8-K/A 1 mmm8ka.txt SCIENCE DYNAMICS CORP 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A Current Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): April 1, 2003 Amended as of July 16, 2003 SCIENCE DYNAMICS CORPORATION (Exact Name of Registrant as Specified in Charter) Delaware 0-10690 22-2011859 (STATE OR OTHER JURISDICTION (COMMISSION FILE NO.) (IRS EMPLOYER OF INCORPORATION) IDENTIFICATION NO.) 7150 N. Park Drive, Suite 500 Pennsauken, NJ 08109 (Address of principal executive offices) Registrant's telephone number, including area code (856) 910-1166 Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS FINANCIAL STATEMENTS (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED: Modern Mass Media, Inc. - Audited Balance Sheet for the year ended December 31,2002; Audited Statements of Operations for the year ended December 31, 2002; Audited Statement of Cash Flows for the year ended December 31, 2002 and Notes to the Financial Statements.Unaudited Balance Sheet for the period ended March 31, 2003 and Unaudited Satements of Operations for the period ended March 31, 2003. (b) Pro Forma Financial information Science Dynamics Corp. and Subsidiaries Unaudited combined Pro Forma Balance Sheet as of March 31, 2003, unaudited combined Pro Forma Statement of Operations for the three months ended March 31, 2003; Unaudited combined Pro Forma statement of Operations for the year ended December 31, 2002. (c) Exhibits Exhibit 99.01 (1) Press Release Exhibit 99.02 (1) Purchase agreement between M3 ACQUISITION CORP. ("M3" or "Buyer") A subsidiary of Science Dynamics Corporation ("SDC") and Modern Mass Media, Inc. ("MMM" or "Seller") Exhibit 99.03 (1) Employment Agreement with Chip Del Coro (1) Incorporated by reference from the Registrant's Form 8-K filed April 15, 2003. UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS On March 31, 2003, Science Dynamics Corp. (the "Company") through its newly formed majority owned subsidiary, M3 Acquisition Corp., acquired certain Business assets and assumed certain liabilities of Modern Mass Media, Inc. for $600,000.The acquisition was funded through an additional Purchase and Security Agreement between Laurus Master Fund, Ltd. and the Company. Laurus Master Funds, Ltd. agrees to make advances and investments available to the Company in the aggregate amount of up to $1,000,000.The Company issued a convertible note on March 31, 2003, for the advancement of $247,750 in connection with the acquisition. Upon execution of the Purchase Agreement between the Company and Modern Mass Media, Inc. an initial payment of $100,000 was due at closing and a further payment of $100,000 due sixty days after the first payment. Multi Mass Media retained $100,000 to cover the initial payment and a holdback reserve of $55,000 to cover any outstanding checks or open items. The balance on account was remitted to M3 Acquisition .The remaining portion of the purchase price will be paid out over the next sixty months in increments of $80,000 per year, plus interest equivalent to the "Cost of Living" index, in cash or stock or a combination of both at the Buyer's discretion. The following unaudited pro forma combined financial statements of the Company presents the unaudited combined balance sheet as of March 31, 2003 and the unaudited combined statements of operations for the year ended December 31, 2002, and the three months ended March 31, 2003, as if the acquisition of Modern Mass Media had occurred January 1, 2002. The acquisition will be accounted for as a purchase, with the assets acquired and the liabilities assumed recorded at fair values, and the results of Modern Mass Media's, Inc. operations included in the Company's combined financial statements beginning April 1, 2003. The pro forma adjustments represent, in the opinion of management, all adjustments necessary to present the Company's pro forma combined financial position and results of its combined operations in accordance with Article 11 of SEC Regulation S-X based upon available information and certain assumptions considered reasonable under the circumstances. The unaudited pro forma combined financial statements presented herein is for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the purchase had been consummated on such dates, nor is it necessarily indicative of future operating results or financial position. The unaudited pro forma combined financial statements should be read in conjunction with the audited financial statements of the Company and the notes thereto. