UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-QSB

(Mark One)

[X]   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
      OF 1934
                                   FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2006

[_]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

                         FOR THE TRANSITION PERIOD FROM __________ TO __________
                         COMMISSION FILE NUMBER ________________________________

                          SCIENCE DYNAMICS CORPORATION
                          ----------------------------
        (Exact name of small business issuer as specified in its charter)

            Delaware                                        22-2011859
(State or other jurisdiction                   (IRS Employer Identification No.)
of incorporation or organization)

                      7150 N. Pennsauken, New Jersey 08109
                    (Address of principal executive offices)

                    Issuer's telephone Number: (856) 910-1166

                                 WITH COPIES TO:
                             Gregory Sichenzia, Esq.
                       Sichenzia Ross Friedman Ference LLP
                           1065 Avenue of the Americas
                            New York, New York 10018
                                 (212) 930-9700

      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 [_] No [X]

      Indicate  by check mark  whether  the  registrant  is a shell  company (as
defined in Rule 12b-2 of the Exchange Act). Yes [_] No [X]

                      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: As of May 19, 2006, the issuer
had 112,947,431 outstanding shares of Common Stock.

      Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
<PAGE>

                                TABLE OF CONTENTS

                                                                            Page
                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.............................................     1
                  Consolidated Balance Sheets.............................     1
                  Consolidated Statements of Operations...................     2
                  Consolidated Statements of Cash Flows...................     3
                  Notes to Consolidated Financial Statements..............     4
Item 2.  Management's Discussion and Analysis or Plan of Operation........    11
Item 3.  Controls and Procedures..........................................    15

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings................................................    15
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds......    15
Item 3.  Defaults Upon Senior Securities..................................    15
Item 4.  Submission of Matters to a Vote of Security Holders..............    15
Item 5.  Other Information................................................    16
Item 6.  Exhibits.........................................................    16

SIGNATURES................................................................    17

<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

                  SCIENCE DYNAMICS CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                   March 31, 2006   December 31, 2005
                                                        Unaudited             Audited
                                                   --------------   -----------------
<S>                                                <C>                 <C>
ASSETS

Current assets:
   Cash and cash equivalents                       $      115,768      $       53,997
   Accounts receivable - trade                          1,026,644             706,255
   Inventories                                              1,943               6,049
   Other current assets                                   219,587             190,581
                                                   --------------      --------------
      Total current assets                              1,363,942             956,882
                                                   --------------      --------------

Property and equipment, net                                14,338              35,279
Goodwill                                                2,063,833           2,063,833
Other Intangibles, net                                  1,020,420           1,077,110
Other assets                                               21,312              19,213
                                                   --------------      --------------
      Total assets                                 $    4,483,845      $    4,152,317
                                                   ==============      ==============

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
   Customer deposits                               $      166,311      $      150,199
   Accounts payable                                     1,006,127             986,505
   Accrued expenses                                     1,219,813           1,084,555
   Current maturities notes payable                     2,870,713           2,667,942
   Derivative Liability                                   462,462             462,462
                                                   --------------      --------------
      Total current liabilities                         5,725,426           5,351,663

Minority Interest                                          85,758              78,316

Shareholders' equity - (Deficit)
   Preferred stock - .01 par value
       10,000,000 shares authorized                            --                  --
        No shares issued
   Common stock - .01 par value,
      200,000,000 shares authorized,
      89,841,498 and 89,841,498 issued
      89,715,698 and 89,715,698 outstanding
      in 2006 and 2005 respectively                       898,415             898,415

   Additional paid-in capital                          18,800,980          18,800,980

   (Deficit)                                          (20,628,901)        (20,579,224)
                                                   --------------      --------------
                                                         (929,506)           (879,829)
   Common stock held in treasury, at cost                (397,833)           (397,833)
                                                   --------------      --------------
   Total shareholders' equity (Deficit)                (1,327,339)         (1,277,662)
                                                   --------------      --------------
   Total liabilities and shareholders'
   Equity                                          $    4,483,845      $    4,152,317
                                                   ==============      ==============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       1
<PAGE>

                  SCIENCE DYNAMICS CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                            Three Months Ended March 31,
                                                               2006              2005
                                                                             "as Restated"
                                                           ------------      ------------
<S>                                                        <C>               <C>
Sales - Technology Products                                $    423,890      $    433,447
Sales - Technology Services                                     917,917           441,123
                                                           ------------      ------------
      Total Sales                                             1,341,807           874,570

Cost of Sales - Technology Products                             154,120           109,609
Cost of Sales - Technology Services                             478,248           235,482
                                                           ------------      ------------
      Total Cost of Sales                                       632,368           345,091

                                                           ------------      ------------
      Total Gross Margin                                        709,439           529,479

Operating costs and expenses:

      Research and development                                  109,134            95,147
      Selling, general
          and administrative                                    504,606           585,872
                                                           ------------      ------------
                                                                613,740           681,019
                                                           ------------      ------------

Operating Income (Loss) before other income (expenses)           95,699          (151,540)

Other income (expense):
   Derivative                                                        --          (532,836)
   Interest Expense                                            (129,890)         (105,186)
   Finance Expense                                               (8,043)               --
                                                           ------------      ------------
   Total Other income (expenses)                               (137,933)         (638,022)

   Net Income (Loss) before Minority Interest                   (42,234)         (789,562)

  Minority Interest                                              (7,442)               --
                                                           ------------      ------------

  Net Loss                                                 $    (49,676)     $   (789,562)
                                                           ============      ============

Net Loss per Common Share -Basic and Diluted               $      (0.00)     $      (0.01)
                                                           ============      ============

Weighted average shares outstanding basic and diluted        89,841,498        70,126,584
                                                           ------------      ------------
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       2
<PAGE>

                  SCIENCE DYNAMICS CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                              Three Months Ended March 31,
                                                                  2006             2005
                                                                               "As Restated"
                                                             ------------      ------------
<S>                                                          <C>               <C>
Cash flows from operating activities:
   Net (loss)                                                $    (49,676)     $   (789,562)
                                                             ------------      ------------

Adjustments to reconcile net (loss) to net cash
provided by (used for) operating activities:
   Depreciation                                                    20,940            25,320
   Amortization Intangible assets                                  56,690
   Financing expense non cash                                       8,043                --
   Derivative Expense                                                  --           532,836
   Non Cash interest Derivative                                    36,180            27,912
   Minority interest                                                7,442                --

