UNITED STATES
                  SECURITIES AND EXCHANGE COMMISSION
                        Washington, DC   20549
                              FORM 10-KSB

(Mark One)

[x] ANNUAL REPORT UNDER SECTION 13 0R 13(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934 For the fiscal year ended December 31, 1998


[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES 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)

                                 22-2011859
                      -------------------------------
                     (IRS Employer Identification No.)


           1919 Springdale Road, Cherry Hill, New Jersey   08003-1069
           ----------------------------------------------------------
                 (Address of principal executive offices)

                             609-424-0068
            --------------------------------------------------
           (Registrant's telephone number, including area code) 

                                 None
        ----------------------------------------------------------
       (Securities registered pursuant to Section 12(b) of the Act)

                  Common Stock Par Value $0.01 Per Share
                  --------------------------------------
                              Title of Class
        ----------------------------------------------------------
       (Securities registered pursuant to Section 12(g) of the Act)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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 [ ]

Check if there is no disclosure of delinquent filers in response to item 405
of Regulation S-B contained in this form, and that no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in part III of this
Form 10-KSB or any amendment to this Form 10-KSB [X]

State issuer's revenues for its most recent fiscal year: $4,352,606.

The number of shares of Common Stock outstanding as of December 31, 1998, was
15,735,649 shares.

The aggregate market value of voting stock of the registrant held by 
non-affiliates as of December 31, 1998, was approximately $4,516,747.

Documents Incorporated by Reference: Certain portions of the registrant's 
definitive Proxy Statement to be filed pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended, in connection with the 
Annual Meeting of Stockholders of the registrant to be held on or about
August 1999, are incorporated by reference into Part III of this report.

Transitional small business format   Yes __ No X

<PAGE>

PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL OVERVIEW
----------------

Science Dynamics Corporation (the "Company" or "SDC") was incorporated in 
the State of Delaware May 1973 and commenced operations in July 1977.  During 
the past 21 years the Company has developed, designed and marketed a variety 
of Telecommunications systems, including intelligent call processing 
platforms which provide telecommunications service capabilities to the public 
switched telephone network. These platforms are sophisticated software based 
systems, which satisfy a wide range of computer telephony integration 
applications.  In November 1996, the Company acquired the intellectual 
property of Innovative Communications Technology (ICT) and under the 
direction of the new CEO/President embarked on transforming the Company into 
a predominately software design and system integration Company.

Over the past two years, the challenge was to expand the product offerings and
migrate into additional markets within the Computer Telephony Integration 
(CTI) industry.  The Company believes that communicating via packet networks
such as ATM and Frame Relay, is becoming the preferred strategy for both 
public networks and business enterprises. The Company's focus is to address 
niche market opportunities in Data Network Companies, Telephone Service
Distributors and Regional Bell Operating Companies (RBOC's), such as
BellSouth, Ameritech, US West, Southwestern Bell and large independent
telephone operating companies, such as GTE, Sprint and Citizens.

The Company's development is driven by user needs for cost effective, easy to 
use multiservice products that provide an array of telecommunications 
solutions and services to the customers.  These opportunities are primarily 
in the areas of Voice over Internet Protocol, Inmate Systems, Video over 
Frame Relay, Voice Announcements, Interactive Communications, Intelligent 
Network Control and Administration.  The Company's strategy today is to 
deliver quality software products and services that empower its customers to 
improve their applications and deploy quality services worldwide.   

BUSINESS DEVELOPMENT
--------------------

Science Dynamics has focused its strategy to be a provider of key enabling 
technologies required for the convergence of traditional and new 
communications media and infrastructures.

Communications media today must include traditional Telephony (an area for 
which Science Dynamics has 21 years experience), Data services (to include 
the Internet) and Video services.  Current infrastructures based on PDH 
(Plesiochronous Digital Hierarchy) technology are quickly being replaced with 
SDH (Synchronous Digital Hierarchy) technologies more suited to larger 
bandwidth packet data transmissions.  

Management believes communicating via packet data networks such as IP
(Internet Protocol), ATM (Asynchronous Transfer Mode), and Frame Relay is
becoming a preferred strategy for both corporate and public network planners.
Predictions have been made that data traffic will soon exceed telephone
traffic. At the same time, more and more companies are seeing the value of 
transporting voice and fax over data networks to reduce telephone and
facsimile costs and to set the stage for advanced multimedia applications.  

IP's ability to run over any network medium has led to its widespread 
adoption around the world. Its popularity, though, goes far beyond the 
Internet, to encompass the majority of data networks worldwide.

Providing high quality telephony over IP networks is one of the key steps in 
the convergence of voice, fax, video, and data communications services.


-2-
<PAGE>

Science Dynamics has now proven IP Telephony to be both feasible and cost 
effective with several customer trials.  New products, such as the 
IntegratorC-2400(r) Gatekeeper, will continue to play a very important role in 
positioning SDC in this fast growing market.



PRODUCTS
--------

IP Telephony

Interconnection of the Internet / Intranet to the PSTN or a private PBX, can 
be accomplished using a gateway.  An IP Telephony based telephone / PC, for 
example, would have access to the public network by calling through a gateway 
closest to the destination, minimizing long distance charges.

Science Dynamics' IntegratorC-2100(r), IntegratorC-2300(r) and
IntegratorC-2500(r) H.323 compliant IP telephony gateway products provide 
the following functions:

- Interfacing with a PBX, the PSTN, or another telephone connection
- Basic call processing functions (call setup/tear down, etc.)
- Real-time voice compression and decompression
- Packetizing and unpacketizing the compressed voice
- Interfacing with the IP network

In addition, the IntegratorC-2X00(r) series of IP Telephony gateways also 
provides other functions, such as an interactive voice response (IVR) 
interface to initiate calls, billing interfaces, etc.

Science Dynamics new IntegratorC-2400(r) H.323 compliant gatekeeper product 
will become the intelligent hub for IP telephony networks as well as the 
platform for advanced services.

The IntegratorC-2400(r)'s primary role is to provide call control services for 
registered H.323 endpoints. 

It performs the following call control functions: 
- Call control and routing 
- Address resolution & dialing plan management
- Basic telephony services such as directory services and PBX functions
- Controlling H.323 bandwidth usage to provide a QoS (Quality of Service)
- Total network usage control
- Injection of overall system administration and security policies

Science Dynamics will continue to develop this portfolio of IP Telephony 
products, adding new features and focusing on new services at each stage.  


Video over Frame Relay

The most common means of videoconferencing is to use a "circuit switched"
network, typically ISDN, supplied by the local telco.  Although this seems 
an obvious choice, it may not be the most cost effective due to certain 
technical issues relating to the transmission of continuous data streams 
such as, compressed video.

Transmission of video over a "packet based" network (such as the Internet),
although technically challenging, provides the same benefits of shared 
communication resources/channels as described above.  This in turn can lead
to significant cost savings for the user due to more efficient usage of the
bandwidth.   Frame Relay is a standardized "packet based" method (protocol)
for transmission of data.