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. SCIENCE DYNAMICS CORPORATION BY: /s/ Alan C. Bashforth --------------------- CEO/President DATED: July 16, 2003 -------------- SCIENCE DYNAMICS INDEX TO FINANCIAL STATEMENTS Pages ----- Audited financial statements: Report of independent certified public Accountants 1 Balance sheet as of December 31, 2002 2 Statement of operation for the year ended December 31, 2002 3 Statement of cash flow for the year ended December 31, 2002 4 Statement of changes in stockholders' equity for the year ended December 31, 2002 5 Notes to financial statements 6 - 9 Pro Forma Combined Statement of Operations for the year ended December 31, 2002 10 Pro Forma Combined Balance Sheet as of March 31, 2003 11 Pro Forma Combined Statement of Operations for the period ended March 31, 2003 12 Notes to Unaudited Pro Forma Combined Financial Statements 13 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Board of Directors Modern Mass Media, Inc.. We have audited the accompanying balance sheet of Modern Mass Media, Inc. as of December 31, 2002 and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Modern Mass Media, Inc. as of December 31, 2002 and results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company had losses for the past several years and requires additional capital to continue operations. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Peter C. Cosmas Co., CPAs 370 Lexington Ave. New York, NY 10017 July 2, 2003 -1- Modern Mass Media, Inc. Balance Sheet For the Year Ended December 31, 2002
ASSETS ------ CURRENT ASSETS Cash and cash equivalents $ 503,963 Accounts receivable 500,414 Inventories 95,732 Prepaid income taxes 7,863 ---------- Total current assets 1,107,972 Plant, Property and equipment, net of accumulated depreciation $1,069,775 59,369 OTHER ASSETS Security and other deposits 23,379 ---------- Total assets $1,190,720 ========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES Line of Credit Merrill Lynch $ 256,511 Accounts payable and accrued expenses 579,172 Income taxes payable 34,000 Customer deposits 117,053 Deferred income 58,038 ---------- Total current liabilities 1,044,774 Long term debt 50,000 ---------- Total liabilities 1,094,774 COMMITMENTS & CONTINGENCIES STOCKHOLDERS' EQUITY and issued, 32,500 shares outstanding 400,000 Accumulated comprehensive gain 4,311 Retained earnings 1,272,870 ---------- 1,677,181 Less: Treasury stock, 67,500 shares, at cost (1,581,235) ---------- Total stockholders' equity 95,946 ---------- Total liabilities and stockholders' equity $1,190,720 ========== See accompanying notes to financial statements
-2- Modern Mass Media, Inc. Statement of Operations For the Year Ended December 31, 2002
Net sales $4,763,160 Cost of sales 3,802,890 --------- Gross profit on sales 960,270 Operating Expenses Selling expenses 709,785 General and administrative expenses 1,075,302 --------- Total costs and expenses 1,785,087 LOSS FROM OPERATIONS (824,817) OTHER INCOME/(EXPENSES): Interest expense (93,839) Gain on sale of Land and Building 480,062 Realized loss on sale of marketable securities (67,028) --------- Total other income/(expenses) 319,195 --------- LOSS BEFORE INCOME TAXES (505,622) INCOME TAX 36,824 NET LOSS (542,446) OTHER COMPREHENSIVE INCOME Unrealized loss on marketable securities (2,010) --------- COMPREHENSIVE (LOSS) $ (544,456) ========== See accompanying notes to financial statements
-3- Modern Mass Media, Inc. Statement of Cash Flows For the Year Ended December 31, 2002
Cash flows from the operating activities: Net loss $(542,446) Adjustments to reconcile net loss to net cash provided by operating actives: Depreciation 94,098 Gain on sale (480,062) Changes in assets and liabilities: Accounts receivable 356,951 Inventories 267,099 Security deposits (3,199) Prepaid expenses and other current assets 30,943 Accounts payable and accrued expenses (278,455) Income tax payable 34,000 Deferred income 45,597 Customer deposits 117,053 -------- Net cash provided by operating activities (358,421) -------- Cash flows from investing activities: Marketable securities 445,283 -------- Net cash provided by investing activities 445,283 -------- Cash flows from financing activities: Line of credit Merrill Lynch 256,511 Loan proceeds SBA 50,000 Repayment from shareholders loan 182,658 Repayment of long-term debt (147,580) -------- Net cash provided by financing activities: 341,589 NET INCREASE IN CASH AND CASH EQUIVALENTS 428,451 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 75,512 CASH AND CASH EQUIVALANTS, END OF PERIOD $503,963 ======== Supplemental disclosures of cash flow information Cash paid during the year for : Interest 25,513 Taxes 1,886 See accompanying notes to financial statements
-4- Modern Mass Media, Inc. Statement of Stockholder's Equity For the Year Ended December 31, 2002