Changes in operating assets and liabilities:
  (Increase) decrease in:
   Accounts receivable                                           (320,390)          256,137
   Inventories                                                      4,106                --
   Other current assets                                           (37,049)               --
   Other assets                                                    (2,100)          (13,703)
   Increase (decrease) in:
      Accounts Payable and
      accrued expenses                                            154,883           215,100
   Customer Deposits                                               16,111            19,850
                                                             ------------      ------------
Total adjustments                                                 (55,144)        1,063,453
                                                             ------------      ------------
  Net cash provided by (used for)
   operating activities                                          (104,820)          273,890
                                                             ------------      ------------
Cash flows from investing activities:
 Investment in SMEI                                                    --        (1,655,325)
 Cash acquired in SMEI acquisition                                     --             5,159
 Purchase of property and equipment - net                              --            (7,875)
                                                             ------------      ------------
   Net cash (used) in investing activities                             --        (1,658,041)
                                                             ------------      ------------
Cash flows from financing activities:
  Exercise of Stock Options                                            --                --
  Loans from Stockholders & Officers                                   --           (49,700)
  Payment of Bank Notes                                                --            (3,750)
  Issuance of Convertible Debt                                         --         1,867,500
  Short term, net                                                      --          (120,000)
  Net borrowing (Payment)on Revolving AR credit facility          166,591          (367,000)
                                                             ------------      ------------
  Net cash (used in) provided by financing activities             166,591         1,327,050
                                                             ------------      ------------
  Net increase (decrease) in
  cash and cash equivalents                                        61,771           (57,101)
Cash and cash equivalents -
 beginning of period                                               53,997           192,681
                                                             ------------      ------------
Cash and cash equivalents -
 end of period                                               $    115,768      $    135,580
                                                             ============      ============
 Supplemental Information:
Interest Paid                                                $     54,527
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       3
<PAGE>

                  SCIENCE DYNAMICS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

Note 1- Organization and Summary of Significant Accounting Policies

a) Organization

Science Dynamics Corporation (the "Company", "SciDyn" or "Science Dynamics") was
incorporated in the State of Delaware May 1973 and commenced  operations in July
1977.  The Company began as a provider of  specialized  solutions to the telecom
industry.  Throughout  its  history  SciDyn has  adapted to the  changes in this
industry by  reinventing  itself to be more  responsive  and open to the dynamic
pace of change experienced in the broader converged  communications  industry of
today.  Currently  SciDyn  provides  advanced  solutions  for  several  vertical
markets.  The  greatest  change  in  operations  is in the  shift  from  being a
component manufacturer to a solution provider focused on developing applications
through  software on our core  platform  technology.  To further its strategy of
becoming a  solutions  provider,  the  Company  acquired a majority  interest in
"SMEI" in February 2005.  With the SMEI  acquisition,  approximately  70% of the
Company's revenues are derived from solution services.

b) Basis of Financial Statement Presentation

The  accompanying  financial  statements  have been  prepared on a going concern
basis,  which  contemplates  the  realization of assets and the  satisfaction of
liabilities  in the  normal  course  of  business.  The  Company  has  generated
significant losses and is unable to predict  profitability for the future. These
factors  indicate  that  the  Company's  continuation,  as a  going  concern  is
dependent upon its ability to obtain  adequate  financing.  The Company plans to
address the going concern by replacing  debt with equity and  continuing to grow
the company with profitable  sales both  organically  and through  acquisitions.
Management believes successfully  executing these tasks will lead to the removal
of the going concern comment from our audited financials.

The accompanying  financial  statements include the operating results of Systems
Management  Engineering Systems,  Inc. (SMEI), a majority owned (86%) subsidiary
of Science Dynamics acquired February 14, 2005. On February 14, 2005 the Company
recorded  on its  Balance  Sheet  a  Minority  Interest  Liability  of  $171,995
representing the net asset value not acquired by the Company. The carrying value
of the minority  interest of $171,995 has since been reduced by $86,237 at March
31, 2006 giving effect to the SMEI's net operating  results.  The carrying value
increased  by $7,442 in the quarter  ended  March 31, 2006 giving  effect to the
portion of SMEI's net operating profit allocable to minority shareholders.

c) Principles of Consolidation:

The consolidated  financial  statements included the accounts of the Company and
all of its  subsidiaries  in which a  controlling  interest is  maintained.  All
significant  inter-company  accounts and  transactions  have been  eliminated in
consolidation.  For those  consolidated  subsidiaries where Company ownership is
less than  100%,  the  outside  stockholders'  interests  are shown as  minority
interests.

d) Use of Estimates:

The  financial  statements  have been  prepared in  accordance  with  accounting
principles generally accepted in the United States (US GAAP). The preparation of
these financial statements requires management to make estimates and assumptions
that affect the reported  amounts in the financial  statements and  accompanying
notes.  These  estimates  form the basis for  judgments  made about the carrying
values of assets  and  liabilities  that are not  readily  apparent  from  other
sources.  Estimates  and judgments  are based on  historical  experience  and on
various other  assumptions  that the Company  believes are reasonable  under the
circumstances.  However,  future  events  are  subject  to  change  and the best
estimates and judgments routinely require adjustment. US GAAP requires estimates
and  judgments  in several  areas,  including  those  related to  impairment  of
goodwill  and  equity  investments,   revenue  recognition,   recoverability  of
inventory and  receivables,  the useful lives long lived assets such as property
and equipment,  the future  realization of deferred  income tax benefits and the
recording of various  accruals.  The ultimate  outcome and actual  results could
differ from the estimates and assumptions used.


                                       4
<PAGE>

Note 2- Segment Reporting

Management  views its business as two  operating  units,  Technology  Consulting
Services and Technology Products.