-3-
<PAGE>

The advent of Frame Relay Access Devices (FRADs) has enabled users to 
integrate LAN-to-LAN (Local Area Network) connectivity, inter-office voice 
communications, IBM SNA (System Network Architecture) traffic and much more, 
over a single frame relay circuit.  The advantage of integration is cost.  
Customers of this technology can either build their own corporate enterprise 
networks, making best use of available bandwidth for all their applications, 
or utilize a Public Service Frame Relay network, provided by their local 
Telephone or Network Carrier.

Science Dynamics developed a new FRAD technology with the introduction of the 
VFX-250 product range in 1997, a hardware based Frame Relay Access Device 
specifically designed for video data streams.  The VFX-250S product has gone 
through much development in 1998, with the current version 2.1, including 
many new features.  

In addition, 1998 saw the new version of the VFX-240S (soon to be available) 
targeted at the 128Kbps ISDN market place with lower delays and lower costs 
than its more powerful brother, the VFX-250S.

Science Dynamics has generated new market opportunities by promoting sales 
and OEM relationships for this product within the videoconferencing and frame 
relay market places.


Voice Response System


The Company's Voice Response System (VRS) is an automatic intercept product 
designed to provide a cost-effective solution for implementing announcement 
capabilities at the central office location. 

The VRS is installed adjunct to the central office switch eliminating the 
requirement to purchase expensive switch software modules for providing call 
intercept, call completion and CLASS announcements. The VRS results in a 
single system solution that can meet most announcement requirements in most 
central offices. 

The Voice Response System contains a standard library of recorded messages 
and phrases that can be used for most telephone company announcement 
requirements.  These messages can be fixed, concatenated, or recorded by the 
user and appended to the phrase and/or announcement library using the digital 
encoding feature of the VRS.  Several key features of the VRS encompass 
interactive Custom Local Area Signal Service (CLASS), changed number referral 
announcements with optional call completion, Automatic Number Announcement 
(ANA), user recorded custom announcements, service and emergency 
announcements.

Users can perform custom voice recordings and message construction locally by 
using the built-in display and control panel, or remotely using the 
administration port.  The user recordable memory is expandable to accommodate 
larger user recorded message requirements.  The VRS has an internal database 
for changed number referral or message assignment by switch designated 
translation.  VRS also supports pooled trunk announcements to better utilize 
trunk resources.

During the latter part of this year the company received several orders 
for its newly engineered VRS Centralized Intelligent Management System (CIMS-
II). The CIMS-II is a WindowsNT host platform that communicates with client 
workstations in managing multiple VRS remote locations from a central point. 
The CIMS systems were deployed by a large independent telephone company for 
managing changed number referral and messaging for over 300 VRS's located in 
remote central office locations across the United States.

The VRS and CIMS products are Y2K compliant.

-4-
<PAGE>

Commander Inmate Telephone Control System (ITCS)

The Commander product lines are based on the Company's new IntegratorC-2000(R)
platform.  This open system platform is a combination of integrated Computer 
Telephony (CTI) hardware and software, which can handle thousands of call 
transactions per hour and provide correctional facility officials with 
effective tools to manage and control inmate telephone calls using the 
Commander system software.

The Commander I products are generally wall mounted platforms that have been
designed for the small to mid sized municipal and county correctional 
facilities requiring control for up to 40 inmate telephone lines.  The 
Commander I base system provides telephone control for 4 lines and can be 
expanded in 4 line increments. This modular design provides a cost effective 
solution with an abundance of inmate phone control features.

Commander II platforms are generally rack mounted and can house up to 96 
inmate telephone lines. Multiple platforms can be daisy-chained for systems
requiring control of more than 96 lines. The company has configured and 
installed several 432 line Commander ITCS during 1998. 

The Commander I and II systems can be configured using one or more
AdminManager workstations. The AdminManager provides real-time administration
of the Commander system through an Ethernet Local Area Network (LAN) or 
a Wide Area Network (WAN).

The Commander product lines are Y2K compliant.



PRODUCT DEVELOPMENT
-------------------

The Company's products have primarily been designed and developed by its 
internal engineering staff.   The Company considers the features and 
performance of its products to be generally competitive or superior to 
those of other available applications.

The Company believes that continual enhancements of its products will be 
required to enable the Company to maintain its competitive position. The 
Company intends to focus its principal future product development efforts on 
developing new, innovative, technical products and updating existing products 
in the communications arena to enable the Company to take advantage of 
opportunities resulting from the expected direction of technology.   

The Company has completed the development of the next generation of its core 
application platform, the IntegratorC-2000(r).  This product provides the 
foundation for hosting applications for various Telephony and transaction 
oriented processes.  Currently the IntegratorC-2000(r) can host existing
Company products such as the Commander family of inmate products, the
IntegratorC-2000(r) series of IP Telephony Servers, and the IVAP Intelligent
Voice Announcer Platform.  Management believes that the product design
strategy will keep the Company competitive in the emerging Internet Telephony
market.


INTEGRATION OF PRODUCTS
-----------------------

The Company's primary effort is the software design of products, limited 
hardware design and system integration of purchased products.  The Company 
purchases OEM equipment then integrates its custom software providing quality 
solutions for the industry.  The purchasing philosophy has been to establish 
relationships with industry leaders in the Networking, Telecom and PC 
environments providing quality modules and sub-systems and prompt delivery and
service. 

Using a material requirement planning process, the Company is generally able
to order on a just-in-time basis and efficiently integrate systems for prompt 
delivery.  The key stages in the development cycle of the products consist of 
assembling the hardware, installing the software and performing final system
test and inspection.

-5-
<PAGE>

The Company's products are primarily produced to order. Inventories consist 
of raw materials, work in process, and finished goods.  The Company believes 
it maintains a quantity of inventory adequate to insure a quick turn around 
time to meet most customers' requirements.   


SOURCES AND AVAILABILITY OF MATERIAL
------------------------------------

Although most materials are available from a number of different suppliers on 
an off-the-shelf basis, several suppliers are the sole source of each of 
certain components.  If a supplier should cease to deliver a component, 
another source would have to be developed.  The Company believes it would be 
able to do so by acquiring a substitute part or module that could require a 
hardware or software change in the unit in order to provide satisfactory 
performance, although added costs and delays of unknown amount and duration 
could be experienced.


SALES AND MARKETING
-------------------

The Company sells its products through its direct sales force in the United 
States and internationally through the Science Dynamics International sales
office.   The Company has also implemented other channels of distribution to 
broaden its geographic reach, accelerate its sales expansion and leverage its 
sales force.  These channels of distribution include value-added resellers, 
FRAD and Codec Manufacturers, system integrators and distributors.  

The Company's international office is pursuing sales opportunities in South 
America, Europe, Middle East, and the Pacific Rim. The Company believes the 
international presence allows it to maintain direct contact with and provide 
better support to its international customers.

The Company's marketing programs include direct mail, Internet presence, 
participation in trade shows, advertising and production of corresponding 
literature.   These programs are designed to raise general awareness of the 
Company and its products, generate leads for the sales organization, target 
marketable products and promote the Company's various product lines.


