-----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, F0UulK9lqsLcvzi56o5RcQW4fzymoKLASp6SrBrlx6qpHOSvsPCtAGzEUzLD4Oep DZ3Q/upr7AAyuWuoeouyEg== 0000350644-99-000010.txt : 19991117 0000350644-99-000010.hdr.sgml : 19991117 ACCESSION NUMBER: 0000350644-99-000010 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99754028 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 September 30, 1999 ------------------ [ ] 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: 09/30/99 16,707,678 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, 1999 1 (unaudited) and December 31, 1998 (audited) Consolidated Statements of Income (loss) for Nine months and three months ended September 30, 1999 (unaudited) and nine months and three months ended September 30, 1998 (unaudited) 2 Consolidated Statements of Cash Flows for Nine months ended September 30, 1999 (unaudited) and nine months ended September 30, 1998 (unaudited) 3 Notes to Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 4-10 PART II. OTHER INFORMATION Item 1. Legal Proceedings 11 Item 2. Changes in Securities 11 Item 3. Defaults upon Senior Securities 11 Item 4. Submission of Matters to Vote of Security Holders 11 Item 5. Other Information 11 Item 6. Exhibits and Reports 11 Item 7. Signatures 12 SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
PART I. FINANCIAL INFORMATION Item 1. Financial Statements: ASSETS September 30 December 31, 1999 1998 Unaudited Audited ------------ ------------ Current assets: Cash and cash equivalents $ 78,765 $ 32,249 Accounts receivable - trade 493,882 266,403 Accounts receivable - other 27,223 659,900 Inventories 362,833 478,494 Other current assets 38,697 46,266 ----------- ---------- Total current assets 1,001,400 1,483,312 ----------- ---------- Property and equipment, net 202,908 231,088 Software development costs, net of accumulated amortization of $486,485 in 1999 and $382,239 in 1998 34,749 138,996 Deferred income taxes 308,000 308,000 Intangible Assets, net of accumulated amortization of $825,000 in 1999 and $600,000 in 1998. 675,000 900,000 Other assets 135,686 41,418 ----------- ---------- Total assets $ 2,357,743 $3,102,814 =========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Loan Payable $ 266,746 $ 100,000 Advance Deposit 259,281 - Accounts payable 404,389 638,493 Accrued expenses, principally payroll related 126,503 181,492 ----------- ---------- Total current liabilities 1,056,919 919,985 ----------- ---------- Commitments Shareholders' equity - Common stock - .01 par value, 45,000,000 shares authorized, 16,833,478 and 15,861,449 issued 16,707,678 and 15,735,649 outstanding in 1999 and 1998 respectively. 168,335 158,614 Additional paid-in capital 11,217,183 10,729,429 Retained earnings (deficit) (9,686,861) (8,307,381) ----------- ---------- 1,698,657 2,580,662 Common stock held in treasury, at cost (397,833) (397,833) ----------- ---------- Total shareholders' equity 1,300,824 2,182,829 ----------- ---------- Total liabilities and shareholders' equity $ 2,357,743 $3,102,814 =========== ==========
- -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, 1999 1998 1999 1998 ---- ---- ---- ---- NET SALES $ 1,828,559 $3,400,297 $ 620,335 $ 1,074,991 ------------- ---------- ----------- ------------- Operating costs and expenses: Cost of sales 881,072 1,299,739 447,124 402,096 Research and development 914,677 954,416 298,904 341,287 Selling, general and administrative 1,403,562 1,770,243 388,281 527,750 ------------- ---------- ----------- ------------- 3,199,311 4,024,398 1,134,309 1,271,133 ------------- ---------- ----------- ------------- Operating (loss) (1,370,752) (624,101) (513,974) (196,142) Other (expenses): Interest expense (8,728) (2,354) (1,823) (2,354) ------------- ---------- ----------- ------------- Net (Loss) $ (1,379,480) $ (626,455) $ (515,797) $ (198,496) ============= ========== =========== ============= Net (Loss) per common share $ (0.08) $ (0.04) $ (0.03) $ (0.01) ============= ========== =========== =============
- -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, 1999 1998 ---- ---- Cash flows from operating activities: Net (loss) $(1,379,480) $ (626,455) Adjustments to reconcile net (loss) to net cash provided by (used for) operating activities: Depreciation 67,748 52,981 Amortization of capitalized software 104,247 78,185 capitalized software Amortization of Intangible assets 225,000 225,000 Changes in operating assets and liabilities: (Increase) decrease in: Accounts receivable (227,479) 24,010 Other receivable 632,677 - Inventories 115,661 (54,850) Other current assets 7,569 15,356 Other assets (94,268) (5,697) Increase (decrease) in: Deposit in Advance 259,281 - accrued expenses (289,093) 189,934 ----------- ---------- Total adjustments 801,343 524,919 ----------- ---------- Net cash provided by (used for) operating activities (578,137) (101,536) ----------- ---------- Cash flows from investing activities: Purchase of property and equipment - net (39,568) (82,750) ----------- ---------- Net cash (used) in investing activities (39,568) (82,750) ----------- ---------- Cash flows from financing activities: - Increase (decrease) in Loan Payable 166,746 180,521 Issuance of common stock and warrants 497,475 - ----------- ---------- Net cash (used in) provided by financing activities 664,221 180,521 ----------- ---------- Net increase (decrease) in cash and cash equivalents 46,516 (3,765) Cash and cash equivalents - beginning of period 32,249 21,181 ----------- ---------- Cash and cash equivalents - end of period $ 78,765 $ 17,416 =========== ==========