<TABLE>
<CAPTION>
                                             Three Months Ended      Three Months Ended
                                                March 31, 2006         March 31, 2005
                                             ------------------      ------------------
<S>                                          <C>                     <C>
      Revenue
                     Technology Services     $          917,917                 441,123 (a)
                     Technology Products                423,890                 433,447
                                             ------------------      ------------------
                Total Consolidated Revenue   $        1,341,807      $          874,570 (a)
                                             ------------------      ------------------

      Gross Profit
                     Technology Services                439,670                 205,641 (a)
                     Technology Products                269,770                 323,838

                                             ------------------      ------------------
          Total Gross Profit                            709,439                 529,479 (a)
                                             ------------------      ------------------

       Assets
                     Technology Services     $        4,135,170 (b)           4,285,914
                     Technology Products                348,675                 392,722
                                             ------------------      ------------------
                Total Consolidated Assets    $        4,483,845 (b)  $        4,678,636
                                             ------------------      ------------------
</TABLE>

(a) - Gross  Profit for the three months  ended March 31, 2005  reflects  SMEI's
operating  results for the period from  February 14, 2005,  the date of the SMEI
acquisition, to March 31, 2005

(b) - Includes $2,063,833 of Goodwill and $1,020,420 Intangibles, net related to
the SMEI acquisition.

Note 3 - Employment Contracts

On July 14, 2005,  Science Dynamics  Corporation (the "Company") entered into an
agreement dated July 1, 2005 terminating the Company's consulting agreement with
Calabash Consultancy, Ltd ("Calabash"). Calabash is owned and controlled by Alan
C.  Bashforth,  Secretary  and a director of the  Company.  Notwithstanding  the
termination,  the 6,000,000  seven-year  warrants (the "Warrants") with a strike
price of $0.10 per share and the 2,000,000 options (the "Options") with a strike
price of $0.05 granted to Calabash under the consulting agreement will remain in
effect, subject to the following amendments:

(a) the right to exercise the Warrants will commence on March 31, 2006;  and (b)
the right to exercise the Options  will expire March 31, 2008.  The Company owes
Calabash $125,000 in consulting fees under the consulting agreement. The Company
agreed to pay such  amount  upon the  earlier  of:  (a) the  Company  raising $1
million in new equity;  or (b) March 31, 2006.  Except as described  above,  the
Company has no further  obligations to Calabash or to Mr.  Bashforth.  The total
amount of recorded  liability  to Calabash as of March 31, 2006 was  $125,000 as
stipulated in the agreement.  The Company is past due on the $125,000 payment.at
March 31, 2006. .

Mr. Paul Burgess CEO & President of the Company has waived his right to the base
salary of $56,250 of his  compensation as described in his employment  agreement
for the quarter  ended March 31, 2006.  Mr.  Burgess and the board are presently
renegotiating his contract going forward.


                                       5
<PAGE>

                  SCIENCE DYNAMICS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

Note 4 - Notes payable

Notes  payable  consists of the  following as of March 31, 2006 and December 31,
2005:

<TABLE>
<CAPTION>
                                                                                  2006               2005
                                                                            ----------------------------------
<S>                                                                         <C>                 <C>
      Face value $2,000,000, variable rate (8.0% at December 31, 2005)
      Secured Convertible Term Note, due in monthly payments of $60,606
      commencing June 30, 2005 (a)                                          $    1,478,642      $    1,442,462

      $400,000, 8.0% Secured Convertible Keshet Term Note (b)                      400,000             400,000
      8% Secured Convertible Laurus Term Note, originally due May 21,
      2003 (b)                                                                          --                  --
      Revolving credit facility (c)                                                369,442             202,851
      Notes Payable - Stockholders/Officers (d)                                    388,629             388,629
      Short term notes payable (e)                                                 234,000             234,000
                                                                            ----------------------------------
         Total notes payable                                                     2,870,713           2,667,942
      Less current maturities, associated with notes payable                    (2,870,713)         (2,667,942)
                                                                            ----------------------------------

      Long-term debt                                                        $           --      $           --
                                                                            ==================================
</TABLE>

(a) 2005 Laurus Agreements:

On February 14, 2005, the Company entered into a Securities  Purchase Agreement,
dated February 11, 2005, with Laurus Master Fund,  Ltd.  ("Laurus") for the sale
of a $2,000,000  principal  amount  Secured  Convertible  Term Note (the "Note")
convertible at $0.10 per share and a Common Stock  Purchase  Warrant to purchase
6,000,000 shares of the Company's common stock at $0.11 that expire February 11,
2012.  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 net proceeds of  $1,867,500  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%, but shall not be less than
8%. The  interest  terms  include a monthly  reset  feature  that  provides  for
decreases  in interest  rates  pro-rata for certain  increases in the  Company's
common stock above the conversion  rate; such feature does not become  effective
until the  underlying  common  shares are  registered.  Otherwise,  interest  is
payable  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.


                                       6
<PAGE>

                  SCIENCE DYNAMICS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

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
Warrants in a  registration  statement 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.  Failure to file
or become effective results in liquidating  damages penalties of 2% per month of
the face value of the Note.  The  Company has been in default on the note by not
becoming effective on the registration statement by the required date and by not
making the required monthly principal  payments to Laurus since June 1, 2005. On
November  21,  2005,  the  Company  signed an  amendment  and waiver with Laurus
waiving  each Event of Default  for our  failure to pay  accrued  interest,  and
principal through November 1, 2005 and the failure to timely file a Registration
Statement with the SEC. As  consideration  of the waiver,  the Company issued to
Laurus a seven year warrant to purchase  3,000,000 shares of the common stock of
the Company  with an  exercise  price of $0.075 per share.  The Company  further
agreed to file a  Registration  Statement to register the shares of Common Stock
that may be issued upon exercise of the Additional Warrant within 90 days of the
date of the waiver.  The Amendment and Waiver  agreement was effective  November
22, 2005 when the Company paid Laurus  $32,236.25 of overdue  interest under the
secured  convertible  term note and issued Laurus the  Additional  Warrant.  The
Company  allocated the fair value of the Additional  Warrant to deferred finance
costs ($42,275) and derivative  expense ($5,725) on a relative fair value basis.
The  additional  deferred  finance  costs is being  amortized  through  periodic
charges to interest expense using the effective  interest method which commenced
in the fourth fiscal quarter of 2005.