RESEARCH & DEVELOPMENT
----------------------

The majority of the research and development activities are conducted at the
Company's facility using its array of telephony resources and the technical
expertise of its engineering staff.  The Company has fourteen employees 
currently engaged in research and development. The Company plans to devote a
substantial portion of its resources to research and development and to 
continue utilizing subcontractors to enhance the engineering staff. 

The Company anticipates that an increase in future research and development
expenditures will be necessary to remain competitive in the rapidly changing 
telecommunications industry and that more development work will be outsourced
to accelerate the introduction of new product offerings. The Company plans to
continue to expand its product offerings to include additional products in 
Telephony, Voice-Over-IP and Data Communications.


INTELLECTUAL PROPERTY
---------------------

It is the Company's practice to apply for patents as new products or 
processes appropriate for patent protection as developed.  The Company made 
application for a patent on the three-way Call Detection System and on 
January 21, 1998, received a Notice of Allowance from the U.S. Patent Office. 
The formal United States Patent was received in June 1998.  The Company 
holds other patents related to some of its other products. No assurance can
be given as to the scope of the patent protection. 

-6-
<PAGE>

The Company believes that the rapid technological developments in the 
telecommunications industry may limit the protection afforded by patents.  
Accordingly, the Company believes that its success will be dependent upon its 
engineering competence, service and the quality and economic value of its 
products.

The Company also owns trademarks, copyrighted material and intellectual 
property relating to proprietary technology utilized in the development of 
some of the products.  


CUSTOMER SUPPORT
---------------- 

The Company's technical support staff provides telephone support to our 
customers using a computerized call tracking and problem reporting system.  
The Company also provides initial installation and training for its products. 
The Company is instituting an annual maintenance contract entitling 
customers to software updates, technical support and technical bulletins.


INDUSTRY
--------

According to the Telecommunications Industry Association (TIA) and its 
subsidiary, the Multimedia Telecommunications Association (MMTA) the overall 
telecommunications market (equipment and services) grew by more than 11 
percent in 1997, generating revenues of $406.7 billion.  Spending on telecom 
equipment grew 13 percent to $106.4 billion, while services, accounting for 
about 75 percent of the 1997 revenue total, posted an 11 percent increase to 
$300.3 billion.

Frost & Sullivan predicts that the total IP telephony equipment market will 
have a compound annual growth rate of nearly 150% for the next few years, 
reaching $1.89 billion by the year 2001. It is also expected that IP 
Telephony will be deployed by 70% of the Fortune 1000 companies by the year 
2000.

Spending on emerging technology equipment, frame relay, ATM and ISDN, grew by 
60.4 percent to $3.9 billion in 1997. As bandwidth requirements in the 
workplace expand, spending on emerging technologies should continue to grow 
rapidly. Spending is projected to grow at a 22.1 percent compound annual rate 
through 2001.

U.S. exports of telecommunications equipment rose by an estimated 24 percent 
to $21 billion in 1997. This increase is the result of countries throughout 
the world recognizing the need to develop a sophisticated telecommunications 
infrastructure in order to compete in the global economy.

Management is of the opinion that it is technologically well positioned to 
capitalize on these new and emerging technologies and hopes to gain a fair 
share of the market.



COMPETITION
-----------

Due to the diversified nature of the products and target markets, Science 
Dynamics competition varies greatly by product line.  Inmate products division
holds a respectable portion of the Inmate market with its Commander system.  
The Company competes against three other primary vendors in this area but the 
system captures a sizable share of the target market. 

The data/voice products division expects to be competitive in the Data, Video 
and Voice-Over-Frame Relay markets.  The Company has limited competition in 
the Video-Over-Frame market.  This includes an integrated Frame Relay 
Codec, an ISDN over Frame Relay product which is very expensive and the use of
H.323 packetized LAN Video, a different concept which crosses into our 
market.

-7-
<PAGE>

The IP products division is marketing and conducting international trials 
supported by the team that developed the IntegratorC2000(r) series.  These IP
products will compete in a marketplace that is populated by larger companies 
who have significantly more resources for development, marketing and 
deployment. The number of companies involved with IP Telephony Gateways has 
risen from about twenty last summer to nearly one hundred currently. The 
Company's IP product is a more intelligent offering than some of the 
competitors but the industry outlook could rapidly become a cost per port 
arena.


CUSTOMERS
---------

The major customers in 1998 were independent and Bell Operating Companies 
with three customers accounting for 82.95%, 4.69% and 3.45% of total revenue. 
With the introduction of the new product lines, the Company has expanded its 
customer base globally and will be less reliant on any single market or 
territory.


EMPLOYEES
---------

As of December 31, 1998, the Company employed 26 persons on a full time 
basis.  The Company supplements full-time employees with subcontractors and 
part-time individuals, consistent with workload requirements.


GOVERNMENT APPROVAL
-------------------

The Federal Communications Commission (FCC) requires that some of the 
Company's products meet Part 15 and Part 68 of the code of Federal Regulations
(CFR).  Part 15 (subpart B) deals with the suppression of radio frequency and 
electro-magnetic radiation to specified levels.  Part 68 deals with protection
of the telephone network.  Other than FCC requirements, there is no known 
Company effect resulting from existing or probable Government regulations 
requiring approval.


COMPLIANCE WITH ENVIRONMENTAL LAWS
----------------------------------

Company operations do not pollute nor involve discharge of material into the 
environment.  As a result, no expenditure is budgeted or required for 
environment protection or restoration.  The Company is concerned about 
protecting the environment and participates in recycling programs.

ITEM 2.	 DESCRIPTION OF PROPERTY

The Company has leased for ten years commencing May 1, 1995, a 50,000 square 
foot freestanding masonry building in an industrial park in Cherry Hill, New 
Jersey, utilized for office space and test of its products and other corporate
activities.  In the latter part of 1998, the Company subleased 25,645 square 
feet of the building to a printed circuit board manufacturer.  It is 
anticipated that the leasee will eventually require the entire area and SDC 
will relocate to a smaller suitable office facility.

ITEM 3.  LEGAL PROCEEDINGS

The Company is not now a party to any litigation and no action against the 
Company has been threatened or is known to be contemplated by any governmental
agency or subdivision or any other entity.

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

No matter was submitted, during the Fourth Quarter of the Fiscal Year covered 
by this report, to a vote of security holders through solicitation of proxies 
or otherwise.

-8-
<PAGE>

PART II

ITEM 5.	 MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Registrant's Common Stock is traded on the Over the Counter Bulletin Board 
(BBOTC:SIDY) effective February 18, 1999.   The symbol for the Company's 
Common Stock is "SIDY".  The Company's Common Stock has been traded publicly 
since April 22, 1981.  The "high" and "low" bid quotations for the Company's 
Common Stock for each quarterly period for the fiscal years ended December 31,
1997 and December 31, 1998 were as follows:

	Calendar Quarter	High Bid Price	   Low Bid Price
        ----------------        --------------     -------------

              1997
              ----
              First                 $1.8750             $.6875
              Second                  .9687              .5625
              Third                  1.0937              .7187
              Fourth                 1.1250              .5000

              1998
              ----
              First                  $.8437             $.5312
              Second                 1.1562              .6875
              Third                   .9687              .5000
              Fourth                  .6562              .4062


The above listed quotes reflect inter-dealer prices without retail mark-up, 
mark-down, or commissions and are not necessarily representations of actual 
transactions or the true value of the Common Stock.