Accumulated Common Stock Treasury Stock Comprehensive Retained Income Shares Amount Shares Amount Earnings Account Total ------ ------ ------ ------ -------- ------- ----- Balances, January 1, 2002 32,500 $400,000 67,500 $(1,581,235) $1,815,316 $6,321 $ 640,402 Net loss (542,446) $(542,446) Unrealized loss on marketable securities (2,010) $ (2,010) ------ ------- ------ --------- --------- ------ -------- Balances, December 31, 2002 32,500 $400,000 67,500 $(1,581,235) $1,272,870 $4,311 $ 95,946 ====== ======= ====== ========= ========= ====== ======== See accompanying notes to financial statements
-5- MODERN MASS MEDIA, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the Preparation of the accompanying financial statements are as follows: Organization and Business ------------------------- Modern Mass Media, Inc. (the"Company") was organized under the laws of the State of New Jersey in 1970.The company is a distributor of audio-video presentation equipment including design, fabrication and installation of media systems. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Inventories ----------- Inventories are the stated at the lower of cost (first-in, first- out method) or market. Plant, Property and Equipment ----------------------------- The cost of the plant, property and equipment are depreciated over the estimated useful lives of the related assets. Depreciation is computed utilizing principally the straight-line method for financial reporting purposes and on various cost recovery methods for income tax purposes. Maintenance and repairs were charged to operations. Improvements and renewals are capitalized. When plant, property, and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations. Comprehensive Income -------------------- Comprehensive income is the total of (1) net income plus (2) all other changes in net assets arising from the no owner sources, which are referred to as other comprehensive income. The Company has presented a statement of operations that includes other comprehensive income. An analysis of changes in components of accumulated other comprehensive income is presented in the statement of stockholders' equity. -6- Income Taxes ------------ The Company has elected to be taxed under the provisions of Sub- Chapter S of the Internal Revenue Code. Pursuant thereto, the Company does not provide for federal and state income taxes, since such taxes are the obligation of the respective shareholders. Statement of Cash Flows ----------------------- For purposes of the statement of cash flows, cash equivalents include time deposits, certificates of deposit, and all highly liquid debt instruments with original maturities of three months or less. Basis of Financial Statement Presentation ----------------------------------------- The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has generated losses over the past several years. Due to recent economic conditions in the business environment sales and profitability have continued to fall short of projections. These factors indicate that the Company's continuation, as a going concern is dependent upon its ability to obtain adequate financing. NOTE 2- INVENTORIES Inventories consisted of finished goods and parts aggregating $95,732 NOTE 3- PLANT, PROPERTY AND EQUIPMENT Plant, property and equipment consisted of the following: Furniture and equipment $737,830 Leasing and rental equipment 214,128 Auto equipment 100,947 Video and post production equipment 76,239 --------- 1,129,144 Less: Accumulated Depreciation 1,069,775 --------- $ 59,369 Depreciation expense totaled $94,098 for the year ended December 31,2002. NOTE 4- LINE OF CREDIT Pursuant to a financing agreement, the Company has a line of credit totaling $325,000. The agreement provides for interest at the rate of Prime plus 3.15%. The Company maintains an account with $105,629 of funds secured for this line. The line is payable on demand. At December 31, 2002, the outstanding balance was $256,511. NOTE 5-LONG TERM DEBT Note payable-Small Business Administration In June 2002 the Company was granted a $50,000 four year note in connection with the September 2001 disaster. The note bears an interest rate of 4%. Principal and interest payments are deferred for 25 months. The note is secured by the shareholders personal residence. -7- NOTE 6- COMMITMENTS AND CONTINGINCIES Lease Agreements ---------------- The Company leases space in Jersey City, New Jersey for sales office facilities and in Florham Park, New Jersey for its corporate office. The lease commenced on January 1, 1996 and terminates December 31, 2005 with annual incremental minimum rent requirements ($56,800 at commencement), plus certain common area operating charges. The Company signed a one-year leasing contract commencing