UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 14, 2005
Science Dynamics Corporation
(Exact name of registrant as specified in its charter)
Delaware 000-10690 22-2011859
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
7150 N. Park Drive, Suite 500
Pennsauken, NJ 08109
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code: (856) 910-1166
Copies to:
Gregory Sichenzia, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas
New York, New York 10018
Phone: (212) 930-9700
Fax: (212) 930-9725
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement.
As of February 11, 2005, Science Dynamics Corporation (the "Company")
re-paid $1,322,199.01, representing all outstanding debt of the Company to
Laurus Master Fund, Ltd. ("Laurus"). On February 10, 2005, the Company amended
(the "Amendment") the conversion price of each of the Company's outstanding
convertible term notes held by Laurus to a fixed conversion rate of $0.05. On
February 11, 2005, Laurus converted $547,988.78 principal amount of convertible
notes of the Company and $223,447.28 of interest on such convertible notes into
an aggregate of 15,428,722 shares of the Company's common stock. As a result of
the conversion by Laurus of the term notes, all amounts outstanding under the
term notes were re-paid in full. In consideration for the Amendment and the
conversion by Laurus of the term notes, $550,762.95 of outstanding principal and
accrued and unpaid interest on a convertible note dated March 31, 2003 issued in
the face amount of $1,000,000 by the Company to Laurus was also re-paid. As a
result of the foregoing transactions, $1,322,199.01, representing all
outstanding debt of the Company to Laurus (except as set forth below) was
re-paid.
Subsequent to the above transactions, on February 14, 2005, the Company
entered into a Securities Purchase Agreement (the "Purchase Agreement"), dated
February 11, 2005, with Laurus for the sale of a $2,000,000 principal amount
Secured Convertible Term Note (the "Note") and a Common Stock Purchase Warrant
(the "Warrant") to purchase 6,000,000 shares of the Company's common stock. The
sale of the Note and the Warrant were made pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act"), and Regulation D under the Securities Act.
The Company received gross proceeds of $2,000,000 from the sale of the Note
and the Warrant. The Company may only use such proceeds for (i) general working
capital purposes, (ii) no less than 80% of the equity interests of Systems
Management Engineering, Inc. ("SMEI") pursuant to the Stock Purchase Agreement,
as amended, dated as of December 16, 2004 by and among the Company, SMEI and the
shareholders of SMEI identified therein, and (iii) the acquisition of 100% of
the remaining equity interests of SMEI pursuant to a transaction in form and
substance reasonably satisfactory to Laurus.
The Note bears interest at a rate per annum equal to the prime rate
published in The Wall Street Journal from time to time, plus 3%. Interest is
calculated on the last day of each month until the maturity date (each a
"Determination Date"). Subject to the following adjustment to the interest rate,
the interest rate shall not be less than 8%. If (i) the Company has registered
the resale of the shares issuable upon conversion of the Note and upon exercise
of the Warrant on an effective registration statement with the Securities and
Exchange Commission, and (ii) the market price of the Company's common stock for
the five trading days immediately preceding a Determination Date exceeds the
then applicable fixed conversion price by at least 25%, then the interest rate
for the succeeding calendar month shall automatically be reduced by 200 basis
points, or 2%, for each incremental 25% increase in the market price of the
common stock above the then applicable fixed conversion price.
Interest is payable on the Note monthly in arrears commencing March 1, 2005
and on the first business day of each consecutive calendar month thereafter
until the maturity date, February 11, 2008 (each a "Repayment Date"). Amortizing
payments of the aggregate principal amount outstanding under the Note must begin
on June 1, 2005 and recur on the first business day of each succeeding month
thereafter until the maturity date (each an "Amortization Date"). Beginning on
the first Amortization Date, the Company must make monthly payments to Laurus on
each Repayment Date, each in the amount of $60,606.06, together with any accrued
and unpaid interest to date on such portion of the principal amount plus any and
all other amounts which are then owing under the Note, the Purchase Agreement or
any other related agreement but have not been paid (collectively, the "Monthly
Amount"). Any principal amount that remains outstanding on the maturity date is
due and payable on the maturity date.
