-----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, Hy27NHdwGo8EGu2hY7aJF+fpy+3SpBQezG2GSkSZgwN8+hcUwF1l1Va1qcCWzJdv wOT7QBJ6YMQn6hriumAvbA== 0000350644-98-000004.txt : 19980506 0000350644-98-000004.hdr.sgml : 19980506 ACCESSION NUMBER: 0000350644-98-000004 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980505 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCIENCE DYNAMICS CORP CENTRAL INDEX KEY: 0000350644 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 222011859 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-10690 FILM NUMBER: 98610042 BUSINESS ADDRESS: STREET 1: 1919 SPRINGDALE RD CITY: CHERRY HILL STATE: NJ ZIP: 08003 BUSINESS PHONE: 6094240068 10QSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-QSB (Mark One) [x] QUARTERLY REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 1998 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from ______________ to ______________ Commission file number 010690 ____________________ Science Dynamics Corporation ------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Delaware ------------------------------------------------------------ (State or other jurisdiction of incorporation or organization) 22-2011859 ------------------------------- (IRS Employer Identification No.) 1919 Springdale Road, Cherry Hill, New Jersey 08003 ----------------------------------------------------- (Address of principal executive offices) ( 609 ) 424-0068 ----------------------------------------------------- (Issuer's telephone number) N/A --------------------------------------------------------------- (Former name, former address, and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 03/31/98 14,535,649 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, 1998 unaudited 1 and December 31, 1997 (audited) Consolidated Statements of Operations for three months 2 ended March 31, 1998 (unaudited) and three months ended March 31, 1997 (unaudited) Consolidated Statements of Cash Flows for three months 3 ended March 31, 1998 (unaudited) and three months ended March 31, 1997 (unaudited) Consolidated Statements of Shareholders' Equity for the 4 year ended December 31, 1997 (audited) and the three months ended March 31, 1998 (unaudited) Item 2. Management's Discussion and Analysis of Financial Condition 5 - 9 and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceeding 9 Item 2. Changes in Securities 9 Item 3. Defaults upon Senior Securities 9 Item 4. Submission of Matters to Vote of Security Holders 10 Item 5. Other Information 10 Item 6. Exhibits 10 Item 7. Signatures 10 SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS PART I. FINANCIAL INFORMATION Item 1. Financial Statements: ASSETS March 31, December 31, 1998 1997 Unaudited Audited --------- ------- Current assets: Cash and cash equivalents $ 49,924 $ 21,181 Accounts receivable - trade 832,690 613,916 - - Inventories 351,306 322,530 Other current assets 47,096 52,200 ----------- ----------- Total current assets 1,281,016 1,009,827 ----------- ----------- Property and equipment, net 248,440 220,060 Software development costs, net of accumulated amortization of $304,053 in 1998 and $277,992 in 1997 217,181 243,243 Deferred income taxes 308,000 308,000 Intellectual Property, net of accumulated amortization of $375,000 in 1998 and $300,000 in 1997 1,125,000 1,200,000 Other assets 44,436 39,239 ----------- ----------- Total assets $ 3,224,073 $ 3,020,369 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 396,942 $ 289,188 Accrued expenses, principally payroll related 108,450 87,046 ----------- ----------- Total current liabilities 505,392 376,234 Commitments: Shareholders' equity - Common stock - .01 par value, 25,000,000 shares authorized, 14,661,449 issued, 14,535,649 