January1, 2003 for the Florham Park office. Future minimum rents under this lease are as follows: December 31, 2003 $157,834 2004 75,264 2005 75,264 -------- $308,362 -------- NOTE 7- RETIREMENT PLAN The Company maintained a profit-sharing retirement plan for eligible employees, as defined by the plan, up to December 31, 1995. As of January 1, 1996 the company converted the Profit Sharing Plan to a 401(k) Plan under applicable Internal Revenue Service regulations. Pursuant to the 401(k) Plan, the employees may make voluntary contributions thereunder and employer contributions, which are discretionary, are allocated to the employee accounts in accordance with the formula defined in the terms of the 401(k) Plan. As of December 31, 2002, the company contributed $3,502 to the 401(k) plan for the 2002 plan year. NOTE 8- INCOME TAXES In 1996 the Company elected to be taxed under the provisions of Sub-Chapter S of the Internal Revenue Code. At the time the Company had a built in gain of $95,000 on the land and the building. The Company made an election to defer the tax. In December, 2002 the Company sold the land and the building to its shareholder. At which time the Company became liable for the taxes on the built in gain amounting to approximately $35,000. NOTE 9- CONCENTRATIN OF CREDIT RISK The Company's financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. The Company places its cash and temporary cash investments in high credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit. The Company routinely assesses the financial strength of its customers and, as a consequence, believes that its trade accounts receivable credit risk exposure is limited. NOTE 10- DEFERRED INCOME The Company sells extended warranty and product maintenance contracts through distributors. Revenue from those contracts are deferred and taken into income on a straight-line basis over the period of the contract. Direct costs to acquire the contracts are deferred and amortized into expense in proportion to revenue. All other costs are expensed as incurred. -8- NOTE 11- RELATED PARTY TRANSACTION In December 2002 the Company sold its building and land to the shareholder for the assumption of $1,050,000 of debt. The Company recorded a gain on the sale of $480,062. In addition the shareholder signed a one-year lease with the Company for $6,800 per month in rent. NOTE 12- SUBSEQUENT EVENTS On April 1, 2003 the Company sold all of its assets to M3 Acquisition Corp. a subsidiary of Science Dynamics Corp. (M3 Acquisition Corp. assumed certain liabilities) of the Company in consideration of certain payment by M3 as follows: $100,000 at closing, $100,000 60 days later and $80,000 for the next five years on the anniversary date of the purchase agreement, payments may be made in cash or stock or a combination of both. In the event that Mr. Del Coro's employment is terminated without cause, termination for disability, or is not continued at the end of his employment Agreement, the unpaid balance of the purchase is accelerated and shall be due and payable in full within 10 Days of such events. -9- Modern Mass Media, Inc. Pro Forma Combined Statements of Operations For the Year Ended December 31, 2002
Science Dynamics Modern Mass Media Audited Audited Adjustments Combined 2002 2002 ---- ---- Net Sales $ 975,473 $ 4,765,055 $ 5,740,528 ----------- ---------- ---------- Operating costs and expenses: Cost of sales 429,933 3,802,890 4,232,823 Research and development 748,501 748,501 Selling, general and administrative 2,274,019 1,811,777 7,616 (A) 4,093,412 Depreciation (26,295)(C) (26,295) 3,452,453 5,614,667 (18,679) 9,048,441 ----------- ---------- ---------- --------- Operating income (loss) (2,476,980) (849,612) 18,679 (3,307,913) Other income (expenses): Interest income - 10,496 10,496 Gain on sale of Building 480,622 480,622 Realized loss on sale of marketable securities (67,028) (67,028) Sale of NJ NOL 163,252 163,252 Interest expense (130,631) (78,322) (14,245)(B) (223,198) Finance Expense (326,731) (326,731) ----------- ---------- ---------- --------- $ (2,771,090) $ (503,844) $ 4,434 $(3,270,500) =========== ========== ========== ========= Income Tax 36,404 36,404 Net Loss $ (2,771,090) $ (540,248) $ 4,434 $(3,306,904) Other Comprehensive Income Unrealized loss on marketable securities $ (2,010) $ (2,010) Comprehensive $ (542,258) $(3,308,914) See accompanying notes to financial statements
-10- Modern Mass Media, Inc. Pro Forma Combined Balance Sheets March 31, 2003
