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, 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:


         09/30/98    14,661,449 shares of common stock were outstanding.

<PAGE>

           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, 1998    1
                 (unaudited) and December 31, 1997 (audited)             
         
                 Consolidated Statements of Operations for nine months   2
                 and three months ended September 30, 1998 (unaudited)
                 and nine months and three months ended September 30,
                 1997 (unaudited)                                        

                 Consolidated Statements of Cash Flows for nine months   3
                 and three months ended September 30, 1998 (unaudited)
                 and nine months and three months ended September 30,
                 1997 (unaudited)                                        

                 Consolidated Statements of Shareholders' Equity for     4
                 the year ended December 31, 1997 (audited) and the
                 nine months ending September 30, 1998 (unaudited)       

                 Notes to Consolidated Financial Statements              5 - 6


         Item 2. Management's Discussion and Analysis of Financial 
                 Condition and Results of Operations                     6 - 12


PART II. OTHER INFORMATION

         Item 1. Legal Proceedings                                      13

         Item 2. Changes in Securities                                  13

         Item 3. Defaults upon Senior Securities                        13

         Item 4. Submission of Matters to Vote of Security Holders      13

         Item 5. Other Information                                      13

         Item 6. Exhibits and Reports                                   13

         Item 7. Signatures                                             14

<PAGE>
                 SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                        CONSOLIDATED BALANCE SHEETS

PART I.   FINANCIAL INFORMATION
          Item 1. Financial Statements:

                  ASSETS

                                            September 30     December 31,
                                                1998             1997
                                              Unaudited        Audited
                                              ---------        -------
Current assets:
   Cash and cash equivalents                $      17,416    $    21,181
   Accounts receivable - trade                    589,906        613,916
   Inventories                                    377,381        322,530
   Other current assets                            36,844         52,200
                                            -------------    -----------
      Total current assets                      1,021,547      1,009,827
                                            -------------    -----------

Property and equipment, net                       249,828        220,060
Software development costs, net of
 accumulated amortization of $356,176
 in 1998 and $277,992 in 1997                     165,058        243,243
Deferred income taxes                             308,000        308,000
Intangible Assets, net of accumulated
 amortization of $525,000 in 1998 and
 $300,000 in 1997.                                975,000      1,200,000
Other assets                                       44,936         39,239
                                            -------------    -----------
      Total assets                          $   2,764,369    $ 3,020,369
                                            =============    ===========


   LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Notes payable                            $     180,521    $       -
   Accounts payable                               470,175        289,188
   Accrued expenses, principally
          payroll related                          95,993         87,046
                                            -------------    -----------
      Total current liabilities                   746,689        376,234
                                            -------------    -----------

Commitments

Shareholders' equity -
   Common stock - .01 par value,
    45,000,000 shares authorized,
    14,661,449  issued and
    outstanding in 1998 and 1997 
    respectively.                                 146,614        146,614
   Additional paid-in capital                  10,166,429     10,166,429
   Retained earnings (deficit)                 (7,897,530)    (7,271,075)
                                            -------------    -----------
                                                2,415,513      3,041,968
   Common stock held in treasury,
    at cost                                      (397,833)      (397,833)
                                            -------------    -----------
   Total shareholders' equity                   2,017,680      2,644,135
                                            -------------    -----------
   Total liabilities and shareholders'
    equity                                  $   2,764,369    $ 3,020,369
                                            =============    ===========

-1-
<PAGE>
<TABLE>
                 SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (UNAUDITED)
                                  ---------

PART I.   FINANCIAL INFORMATION
          Item 1. Financial Statements(Continued):
<CAPTION>
                                                  Nine Months Ended                 Three Months Ended
                                                    September 30,                      September 30,    

                                                 1998            1997              1998             1997
                                                 ----            ----              ----             ----
<S>                                         <C>             <C>               <C>              <C>           
 NET SALES                                   $3,400,297      $3,366,792        $1,074,991       $ 548,280
                                             ----------      ----------        ----------       ---------


Operating costs and expenses:

      Cost of sales                           1,299,739       1,626,411           402,096         303,373
      Research and development                  954,416         791,169           341,287         386,776
      Selling, general
          and administrative                  1,770,243       1,678,863           527,750         488,870
                                            -----------      ----------        ----------      ----------
                                              4,024,398       4,096,443         1,271,133       1,179,019
                                             ----------      ----------        ----------       ---------