In accordance with EITF 00-19 "Accounting for Derivative  Financial  Instruments
Indexed to, and  Potentially  Settled in, a Company's Own Stock," the basis from
the 2005 Laurus Agreements was allocated to embedded derivative features indexed
to the Company's  common stock  (consisting of the conversion and interest reset
features) in the amount of  $444,920,  and the  Warrant,  in the amount,  in the
amount of $270,000. See Derivative Financial Instruments, below. These discounts
resulted in an initial  carrying value of the Secured  Convertible  Term Note of
$1,285,080. The debt is being amortized through charges to interest expense over
the debt term using the effective method.  Amortization  during the three months
ended March31, 2006 amounted to $36,180.

The  Company is  currently  in default on the note with Laurus in that it didn't
make principal and interest payments when due. As of May 2006, the Company is in
arrears on its  monthly  principal  payments of $60,606 for Jan 2006 , Feb 2006,
Mar 2006 , Apr 2006 and May 2006, and interest for March and April 2006 totaling
$36,055.

Laurus agreed to waive all the events of default upon the Company  remitting the
March and April overdue interest. The overdue interst of $36,055 was paid May 4,
2006. As a result, the Company did not accrue any fees or default interest as of
March 31, 2006.

(b) 2001 Laurus and Keshet Financing Agreements

On May 21, 2001, the Company  entered into  concurrent  financing  arrangements,
each bearing  similar terms and  conditions,  with Laurus and Keshet Capital for
$1,000,000  and $400,000,  respectively.  The notes bore interest at 8% and were
due and  payable in May 2003.  The notes  were  convertible  into the  Company's
common stock at 85% of the average  trading market price over a period of twenty
days preceding  conversion.  In addition,  the notes were issued with detachable
warrants to purchase  727,273  (relative to the Laurus  arrangement) and 290,908
(relative to the Keshet  Arrangement)  shares of common stock.  The warrants had
terms of five years and fixed strike prices of $1.43.  The Keshet  notes,  which
remain outstanding as of March 31, 2006 are in default.


                                       7
<PAGE>

                  SCIENCE DYNAMICS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

In accordance with EITF 00-19 "Accounting for Derivative  Financial  Instruments
Indexed to, and  Potentially  Settled in, a Company's Own Stock," the basis from
the 2001 Laurus Agreements was allocated to embedded  derivative feature indexed
to the Company's  common stock  (consisting  of the  conversion  feature) in the
amount of $634,501,  and the Warrant,  in the amount, in the amount of $334,546.
These discounts resulted in an initial carrying value of the Secured Convertible
Term Note of  $30,953.  The debt  discount  was  amortized  through  charges  to
interest expense over the term using the effective method at effective  interest
rate of 99.07%.  The basis from the 2001  Keshet  Agreements  was  allocated  to
embedded  derivative  features indexed to the Company's common stock (consisting
of the conversion  feature) in the amount of $253,800,  and the Warrant,  in the
amount,  in the  amount of  $133,818.  These  discounts  resulted  in an initial
carrying  value  of the  Secured  Convertible  Term  Note of  $12,382.  The debt
discount was amortized  through charges to interest  expense over the term using
the effective method at effective interest rate of 99.07%.

(c) Revolving Line of credit

As part of the "SMEI" acquisition the Company assumed a Revolving Line of Credit
with United Bank.  The Revolving  Line of credit with United Bank was refinanced
November 7, 2005 with a new Line of Credit with  Presidential  Financial  Group.
The Line of Credit  with  Presidential  is for a period  of 12  months  and is a
credit facility up to $1,000,000 and is secured by SMEI's accounts  receivables.
The Advance Rate on the Company's government receivables is 85%. Interest on the
line will be  charged  at the rate of prime  plus 2% on the  average  daily loan
balance  with  a  minimum   monthly  loan  balance   requirement   of  $200,000.
Additionally, a monthly service charge will be charged at a rate of 1.00% of the
average daily loan balance. The total outstanding balance on this facility as of
March 31, 2006 was $369,442.

(d) Notes Payable Stockholders/officers

The  Company  assumed a short  term note in the amount of $35,000 as part of the
SMEI  acquisition  from the CEO. The loan bears  interest at 18% per annum.  The
Company also borrowed an additional  $175,000,  these notes bear interest at 10%
per  annum.  The  total  amount  due at March  31,  2006 is  $228,551  including
interest.  The notes are  unsecured  demand  notes and may be  collected  by the
lender at any time. The notes are subordinate to the bank line of credit.

The Company  has other  short-term  loans  payable to various  stockholders  and
officers of the Company  amounting to $165,328,  these notes bear interest at 8%
per annum. The notes are unsecured demand notes.

(e) Short term notes

At March 31, 2006 the Company had $234,000 in short term notes.  These loans are
collateralized  by the future sale of the New Jersey Net Operating Loss in 2006.
These notes bear interest at 20% per annum.

Note 5 - Derivative Financial Instruments

The  balance  sheet  caption  derivative  liabilities  consist  of (i)  embedded
conversion  features and (ii) the Warrants,  issued in connection  with the 2005
Laurus Financing  Arrangement and the 2001 Keshet Financing  Arrangement.  These
derivative  financial  instruments are indexed to an aggregate of 63,072,421 and
36,509,283  shares of the Company's  common stock as of March 31, 2006 and 2005,
respectively,  and are carried at fair value. The following tabular presentation
sets forth  information  about the derivative  instruments  for the three months
ended March 31, 2006 and 2005:

March 31, 2006:

<TABLE>
<CAPTION>
                                           Conversion
                                             Features           Warrants           Total
                                         ----------------------------------------------------
<S>                                      <C>                <C>                <C>
Net liabilities as of March 31, 2006     $     (255,462)    $     (207,000)    $     (462,462)
                                         ====================================================
Derivative income (loss):                $           --     $           --     $           --
                                         ====================================================
</TABLE>

                                       8
<PAGE>

                  SCIENCE DYNAMICS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

March 31, 2005:

<TABLE>
<CAPTION>
                                           Conversion
                                             Features           Warrants           Total
                                         ----------------------------------------------------
<S>                                      <C>                <C>                <C>
                                         ====================================================
Derivative income (loss):                $     (394,836)    $     (138,000)    $     (532,836)
                                         ====================================================
</TABLE>

Freestanding  derivative  instruments,  consisting  of warrants and options that
arose  from the  Laurus  financing  are  valued  using the  Black-Scholes-Merton
valuation   methodology   because  that  model  embodies  all  of  the  relevant
assumptions that address the features underlying these instruments.  Significant
assumptions used in Black Scholes Models  included:  Conversion or Strike Prices
ranging from $0.10--$1.43;  Volatility Factors-35.50% - 41.88 based upon forward
terms of instruments;  Terms-remaining term for all instruments;  and, Risk Free
rate-4.88%.  Fair value for  forward-based  features  (principally  the interest
reset feature) is determined  using the income  approach;  generally  discounted
cash flows.