outstanding in 1998 and 1997 respectively 146,614 146,614 Additional paid-in capital 10,166,429 10,166,429 (Deficit) (7,196,529) (7,271,075) ----------- ----------- 3,116,514 3,041,968 Common stock held in treasury, at cost (397,833) (397,833) ----------- ----------- Total shareholders' equity 2,718,681 2,644,135 ----------- ----------- Total liabilities and shareholders' equity $ 3,224,073 $ 3,020,369 =========== =========== - -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, 1998 1997 ---- ----- NET SALES $ 1,572,707 $ 1,116,480 ----------- ----------- Operating costs and expenses: Cost of sales 602,342 523,686 Research and development 288,062 197,187 Selling, general and administrative 607,757 586,720 ----------- ----------- 1,498,161 1,307,593 ----------- ----------- Operating Income 74,546 (191,113) Other income (expenses): Interest and other investment income - 3,994 Interest expense - (22,110) ----------- ----------- Income (Loss) before taxes 74,546 (209,229) Provision for Income Taxes - - Net Income (Loss) $ 74,546 $ (209,229) =========== =========== Net Income (Loss) per common share $ 0.01 $ (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, 1998 1997 ---- ---- Cash flows from operating activities: Net Income $ 74,546 $ (209,229) ----------- ----------- Adjustments to reconcile net income (loss) to net cash (used for) operating activities: Depreciation 15,097 15,873 Amortization of capitalized software 26,062 26,061 Amortization of intellectual property 75,000 75,000 Changes in operating assets and liabilities: (Increase) decrease in: Accounts receivable (218,774) (55,113) Inventories (28,776) (60,583) Other current assets 5,104 6,544 Other assets (5,197) - Increase (Decrease) in: Accounts payable and accrued expenses 129,158 667,518 Interest Payable - 70,002 ---------- ----------- Total adjustments (2,326) 745,302 Net cash provided by operating activities: 72,220 536,073 ---------- ----------- Cash flows from investing activities: Capitalized software - - Purchase of property and equipment - net (43,477) (9,536) ---------- ----------- Net cash (used) in investing activities: (43,477) (9,536) ---------- ----------- Cash flows from financing activities: Increase (decrease) in Issuance of common stock and warrants - - ---------- ----------- Net cash provided by financing activities - - ---------- ----------- Net increase (decrease) in cash and cash equivalents 28,743 526,537 Cash and cash equivalents - beginning of period 21,181 830,229 ---------- ----------- Cash and cash equivalents - end of period $ 49,924 $ 1,356,766 ========== =========== - -3- SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1997 AND THREE MONTHS ENDED MARCH 31, 1998 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements (Continued):
Common Stock Additional Retained ------------ Paid-In Earnings Shares Amount Capital (Deficit) Shares Amount ------ ------ ------- --------- ------ ------ Balance December 31, 1996 12,055,861 120,558 9,615,191 (6,249,045) 125,800 397,833 Issuance of common stock to pay long term debt and related interest 2,605,588 26,056 551,238 - - - Net loss - - - (1,022,030) - - ---------- --------- ------------ ----------- ------- --------- Balance December 31, 1997 14,661,449 146,614 10,166,429 (7,271,075) 125,800 397,833 ---------- --------- ------------ ----------- ------- --------- Net Income - - - 74,546 - - ---------- --------- ------------ ----------- ------- --------- Balance March 31, 1998 14,661,449 $ 146,614 $ 10,166,429 $(7,196,529) 125,800 $ 397,833 ---------- --------- ------------ ----------- ------- --------- The Company issued 2,605,588 shares of its common stock in 1997. Shares issued in 1997 were used to satisfy the Company's long-term debt and related interest.