Operating income (loss)                        (624,101)       (729,651)         (196,142)       (630,739)

Other income (expenses):
   Interest and other
    investment income                               -            15,434               -             3,660
   Interest expense                              (2,354)        (29,402)           (2,354)            -
                                             ----------      ----------        ----------       ---------



Net (Loss)                                   $ (626,455)     $ (743,619)       $ (198,496)      $(627,079)
                                             ==========      ==========        ==========       =========


Net (Loss) per common share                  $    (0.04)     $    (0.06)       $    (0.01)      $   (0.05)
                                             ==========      ==========        ==========       =========

</TABLE>
-2-
<PAGE>
<TABLE>
                  SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (UNAUDITED)
                                  ---------
<CAPTION>
PART I.   FINANCIAL INFORMATION
          Item 1. Financial Statements(Continued):

                                      Nine Months Ended                  Three Months Ended
                                        September 30,                       September 30,

                                     1998          1997                  1998          1997
                                     ----          ----                  ----          ----
<S>                              <C>           <C>                  <C>            <C>
Cash flows from operating
 activities:
   Net (loss)                     $ (626,455)   $(743,619)            $(198,496)    $ (627,079)
                                  ----------    ---------             ---------     ----------

Adjustments to reconcile
 net (loss) to net cash
 provided by (used for)
 operating activities:
   Depreciation                       52,981       49,387                20,384         17,967
   Amortization of
    capitalized software              78,185       78,185                26,062         26,062
   Amortization of
     Intangible assets               225,000      225,000                75,000         75,000
     Other non-cash expense                        29,402                                    -
Changes in operating assets
 and liabilities:
   (Increase) decrease in:
    Accounts receivable               24,010     (337,733)             (189,406)       215,299
    Other receivable                       -      200,000                     -        150,000
    Inventories                      (54,850)     255,727               175,819        130,672
    Other current assets              15,356        5,242                (7,590)       (11,386)
    Other assets                      (5,697)      (1,462)                   -          (1,462)
   Increase (decrease) in:
     Accounts payable and
        accrued expenses             189,934     (344,223)              (80,848)      (277,852)
                                  ----------    ---------             ---------     ----------


Total adjustments                    524,919      159,525                19,421        324,300
                                  ----------    ---------             ---------     ----------

 Net cash provided by
  (used for) operating
  activities                        (101,536)    (584,094)             (179,075)      (302,779)
                                  ----------    ---------             ---------     ----------

Cash flows from investing
 activities:
 Purchase of property and
    equipment - net                  (82,750)     (67,738)               (7,872)       (24,032)
                                  ----------    ---------             ---------     ----------
   Net cash (used) in
    investing activities             (82,750)     (67,738)               (7,872)       (24,032)
                                  ----------    ---------             ---------     ----------

Cash flows from financing
 activities:
   Proceeds from Note Payable
   Net cash (used in) provided
    by financing activities          180,521            -               180,521              -
                                  ----------    ---------             ---------     ----------

Net increase (decrease) in
 cash and cash equivalents            (3,765)    (651,832)               (6,426)      (326,811)

Cash and cash equivalents -
 beginning of period                  21,181      830,229                23,842        505,208
                                  ----------    ---------             ---------     ----------

Cash and cash equivalents -
 end of period                        17,416    $ 178,397                17,416     $  178,397
                                  ==========    =========             =========     ==========

</TABLE>

-3-
<PAGE>
<TABLE>
                  SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                    FOR THE YEAR ENDED DECEMBER 31, 1997 AND
                      NINE MONTHS ENDED SEPTEMBER 30, 1998
<CAPTION>
PART I.   FINANCIAL INFORMATION
          Item 1. Financial Statements(Continued):

                                     Common Stock          Additional      
                                     ------------            Paid-In      
                                 Shares         Amount       Capital       (Deficit)      Shares      Amount
                                 ------         ------       -------       ---------      ------      ------
<S>                            <C>          <C>           <C>          <C>              <C>          <C>      

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 loss                                  -            -             -       (626,455)          -           -
                                -----------     --------    ----------      ---------     -------     -------

Balance
 September
 30, 1998                        14,661,449    $ 146,614   $10,166,429   $ (7,897,530)    125,800   $ 397,833
                                -----------     --------    ----------      ---------     -------     -------

</TABLE>
-4-
<PAGE>

               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, 1997.  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.