Embedded  derivative  instruments  consist of multiple  individual features that
were embedded in the convertible  debt  instruments.  The Company  evaluated all
significant features of the hybrid instruments and, where required under current
accounting  standards,  bifurcated features for separate report  classification.
These features were, as attributable to each convertible  note,  aggregated into
one compound derivative  financial  instrument for financial reporting purposes.
The compound embedded derivative instruments are valued using the Flexible Monte
Carlo  methodology  because that model  embodies  certain  relevant  assumptions
(including,   but  not  limited  to,  interest  rate  risk,   credit  risk,  and
Company-controlled  redemption  privileges)  that are  necessary  to value these
complex  derivatives.  Significant  assumptions  included in the Flexible  Monte
Carlo  included:   Conversion  or  Strike  Prices  ranging  from   $0.06--$0.10;
Volatility  Factors-40.70%  to 41.88% based upon forward  terms of  instruments;
Terms-remaining term for all instruments;  equivalent interest rate risk ranging
from 3.10% to 3.41% and equivalent yield rate ranging from 12.15% to 13.15%

Equivalent amounts reflect the net results of multiple modeling simulations that
the Monte Carlo Simulation methodology applies to underlying assumptions.

Note 6 - Restatements

<TABLE>
<CAPTION>
                                                               For the three months
                                                                       ended
                                                                  March 31, 2005
                                                                 ----------------
<S>                                                                     <C>
      Net Loss Applicable to Stockholders,  as previously
      reported                                                          ($228,815)
                                                                 ----------------
      Adjustments:
      Derivative expense                                                  560,748
                                                                 ----------------
      Net Loss Applicable to Stockholders, as restated                   (789,563)
                                                                 ----------------
      Basic and Diluted Loss per Common Share (as previously
      reported)                                                            ($0.00)
                                                                 ----------------
      Basic and Diluted Loss per Common Share (as Restated)                ($0.01)
                                                                 ----------------
</TABLE>


                                       9
<PAGE>

                  SCIENCE DYNAMICS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

The Company  corrected its accounting for  derivative  financial  instruments to
conform to the requirements of Statements of Financial  Accounting Standards No.
133,  as amended.  Embedded  conversion  features  that meet the  definition  of
derivative  financial  instruments have, where applicable,  been bifurcated from
host instruments and, in all instances;  derivative  financial  instruments have
been recorded as liabilities and are carried at fair value.  Other  instruments,
such as  warrants,  where  physical or  net-share  settlement  is not within the
Company's  control  are  recorded  as  liabilities  and  carried at fair  value.
Finally, instruments that were initially recorded as equity were reclassified to
liabilities  at the time that the  Company no longer  possessed  the  ability to
settle the instruments on a physical or net-share basis.

The Fair Value adjustments  included in the restated  consolidated  statement of
operations for the quarter ended March 31, 2005 are as follows:

         Interest expense                       ($27,912)
         Less Derivative Expense               ($532,836)
                                               ---------
         Net Adjustment                        ($560,748)
                                               ---------

The interest  expense  adjustment is included under the caption interest expense
and the  derivative  expense  is  reflected  as a  separate  caption on the 2005
restated consolidated statement of operations.

Note 7 - Recent Accounting Pronouncements.

The Company believes that any new accounting  pronouncements  since December 31,
2005, will not have an affect on the Company's financial statements.

Note 8 - Subsequent Events

Default of Laurus Note

As of May 4, 2006,  the  Company  was in default on the note since it didn't pay
the monthly principal  payments of $60,606 due on the 1st of January,  February,
March,  April and May 2006 and because the required  registration  statement was
not declared  effective.  Additionally,  the Company was in arrears on the March
2006 and April 2006 interest payments totaling $36,055. As a result, the Company
was  potentially  liable for fees and  interest of 2% per month  accruing on all
outstanding obligations and 130% of the outstanding principal if an agreement to
waive the existing events of default was not reached.

Effective May 4, 2006,  Laurus  agreed to waive each  existing  Event of Default
under the terms of the Term Note upon receiving  payment of the overdue interest
of $36,055.  The overdue  interest of $36,055 was paid to Laurus on May 4, 2006.
As a result,  the Company did not record any  liabilities  in the quarter  ended
March 31, 2006 related to default fees or penalties.

Private Placement - Equity Financing

      Between April 14, 2006 and May 11, 2006 the Company raised $1.4 million of
gross proceeds from the sale of common stock and warrants to purchase additional
shares of common  stock to various  accredited  investors  in private  placement
transactions. The Company sold an aggregate of 23,231,733 shares of common stock
and  warrants  to  purchase  11,615,867  shares  of common  stock.  Each unit is
comprised  of 100 shares and 50 warrants to purchase  one shares of common stock
with an exercise price of $0.12 per share  exercisable for five years.  Each 100
shares of common  stock and one common  stock  purchase  warrant were sold for a
per-unit price of $6.00, or $0.06 per share.


                                       10
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

FORWARD LOOKING STATEMENTS

      This Form  10-QSB  includes  forward-looking  statements  relating  to the
business of Science Dynamics  Corporation (the "Company" or "Science Dynamics").
Forward-looking  statements  contained  herein  or in other  statements  made by
Science  Dynamics  are  made  based on  management's  expectations  and  beliefs
concerning  future events impacting the Company and are subject to uncertainties
and factors relating to the Company's operations and business  environment,  all
of which are  difficult  to predict  and many of which are beyond the control of
the Company, that could cause actual results of the Company to differ materially
from those matters expressed in or implied by  forward-looking  statements.  The
Company  believes that the  following  factors,  among others,  could affect its
future  performance and cause actual results of the Company to differ materially
from those expressed in or implied by  forward-looking  statements made by or on
behalf of the Company: (a) the effect of technological changes; (b) increases in
or unexpected losses; (c) increased  competition;  (d) fluctuations in the costs
to operate  the  business;  (e)  uninsurable  risks;  and (f)  general  economic
conditions.