If the Monthly Amount (or a portion of the Monthly Amount if not all of the
Monthly Amount is converted into shares of common stock) is required to be paid
in cash, then the Company must pay Laurus an amount equal to 102% of the Monthly
Amount due and owing to Laurus on the Repayment Date in cash. If the Monthly
Amount (or a portion of the Monthly Amount if not all of the Monthly Amount is
converted into shares of common stock) is required to be paid in shares of
common stock, the number of such shares to be issued by the Company to Laurus on
such Repayment Date (in respect of such portion of the Monthly Amount converted
into in shares of common stock), shall be the number determined by dividing (x)
the portion of the Monthly Amount converted into shares of common stock, by (y)
the then applicable fixed conversion price. The fixed conversion price of the
Note is $0.10 per share, subject to adjustment for subsequent lower price
issuances by the Company, as well as customary adjustment provisions for stock
splits, combinations, dividends and the like.
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Laurus is required to convert into shares of common stock all or a portion
of the Monthly Amount due on each Repayment Date according to the following
guidelines (the "Conversion Criteria"): (i) the closing price of the common
stock as reported by Bloomberg, L.P. on the Repayment Date shall be greater than
or equal to 115% of the fixed conversion price and (ii) the amount of such
conversion does not exceed 25% of the aggregate dollar trading volume of the
common stock for the 22-day trading period immediately preceding the applicable
Repayment Date. If the Conversion Criteria are not met, Laurus must convert only
such part of the Monthly Amount that meets the Conversion Criteria. Any part of
the Monthly Amount due on a Repayment Date that Laurus has not been able to
convert into shares of common stock due to failure to meet the Conversion
Criteria, must be paid by the Company in cash at the rate of 102% of the Monthly
Amount otherwise due on such Repayment Date, within three business days of the
applicable Repayment Date.
The Warrant is exercisable at a price of $0.11 per share from the issue
date through the close of business on February 11, 2012. Upon exercise of the
Warrant, payment may be made by Laurus either (i) in cash or by certified or
official bank check payable to the order of the Company equal to the applicable
aggregate exercise price, (ii) by delivery of the Warrant, or shares of common
stock and/or common stock receivable upon exercise of the Warrant, or (iii) by a
combination of any of the foregoing methods. The exercise price of the Warrant
is subject to adjustment for stock splits, combinations, dividends and the like.
In order to secure payment of all amounts due under the Note, as well as
the Company's other obligations to Laurus: (i) the Company granted Laurus a lien
on all of the Company's assets and also on all assets of the Company's
subsidiaries; (ii) the Company pledged all of the capital stock that it owns of
each of its subsidiaries; and (iii) each of the Company's subsidiaries executed
a Subsidiary Guaranty of such obligations.
Pursuant to the terms of a registration rights agreement, the Company
agreed to include the shares of common stock issuable upon conversion of the
Note and upon exercise of the Warrant in a registration statement under the
Securities Act to be filed not later than March 13, 2005 and to use its
reasonable commercial efforts to cause such registration statement to be
declared effective no later than May 12, 2005. In the event the Company does not
meet these deadlines, it may be required to pay Laurus liquidated damages in
cash equal to 2% for each 30-day period (prorated for partial periods) on a
daily basis of the original principal amount of the Note.
Item 2.01 Completion of Acquisition or Disposition of Assets.
On February 14, 2005, the Company completed the acquisition of 4,177,500
shares of the outstanding common stock of Systems Management Engineering, Inc.
("SMEI"), which shares constitute approximately 82% of the issued and
outstanding shares of capital stock of SMEI on a fully diluted basis. As partial
consideration for such shares of SMEI, the Company issued an aggregate of
16,553,251 shares of the Company's common stock to twelve accredited investors
pursuant to Section 4(2) of the Securities Act and Regulation D under the
Securities Act. The acquisition was completed pursuant to the terms of a Stock
Purchase Agreement dated December 16, 2004, as amended, among the Company and
certain shareholders of SMEI. SMEI will continue to operate as an independent
subsidiary of the Company.
About SMEI
SMEI was incorporated on March 11, 1997 under the laws of the Commonwealth
of Virginia. SMEI was originally founded to provide the federal government with
engineering services coupled with advanced technology solutions. SMEI has
developed advanced data management applications, Internet server technology and
information systems that it markets to both public and private sectors. SMEI's
technology helps its customers reduce development time for projects, manage the
deployment of applications across the Internet to desktops around the world and
implement military grade security on all systems where the applications are
deployed. SMEI has two divisions, a consulting services division and the Aquifer
Software division.
2
Consulting Services Division
SMEI provides the federal government and private industry with engineering
services coupled with innovative information technology solutions. SMEI is
committed to addressing the growing public and private sector demand for
integrated, secure, enterprise class e-business solutions built on industry
standards.