        New Accounting Pronouncements
        -----------------------------

        The Company adopted Statement of Financial Accounting Standards
        No. 128,"Earnings Per Share" ("SFAS No. 128") for the year ended
        December 31, 1997.  SFAS No. 128 requires the Company to change its
        method of computing, presenting and disclosing earnings per share 
        information. Upon adoption, all prior period data presented must be 
        restated to conform to the provisions of SFAS No. 128.  The Company 
        has presented basic earnings per share.  The basic earnings per 
        common share would be the same as the net loss per share shown in the 
        Statements of Operations included in Item 1 of Part I of this
        Quarterly Report on Form 10-QSB.  As the computation of diluted 
        earnings per common share would be anti-dilutive, the diluted 
        earnings per common share would be the same as the basic income per
        common share.
 
-5-
<PAGE>

        In June 1997, the Financial Accounting Standards Board issued 
        Statement of Financial Accounting Standards No. 130, "Reporting
        Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes 
        standards for the reporting and displaying of comprehensive income
        and its components (revenues, expenses, gains and losses) in a full
        set of general-purpose financial statements. SFAS No. 130 requires 
        the disclosure of an amount that represents total comprehensive
        income and the components of comprehensive income in a financial 
        statement.  The adoption of SFAS No. 130 required no additional
        disclosure for the Company and did not have a material effect on the
        Company's financial position or results of operations. 

        In June 1997, the Financial Accounting Standards Board issued 
        Statement of Financial Accounting Standards No. 131, "Disclosures
        about Segments of an Enterprise and Related Information" ("SFAS 
        No. 131"). SFAS No. 131 establishes standards for determining an 
        entity's operating segments and the type and level of financial 
        information to be disclosed in both annual and interim financial 
        statements. SFAS No. 131 also establishes standards for related 
        disclosures about products and services, geographic areas and
        major customers. The pronouncement is effective for periods beginning
        after December 15, 1997. The adoption of SFAS No. 131 required no 
        additional disclosure for the Company and did not have a material 
        effect on the Company's financial position or results of operations. 


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
        RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
        FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998. 

        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 the public switched telephone network.  These 
        platforms are sophisticated software based systems that satisfy a 
        wide range of computer telephony integration applications. 


        The VFX-250 product provides users of frame relay with a method of 
        video conferencing over their existing network at a typically lower
        cost than equivalent leased line networks. The VFX-250 is capable of
        supporting any continuous data bit-stream traffic over a Frame Relay 
        network.  The system has been successfully tested with the Frame 
        Relay product lines of leading manufacturers in this field, which 
        should provide additional opportunities for this technology. 

        During the third quarter the Company has revised and developed the 
        VFX product in concert with our customers' requirements.  In July,
        version 2.1 of the VFX-250S was released, adding more flexibility and 
        functionality to the existing version 2.0 product.  The 2.1 version 
        includes a number of features to increase flexibility and compatibility
        with existing frame relay networks. Among the new features included
        in the 2.1 release are an external TT Clock that enables the use of
        devices requiring an external clock; the addition of local and remote

-6-
<PAGE>
        loop-back facilities to aid in trouble-shooting network installations;
        and changes in internal clock speed and the automatic variable buffer
        length.  This product has been technologically endorsed, although
        the demand ramp-up has been slower than management originally
        anticipated.


        In a recent independent test of videoconferencing via frame relay 
        technology equipment, three vendors' products were evaluated and 
        the results published in the September 15, 1998 issue of Network 
        Computing Magazine.  The Network Computing Editor's Choice was 
        awarded to the Memotec CX900e system which uses the VFX-250S Frame 
        Relay Access Device developed by Science Dynamics.  This article has 
        created a market awareness of the Company's VFX product's performance
        which management perceives will result in increased sales of this 
        product in the future.

        The Company continues to expend research and continuing development 
        efforts on this product to further enhance capabilities. Recent 
        customer feedback has suggested that the Company investigate 
        development of 'internal' versions of the technology, for inclusion
        into several Frame Relay vendor's equipment.

        The new COMMANDER II inmate-calling system, which was being tested
        at a RBOC technology laboratory, passed all inmate call control, 
        Windows NT security and call processing thresholds. This product line 
        acceptance certification allowed the company to enter into a major 
        purchasing agreement for thirty-seven new COMMANDER II conversion 
        systems.  Additionally, it is anticipated that fifty additional
        conversion systems will be ordered during the first half of 1999.  