- -4- SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) PART I Item 1. (continued) Basis of Presentation --------------------- The financial statements included in the Form 10-QSB have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. 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. The financial statements presented herein, as of March 31, 1998 reflect, in the opinion of management, all adjustments necessary for a fair presentation of financial position and the results of operations for the periods presented. The results of operations for any interim period are not necessarily indicative of the results for the full year. 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, 1997. Income per share ---------------- Income [loss] per share is based on the weighted average number of common shares outstanding for the periods presented. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998. Business Overview ----------------- Science Dynamics Corporation designs, develops and markets a variety of Telecommunication systems, including intelligent call processing platforms which provide telecommunications service capabilities to the public switched telephone network. These platforms are sophisticated software based systems that satisfy a wide range of computer telephony integration applications. Science Dynamics has targeted two addressable markets with the Integrator C-2000 product ranges and the VFX-250 products. The Integrator C-2300 was on display at CeBit 1998 in Hannover, Germany during the first quarter. The VFX-250 products were introduced in fiscal year 1997. - -5- The Integrator C-2000 series is well positioned to meet the needs of the IP Telephony market. These systems are currently under development and furnish service providers with a cost-effective method of supplying voice and fax over Intranet, Internet and Extranet. The VFX-250 products have proven their success in a new market, which bridges the markets of Videoconferencing and Frame Relay. The Company shipped the first 100 units of the VFX-250S to ACT Networks, Inc. in the first quarter. Currently in development are new software modules for the Integrator platform. These include a Speech Recognition module, and an Alarm Processor. The Voice over IP development is progressing with field trials in progress. Additional projects include a new release of the CIMS (Centralized Intercept Management System). CIMS was developed several years ago under MS-DOS as a replacement for the CIDBAS product sold in the 1980's. The new release, called CIMS II will be a Windows NT product based on the Integrator platform technology. The VFX250 products are undergoing enhancements that will provide greater flexibility and configuration options. There are additional contracts currently under negotiation, which we believe will be consummated in the near future. The VFX products are expected to provide a base of revenue throughout 1998 and in future years. The telecommunications industry is rapidly changing to provide a variety of services, such as voice, video and data, converged into an analogous network. Management believes that the Company can capitalize on these changes in the industry by providing technological solutions that integrate with the existing infrastructure and enable companies to offer these various services. Through the development of innovative software-based products and solutions the Company intends to further its market acceptance of the Company's offerings and continue to take advantage of the expanding industry. Results of Operations --------------------- The following table summarizes the condensed results of operations during the first quarter of 1998 compared to the corresponding quarter of 1997 (unaudited). Three Months ended March 31, 1998 compared to the Three Months ended March 31, 1997 (unaudited). For the Quarter Ended March 31, 1998 1997 ---- ---- Sales $1,572,707 $1,116,480 Net Income (Loss) $74,546 $(209,229) Net Income (Loss) Per Share $0.01 $(.02) - -6- Three Months ended March 31, 1998 compared to the Three Months ended March 31, 1997 (unaudited). (Continued) OPERATING EXPENSES PERCENT OF SALES ------------------ ---------------- 1998 1997 1998 1997 ---- ---- ---- ---- Cost of Goods Sold $602,342 $523,686 38.3% 46.9% Research & Development 288,062 197,187 18.3% 17.7% Selling, General & Admin 607,757 586,720 38.6% 52.5% Total Operating Costs and Expenses $1,498,161 $1,307,593 95.2% 117.1% Sales revenues for the quarter ended March 31, 1998 were $1,572,707 as compared to $1,116,480 in the corresponding quarter of 1997 which represents an increase of 40.9%. This increase is attributable to the increased sales efforts of the internal sales force in both the U.S. office, primarily with the sales of the Commander II and the international office with the VFX product lines. Cost of Goods Sold as a percentage of sales revenue for the three months ended March 31, 1998 was 38.3% as compared to 46.9% for the three months ended March 31, 1997. The increase of $78,656 in the cost of goods sold in absolute dollars is a result of the increase in sales revenue for the first quarter of 1998. This change is attributable to the change of product offerings and enhancements and by establishing alliances with a limited number of quality OEM vendors resulting in maximization of purchasing power. Gross profit increased $377,571 in absolute dollars for the first quarter of 1998 and as a percentage 61.7% for the three months ended 1998, as compared to 53.1% for the three months ended 1997, due to the increase in sales revenue. Research and Development costs increased to $288,062 for the first quarter of 1998 as compared to $197,187 in the first quarter of 1997. As the Company modified its method of operations, the activities of personnel with adeptness were diverted into research and development contributing to the increase in the first quarter of 1998. Independent subcontractors are also being utilized in the areas of research and development, to enhance the Company's market position. The Company believes that research and development is critical in achieving