GENERAL OVERVIEW

      Science Dynamics  Corporation was incorporated in the State of Delaware in
May 1973 and  commenced  operations in July 1977.  We have been  developing  and
delivering  technologically  advanced   telecommunication   solutions  for  over
twenty-five  years and  recently  expanded  our  product  offering to include IT
solutions with the acquisition of 86% of Systems  Management  Engineering,  Inc.
("SMEI") on February 14, 2005.

      We have  completely and  successfully  integrated SMEI with our operations
and as a result we are realizing SG&A synergies that have improved the Company's
bottom line  performance.  As a result,  the Company  generated  positive EBITDA
(earnings before interest,  taxes, depreciation and amortization) of $173,329 in
the first  quarter of 2006.  Most  importantly,  the  acquisition  enabled us to
leverage the capabilities of both companies in product  development and customer
reach which we believe, combined with the cost efficiencies,  moves us closer to
profitability.

      We  were  encouraged  by  the  improved   results  in  the  first  quarter
specifically  by the $1,341,807 in revenues and the positive  EBITDA of $173,329
realized  in the first  fiscal  quarter of 2006.  Revenue  increased  53.4% from
$874,570 in the  quarter  ended March 31,  2005  compared to  $1,341,807  in the
quarter ended March 31, 2006. The Company generated  positive EBITDA of $173,329
for the quarter  ended March 31, 2006  compared to an EBITDA loss of $126,220 in
the quarter ended March 31, 2005.  Management  believes the  improvement  in our
EBITDA highlights the positive contribution made by SMEI. Our priorities in 2006
are to further increase sales revenue, pursue further strategic acquisitions and
improve  the  bottom  line.  Currently  our total  contract  backlog is over $16
million on  government  contracts  ranging up to 5 years,  giving the  Company a
strong contractual base to grow our existing revenue base.

      We intend to expand our sales  efforts both within the federal  government
software solutions space and commercial  accounts.  We plan on building upon our
recent success in these markets by expanding our marketing  efforts  through our
direct sales strategy.  Our team is driven to increase shareholder value through
both organic growth and  acquisitions  throughout the year.  With regards to our
acquisition  strategy,  we will  continue to pursue  profitable  companies  with
proprietary  products  and services we can sell to our  existing  customers  and
which have synergies with our existing business.

      Subsequent  to the close of the  first  quarter  the  company  has  raised
approximately $1.4M in equity from a group of accredited investors.  The company
plans to use the  proceeds  to expand its  acquisition  strategy,  reduce  debt,
reduce the convertible debenture held by Laurus Master Fund, Ltd. ("Laurus") and
for general  working  capital.  The company will continue to identify  financing
opportunities  that  provide  the  company  with the  opportunity  to expand our
business model and increase shareholder value.


                                       11
<PAGE>

RESULTS OF  OPERATIONS - THREE MONTHS ENDED MARCH 31, 2006 COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 2005

Sales:

      Sales  were  $1,341,807  during the three  months  ended  March 31,  2006,
compared to $874,570 for the three months ended March 31 2005,  representing  an
increase of $467,237 or 53.4%. The overall increase in revenues  attributable to
the SMEI  acquisition  (February 2005) was $400,379  derived  primarily from the
Technology  Consulting  Services  segment.  Sales for the Technology  Consulting
Services  segment  increased by $476,794,  or 108%,  from  $441,123 in the three
months  ended March 31, 2005 to  $917,917  in the three  months  ended March 31,
2006.Sales for the Technology  Products segment decreased slightly by $9,557, or
2%, from  $433,447 in the three  months  ended March 31, 2005 to $423,890 in the
three months ended March 31, 2006.

Cost of Sales:

      Cost of sales for the Technology  Consulting  Services  segment consist of
employee salaries and outside consulting fees, and other direct costs chargeable
to contract  These costs  increased by $242,765,  or 103%,  from $235,483 in the
three  months  ended March 31, 2005 to $478,248 in the three  months ended March
31, 2006 due to the  acquisition of SMEI during February 2005. Cost of sales for
the  Technology  Products  segment  consist of employee  salaries  and  computer
hardware.  These costs increased by $44,511,  or 41%, from $109,609 in the three
months  ended March 31, 2005 to  $154,120  in the three  months  ended March 31,
2006. Cost of sales  increased in the technology  products due to an increase in
subcontracting expenses needed for a large order.

Gross Margin:

      Gross Margin  increased  by $179,960 or 34% from  $529,479 for the quarter
ended March 31, 2005 to $709,439  for the quarter  ended March 31,  2006.  Total
Gross Margin, as a percent of revenues, was 52.9% for the quarter ended March 31
2006  versus  60.5% in the  quarter  ended  March 31,  2005 . The  decrease  was
attributable to the increased  revenue from the Technology  consulting  Services
business, which has lower margins compared to the Technology Products business..
Gross margin is higher in the Technology product segment vs. consulting segment,
since consulting is labor intensive.

Research and Development Expenses:

      Research  and  development  expenses  consist  primarily  of salaries  and
related   personnel   costs,   and  consulting   fees  associated  with  product
development.

      For the quarter ended March 31, 2006,  Research and  development  expenses
increased to $109,134 compared to $95,147 for the quarter ended March 31, 2005.

      Management believes that continual  enhancements of the Company's products
will be  required  to  enable  Science  Dynamics  to  maintain  its  competitive
position.  Science  Dynamics  will have to focus its  principal  future  product
development and resources on developing new, innovative,  technical products and
updating  existing  products.  Our  Research  and  Development  focuses  on  the
development of technologies utilizing IP telephony and IP communications

Selling, General and Administrative Expenses:

      Selling, general and administrative ("SG&A") expenses consist primarily of
expenses  for  management,   finance  and   administrative   personnel,   legal,
accounting,  consulting  fees, sales  commissions and marketing,  and facilities
costs.

      For the quarter ended March 31, 2006 SG&A  expenses  decreased to $504,606
compared to $585,872 for the three months ended March 31, 2005. The decrease was
primarily  attributable  to a combination  of synergy  savings from  integrating
SMEI,  cost  reductions  and  changes in  executive  compensation.  The  Company
incurred savings in the reduction of administrative and IT staff.