        The Company's new Commander I inmate calling system is currently 
        being tested at a RBOC.  It is expected that the Commander I system 
        will receive full acceptance certification in early December with 
        delivery by the end of the year.

        The Company believes that the new Commander I & II inmate calling 
        systems which are based on the Company's Integrator-C2000(tm) platform
        provide one of the correctional industries finest inmate phone
        control systems.

        During the third quarter, the world of IP Telephony changed greatly, 
        as it will continue to change throughout the upcoming months.  
        Technology that fits in this market is often known as "bleeding edge"
        due to the fact that the market is changing so rapidly.  Participants
        in this market have to put a great deal of development effort in for
        possibly little initial return.  

        The development effort providing Voice over IP based on the 
        IntegratorC-2000(tm) platform continued in the third quarter. 
        Currently under development are additional service modules for the 
        IntegratorC-2000(tm) product including a real-time interface into a 
        Billing/Debit Based Calling Card Platform.  This interface provides a 
        complete solution for Debit based or Credit based Internet phone 
        systems. The SS7 Interface will allow an Integrator Gateway to 
        connect to Carrier networks as an End Office Gateway.  The H323 
        Interface, which has been inaugurated into the platform, allows 
        interoperability between Gateways of various vendors as well as 
        desktop clients such as Microsoft(r) NetMeeting.

-7-
<PAGE>
        Additional products in development are a new release of the 
        Commander Inmate calling platform. This release expands the 
        capabilities of the Commander system as well as introduces the 
        AdminManager II, a totally new 32bit Windows NT administration system
        for the Commander I and II. Other features of this release include
        Recording Interface, Speech Recognition, Increased System Security
        and numerous feature enhancements.  Another product under development
        is the CIMS II, a new Windows NT based system for polling and
        administration of Voice Response Intercept Systems.

        The Company received notice from the National Association of 
        Securities Dealers  (NASD) that the Company's common stock was 
        subject to delisting as the stock failed to maintain a closing bid 
        price greater than or equal to $1.00.  The Company has requested and 
        received approval for a hearing to review the delisting and a 
        tentative hearing date of December 3, 1998 has been assigned.  The 
        Company is presently formulating a definitive plan to submit to the 
        Nasdaq Lisiting Qualifications Panel.  The Company is working toward
        implementing the plan to be able to maintain its Nasdaq listing, 
        although the Company is unable to predict how Nasdaq will rule at 
        the hearing.  If the plan is denied or a temporary exception is not 
        granted, the Company's shares may be traded on the OTC Bulletin Board. 

        Year 2000 Technology
        --------------------

        The investigation of the Y2000 problem as it affects the Company's
        products and internal operations has been ongoing for sometime. The 
        Company is addressing this issue in a comprehensive manner committing
        resources as necessary. The following highlights outline the 
        Company's Y2000 approach.

        PRODUCTS - All current software development for our products is
        Year 2000 compliant. Only three of the Company's products are
        involved in the Y2000 question with the preponderance of the issues
        relegated to suppliers to the Company.  Efforts to date have entailed
        working with customers to determine if older installations are still
        being utilized, i.e., is the unit in service and will it continue to
        be in service through December 1999. 

        SUPPLIERS - The Company is assessing the possible effects on the 
        Company's operations of Year 2000 compliance related to key suppliers
        and subcontractors. The Company has identified three critical 
        suppliers that could cause significant problems and has requested 
        information as to their plans and progress in addressing the Year 2000
        problem. The Company expects to complete its evaluation of its 
        suppliers by December 31, 1998. Based upon its evaluations, the 
        Company will develop alternative sourcing or other contingency plans by
        mid-1999.  Component suppliers are to follow closely behind the above
        effort.

        IN-HOUSE SYSTEMS AND SOFTWARE - During Fiscal 1998, for operational 
        purposes, the Company made the decision to upgrade its internal
        financial and operational software systems. The Company has 
        substantially completed the identification of other internal 
        computer-based systems it uses which may require upgrading to insure
        operational continuity beyond December 31, 1999. The Company plans to
        complete such identification, the upgrading of necessary applications
        and the testing of all application software for Year 2000 compliance
        by December 31, 1998.