a competitive position and expects to continue to expend funds, as necessary, in this area. - -7- Selling, General & Administrative expenses increased $21,037 for the three months ended March 31, 1998, over the same period in 1997, an increase of 3.5%. This increase is attributed to the opening of the international office to market and sell products globally offset by the cost reduction measurers implemented in the U.S. by management. Total Operating Costs and Expenses were $1,498,161 for the three months ended March 31, 1998 as compared to $1,307,593 for the three months ended 1997. The increase was a result of the costs associated with the growth in sales revenue. No provision for income tax was recorded for the quarter ended March 31, 1998. As a result of the operating losses for the years ended December 31, 1990 and 1992 - 1997 the Company has available to offset future taxable income a net operating loss of $8,361,058 expiring 2005 - 2012. In addition, research credits expiring 2005 - 2012 are available to offset future taxes. Management believes that the strategic transformation to a software development and integration company has enhanced its probability of success in achieving established objectives. The Company plans to focus resources, people, time and capital, into product initiatives that yield the greatest return. LIQUIDITY AND CAPITAL RESOURCES: ------------------------------- During the first quarter of 1998, the Company generated cash from internal operations to satisfy its working capital requirements. As of March 31, 1998, the Company's working capital amounted to $775,624 compared to $633,593 at December 31, 1997. The working capital ratio of the Company was approximately 2.5 to 1 as of March 31, 1998 compared to 2.7 to 1 at December 31, 1997. Net cash provided by operating activities was $72,220 compared to cash provided for operating activities of $536,073 in the first three months of 1997. Accounts receivable increased $218,774 and inventory increased $28,776, with accounts payable and accrued expenses increasing $129,158. These increases were attributable to the increase in sales and the purchase of materials to fill these orders, respectively. Net cash used in investing activities increased to $43,477 in March 31, 1998, compared to $9,536 in the corresponding period of 1997. The Company's higher quarterly 1998 capital expenditures resulted from the acquisition of development and test equipment to facilitate its aggressive development efforts and equipment necessary to furnish the international sales and marketing facility. The Company continually monitors and adjusts expense levels to support the revenue stream. The Company believes that its existing working capital and funds anticipated to be derived from operations will satisfy the Company's projected working capital and capital expenditure requirements through December 31, 1998. Management believes that the telecommunications industry will experience significant technological advances to improve the quality of service and reduce costs. The Company is poised to meet these challenges by continuing to employ new technologies when they become - -8- available, diversifying its product offerings and by constantly enhancing its software applications. The Company will continue to seek growth opportunities by investigating other businesses and ventures that relate to its present activities for potential business combinations. As of March 31, 1998, the Company had not entered into a firm commitment for any such transactions. In the event a complementary candidate is identified, the Company may need to seek additional financing through some form of debt or equity arrangement. Certain statements contained in this 10QSB concerning the Company's business outlook on future performance and statements concerning assumptions made or expectations as to any future events, conditions or other matters are "forward-looking statements" as that term is defined under the Federal Securities Laws. Forward-looking statements are subject to risks, uncertainties and other factors, which may cause actual results to differ materially from those set forth in this report. The Company may encounter competitive, technological, financial and business challenges making it more difficult to market its products and services, the impact of which may in turn affect the Company's results of operations and financial position. PART II. Other Information SCIENCE DYNAMICS CORPORATION AND SUBSIDIARIES _____________________________________________ Item 1. Legal Proceedings No material developments. Item 2. Changes in Securities There has been no change or modification in the constituent instruments defining the rights of holders of the corporation's sole class of registered security nor any modification of the rights evidenced by such class by issuance or modification of any other class of securities. Item 3. Defaults Upon Senior Securities There has been no default of any nature upon any form of senior security nor in payment of interest or sinking or purchase fund installment with respect to any indebtedness of the registrant, nor any other form of default upon any financial obligation. - -9- Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports None. Item 7. Signatures In accordance with Section 13 or 15(d) of the Securities Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SCIENCE DYNAMICS CORPORATION BY: /s/Alan C. Bashforth --------------------------------- Alan C. Bashforth, President, CEO DATED: May 5, 1998 --------------------------------- 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/ Alan C. Bashforth President, CEO and Director May 5, 1998 --------------------- Alan C. Bashforth BY: /s/ Joy C. Hartman Exec. Vice President, CFO May 5, 1998 --------------------- Treasurer, Secretary and Joy C. Hartman Director - -10- EX-27 2 ART. 5 FDS FOR 1ST QTR 10-QSB
5 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 50 0 833 0 351 1281 1300 1052 3224 505 0 0 0 147 2719 3224 1573 1573 602 602 896 0 0 75 0 75 0 0 0 75 .01 0
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