                                       12
<PAGE>

Derivative Expenses:

      During the quarter ended March 31, 2005 the Company  incurred  $532,836 of
expenses  related  to  embedded  conversion  features  and  warrants  issued  in
connection with a financing  transaction  conducted during the that quarter with
Laurus,  the proceeds from which were primarily used to fund the  acquisition of
SMEI.  The expenses  incurred from these  derivative  instruments  are described
further  in  Note  5  to  the  accompanying   unaudited  consolidated  financial
statements.  There were no similar  expenses  incurred  during the quarter ended
March 31, 2006.

Interest Expense:

      Interest  expense  consists  of interest  paid and accrued on  outstanding
convertible notes, notes payable, interest due on loans from stockholders.

      Interest  Expense  increased  to $129,870 for the three months ended March
31, 2006  compared to $105,186 for the three  months  ended March 31, 2005.  The
increase is attributable to carrying the $2,000,000 Laurus  convertible note for
the entire quarter and an increase in our revolving line of credit.

Finance Expense:

      Finance  expense  recorded  in the three  months  ended March 31, 2006 was
$8,043.  This expense  resulted from the  amortization of deferred finance costs
related to the $2 million principal amount Secured  Convertible Term Note issued
to Laurus.

Net Loss:

      As a result of the above-described factors, the Company's net loss for the
three months ended March 31, 2006 decreased significantly to $49,676 compared to
a net loss of $789,562 for the three months ended March 31, 2005.

LIQUIDITY AND CAPITAL RESOURCES

      For  the  three  months  period  ended  March  31,  2006,  cash  and  cash
equivalents  increased to $115,768  from $53,997 at December 31, 2005.  Net cash
used by operating  activities  was $104,820 for the three months ended March 31,
2006  compared to net cash  provided by operating  activities of $273,890 in the
corresponding  three month period ended March 31, 2005.  This consisted of a net
loss of  $49,676,  an increase  in our  accounts  receivable  of  $320,390,,  an
increase in other assets of $39,149 partially offset by non-cash items amounting
to $129,295,(depreciation,  Amortization of intangibles, derivative interest and
financing  cost) a decrease  in  inventory  of $4,106,  an  increase in customer
deposits  of $16,111  and an  increase  in the  Company's  accounts  payable and
accrued expenses of $154,883.

      Net cash  provided by  financing  activities  was  $166,591  for the three
months ended March 31, 2006 compared to $1,327,050  in the  corresponding  three
months  ended March 31,  2005.  During the  quarter  ended March 31, 2005 and in
connection  with the  acquisition of SMEI, and  additional  working  capital the
Company entered into a Securities Purchase  Agreement,  dated February 11, 2005,
with Laurus for the sale of a $2,000,000  principal  amount secured  convertible
term note. For the current  quarter ended March 31, 2006, the Company  increased
the  outstanding  balance on its  Revolving  Credit  facility by  $166,591.  The
revolving  credit facility is based on the accounts  receivable of the Company's
software  consulting  division.  The outstanding balance on the line as of March
31, 2006 was $369,442.

Subsequent Events

      On May 16,  2006,  the Company  entered  into an  agreement  with  Laurus,
pursuant to which,  effective  May 4, 2006,  Laurus waived each Event of Default
pursuant to that certain Secured  Convertible  Term Note dated February 11, 2005
that has arisen under  Section 4.1 of the Note as a result of the failure of the
Company to comply with: (i) Section 1.2 of the Note from January 1, 2006 through
May 1, 2006 (overdue principal),  and (ii) Section 1.1(a) of the Note from March
1, 2006 through April 1, 2006 (overdue interest).  If Laurus had not waived such
events of default,  the Company would have been liable for  substantial  default
fees and interest of approximately $600,000 and $40,000 per month, respectively.


                                       13
<PAGE>

      As of March 31, 2006 the Company  lacked  sufficient  liquidity to support
the debt service on its outstanding  secured convertible term note and its other
debts coming due in the next twelve months. The Company's  management  estimates
that as of March 31, 2006, the Company  needed at least  $2,500,000 of financing
to settle the outstanding  secured  convertible  term note held by Laurus and to
provide an  adequate  level of working  capital  to support  operations  for the
subsequent twelve months. Towards that objective, between April 14, 2006 and May
11, 2006 the  Company  raised $1.4  million of gross  proceeds  from the sale of
common  stock and  warrants to  purchase  additional  shares of common  stock to
various accredited investors in private placement transactions. The Company sold
an  aggregate  of  23,231,733  shares of common  stock and  warrants to purchase
11,615,867  shares of common stock.  Each unit is comprised of 100 shares and 50
warrants to purchase one shares of common stock with an exercise  price of $0.12
per share  exercisable  for five years.  Each 100 shares of common stock and one
common stock purchase  warrant were sold for a per-unit price of $6.00, or $0.06
per share.

      Additionally,  The  Company  is in  ongoing  discussions  with  Laurus  to
renegotiate  the  terms  of  outstanding  secured  convertible  term  note.  The
Company's  management  believes that the Company's  anticipated  cash flows from
operations,  the funds available from SMEI's Accounts Receivable Credit Facility
and additional  funds from financing  activities  totaling $1.1 million together
will  provide the  necessary  liquidity to support  operations  and any payments
coming due in the next twelve months. If the Company is not successful at either
renegotiating or refinancing the secured convertible term note held by Laurus or
raising the additional equity financing needed, Laurus will, among other things,
have the right to  declare  all sums owing to it under the  secured  convertible
term note  immediately  due and payable and it may take immediate  possession of
all of our assets and all of the assets of our subsidiaries,  including SMEI. If
this were to occur, we most likely would be forced to discontinue operations.

OFF-BALANCE SHEET ARRANGEMENTS

      The Company  does not have any off  balance  sheet  arrangements  that are
reasonably likely to have a current or future effect on our financial condition,
revenues, results of operations, liquidity or capital expenditures.