-8-
<PAGE>

        COSTS - The total cost associated with the Year 2000 issue is not 
        expected to be material to the Company's financial position. The 
        Company's current out-of-pocket cost expended to date has been an 
        immaterial amount. As the upgrade of the Company's internal software
        will be done for operational purposes, the cost of such upgrade has 
        not been included in the Company's estimates.

        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, 1998 compared to the Nine Months 
        ended September 30, 1997 (unaudited). 

                                                    Nine Months Ended 
                                                      September 30,
                                                   1998            1997
                                                   ----            ----
         Sales                               $3,400,297      $3,366,792  
         Net Loss                              (626,455)       (743,619)
         Net Loss Per Share                      $(0.04)          $(.06)

-9-
<PAGE>
                                   OPERATING EXPENSES       PERCENT OF SALES
                                   ------------------       ----------------
                                     1998        1997         1998      1997
                                     ----        ----         ----      ----

Cost of Goods Sold             $1,299,739  $1,626,411         38.2%     48.3%

Research & Development            954,416     791,169         28.1%     23.5%

Sales, General & Admin          1,770,243   1,678,863         52.1%     49.9%

Total Operating Costs
and Expenses                   $4,024,398  $4,096,443        118.4%    121.7%




        Sales for the nine-month period of 1998 were $3,400,297 an increase 
        of $33,505 from sales of $3,366,792 in the corresponding period in 
        1997. The increase in sales revenues was attributable to continuing 
        sales of the Commander inmate call control systems and initial sales 
        of the VFX-250S product.  The sales of the VFX-250 have been lower 
        than originally anticipated due to the lack of market awareness of the
        product.  The press article in the Network Computing Magazine
        identifying the product's successful performance and the continual
        sales and marketing efforts devoted to the product is expected to 
	obtain notable improvement in market acceptance resulting in 
        increased sales.

        Management of the Company believes that historically, interim 
        results and period-to-period comparisons have been neither
        predictable nor an accurate measure of the annual performance of the 
        Company. The Company has experienced a trend of crests and ebbs in
        the sales performance resulting from the revenues of the Company 
        being reliant on a single product area and customer base.  This 
        recognition has been the basis of the diversification strategy of 
        the Company developing products allowing penetration of new market 
        opportunities. 

        Cost of Goods sold decreased to $1,299,739 in the first nine months 
        of 1998 from $1,626,411 in the corresponding nine-month period of 
        1997. The decrease in the cost of goods sold is attributable to 
        maximizing purchasing power through partnerships with selected 
        vendors. 

        Research & Development expenses increased to $954,416 in the first 
        nine months of 1998 as compared to $791,169 in the comparable
        nine-month period of 1997.  The increased costs are attributable to 
        the development of new products and enhancements and the reallocation
        of duties of certain personnel as the development efforts were 
        focused to expand our product offerings into the VFX-250 and the IP
        Telephony marketplace.  The Company's ability to manage any future 
        growth effectively will require it to prudently invest significant
        resources to attract, train, motivate and manage its employees 
        successfully as the market acceptance of the new product offerings 
        comes to fruition.
-9-
<PAGE>

        Sales, General & Administrative expenses increased to $1,770,243 in 
        the first nine months of 1998, compared to $1,678,863 in the 
        corresponding period of 1997.  The increase is related to the 
        increase in the international sales force and related expenses to 
        penetrate new sales opportunities.

        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, 1998 compared to the Three Months
        ended September 30, 1997 (unaudited).


                                                   For the Quarter Ended
                                                       September 30,
                                                   1998            1997
                                                   ----            ----
         Sales                               $1,074,991        $548,280  
         Net Loss                             $(198,496)      $(627,079)
         Net Loss Per Share                      $(0.01)         $(0.05)


      
                                   OPERATING EXPENSES       PERCENT OF SALES
                                   ------------------       ----------------
                                     1998        1997         1998      1997
                                     ----        ----         ----      ----

Cost of Goods Sold               $402,096    $303,373         37.4%     55.3%

Research & Development            341,287     386,776         31.7%     70.5%

Selling, General & Admin          527,750     488,870         49.1%     89.2%

Total Operating Costs
and Expenses                   $1,271,133  $1,179,019        118.2%    215.0%


        Cost of Goods sold in the three months ended September 30, 1998 was
        $402,096 as compared to $303,373 in the corresponding period of 1997.
        The increase in absolute dollars in the comparative analysis is 
        directly attributable to the increased sales captured in the third 
        quarter of 1998.  The costs of goods sold as a percentage of sales 
        amounted to 37.4% and 55.3% for the three months periods ending 
        September 30, 1998 and September 30, 1997 respectively.  The decrease
        was due to the increased sales captured in the third quarter of 1998
        as well as the continual efforts to increase purchasing power. 