SMEI has designed, developed and implemented advanced business management
applications, integration technologies and enterprise geospatial systems. SMEI
currently supports several operational systems in all of these categories for
major organizations and defense commands using web-based technologies and the
consolidation of custom and commercial off-the-shelf software to unite
dissimilar applications into integrated systems.
GIS Service Capabilities
SMEI specializes in the design and implementation of Enterprise Geographic
Information Systems ("GIS"), enabling the vision of public and private sector
clients for cross-organization data sharing. They are experts in the development
of Web services applications and secure geospatial solutions. SMEI architected
the Naval GeoReadiness Repository in support of Base Development, Base
Realignment and Closure (BRAC), the Installation Visualization Tool (IVT)
program, force protection, anti-terrorism and homeland defense. Administered by
Naval Facilities Engineering Command Headquarters (NAVFACHQ), the GeoReadiness
Repository provides installation geospatial data and imagery storage,
integration of Navy real property data, the automation of data submission,
standards compliance checking and conversion. Web services provide
visualization, cross-services data sharing, and an advanced security model for
accessing the GIS data. SMEI performs spatial analysis and risk assessment
modeling for the military medical application. SMEI also developed GIS-R, an
Army GIS repository to provide a visual method for users to access information
from a comprehensive set of government, commercial, and installation data
sources in an expandable, user-friendly decision support application.
Implementation planning is critical to the success of Enterprise GIS
initiatives. Cross-organizational data sharing and public visualization of
corporate information through the Internet requires the understanding of data
needs across functional areas, as well as the backbone technology to support an
Enterprise approach. The SMEI team includes key in-house experts in GIS
supporting technologies such as ESRI's ArcSDE, Oracle Spatial, UNIX and Windows
to ensure a stable architecture and operating environment for enterprise
applications. As current customers of this service, the Naval Information
Technology Center (NITC) receives architectural and database support, systems
integration analysis, and technical support from SMEI.
Technical and Management Consulting Services
SMEI provides network engineering, architectural guidance, database
management, expert programming and functional area expert analysis to its
Department of Defense clients. SMEI provides strategic consulting to support
business requirements, change management, and financial analysis and metrics for
several major federal customers.
In addition, SMEI provides management, analytical, and technical consulting
to support legacy application modernization and systems reduction goals under
several major contracts including the Department of Navy's Navy Marine Corps
Intranet (NMCI).
Aquifer Software Division
SMEI develops and markets the Aquifer(TM) Application Services Platform, a
proprietary software product for application developers. Aquifer helps
developers build a new class of software called rich Internet applications.
These applications are secure custom or commercial desktop and mobile Windows
Forms applications that use the traditional client/server model while exploiting
Web Services-based communications over the Internet.
Aquifer is a .NET application platform built on a service-oriented
architecture that delivers scalable and secure Web applications to Windows
desktop and Windows CE platforms. Aquifer helps SMEI reduce development time and
manage the deployment of applications across the Internet to desktops around the
world while implementing Department of Defense ("DOD") certified and accredited
security on all deployed systems. Aquifer addresses the needs of development
organizations to more rapidly develop custom Windows Forms applications and
lower the costs to secure, deploy and maintain them. Aquifer helps organizations
solve the following problems:
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o Reduction in application development time, cost and risk;
o Reduction of desktop and PDA application deployment time and cost;
o Increased richness of user experience;
o Elimination of security concerns inherent with Web browser
vulnerabilities;
o Decreased server software and hardware costs; and
o Optimization of network resources for best performance.
SMEI markets Aquifer as both a productivity tool and a secure application
platform. Whether modernizing legacy applications or building new
service-oriented, Web based systems, Aquifer is designed to shorten the time it
takes to develop and deliver custom solutions in Microsoft .NET environments.
Aquifer provides many common service components including:
o Data Access;
o Role-based User Profiles;
o Flexible Security Model including strong encryption;
o Configuration Management;
o Event Management;
o Integration Gateways; and
o Secure Client.
In its current version 5.4, the Aquifer Application Services Platform
9can support between 500 and 1,000 concurrent active desktops against a single
server processor.
Sales and Marketing
SMEI markets its Aquifer Application Services Platform to mid to
large-sized commercial accounts, federal government agencies, systems
integrators and independent software vendors that are building Windows rich
Internet applications. Aquifer's products, training and services are focused on
the .NET Windows Forms application development market where enterprise IT
organizations and systems integrators are tasked with building and managing
applications that run on the Internet using the .NET Framework.