As of December 31, 1998, there were approximately 350 holders of record of the
Common Stock of the Company.  However, registrant has reason to believe that 
there are more than 850 shareholders because of stock held in street name by 
various broker-dealers.

The Company has paid no cash dividends since its inception.  The Company 
presently intends to retain any future earnings for use in its business and 
does not presently intend to pay cash dividends in the foreseeable future. 
Holders of the Common stock are entitled to share ratably in dividends when 
and as declared by the Board of Directors out of funds legally available 
therefor.

The market price of the Company's common stock, like that of other technology 
companies, is highly volatile and is subject to fluctuations in response to 
variations in operating results, announcements of technological innovations 
or new products by the Company, or other events or factors. The Company's 
stock price may also be affected by broader market trends unrelated to the 
Company's performance.

Effective February 23, 1998, the NASDAQ Stock Market increased the 
quantitative threshold criteria for continued listing on NASDAQ.  Among 
several changes, a minimum bid price of $1.00 is required for continued 
listing on the SmallCap market.  The Company  was notified by The Nasdaq 
Stock Market that effective with the close of business Feb. 18, 1999, the 
company's securities were delisted from the Nasdaq SmallCap Market. The 
company's securities are trading on the Over the Counter Bulletin Board.  
Although the management of the company was disappointed in the decision, the 
move from the Nasdaq SmallCap market has not had a significant impact on the 
trading of the stock.  The Company will continue to implement the business 
strategy and focus on the growth of the Company to enhance stockholder value.

-9-
<PAGE>

ITEM 6.	 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATIONS

GENERAL BUSINESS OVERVIEW

The Company's net sales for the year ended December 31, 1998 were $4,352,606 
a decrease of $40,947 from sales of $4,393,553 for the year ended December 31, 
1997. The Company's revenue in 1998 was principally derived from the 
Commander Product Line and a portion from the VFX-250S product line.  The 
modestly weaker results were primarily due to the delayed recognition of the 
VFX-250S product line resulting in lower than anticipated sales results.  The 
strategy for 1998 was to generate sales from the Commander Product as well as 
the VFX-250S Products while continuing the development effort in the IP 
Telephony Product line.  Although the sales of the VFX-250S did not reach the 
anticipated level, the market awareness of the functionality and quality of 
the product has been recognized.  In an independent evaluation of 
videoconferencing via frame relay technology equipment, Network Computing 
Magazine's Editor's Choice was awarded to the Memotec CX900e system which 
uses the Science Dynamics VFX-250S device.  This recognition in the 
marketplace, the continuing sales and marketing efforts expended by the sales 
team and the further development of the new version VFX-240S to be released 
shortly is expected to result in a base line source of revenue in the coming 
years.

Intensive development efforts have been expended this past year in the IP 
Telephony product based on the IntegratorC-2000(r) platform.  Advances in 
public and private IP-based networks now enable businesses to use the 
Internet Protocol to by-pass the Public Switched Telephone Network for 
national and international long distance voice, fax, and video 
communications.  This provides businesses with a method to reduce 
their telecommunication expenses.  The IntegratorC-2000(r) platform for IP 
telephony takes voice and fax communication and converts them into data 
packets, allowing international phone calls and faxes to be transported over 
IP networks at very high quality and low cost.

During the past year the company has gained considerable knowledge and 
experience in enhancing the development of the system for IP Telephony.  The 
Company has installed several trial systems and revised its understandings 
and implementations of the products accordingly.  The latest H.323 standards 
have been added to these systems.  This will lead to interoperability testing 
with other vendors during 1999.  The Company experienced technical success in 
the trial systems installed during the latter part of the year.  Management 
believes that the penetration of the IP Telephony will provide significant 
growth potential 

The Company is continuously exploring new niche opportunities, introducing 
new products and marketing and sales initiatives to increase market share and 
share of customer; and actively pursuing business alliance candidates that 
complement or support the Company's core competencies.

YEAR 2000 PROBLEM 

The Year 2000 issue arises because many computerized systems use two digits 
rather than four to identify a year. Date-sensitive systems may recognize the 
Year 2000 as 1900 or some other date, resulting in errors when information
using Year 2000 dates is processed.  In addition, similar problems may arise 
in some systems, which use certain dates in 1999 to represent something other 
than a date.  The effects of the Year 2000 issue may be experienced before, 
on, or after January 1, 2000, and financial reporting may range from minor 
errors to significant systems failure, which could affect an entity's ability 
to conduct normal business operations.  It is not possible to be certain that 
all aspects of the Year 2000 issue affecting the Company, including those 
relating to the efforts of Customers, Suppliers, or other third parties will 
be fully resolved

-10-
<PAGE>

The Company's investigation of the Year 2000 problem has been ongoing for 
sometime.  Employees have accomplished all present efforts, therefore no out 
of pocket costs have been expended with exception of minimal telephone 
charges, stationary, stamps, etc.  It is estimated that various employees 
have expended on the order of 250 man-hours through 1998 Fiscal Year.  No 
attempt has been made to capture those expended hours since the Year 2000
effort is considered an overhead function and entails no added employees or
facilities.

The evaluation of the company's products to date has found only one installed 
product that is not compliant due to a purchased integrated circuit (I.C.).  
This IC has been discontinued and the manufacturer will not provide a 
replacement.  The discontinued I.C. is designed into multiple circuits and 
the cost of retrofit to the older systems is cost prohibitive.  Efforts to 
date have entailed working with customers to determine if older installations 
are still in service.  At this juncture the problem appears to be of minor 
significance, since the systems are years old and outdated by today's 
technology. 

The next orderly step presently ongoing is additional attention to:

       1. Suppliers.  There are only six major suppliers that could cause 
          significant problems for the Company.  Three certificates of 
          compliance have been obtained with the other three in process.  
          Selective involved electronic component suppliers consisting 
          primarily of integrated circuits have been contacted for 
          certificates of compliance (COC) to Y2K.  Notification on selective 
          purchase orders has been included stating that items will not be 
          accepted without a COC.

       2. Utilities.  Primarily electric, gas, water, and telephone services 
          are being monitored to insure that no interruption of services will 
          be experienced.  The backup plan is to replace, if possible, those 
          suppliers not supplying a COC for Y2K.

       3. Office equipment, etc.  While these providers do not directly 
          affect the Company's products, they do affect the ability to 
          operate in an efficient manner.  Certificates have been received 
          from suppliers such as postage meter, carriers, duplicator, etc.

       4. Company Software.  A Compliance Test Plan for the Company's new 
          system has been defined with testing in process with completion 
          scheduled by June 1999.  Should any suppliers from Item 1. above 
          not prove to meet Y2K, a replacement will be selected.