        Research & Development expenses, as a percentage of revenue, decreased
        to 31.7% in the third quarter of 1998 compared with 70.5% in the
        third quarter 1997.  The expenses in absolute dollars decreased 
        $45,489 in the third quarter 1998, compared to the corresponding 
        quarter of 1997. The decrease in the percentage of revenue was due to
        the increased sales in the third quarter of 1998.  The decrease in 
        absolute dollars was attributable to a decrease in variable expenses,

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<PAGE>

        which occur sporadically from period to period. Due to the 
        technological nature of the Company's business and the anticipated
        expansion of its technology into new applications, management expects 
        to continue to expend significant resources for continued development
        and engineering expenses. 


        Sales, General & Administrative expenses, as a percentage of sales,
        decreased in the third quarter of 1998 over the same period in 1997,
        and represents a 49.1% of sales as compared with 89.2% of sales for 
        the same period of 1997 due to the increased sales revenue in the 
        third quarter of 1998.  The expenses in absolute dollars increased 
        $38,880 in 1998 over the corresponding quarter in 1997. This increase
        was primarily due to advertising and tradeshow expenses to increase
        market awareness of the Company's initiatives into the Voice over 
        IP market. 

        LIQUIDITY AND CAPITAL RESOURCES: 
        -------------------------------

        Cash and cash equivalents marginally decreased to $17,416 for the 
        period ended September 30, 1998 from $21,181 at December 31, 1997.
        The current ratio is 1.4 to 1 for the period ended September 30, 1998
        compared to 2.7 to 1 at December 31, 1997.

        Cash used for operations during the nine-month period ended
        September 30, 1998 was $101,536 compared to $584,094 in the
        corresponding period of 1997.  The change was primarily the result of
        the increase in accounts payable and accrued expenses in the 
        nine-month period ended in 1998 compared to a significant decrease in
        accounts payable and accrued expenses in the corresponding 1997 
        period.

        Cash used for operations for the three months ended September 30, 1998
        amounted to $179,075 compared to cash used in operations of $302,779
        for the comparable three months ended September 30, 1997.  The 
        decrease in cash used for operations was primarily due to the 
        decrease in accounts payable and the increase in the accounts
        receivable compared to the significant decrease in accounts payable 
        and accrued expenses resulting from the collections of accounts
        receivable and other receivables during the corresponding period of
        1997.

        Cash used for investing activities during the nine month period ended
        September 30, 1998 amounted to $82,750 compared to $67,738 in the 
        corresponding nine month period of 1997.  The increase reflects the 
        continual investment in computer related equipment to further 
        development efforts.

        Cash used for investing activities for the three months ended 
        September 30, 1998 amounted to $7,872 compared to $24,032 in the 
        comparable period of 1997.  The expenditures in both periods were for
        development applications for product development and enhancement.

        Cash provided by financing activities amounted to $180,521 in the 
        nine-month period and three-month period ended September 30, 1998.
        The increase was the funds provided by the financing arrangement with
        CIT to assist in the management of cash flows as necessary.  
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<PAGE>

        The preliminary financing agreement with CIT was a ninety-day 
        contract in which all terms were satisfactorily met.  The Company is 
        currently renegotiating a credit vehicle with CIT to subsidize its 
        future working capital needs to bridge the periods of revenue 
        fluctuation.  Management cannot give assurance as to the success of 
        these efforts but believes that negotiations will have a positive 
        outcome.

        The Company believes that funds generated by operations and
        the additional borrowings that will be available under the credit 
        facility will be sufficient to meet its current working capital 
        needs. Management is committed to exploring both product opportunities
        and strategic alliances to enable sustained growth to promote 
        investor interest and confidence.

        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, 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. 

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<PAGE>

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. 

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<PAGE>

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 13, 1998
      ---------------------    
      Alan C. Bashforth  


By:   /s/ Joy C. Hartman       Exec. Vice President, CFO,   November 13, 1998
      ---------------------    Treasurer, Secretary and
      Joy C. Hartman           Director

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