SMEI employs the following tactics to sell the Aquifer Application Services
Platform:
Direct Sales to Enterprise IT Organizations and Systems Integrators - A
direct sales force performs this activity. This segment includes all new
federal, systems integrator and commercial accounts. SMEI believes that
reference-ability is a key post-sale objective.
Targeted Marketing - With the help of extensive lead generation, public
relations and targeting marketing communication materials, SMEI hopes to
establish itself as a leader in the rich Internet application development
and management market with an emphasis on security over both wired and
wireless communications. The tactics include marketing materials directed
at DOD agencies, the financial services and health care markets and other
markets where strong security is a common requirement. Print media, direct
mail, trade shows/conferences and live Web casts are the main components of
lead generation for SMEI.
Strategic Alliances - SMEI plans to continue to form strategic alliances
with federal and commercial systems integrators and Web services
performance management vendors to sell SMEI's products as value-added
resellers and to enhance Aquifer's capabilities by integrating with other
vendor's performance monitoring capabilities. SMEI believes that engaging
marketing an delivery channels that are not currently available to the
company will broaden market reach, increase delivery bandwidth in some
instances, and yield a greater return on sales and marketing expenditure.
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Important partnerships SMEI has developed recently include:
o Microsoft. SMEI is a Microsoft Certified Partner. Recently, Aquifer's
security model and its presence on the Navy Marine Corps Intranet
(NMCI) network have attracted interest from Microsoft Federal and from
Microsoft Business Development in Redmond. SMEI is currently working
with Redmond to develop a NMCI formal Microsoft/SMEI case study
describing the benefits of .NET and Aquifer.
o AmberPoint. AmberPoint is a Silicon Valley-based software company that
builds and markets management solutions for Web services. SMEI and
AmberPoint co-market products to federal governmental agencies. SMEI
plans to integrate Aquifer and AmberPoint to help developers more
easily and accurately monitor the .NET applications they build.
SMEI's goal is to turn every Aquifer customer into a reference account.
SMEI believes that first hand testimonials describing the productivity gains
with Aquifer are of great value and can significantly enhance sales and
marketing efforts
Competition
As a company offering IT services, SMEI's services market is fragmented and
highly competitive. SMEI faces competition from companies providing IT
outsourcing and business process outsourcing solutions. SMEI also competes with
software vendors in the .NET Web Application Services Platform market. Potential
competitors of SMEI's Aquifer software include:
o Kinitos, Inc. delivers an enterprise deployment solution that allows
IT to maintain centralized control of existing Windows Forms clients.
The Kinitos .NET platform centralizes control of the monitoring,
deployment and updating of existing Windows Forms client applications
throughout the network. It handles policy based client deployment and
rollback, enables real time monitoring and delivers centralized
reporting of client applications.
Kinitos also has a component that provides client-side "plumbing" for
creating Windows Forms applications. It handles the communications
from client to server, provides online/offline services, reliable
messaging, logging and dynamic updating of client applications.
o ObjectWare, Inc. markets its IdeaBlades technology as an application
development platform for the rapid creation of smart client
applications. ObjectWare leverages Microsoft .NET technology to
streamline development, deployment and maintenance processes while
simplifying the supporting hardware and software environments.
SMEI believes that its Aquifer platform offers more comprehensive features
and that on this basis Aquifer has a marketing and performance advantage over
competing products. SMEI believes that its Aquifer DOD certified and accredited
security technology not only creates an advantage over competitors, but also
creates a strong barrier to entry. The following chart demonstrates the
competitive features in Aquifer and those features currently available from the
above competitors.
------------------------------------------------------- ----------- ----------- ---------------
Application Service Aquifer Kinitos ObjectWare
------------------------------------------------------- ----------- ----------- ---------------
Configuration Management Yes Yes Yes
------------------------------------------------------- ----------- ----------- ---------------
Data Access Yes No Yes
------------------------------------------------------- ----------- ----------- ---------------
DITSCAP Approved Security Yes No No
------------------------------------------------------- ----------- ----------- ---------------
Active Directory Support Yes No No
------------------------------------------------------- ----------- ----------- ---------------
Event Management Yes Yes No
------------------------------------------------------- ----------- ----------- ---------------
User, Account and Application Management Yes No No
------------------------------------------------------- ----------- ----------- ---------------
Management Console Yes No No
------------------------------------------------------- ----------- ----------- ---------------
Execute multiple applications per client instance Yes Yes No
------------------------------------------------------- ----------- ----------- ---------------
Multi-platforms (e.g., Win 32, Win CE) Yes N/A N/A
------------------------------------------------------- ----------- ----------- ---------------
Performance Management Partner No No
------------------------------------------------------- ----------- ----------- ---------------
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Intellectual Property
On November 12, 2003, SMEI filed an application with the United States
Patent and Trademark Office for a trademark of the name "Aquifer." On December
21, 2004 the United States Patent and Trademark Office issued trademark serial
number 78326540 for the name "Aquifer." SMEI has not yet received the
Certificate of Registration.