RESULTS OF OPERATIONS   

The following table sets forth income and certain expense items as a 
percentage of total revenue and the change in dollar amounts of such items 
compared to the previous fiscal year:
    

                                For the Years Ending December 31,
                                            1998            1997
                                            ----            ----

             Sales                    $4,352,606      $4,393,553  
             Net Loss                $(1,036,306)    $(1,022,029)
             Net Loss Per Share           $(0.07)          $(.08)
 
-11-
<PAGE>

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

     Cost of Goods Sold         $1,694,557  $1,969,837       38.9%    44.8%

     Research & Development      1,219,687   1,293,608       28.0%    29.4%

     Selling, General & Admin    2,470,534   2,138,408       56.8%    48.7%

     Total Operating Costs 
     and Expenses               $5,384,778  $5,401,853      123.7%   122.9%


Sales for the fiscal year ended December 31, 1998 were $4,352,606 compared to 
sales of $4,393,553 in the 1997 fiscal year..  The primary factor that 
affected the sales performance was the slower than anticipated ramp up of 
interest in the VFX-250S product. Over the past year, the Company has devoted 
substantial time and effort researching and developing the Voice over IP 
product line, the new version VFX-240S and enhancements to the inmate system 
to reduce the dependence on a single product and/or customer. 


Research and Development expenses in 1998 decreased 5.71% to $1,219,687 
compared to $1,293,608 in 1997, a decrease of $73,921.  The decrease is 
attributable to the reduced overhead expenses as a result of the leasing of a 
portion of the facility and the natural attrition of human resources.  

The Company believes that the research and development activities are crucial 
to maintaining a competitive edge in the rapid growth of the 
telecommunications marketplace.  The Company intends to increase its 
investment in the research and development team to maintain a highly skilled 
force of design engineers for new product development, the key to the future. 

The selling, general and administration expenses increased 15.5% as a 
percentage of sales and increased in absolute dollars to $2,470,534 in 1998, 
from $2,138,408 in 1997.  The increase in selling, general, and 
administrative was primarily due to the costs of operating the international
sales office, increased advertising costs to promote the company and its 
products in the marketplace and the overall increase of personnel related
costs.

 The 1998 net loss increased $14,277 to $1,036,306 from $1,022,029. The 
increase in the loss was the result of weaker than expected sales
performance of the VFX-250S.


LIQUIDITY & CAPITAL RESOURCES

Net cash used for operating activities for the years ended December 31, 
1998 and 1997 was 578,177 and $728,791 respectively.  The use of cash in 
operating activities in 1998 resulted primarily from the net loss, the 
increase in receivables offset by the increase in accounts payable and 
accrued expenses. 

Net cash used in investing activities was $85,755 in 1998 and $80,257 in 
1997. The increase in cash used for investing activities in 1998 was 
primarily attributable to capital expenditures for the purchase of 
software tools and computer related equipment for development of the 
Company's current and new products. The Company expects to increase its 
capital expenditures incrementally to maximize development efforts of new 
products and applications.  The Company had no significant commitments as 
of December 31, 1998 for capital expenditures.

Net cash provided by financing activities in 1998 was $675,000.  The 
first financing arrangement was the accounts receivable purchase 
agreement in which CIT Group/Commercial Services will advance 60% funding 
of the accounts receivable balance at an interest rate equal to the 
greater of the sum of one percent plus the Chase Prime Rate or six 
percent per annum.  The factoring fee for this service is six-tenths of 
one percent of the gross face amount of all accounts factored with CIT up 
to $4,000,000 and thirty hundreds of one percent of the accounts in 
excess of $4,000,000.   This financing vehicle will assist in providing 
consistent cash flow.

-12-
<PAGE>

During December 1998, the Company initiated a private placement offering 
for the issuance of two million shares of Common Stock, pursuant to which 
one million two hundred thousand shares were sold.  The Company received 
net proceeds of $575,000 dollars.  The Company is in the process of 
placing the remaining 800,000 shares.  All such proceeds have and will be 
used to fund product development, sales, and the Company's general 
operating expenses.

At December 31, 1998, the Company had $32,249 in cash and cash 
equivalents and $563,327 in working capital, compared with  $21,181 in 
cash and cash equivalents and $633,593 in working capital at December 31, 
1997. Current liabilities at December 31, 1998 were $919,985, 245% more 
than current liabilities of $376,234 at December 31, 1997.   The $543,741 
increase is attributable to the increase in accounts payable in material 
purchased for projected orders that were delayed, the outstanding balance 
owed to CIT on the accounts receivable purchase agreement and the accrued 
payroll which was paid subsequent to the year end. 

The Company believes that the forecasted sales generating cash flow from 
operations, together with funds generated in the private placements will 
be sufficient to finance the Company's operations and meet its 
foreseeable cash requirements including planned capital expenditures, 
through the next twelve months.  

Statements in this Annual Report on Form 10KSB concerning the Company's 
business outlook on future economic 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 cause actual 
results to differ materially from those set forth above and elsewhere in 
the Annual 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.


ITEM 7.  FINANCIAL STATEMENTS

The Financial Statements are listed at "Index to Consolidated Financial 
Statements".


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE

There were no disputes or disagreements of any nature between the Company or 
its management and its public auditors with respect to any aspect of 
accounting or financial disclosure.


PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; 
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The directors and executive officers of the registrant were:

   Name               Age      Position with the Company
   ----               ---      --------------------------

   Lyndon A. Keele    70       Chairman of the Board of Directors.
                               President from June 1973, until 
                               November 7, 1996.  CFO and Treasurer from 
                               December 1980 until November 7, 1996

-13-
<PAGE>

   Alan C. Bashforth  48       President and Director since November 7, 1996

   Kenneth P. Ray     65       Director since May, 1990

   Joy C. Hartman     50       Executive Vice President, since December 1994,
                               Corporate Secretary since June 1, 1993, CFO and
                               Treasurer since November 7, 1996, and Director
                               since May 7, 1991

   Sheldon Hofferman  54       Director since September 17, 1997

   Russell R. Angely  60       Vice President, Sales and Marketing since 
                               May 2, 1994


There were three board meetings during 1998.  All the members participated in 
these meetings. 

None of the above persons is related to any other of the above-named persons 
by blood or marriage.

Mr. Hofferman previously served as a member of the Board from June 1995 to 
June 1, 1996, but acted as advisor to the Board for the period June 1, 1996 to
September 1997.

Based upon a review of filings with the Securities and Exchange Commission and
written representations that no other reports were required, the Company 
believes that all of the Company's directors and executive officers complied 
during fiscal 1998 with the reporting requirements of Section 16(a) of the 
Securities Exchange Acts of 1934.

BIOGRAPHIES
-----------

LYNDON A. KEELE is the founder of the Company and has been active as Chairman 
of its Board of Directors and President from June of 1973 until November 1996.
From April of 1973 to August of 1977, Mr. Keele managed his own investments 
and served as a consultant to a number of companies involved in the 
electronics industry.  Prior to 1973, Mr. Keele served for five years as a 
founder and Executive Vice President of TeleSciences, Incorporated, a company 
engaged in design and manufacture of telephone support equipment.  From 1962 
to 1968, he served as a Program Manager for multimillion-dollar programs 
involving data and circuit switching systems at ITT Federal Laboratories.  
From 1958 to 1962, he was employed by GTE's Sylvania Electronics Systems 
Division in various management positions, including Program Manager of data 
processing and cryptographic communications projects and programs.  The 
University of Texas awarded him a B.B.A. in 1951.