- -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, 1998. 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 not included for the periods presented, as they would be anti-dilutive. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999. Business Overview - ----------------- Science Dynamics Corporation designs, develops and markets a variety of Telecommunication products and applications, including intelligent call processing platforms which provide telecommunications service capabilities to both the IP and public switched telephone network. These platforms are sophisticated software based systems that satisfy a wide range of computer telephony integration applications. The - -4- Company's development is driven by user needs for cost effective, easy to use multiservice products that provide an array of telecommunications solutions and services to the customers. These opportunities are primarily in the areas of Voice over Internet Protocol, Inmate Systems, Video over Frame Relay, Voice Announcements, Interactive Communications, Intelligent Network Control and Administration. The Company's strategy is to deliver quality software products and services that empower its customers to improve their applications and deploy quality services worldwide. IntegratorC-2000(R) IP Telephony Products ----------------------------------------- The development effort on the IntegratorC-2000(R) series platform has continued to progress during the third quarter. Accomplishments to date include the H323 interface service Multipacket IP Compression that allows for greater utilization of network bandwidth and greater port concentration per node. Gatekeeper services such as address translation and real time call rating provide the basis for large multi-node VoIP networks. Currently in development is an SS7 Server which allow one or more Integrator Gateways to connect to Carrier networks as an End Office Gateway or centralized tandem access for large scale network handoff to traditional PSTN carriers. Also in development is an SNMP management solution for Integrator networks and a new Integrator hardware platform is currently in test. This new platform will provide higher densities of trunk termination in a smaller footprint. During the third quarter a purchase order for the first phase of the rollout was received from One Stop Communication in the amount of $3.1 million. Site preparation for the first eight sites is underway. Management anticipates the financial arrangements to be finalized imminently. The Company continues to conduct sales presentations to prospective customers worldwide for its Voice over IP Telephony System. Management is committed to penetrating the marketplace by obtaining the strategic alliances necessary to enable sustained growth. VFX Product ----------- The VFX 250-S has seen a marked increase in awareness from the international market. This is due to a couple of factors. First, a joint press release with Lucent Technologies was issued in the third quarter announcing a successful contract negotiation with the Government of the Northwest Territories of Canada in which Lucent has been the chosen supplier for a video over frame relay system using SDC's VFX-250S. In turn, this announcement created a great deal of interest in the international market where a marked increase in inquiries has been received. Second, SDC completed shipment of our largest project to date. Over 150 VFX-250S are currently being installed in a project involving a Latin American government organization. This project signals the first time such a large number of VFX's have been deployed in a single frame relay network. - -5- Third, SDC kicked off a road show campaign with one of its larger resellers, which has already shown an increase in sales inquiries. With the third quarter initiatives continuing and the emphasis on pushing the resellers to promote VFX, SDC has seen a marked increase in the number of sales inquiries. As these projects tend to have at least a six-month lead-time this gives SDC a good base upon which to build. COMMANDER --------- The majority of the Company's customers in