The description of the trademark as submitted is as follows:
International Class: 009
Computer application software that allows end-users to use applications and
developers to create new applications and move non-web based legacy applications
to web based applications that can operate on the Internet.
Employees
As of February 14, 2005, SMEI had 26 full time employees and one part time
employee. None of SMEI's employees are covered by a collective bargaining
agreement. SMEI considers relations with its employees to be good.
Description of Property
SMEI currently subleases a facility located at 12100 Sunset Hills Road,
Reston, Virginia 20191. The facility is comprised of 9,342 square feet of office
space. The sublease is pursuant to a Sub-Sublease Agreement dated June 22, 2001.
The sublease commenced July 15, 2001 and ends September 30, 2005. SMEI currently
pays $18,289.81 per month under the sublease, which is subject to a 3% increase
in July 2005.
Legal Proceedings
Neither the Company nor SMEI is currently a party to, nor is any of the
Company's or SMEI's property currently the subject of, any pending legal
proceeding. None of the Company's directors, officers or affiliates is involved
in a proceeding adverse to the Company's business or has a material interest
adverse to the Company's business.
Risk Factors
There was no Formal Valuation Determining the Fairness of the Consideration for
the Acquisition of SMEI.
The consideration for the acquisition of SMEI was determined by arms'
length negotiations between the Company's management and the management of SMEI,
but there was no formal valuation of SMEI by an independent third party. The
Company did not obtain a fairness opinion by an investment banking firm or other
qualified appraiser. Since the acquisition of SMEI did not require the approval
of the Company's stockholders, the Company is unable to determine whether its
stockholders would have agreed with the determination by the Company's Board of
Directors that the terms of the acquisition were fair and in the best interests
of the stockholders.
The Company may not be Able to Effectively Integrate SMEI, Which Would be
Detrimental to the Company's Business.
Acquisitions involve numerous risks, including potential difficulty in
integrating operations, technologies, systems, and products and services of
acquired companies, diversion of management's attention and disruption of
operations, increased expenses and working capital requirements and the
potential loss of key employees and customers of acquired companies. In
addition, acquisitions involve financial risks, such as the potential
liabilities of the acquired businesses, the dilutive effect of the issuance of
additional equity securities, the incurrence of additional debt, the financial
impact of transaction expenses and the amortization of goodwill and other
intangible assets involved in any transactions that are accounted for by using
the purchase method of accounting, and possible adverse tax and accounting
effects. Any of the foregoing could materially and adversely affect the
Company's business.
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Failure to Properly Manage the Company's Potential Growth Would be Detrimental
to the Company's Business.
Any growth in the Company's operations will place a significant strain on
its resources and increase demands on management and on operational and
administrative systems, controls and other resources. There can be no assurance
that the Company's existing personnel, systems, procedures or controls will be
adequate to support the Company's operations in the future or that the Company
will be able to successfully implement appropriate measures consistent with its
growth strategy. As part of this growth, the Company may have to implement new
operational and financial systems, procedures and controls to expand, train and
manage its employee base and maintain close coordination among technical,
accounting, finance, marketing and sales staffs. The Company cannot guarantee
that it will be able to do so, or that if it is able to do so, the Company will
be able to effectively integrate them into its existing staff and systems. The
Company may fail to adequately manage its anticipated future growth. The Company
will also need to continue to attract, retain and integrate personnel in all
aspects of operations. Failure to manage growth effectively could hurt the
Company's business.
Management of the Company Subsequent to the Acquisition of SMEI
The following are the names and certain information regarding the Company's
Directors, Director Nominees and Executive Officers following the acquisition of
SMEI. The Company plans to appoint the Director Nominees to the Company's Board
of Directors approximately ten days after the date the Company transmits to all
holders of record of the Company's common stock information required by Rule
14f-1 under the Securities Exchange Act of 1934, as amended. There are no family
relationships among any of the Company's Directors, Director Nominees and
Executive Officers.