ALAN C. BASHFORTH, President, was the President of Innovative Communications 
Technology, LTD. (ICT), a data communications company, located in Jersey, 
Channel Islands, until the acquisition of the intellectual property of ICT by 
SDC in November, 1996.  Prior experience included ownership of the CSL Group 
of companies from its inception in 1975.  CSL is a Communications and Computer
engineering group and employed over 100 people in 1992 when Mr. Bashforth sold
the company.  From 1970 to 1975, Mr. Bashforth was employed by Automaten CI, 
LTD., an office equipment and telecommunications company, in various 
engineering and sales positions leading to the position of General Manager.  
Mr. Bashforth was educated in electronic engineering at Mid Herts Polytechnic 
College in England and holds a Higher National Diploma in Electronic 
Engineering.  Mr. Bashforth also serves as a Director of 
Satellite Media Services Ltd.

KENNETH P. RAY is President of DelRay, Inc., an active telecommunications 
consulting firm.  From 1964 to 1987 he was associated with ITT in various 
responsible positions and in 1976 became Vice President of ITT 
Telecommunications, with responsibility for engineering, marketing and sales 
departments.  In 1981 he became Vice President and Director of Operations for 
the Transmission Division of ITT Space Communications.  In January 1987, ITT's
telecommunications group was acquired by Alcatel and Mr. Ray became Vice 
President of Marketing and Development for Alcatel Network Systems.  From 1988
to 1991, he was Vice President for Technology and Business Development for 
Alcatel North America, a telecommunications company.  Mr. Ray received a BSEE 
from Polytechnic Institute of New York in 1954 and a Masters in Economics from 
North Carolina State University in 1970.

-14-
<PAGE>

JOY C. HARTMAN, Executive Vice President, was employed by the Company in 
January 1982, and is responsible for General Corporate Administration 
including the functions inherent in comptrollership, personnel, employee 
benefits, and insurance activities.  Her prior experiences included MSA, a 
marketing Research Company, TeleSciences, Incorporated, and Peat Marwick-
Mitchell.  Ms. Hartman is a graduate of the Wharton School of Business of the 
University of Pennsylvania.

SHELDON C. HOFFERMAN, has been an Attorney and Private Investor since 1971.  
Mr. Hofferman graduated from the University of Pennsylvania in 1966 and Temple
University Law School in 1971.  He was in private law practice in Washington, 
D.C., specializing in communications law, from 1971 to 1974.  He served as 
Senior Trial Attorney for the Federal Trade Commission from 1974 to 1983, and 
re-entered private law practice thereafter.  Mr. Hofferman has also served as 
General Partner of Golden Phoenix Limited Partnership, an investment concern, 
since 1983.

RUSSELL R. ANGELY, Vice President of Sales and Marketing, was employed by the 
Company in May, 1994.  Prior to joining the Company, Mr. Angely was the 
National Sales Manager for CXR Corporation, where he managed the direct sales 
organization and an extensive network of domestic and international 
distributors, VAR's, and Manufacture Representative sales organizations.  Mr. 
Angely has served in executive level assignments with Xerox Corporation, Racal
Milgo, Delta Data Systems, Develcon Electronics, and Racal DataCom.  These 
assignments have provided Mr. Angely with over 25 years experience in sales 
and marketing management in the data and telecommunication industry.  Mr. 
Angely attended Penn State University and has participated in Executive 
Management programs at the University of Pennsylvania, NYU, and Michigan 
State University.



ITEM 10. MANAGEMENT REMUNERATION AND TRANSACTIONS

EXECUTIVE COMPENSATION

Reference is made to the information to be set forth in Item 1, the sections 
entitled "Director and Executive Compensation" in the Proxy Statement, which 
section is incorporated herein by reference.

The outside Directors receive $250.00 per meeting as standard compensation for
service as directors.  Should there be a change in control or ownership of the
Company by acquisition or merger, the Board of Directors on January 25, 1996, 
adopted a resolution whereby the then present officers of the Corporation are 
protected from termination without cause.  The compensation amount is limited 
to compensation for three years of salary.  Such compensation can be either a 
lump sum payment or payment over a three year period.

-15-
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

The following table sets forth certain information as of February 5, 1999 with 
respect to the beneficial ownership of the common stock by each beneficial 
owner of more than 5% of the outstanding shares thereof, by each director, each 
nominee to become a director and each executive officer named in the Summary 
Compensation Table and by all executive officers, directors and nominees to 
become directors of the Company as a group. Under the rules of the Commission, 
a person is deemed to be the beneficial owner of a security if such person has 
or shares the power to vote or direct the voting of such security or the power 
to dispose or direct the disposition of such security.  A person is also deemed 
to be a beneficial owner of any securities if that person has the right to 
acquire beneficial ownership within 60 days.  Accordingly, more than one person 
may be deemed to be a beneficial owner of the same securities.  Unless 
otherwise indicated by footnote, the named entities or individuals have sole 
voting and investment power with respect to the shares of common stock 
beneficially owned. There are no arrangements known to the Company including 
pledges of securities, which might, at a subsequent date, result in any change 
of control of the Company.
<TABLE>
<CAPTION>
                                                            Shares of
                                                             Common
                                                              Stock
                                                          Beneficially        Percent of
  Name and Address                          Title           of Shares     Outstanding Shares(1)
  ----------------                          -----           ---------     ------------------
 <S>                                     <C>               <C>           <C>    

  Golden Phoenix, LTD                     5% Owner
  P.O. Box  350, Fairfax Station,                           2,969,121                 18.72%
  VA  22039                               Director
  Sheldon C. Hofferman, General Partner
  of Golden Phoenix

  Innovative Communications
  Technology, LTD. (ICT) 
  Le Clos D'Avranche                      5% Owner
  La Rue Bel-Aire                                          1,500,000                   9.46%
  St. Mary, Jersey  C.I.              President, CEO and
  (Alan C. Bashforth, President of         Director
   the Company controls ICT)                   

  Lyndon A. Keele                     Chairman of the        775,534(2)                 4.89%
  701 Garwood Road                         Board
  Moorestown, NJ   08057

  Russell R. Angely                   Vice President          41,000                    .258%
  107 Hardwood Court
  Chalfont, PA   18914

  Joy C. Hartman                    Exec. Vice President,     86,000(2)                 .539%
  27 Hogan Way                         CFO, Treasurer,
  Moorestown, NJ   08057            Secretary, Director

-2-
<PAGE>

  Kenneth P. Ray                          Director            40,000(3)                 .041%
  909 Darfield Drive
  Raleigh, NC   27615

  All Directors and
  Officers as a Group(3)                                   5,411,655                  34.39%

---------------
                             
(1) Based upon a total number of 15,735,649 shares outstanding as of February 
    5, 1999.

(2) Includes 1,700 shares owned by Mr. Keele's daughter, and 300 shares owned 
    by Ms. Hartman's children.  The daughter of Mr. Keele has sole voting and 
    investment power with respect to her shares and Mr. Keele has sole voting and
    investment power with respect to all other shares in this total.