the correctional market place continued to spend their resources (both labor and funding) on Y2K projects. The majority of the telephone companies have frozen the purchasing of new software based products through March 2000. This time interval will be dedicated to testing all new software products for Y2K compliance. Our customers will also be working with suppliers in de-bugging installed software system to insure their obligations to Y2K compliance. Customer dedication to the above mentioned Y2K actions has had a negative impact on Commander sales revenue throughout Q3. The Company anticipates that sales revenue Q4 will reflect only modest improvement as our customers continue to upgrade their installed system with the Y2K compliant Commander systems. Inmate sales opportunities are currently being managed with several long distance service providers and the RBOC's. The Company is currently in BETA test for the V.20 Commander administration software module. The V.20 software release brings forth many new and robust system features that customers have requested since the Commander product line was introduced. This new software release is a priced software upgrade that will be implemented in all Commander systems presently installed. The Commander product line passed product line acceptance testing at one of the major RBOC's. We are currently in negotiations with this RBOC in signing a master purchasing agreement that will position SDC as a primary supplier for their inmate telephone control system requirements. CIMS/Voice Intercept -------------------- Sales revenues in these product lines have been extremely modest. This is a result of the Y2K actions of our customers. The Company anticipates a significant sales revenue opportunity for our Voice Intercept product in Q1 of 2000. - -6- Year 2000 Technology -------------------- The Company continues the investigation on the Year 2000 issue to ensure its operations and systems will not be adversely impacted by the inability of the Company's and supplier systems to process data affected by Year 2000 date corruption. There are six major suppliers of products incorporated into the Company's deliverable systems. Each of those suppliers has attested that the components are Y2K compliant. With those sub-systems installed in the Company's newest platform, compliance testing, following the defined test plan was satisfactorily completed in June. There are twenty-two identified critical facilities such as telephone, utilities, banks, etc., There are only three entities that have reported to still be in the testing phase to prove compliance or needed correction. The other facilities have attested to be compliant. If any company should fail to confirm compliance, that supplier will be replaced, if practical. 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, 1999 compared to the Nine Months ended September 30, 1998 (unaudited). For the Nine Months Ended September 30, 1999 1998 ---- ---- Sales $1,828,559 $3,400,297 Net Loss (1,379,480) (626,455) Net Loss Per Share $(0.08) $(.04) OPERATING EXPENSES PERCENT OF SALES ------------------ ---------------- 1999 1998 1999 1998 ---- ---- ---- ---- Cost of Goods Sold $881,072 $1,229,739 48.2% 38.2% Research & Development 914,677 954,416 50.0% 28.1% Selling, General & Admin 1,403,562 1,770,243 76.8% 52.1% Total Operating Costs and Expenses $3,199,311 $4,024,398 175.0% 118.4% - -7- Sales for the nine-month period of 1999 were $1,828,559 a decrease of $1,571,738 from sales of $3,400,297 in the corresponding period in 1998. This decrease was due to the lower than anticipated sales on the Commander II and VFX product lines. 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. The Management believes this strategic mission will launch the Company into achieving significant sales revenue in the upcoming quarter and succeeding years. Cost of Goods sold decreased to $881,072 in the first nine months of 1999 from $1,299,739 in the corresponding nine-month period of 1998. The decrease in the cost of goods sold was directly related to the decrease in sales revenue. Research & Development expenses decreased to $914,677 in the first nine months of 1999 as compared to $954,416 in the comparable nine-month period of 1998. Although the Company continues to invest significant resources in the research and development area the decrease was due to the financial support by the next generation Telco to accelerate the IP Telephony development. Sales, General & Administrative expenses decreased to $1,403,562 in the first nine months of 1999, compared to $1,770,243 in the corresponding period of 1998. The decrease is largely related to the additional funding received to promote and expand the IP Telephony in the marketplace. Interest expenses were incurred as part of the cost of the financing agreement with The CIT Group/Commercial