------------------------------- --------- --------------------------------------------------------
Name Age Position
------------------------------- --------- --------------------------------------------------------
Paul Burgess 40 President, Chief Executive Officer and Director
------------------------------- --------- --------------------------------------------------------
Alan C. Bashforth 54 Acting Chief Financial Officer, Secretary and Chairman
of the Board of Directors
------------------------------- --------- --------------------------------------------------------
Eric D. Zelsdorf 39 Chief Technology Officer and Director Nominee
------------------------------- --------- --------------------------------------------------------
Herbert B. Quinn 68 Director Nominee
------------------------------- --------- --------------------------------------------------------
Robert E. Galbraith 61 Director Nominee
------------------------------- --------- --------------------------------------------------------
Background of Executive Officers and Directors
Paul Burgess, President, Chief Executive Officer and Director. From March
1, 2003 until February 14, 2005, Mr. Burgess was Chief Operating Officer of the
Company. As of February 9, 2005, Mr. Burgess was appointed President and Chief
Executive Officer of the Company. On February 14, 2005, Mr. Burgess was
appointed a director of the Company. From January 2000 to December 2002, Mr.
Burgess was President and Chief Financial Officer of Plan B Communications.
Prior to Plan B Communications, Mr. Burgess spent three years with MetroNet
Communications, where he was responsible for the development of MetroNet's coast
to coast intra and inter city networks. Mr. Burgess was also influential in
developing the operations of MetroNet during the company's early growth stage.
Prior to joining MetroNet, Mr. Burgess was with ISM, a company subsequently
acquired by IBM Global Services, where he was responsible for developing and
deploying the company's distributed computing strategy.
Alan C. Bashforth, Acting Chief Financial Officer, Secretary and Chairman
of the Board of Directors. From April 4, 2002 to February 9, 2005, Mr. Bashforth
was President, Chief Executive Officer and the sole Director of the Company. Mr.
Bashforth continues to serve as a Acting Chief Financial Officer, Secreatary,
director and as Chairman of the Board of Directors of the Company. Mr. Bashforth
has been a member of the Company's Board of Directors since November 1996. Since
1996, Mr. Bashforth has held various executive officer positions with the
Company. From the end of 1996 to December 15, 2000, Mr. Bashforth was President
of Cascadent Communications, a major customer of the Company. Previously he was
President of Innovative Communications Technology, Ltd. ("ICT"), a data
communications company located in Jersey, Channel Islands, until the acquisition
of the intellectual property of ICT by the Company in November 1996.
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Eric D. Zelsdorf, Chief Technology Officer and Director Nominee. Mr.
Zelsdorf founded SMEI in 1997 and since then he has been the Chief Technology
Officer, President and a Director of SMEI. Mr. Zelsdorf has led SMEI since its
inception and currently advises clients as well as industry standards groups on
the implementation of secure Web services and enterprise architecture and
integration. From 1992 to 1997, Mr. Zelsdorf was Vice President and Chief
Technology Officer for ECG, Inc.
Herbert B. Quinn, Director Nominee. Mr. Quinn has been Chairman and Chief
Executive Officer of SMEI since 1998 when he led the merger of Energy and
Environmental Technologies into SMEI. Mr. Quinn is a retired Army Brigadier
General, former Senior Executive for the EPA and a registered Professional
Engineer.
Robert E. Galbraith, Director Nominee. Mr. Galbraith is currently a
consultant to firms seeking innovative technical solutions in the security
marketplace. Areas in which Mr. Galbraith have consulted include: data
encryption, internet telephony (VoIP), intelligent data recording, secure local
and wide area network solutions, physical security and biometric security. Prior
to consulting, Mr. Galbraith was President, owner and technical administrator of
Secure Engineering Services, Inc. ("SESI") from its inception in 1979 until the
firm was sold in 1996. During this period, SESI provided services and equipment
to the U.S. Forces and NATO component Forces in Europe. Clients included the
U.S. Army, Navy and Air Force, the SHAPE Technical Center, Euro Fighter Program,
Sandia Labs, JPL, MITRE and NATO programs.