Science Dynamics Modern Mass Media Unaudited Unaudited Adjustments Combined --------- --------- ----------- -------- Current assets: Cash and cash equivalents $ 8,824 $ 515,540 $ (300,551)(a) $223,813 117,750 (b) 117,750 Accounts receivable - trade 99,542 692,382 791,924 Inventories 165,133 81,713 246,846 Other current assets 9,832 39,860 30,000 (c) 79,692 --------- --------- ----------- --------- Total current assets 283,331 1,329,495 (152,801) 1,460,025 --------- --------- ----------- --------- Property and equipment,net 448,623 54,799 16,843 (d) 521,944 Deferred Asset 130,434 130,434 Other assets 17,370 23,379 40,749 Goodwill 440,997 (e) 440,997 --------- --------- ----------- --------- Total assets 879,758 1,407,673 305,039 2,594,149 ========= ========= =========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short term Debt 31,860 100,000 (i) 131,860 Current portion of convertible note 185,500 185,500 Bank Note/Line of Credit 33,550 300,551 (300,551)(a) 33,550 Customer deposits 89,492 223,558 313,050 Short term loan payable 163,192 163,192 Accounts payable 1,194,018 661,485 1,855,503 Accrued expenses 597,667 31,598 19,502 (f) 648,767 --------- --------- ----------- --------- Total current liabilities 2,295,279 1,217,192 181,049 3,331,422 --------- --------- ----------- --------- Long term liabilities: Long term Debt 127,431 127,431 Long Term Payable to Seller 400,000 (g) 400,000 SBA Loan 50,000 50,000 Non current portion of bank note 42,355 42,355 Convertible Note 1,639,309 $ 247,750 (h) 1,887,059 --------- --------- ----------- --------- Total liabilities $ 4,104,374 $ 1,267,192 $ 466,701 5,838,267 Shareholders' equity - Common stock - .01 par value, 200,000,000 shares authorized, 41,544,455 and 41,254,455 issued 41,418,655 and 41,128,655 outstanding in 2003 and 2002 respectively. 415,545 400,000 (400,000)(j) 415,545 Preferred stock, .01 par value, no shares issued and outstanding Additional paid-in capital 15,710,757 15,710,757 Reserve for Stock compensation Retained Earnings/(Deficit) (18,953,085) 1,321,716 (1,342,897)(j) (18,974,266) --------- --------- ----------- --------- (2,826,783) (2,847,964) Common stock held in treasury, at cost (397,833) (1,581,235) 1,581,235 (j) (397,833) --------- --------- ----------- --------- Total shareholders' equity (3,224,616) 140,481 (161,662) (3,245,797) --------- --------- ----------- --------- Total liabilities and shareholders' equity $ 879,758 $1,407,673 $ 305,039 $2,592,470 ========= ========= =========== ========= See accompanying notes to financial statements
-11- Modern Mass Media, Inc. Pro Forma Combined Statements of Operations March 31, 2003
Science Dynamics Modern Mass Media Unaudited Unaudited Adjustments Combined NET SALES $ 476,297 $ 1,139,872 $ 1,616,169 ---------- ----------- ---------- ----------- Operating costs and expenses: Cost of sales 72,807 616,159 688,966 Research and development 121,740 121,740 Selling, general and administrative 279,142 484,111 16,250(f) 779,503 ---------- ----------- ---------- ----------- Depreciation 64,856 4,571 1,679(d) 71,106 538,545 1,104,841 1,661,315 ---------- ----------- ---------- ----------- Operating income (loss) (62,248) 35,031 (17,929) (45,146) Other income (expenses): Interest Income 4,917 4,917 Miscellaneous Income 2,577 2,577 Interest expense (24,106) (1,200) (3,252)(f) (28,558) Finance Expense (18,633) (18,633) ---------- ----------- ---------- ----------- $ (104,987) $ 41,325 $ (21,181) $ (84,842) ========== =========== ========== =========== Income Tax 1,000 1,000 Net Income/Loss After Tax $ (104,987) $ 40,325 $ (21,181) $ (85,842) ---------- ----------- ---------- ----------- See accompanying notes to financial statements
-12- Science Dynamics Corporation, Inc. and Subsidiaries Notes to Unaudited Pro Forma Combined Financial Statements (a) Represents the payment eliminating the line of credit at the closing. (b) Represents the funds transferred after the payments to the seller were retained. (c) Represents the legal and closing fees charged by Laurus Master Fund, Ltd. (d) Represents the recalculation of depreciation expense as a result of the fair market value of the fixed assets to be depreciated on the straight-line method over three years. (e) Represents the purchase price, which has initially been allocated based on estimates of fair value in excess of the assets acquired recorded as goodwill. (f) Represents the additional income of the Seller under the employment agreement entered into as part of the transaction and the additional interest expense for the Laurus Master Fund, Ltd. convertible note calculated using the prime rate plus one. (g) Represent the long-term obligation to the seller. (h) Represents the borrowings from the Laurus Master Fund, Ltd. convertible note to finance the acquisition. (i) Represents the short term loan to the seller. (j) Represents the elimination of Modern Mass Media, Inc. stockholders equity. -13-