Services. The agreement, for a revolving credit facility has provided a solution to cash flow situations that occur due to the fluctuations in sales revenue. Three Months ended September 30, 1999 compared to the Three Months ended September 30, 1998 (unaudited). For the Quarter Ended September 30, 1999 1998 ---- ---- Sales $620,335 $1,074,991 Net Loss $(515,797) $(198,496) Net Loss Per Share $(0.03) $(0.01) - -8- OPERATING EXPENSES PERCENT OF SALES ------------------ ---------------- 1999 1998 1999 1998 ---- ---- ---- ---- Cost of Goods Sold $447,124 $402,096 72.1% 37.4% Research & Development 298,904 341,287 48.2% 31.7% Selling, General & Admin 388,281 527,750 62.6% 49.1% Total Operating Costs and Expenses $1,134,309 $1,271,133 182.9% 118.2% Cost of Goods sold in the three months ended September 30, 1999 was $447,124 as compared to $402,096 in the corresponding period of 1998. The cost of goods sold as a percentage of sales amounted to 72.1% and 37.4% for the three months periods ending September 30, 1999 and September 30, 1998 respectively. The increase in the cost of sales was due to the low sales volume and the increase in the unit price of replacement boards procured at low volumes. Research & Development expenses, as a percentage of revenue, increased to 48.2% in the third quarter of 1999 compared with 31.7% in the third quarter 1998. The increase in the percentage of revenue was due to the depressed sales achieved. The expenses in absolute dollars decreased $42,383 in the third quarter 1999, compared to the corresponding quarter of 1998. The decrease in absolute dollars was attributable to the financial assistance received during the third quarter of 1999. 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, as a percentage of sales, increased in the third quarter of 1999 over the same period in 1998, and represent 62.6% of sales as compared with 49.1% of sales for the same period of 1998. The increase in the percentage of sales is directly related to the low sales captured in the third quarter of 1999. The expenses in absolute dollars decreased $139,469 in 1999 over the corresponding quarter in 1998. This decrease was primarily due to the shared expense to increase market awareness of the Company's initiatives into the Voice over IP market. The Company believes continued investment in sales and marketing is necessary to promote the Company's products due to the intensely competitive nature of the industry. - -9- LIQUIDITY AND CAPITAL RESOURCES: ------------------------------- Cash and cash equivalents increased to $78,765 for the period ended September 30, 1999 from $32,249 at December 31, 1998. Net cash used for operating activities was $578,137 during the nine-month period ended September 30, 1999 compared to $101,536 in the corresponding period of 1998. Cash used in investing activities was $39,568 for the nine-month period ended September 30, 1999 compared to $82,750 in the corresponding period of 1998. The outlay reflects the continual investment in computer related equipment to further development efforts. Cash provided by financing activities amounted to $664,221 in the nine-month period ended September 30, 1999. The increase was the funds provided by the issuance of 800,000 shares of common stock to subsidize working capital requirements. The Company believes that based on our current proposed plans and assumptions 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. In the event of unanticipated expenses, delays or other problems beyond this period, the Company might be required to seek additional funding. In addition, in the event that the Company receives a larger than anticipated number of purchase orders 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. The Company believes that, if needed, it will be able to obtain additional funds required for future needs. 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. - -10- 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 neither 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 neither of senior security nor in payment of interest or sinking or purchase fund installment with respect to any indebtedness of the registrant, nor any other form of default upon any financial obligation. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports None. - -11- 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/ Alan C. Bashforth CEO, President, Director November 15, 1999 --------------------- Alan C. Bashforth By: /s/ Joy C. Hartman Exec. Vice President, CFO, November 15, 1999 --------------------- Treasurer, Secretary and Joy C. Hartman Director - -12- EX-27 2 ART. 5 FDS FOR 3RD QTR 10-QSB
5 1,000 9-MOS DEC-31-1999 SEP-30-1999 79 0 521 0 363 39 464 261 2358 1057 0 0 0 168 11,217 2358 1829 1829 881 881 2318 0 9 (1379) 0 (1379) 0 0 0 (1379) (.08) (.08)
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