Employment Agreements
On February 14, 2005, upon effectiveness of the Company's acquisition of
SMEI, the Company entered into an Executive Employment Agreement Amendment with
Paul Burgess. Under the Executive Employment Agreement Amendment, Mr. Burgess is
employed by the Company as its Chief Executive Officer for an initial term of
three years. Thereafter, the Executive Employment Agreement Amendment may be
renewed upon the mutual agreement of Mr. Burgess and the Company. Mr. Burgess
will be paid a base salary of $225,000 per year under the Executive Employment
Agreement Amendment. The Company previously agreed to grant Mr. Burgess
2,000,000 shares of restricted stock. This grant was replaced by the grant of
fully vested options to purchase 2,000,000 shares of common stock of the Company
at an exercise price of $0.03 per share. The Company also agreed to grant Mr.
Burgess fully vested options to purchase an additional 2,000,000 shares of
common stock of the Company at an exercise price of $0.05 per share as a bonus
for services rendered to the Company during 2004. Further, upon the effective
date of the Executive Employment Agreement Amendment, the Company agreed to
grant Mr. Burgess options to purchase 6,000,000 shares of the Company's common
stock at an exercise price of $0.10 per share, which will vest one-third each
year over a three-year period beginning February 14, 2006. In addition, the
Company agreed to pay Mr. Burgess an incentive bonus based on 1% of the revenue
of the most recent 12-month period of any acquisitions closed by the Company
during the term of the Executive Employment Agreement Amendment. The Executive
Employment Agreement Amendment may be terminated by Mr. Burgess at his
discretion by providing at least 30 days prior written notice to the Company. In
the event the Company is acquired, or is the non-surviving party in a merger, or
the Company sells all or substantially all of its assets, the surviving company
is bound to the provisions of the Executive Employment Agreement Amendment.
Certain Relationships and Related Transactions
On January 1, 2005, the Company entered into a Consulting Agreement with
SMEI and Herbert B. Quinn, Jr., which is effective as of the date the Company
completed the acquisition of SMEI. Under the agreement, Mr. Quinn will perform
strategic analytical and advisory services as reasonably requested by SMEI's
Chief Executive Officer. For his services, the Company agreed to pay Mr. Quinn
$150,000 per year. Mr. Quinn also is eligible to receive options under the
Company's stock option plan or any similar plan that is in effect. The term of
the agreement is for one year and will automatically renew for one additional
year unless either party gives at least 30 days prior written notice of their
intent not to extend the agreement. The agreement does not contain any
termination provisions.
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Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, as of February 17, 2005
with respect to the beneficial ownership of the outstanding common stock by (i)
any holder of more than five (5%) percent; (ii) each of the Company's executive
officers and directors; and (iii) the Company's directors and executive officers
as a group. Except as otherwise indicated, each of the stockholders listed below
has sole voting and investment power over the shares beneficially owned.
Common Stock Percentage of
Name of Beneficial Owner (1) Beneficially Owned (2) Common Stock (2)
-------------------------------------- ----------------------- -----------------
Alan C. Bashforth (3) 14,048,363 14.9%
Paul Burgess (4) 4,000,000 4.4%
Herbert B. Quinn, Jr. (5) 6,604,424 7.7%
Eric D. Zelsdorf 5,835,606 6.8%
Robert Galbraith (6) 1,245,000 1.4%
-------------------------------------- ----------------------- -----------------
All officers, directors and directors 31,733,393 32.3%
nominees as a group (5 persons)
(1) Except as otherwise indicated, the address of each beneficial owner is c/o
Science Dynamics Corporation, 7150 N. Park Drive, Suite 500, Pennsauken, NJ
08109.
(2) Applicable percentage ownership is based on 86,239,910 shares of common
stock outstanding as of February 17, 2005, together with securities
exercisable or convertible into shares of common stock within 60 days of
February 17, 2005 for each stockholder. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities.
Shares of common stock that are currently exercisable or exercisable within
60 days of February 17, 2005 are deemed to be beneficially owned by the
person holding such securities for the purpose of computing the percentage
of ownership of such person, but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
(3) Includes: (a) 165,000 shares owned directly by Mr. Bashforth; (b) 1,520,000
shares owned by Innovative Communications Technology, Ltd., which is
controlled by Mr. Bashforth; (c) 4,363,363 shares owned by Calabash
Holdings Ltd., which is controlled by Mr. Bashforth; (d) options owned by
Calabash Holdings Ltd. to purchase 2,000,000 shares exercisable at $0.05
per share; and (e) warrants owned by Calabash Holdings Ltd. to purchase
6,000,000 shares exercisable at $0.10 per share which expire on February
14, 2012.