(3) In addition to the 10,000 shares owned by Mr. Ray, an outside Company 
    Director, Mr. Ray holds incentive options to acquire 30,000 shares.  
    Mr. Angely holds incentive options to acquire 30,000 shares in 
    addition to the 11,000 shares owned.  In addition to the 1,000 shares
    owned, Ms. Hartman holds incentive options to acquire 65,000 shares 
    and 20,000 warrants.

</TABLE>

There are no arrangements known to the Company including pledges of 
securities, which might, at a subsequent date, result in any change of control
of the Company.

ITEM 12.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

There have been no transactions during the last two years or any currently
proposed with any executive officers, directors, nominees for election as
director or any security holder or beneficial owner of more than five percent
of the Company's voting securities or any immediate family member of any
such owner and to the Company within the terms of 17. C.F.R. Section 228.404
(Item 404 of Regulation S-B).


ITEM 13.	EXHIBITS AND REPORTS ON FORM 8-K

(a)  The following documents are filed as part of this report:
     1. FINANCIAL STATEMENTS

	Report of Independent Accountants dated March 9,1999..........Page 21
	Consolidated Balance Sheets as of
        December 31, 1998 and 1997....................................Page 22
        Consolidated Statements of Operations,
        two years ended December 31, 1998.............................Page 23
	Consolidated Statements of Changes in 
        Shareholders' Equity, two years	ended December 31, 1998.......Page 24
        Consolidated Statements of Cash Flows, 
        two years ended December 31, 1998.............................Page 25
	Notes to Consolidated Financial Statements....................Page 26

-17-
<PAGE>

2.   INDEX OF EXHIBITS

     Exhibit No.     Description of Exhibit
     -----------     ----------------------
     3.1(1)          The Articles of Incorporation
     3.2(1)          By-Laws
     4               Not Applicable.  All relevant rights are described in 
                     Exhibit 3.1.
     9               Not Applicable.
     10              Not Applicable.
     11              Computation of per share earnings - see Note 11 to the 
                     Financial Statements.
     13              No Annual Report has yet been sent to Security Holders. 
                     The Company will send stockholders copies of the present 
                     10-KSB in lieu of a separate Annual Report.
     18              Not Applicable.
     24.(1)          Consent to incorporation by reference of the 
                     accountant's report dated April 11, 1995 in the S-8 
                     Registration Statements, File Numbers 33-20687, 2-85878,
                     2-93126, and 2-70685.
     25              Not Applicable.
     28              1998 Proxy Statement
     29              Not Applicable.

(1) Filed as like numbered exhibits to Registration Statement, Form S-18, 
File Number 33-20687, effective April 21, 1981, incorporated by 
reference.


-18-
<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act, the 
registrant caused this report to be signed on its behalf by the undersigned, 
thereunto duly authorized.

SCIENCE DYNAMICS CORPORATION 


BY:            /s/Alan C. Bashforth 
        ---------------------------------
        Alan C. Bashforth, President, CEO

DATED:  March 31, 1999 
        ---------------------------------


In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the date indicated.

        Signature               Title                          Date
        ---------               -----                          ----
  
BY:     /s/ Lyndon A. Keele     Chairman of the Board of       March 31, 1999
        ---------------------   Directors                      --------------
        Lyndon A. Keele  

BY:     /s/ Alan C. Bashforth   President, CEO and Director    March 31, 1999
        ---------------------   since Nov. 7, 1996             --------------
        Alan C. Bashforth  

BY:     /s/ Joy C. Hartman      Exec. Vice President, CFO,     March 31, 1999
        ---------------------   Treasurer, Secretary and       --------------
        Joy C. Hartman          Director


-19-
<PAGE>

                        SCIENCE DYNAMICS CORPORATION
                               ------------

               Index to Consolidated Financial Statements


  Report of Independent Accountants dated 19, 1999..................Page 21

  Consolidated Balance Sheets as of December 31, 1998 and 1997......Page 22

  Consolidated Statements of Operations, two years ended
  December 31, 1998.................................................Page 23

  Consolidated Statements of Changes in Shareholders' Equity,
  two years ended December 31, 1998.................................Page 24

  Consolidated Statements of Cash Flows, two years ended
  December 31, 1998.................................................Page 25

  Notes to Consolidated Financial Statements........................Page 26

-20-
<PAGE>


                    REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors
Science Dynamics Corporation

We have audited the accompanying consolidated balance sheets of Science 
Dynamics Corporation and Subsidiary as of December 31, 1998 and 1997 and the 
related consolidated statements of operations, shareholders' equity and cash 
flows for the years ended December 31, 1998 and 1997.  These financial 
statements are the responsibility of the Company's management.  Our 
responsibility is to express an opinion on these financial statements based 
on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement.  An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation.  We believe that our audits provide a 
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the consolidated financial position 
of Science Dynamics Corporation and Subsidiary as of December 31, 1998 and 
1997 and the consolidated results of their operations and their cash flows 
for the years then ended in conformity with generally accepted accounting 
principles.



                                 Peter C. Cosmas Co., CPAs



400 Madison Avenue
New York, NY  10017

March 9, 1999

-21-
<PAGE>
<TABLE>

PART 1. FINANCIAL INFORMATION
        Item 1. Financial Statements:

                SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                        CONSOLIDATED BALANCE SHEETS
                     AS OF DECEMBER 31, 1998 AND 1997

<CAPTION>
                      ASSETS

                                                                 December 31,
                                                          1998                   1997
                                                          ----                   ----
<S>                                                <C>                    <C>
Current assets:
   Cash and cash equivalents                        $       32,249         $      21,181
   Accounts receivable - trade                             266,403               613,916
                       - other                             659,900                     -
   Inventories                                             478,494               322,530
   Other current assets                                     46,266                52,200
                                                    --------------         -------------
      Total current assets                               1,483,312             1,009,827
                                                    --------------         -------------

Property and equipment, net                                231,088               220,060
Software development costs, net of
  accumulated amortization of $382,239
  in 1998 and $277,992 in 1997                             138,996               243,243
Deferred income taxes                                      308,000               308,000
Intangible Assets, net of accumulated
 amortization of $600,000 in 1998 and
 $300,000 in 1997.                                         900,000             1,200,000
Other assets                                                41,418                39,239
                                                    --------------         -------------
  Total assets                                      $    3,102,814         $   3,020,369
                                                    ==============         =============


       LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Loan payable                                     $      100,000         $         -
   Accounts payable                                        638,493               289,188
   Accrued expenses, principally
      payroll related                                      181,492                87,046
                                                    --------------         -------------
      Total current liabilities                            919,985               376,234
                                                    --------------         -------------

