the IP revolution as the Voice of IP Telephony. Our goal is to act as the catalyst for the rapid deployment of new voice and data services. To implement our business strategy the company may require resources greater than our available cash or than are otherwise available. In such event, the Company may be required to raise additional capital through equity financing. Certain statements contained in the 10QSB concerning the Company's business outlook on future performance and statements concerning assumptions made or expectations as to any future events, conditions or other matters are "forward-looking statements" as that term is defined under the Federal Securities Laws. Forward-looking statements are subject to risks, uncertainties and other factors, which may cause actual results to differ materially from those set forth in this report. The Company may encounter competitive, technological, and financial and business challenges making it more difficult to market its products and services, the impact of which may in turn affect the Company's results of operations and financial position. PART II.OTHER INFORMATION SCIENCE DYNAMICS CORPORATION AND SUBSIDIARIES _____________________________________________ Item 1. Legal Proceedings No material developments. Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports (a) Exibit 27 FDS-Financial Data Schedule (b) Reports on Form 8-K None - -14- Item 7. Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, registrant has duly caused this report to be signed in its behalf by the undersigned thereunto duly authorized. Signature Title Date --------- ----- ---- BY: /s/ Joy C. Hartman CEO, President and November 14, 2000 --------------------- Director ----------------- Joy C. Hartman BY: /s/ Robert O'Connor Vice President and November 14, 2000 --------------------- Chief Accounting Officer ----------------- Robert O'Connor - -14 EX-27 2 0002.txt ART. 5 FDS FOR 3RD QTR 10-QSB
5 1,000 3-MOS DEC-31-2000 JUL-01-2000 SEP-30-2000 907 0 1875 0 199 3116 1188 536 4723 613 0 0 0 178 4048 4723 5178 5178 1807 1807 3036 0 (3) 355 0 355 0 0 0 355 .02 .02
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