(4) Includes (a) options to purchase 2,000,000 shares of common stock
exercisable at $0.03 per share; and (b) options to purchase 2,000,000
shares of common stock exercisable at $0.05 per share.
(5) Includes 370,515 shares owned by Elizabeth L. Quinn, spouse of Herbert B.
Quinn, Jr.
(6) Includes 50,000 shares owned by Melinda Galbraith, spouse of Robert
Galbraith.
Item 2.03 Creation of a Direct Financial Obligation.
See Item 1.01 above.
Item 3.02 Unregistered Sales of Equity Securities
See Item 1.01 and Item 2.01 above.
Item 5.02 Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers.
See Item 2.01 above.
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Item 9.01 Financial Statements and Exhibits.
(a) Financial statements of business acquired.
To be filed by amendment no later than 71 calendar days after February
18, 2005.
(b) Pro forma financial information.
To be filed by amendment no later than 71 calendar days after February
18, 2005.
(c) Exhibits.
Exhibit Number
Description
------------------ -- ----------------------------------------------------------
2.1 Stock Purchase Agreement dated December 16, 2004 among
Science Dynamics Corporation, Systems Management
Engineering, Inc. and the shareholders of Systems Management
Engineering, Inc. identified on the signature page thereto
(Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on December 22, 2004)
2.2 Amendment No. 1 to Stock Purchase Agreement dated December
16, 2004 among Science Dynamics Corporation, Systems
Management Engineering, Inc. and the shareholders of Systems
Management Engineering, Inc. identified on the signature
page thereto (Incorporated by reference to Form 8-K filed
with the Securities and Exchange Commission on February 11,
2005)
4.1 Securities Purchase Agreement dated February 11, 2005 by and
between Science Dynamics Corporation and Laurus Master Fund,
Ltd. (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on February 18, 2005)
4.2 Secured Convertible Term Note dated February 11, 2005 issued
to Laurus Master Fund, Ltd. (Incorporated by reference to
Form 8-K filed with the Securities and Exchange Commission
on February 18, 2005)
4.3 Common Stock Purchase Warrant dated February 11, 2005 issued
to Laurus Master Fund, Ltd. (Incorporated by reference to
Form 8-K filed with the Securities and Exchange Commission
on February 18, 2005)
4.4 Master Security Agreement dated February 11, 2005 among
Science Dynamics Corporation, M3 Acquisition Corp., SciDyn
Corp. and Laurus Master Fund, Ltd. (Incorporated by
reference to Form 8-K filed with the Securities and Exchange
Commission on February 18, 2005)
4.5 Stock Pledge Agreement dated February 11, 2005 among Laurus
Master Fund, Ltd., Science Dynamics Corporation, M3
Acquisition Corp. and SciDyn Corp. (Incorporated by
reference to Form 8-K filed with the Securities and Exchange
Commission on February 18, 2005)
4.6 Subsidiary Guaranty dated February 11, 2005 executed by M3
Acquisition Corp. and SciDyn Corp. (Incorporated by
reference to Form 8-K filed with the Securities and Exchange
Commission on February 18, 2005)
4.7 Registration Rights Agreement dated February 11, 2005 by and
between Science Dynamics Corporation and Laurus Master Fund,
Ltd. (Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on February 18, 2005)
4.8 Second Omnibus Amendment to Convertible Notes and Related
Subscription Agreements of Science Dynamics Corporation
issued to Laurus Master Fund, Ltd.
10.1 Sub-Sublease Agreement made as of June 22, 2001 by and
between Software AG and Systems Management Engineering, Inc.
(Incorporated by reference to Form 8-K filed with the
Securities and Exchange Commission on February 18, 2005)
10.2 Microsoft Partner Program Agreement (Incorporated by
reference to Form 8-K filed with the Securities and Exchange
Commission on February 18, 2005)
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10.3 AmberPoint Software Partnership Agreement (Incorporated by
reference to Form 8-K filed with the Securities and Exchange
Commission on February 18, 2005)
10.4 Executive Employment Agreement Amendment made as of February
14, 2005 by and between Science Dynamics Corporation and
Paul Burgess
10.5 Consulting Agreement dated January 1, 2005 between Science
Dynamics Corporation, Systems Management Engineering, Inc.
and Herbert B. Quinn, Jr. (Incorporated by reference to Form
8-K filed with the Securities and Exchange Commission on
February 25, 2005)
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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
Date: March 1, 2005 /s/ Alan C. Bashforth
---------------------
Alan C. Bashforth
Acting Chief Financial Officer and Secretary
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