CRITICAL ACCOUNTING POLICIES

The  financial  statements  have been  prepared in  accordance  with  accounting
principles generally accepted in the United States (US GAAP). The preparation of
these financial statements requires management to make estimates and assumptions
that affect the reported  amounts in the financial  statements and  accompanying
notes.  These  estimates  form the basis for  judgments  made about the carrying
values of assets  and  liabilities  that are not  readily  apparent  from  other
sources.  Estimates  and judgments  are based on  historical  experience  and on
various other  assumptions  that the Company  believes are reasonable  under the
circumstances.  However,  future  events  are  subject  to  change  and the best
estimates and judgments routinely require adjustment. US GAAP requires estimates
and  judgments  in several  areas,  including  those  related to  impairment  of
goodwill  and  equity  investments,   revenue  recognition,   recoverability  of
inventory and  receivables,  the useful lives long lived assets such as property
and equipment,  the future  realization of deferred  income tax benefits and the
recording of various  accruals.  The ultimate  outcome and actual  results could
differ from the estimates and assumptions used.

Basis of Financial Statement Presentation -The accompanying financial statements
have been prepared on a going concern basis,  which contemplates the realization
of assets and the  satisfaction of liabilities in the normal course of business.
The  Company  has  generated   significant  losses  and  is  unable  to  predict
profitability  for  the  future.  These  factors  indicate  that  the  Company's
continuation,  as a going  concern  is  dependent  upon its  ability  to  obtain
adequate financing.  The Company plans to address the going concern by replacing
debt with equity and continuing to grow the company with  profitable  sales both
organically and through acquisitions. Management believes successfully executing
these  tasks will lead to the  removal  of the going  concern  comment  from our
audited financials.

Principles of Consolidation- The consolidated  financial statements included the
accounts  of the  Company  and all of its  subsidiaries  in which a  controlling
interest is maintained.  All significant inter-company accounts and transactions
have been eliminated in consolidation. For those consolidated subsidiaries where
Company  ownership is less than 100%,  the outside  stockholders'  interests are
shown as minority interests.


                                       14
<PAGE>

ITEM 3. CONTROLS AND PROCEDURES.

      As of the end of the period covered by this report,  the Company conducted
an evaluation,  under the  supervision and with the  participation  of its Chief
Executive  Officer  and Chief  Financial  Officer  of the  Company's  disclosure
controls and  procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the
Exchange Act). Based upon this evaluation, the Company's Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective to ensure that information  required to be disclosed by
the Company in the reports  that it files or submits  under the Exchange Act is:
(1) accumulated  and  communicated  to the Company's  management,  including its
Chief  Executive  Officer and Chief Financial  Officer,  as appropriate to allow
timely decisions  regarding required  disclosure;  and (2) recorded,  processed,
summarized and reported,  within the time periods  specified in the Commission's
rules and forms.  There was no change to the Company's  internal  controls or in
other factors that could affect these controls  during the Company's last fiscal
quarter that has  materially  affected,  or is  reasonably  likely to materially
affect, its internal control over financial reporting.

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

      The Company is not a party to any  pending  legal  proceeding,  nor is the
Company's property the subject of a pending legal proceeding, that is not in the
ordinary course of business or otherwise material to the financial  condition of
its  business.  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.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

      Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

      On May 21,  2001,  the Company  entered  into  concurrent  debt  financing
arrangements,  each bearing  similar  terms and  conditions,  with Laurus Master
Fund,  Ltd.  and  Keshet  Capital  for  proceeds  of  $1,000,000  and  $400,000,
respectively.  The notes  bore  interest  at 8% and were due and  payable in May
2003. The notes were  convertible  into the Company's common stock at 85% of the
average trading market price over a period of twenty days preceding  conversion.
In addition,  the notes were issued with detachable warrants to purchase 727,273
(relative  to the  Laurus  arrangement)  and  290,908  (relative  to the  Keshet
arrangement)  shares of common  stock.  The warrants had terms of five years and
fixed strike prices of $1.43. The Keshet notes,  which remain  outstanding as of
March 31, 2006 are in default.

      Until May 4, 2006,  the  Company  was in default on a secured  convertible
term note held by Laurus  Master Fund,  Ltd. due to the failure to make required
monthly  principal  payments  of $60,606  due on the 1st of  January,  February,
March,  April and May 2006 and because the required  registration  statement was
not declared  effective.  Additionally,  the Company was in arrears on the March
2006 and April 2006  interest  payments  on the  secured  convertible  term note
totaling $36,055.  As a result,  the Company was potentially liable for fees and
interest of 2% per month accruing on all outstanding obligations and 130% of the
outstanding  principal if an  agreement to waive the existing  events of default
was not reached.

      Effective  May 4, 2006,  Laurus  Master  Fund,  Ltd.  agreed to waive each
existing event of default under the terms of the secured  convertible  term note
upon receiving payment of the overdue interest of $36,055.  The overdue interest
of $36,055 was paid to Laurus Master Fund, Ltd. on May 4, 2006 As a result,  the
Company  did not record any  liabilities  in the  quarter  ended  March 31, 2006
related to default fees or penalties.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

      Not applicable.


                                       15
<PAGE>

ITEM 5. OTHER INFORMATION.

      Not applicable.

ITEM 6. EXHIBITS.

Exhibit
Number                                  Description
--------------------------------------------------------------------------------

31.1                Certification by Chief Executive  Officer,  required by Rule
                    13a-14(a) or Rule 15d-14(a) of the Exchange Act.

31.2                Certification by Chief Financial  Officer,  required by Rule
                    13a-14(a) or Rule 15d-14(a) of the Exchange Act.

32.1                Certification by Chief Executive  Officer,  required by Rule
                    13a-14(b) or Rule  15d-14(b) of the Exchange Act and Section
                    1350 of Chapter 63 of Title 18 of the United States Code.

32.2                Certification by Chief Financial  Officer,  required by Rule
                    13a-14(b) or Rule  15d-14(b) of the Exchange Act and Section
                    1350 of Chapter 63 of Title 18 of the United States Code.


                                       16
<PAGE>

                                   SIGNATURES

      In accordance  with the  requirements  of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                        SCIENCE DYNAMICS CORPORATION


          Date: May 22, 2006            By: /s/ Paul Burgess
                                            ------------------------------------
                                            Paul Burgess
                                            Chief Executive Officer


          Date: May 22, 2006            By: /s/ Joe Noto
                                            ------------------------------------
                                            Joe Noto
                                            Chief Financial Officer


                                       17