Commitments

Shareholders' equity -
   Common stock - .01 par value,
      45,000,000 shares authorized,
      15,861,449 and 14,661,449 issued
      15,735,649 and 14,535,649 outstanding
       in 1998 and 1997 respectively.                      158,614               146,614
   Additional paid-in capital                           10,729,429            10,166,429
     (Deficit)                                          (8,307,381)           (7,271,075)
                                                    --------------         -------------
                                                         2,580,662             3,041,968
   Common stock held in treasury,
    at cost                                               (397,833)             (397,833)
                                                    --------------         -------------
      Total shareholders' equity                         2,182,829             2,644,135
                                                    --------------         -------------
      Total liabilities and shareholders' equity    $    3,102,814         $   3,020,369
                                                    ==============         =============

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

</TABLE>
-22-
<PAGE>

<TABLE>

PART 1. FINANCIAL INFORMATION
        Item 1. Financial Statements (Continued):


                SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                   CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<CAPTION>
                                                        1998                   1997
                                                        ----                   ----
<S>                                              <C>                   <C>

 NET SALES                                        $   4,352,606         $     4,393,553
                                                  -------------         ---------------



Operating costs and expenses:

   Cost of sales                                      1,694,557               1,969,837
   Research and development                           1,219,687               1,293,608
   Selling, general
     and administrative                               2,470,534               2,138,408
                                                  -------------         ---------------

                                                      5,384,778               5,401,853
                                                  -------------         ---------------

Operating (loss)                                     (1,032,172)             (1,008,300)

Other income (expenses):
   Interest and other
     investment income                                      -                    15,673
   Interest expense                                      (4,134)                (29,402)
                                                  -------------         ---------------



Net (Loss)                                        $  (1,036,306)        $    (1,022,029)
                                                  =============         ===============


Net (Loss) per common share 
     basic and diluted                           $       (0.07)        $         (0.08)
                                                 =============         ===============

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-23-
<PAGE>

<TABLE>
PART 1. FINANCIAL INFORMATION
        Item 1. Financial Statements (Continued):


                SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1998 and 1997

<CAPTION>

                                                                       1998                  1997
                                                                       ----                  ----
<S>                                                              <C>                   <C> 
Cash flows from operating
   activities:
  Net (loss)                                                      $ (1,036,306)         $ (1,022,029)
                                                                  ------------          ------------

Adjustments to reconcile net (loss) to net cash
   provided by (used for) operating activities:
   Depreciation                                                         74,727                68,573
   Amortization of  capitalized software                               104,247               104,246
   Amortization of Intangible assets                                   300,000               300,000
   Other non-cash expense                                                                     29,402

Changes in operating assets and liabilities:
   (Increase) decrease in:
    Accounts receivable                                                347,513              (526,190)
    Other receivable                                                  (659,900)              200,000
    Inventories                                                       (155,964)              258,747
    Other current assets                                                 5,934               (10,105)
    Other assets                                                        (2,179)                2,054
   Increase (decrease) in:
     Accounts payable and accrued expenses                             443,751              (133,489)
                                                                  ------------          ------------                

Total adjustments                                                      458,129               293,238
                                                                  ------------          ------------

 Net cash provided by  (used for)
   operating activities                                               (578,177)             (728,791)
                                                                  ------------          ------------

Cash flows from investing activities:
   Purchase of property and
      equipment - net                                                  (85,755)              (80,257)
                                                                  ------------          ------------
   Net cash (used) in
      investing activities                                             (85,755)              (80,257)
                                                                  ------------          ------------

Cash flows from financing activities:
   Increase (decrease) in Loan Payable                                 100,000
   Issuance of Common Stock                                            575,000                     -
                                                                  ------------          ------------
   Net cash (used in) provided
      by financing activities                                          675,000                     -
                                                                  ------------          ------------

Net increase (decrease) in
  cash and cash equivalents                                             11,068              (809,048)

Cash and cash equivalents -
  beginning of period                                                   21,181               830,229
                                                                  ------------          ------------

Cash and cash equivalents -
  end of period                                                   $     32,249          $     21,181
                                                                  ============          ============

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-24-
<PAGE>

<TABLE>
PART 1. FINANCIAL INFORMATION
        Item 1. Financial Statements (Continued):

                SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
         CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
            FOR THE TWO YEARS ENDED DECEMBER 31, 1998 AND 1997
<CAPTION>

                                     Common Stock                      Additional                        Treasury
                                                                         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      $(6,249,046)        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                                       -               -                -       (1,022,029)              -             -
                                      ----------        --------       ----------        ---------         -------         -------

Balance
 December 31, 1997                    14,661,449         146,614       10,166,429       (7,271,075)        125,800         397,833
                                      ----------        --------       ----------        ---------         -------         -------

Issuance of common stock
 net of related expenses               1,200,000          12,000          563,000                -               -             -
  
Net loss                                       -               -                -     $ (1,036,306)              -             -
                                      ----------        --------       ----------        ---------         -------         -------

Balance
 December 31, 1998                    15,861,449      $  158,614      $10,729,429     $ (8,307,381)        125,800     $   397,833
                                      ==========        ========       ==========        =========         =======         =======

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

</TABLE>
-25-
<PAGE>
                  SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1)  Summary of Significant Accounting Policies:
 
    a) Principles of Consolidation:

       The consolidated financial statements include the Company's wholly-
       owned subsidiary.  All intercompany transactions have been eliminated 
       in consolidation.

    b) Organization and Description of Business:

       The Company, which was incorporated in May, 1973 and commenced 
       operations in  July 1977, is engaged in the design, development, 
       integration and marketing of advanced telecommunications products and 
       applications.   All the Company's operations are considered to be in 
       one industry.

    c) Use of Estimates:

       The preparation of financial statements in conformity with generally 
       accepted accounting principles require management to make estimates 
       and assumptions that affect the reported amounts of assets and 
       liabilities and disclosure of contingent assets and liabilities at the 
       date of the financial statements and the reported amounts of revenues 
       and expenses during the reporting periods.  Actual results could 
       differ from those estimated. 

    d) Inventories:

       Inventories are stated at the lower of cost or market, with cost 
       determined on a first-in, first-out basis.

    e) Property and Equipment:

       Property and equipment are stated at cost.  Depreciation of property 
       and equipment is computed generally using the straight-line method 
       based on estimated useful lives of five years for machinery and 
       equipment and seven years for furniture and fixtures.  Leasehold 
       improvements are amortized over the life of the related lease or their 
       estimated useful lives, whichever is shorter, using the straight-line 
       method.  Costs of major additions and betterment's are capitalized; 
       maintenance and repairs which do not improve or extend the life of 
       respective assets are charged to expense as incurred.  When an asset 
       is sold or otherwise disposed of, the cost of the property and the 
       related accumulated depreciation is removed from the respective 
       accounts and any resulting gains or losses are reflected in income.

    f) Cash and Cash Equivalents:

       The Company considers all highly liquid debt instruments purchased 
       with a maturity of three months or less to be cash equivalents.  The 
       Company did not pay income taxes in 1998 and 1997.  Cash paid for 
       interest was $ 0 in 1997 and $4,134 in 1998.

-26-
<PAGE>     
                  SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    g) Software Development Costs:

       Software development costs are capitalized in accordance with 
       Statement of Financial Accounting Standards (SFAS) No. 86.  As of 
       December 31, 1998, capitalized software development costs, net of 
       amortization were $138,996.  The capitalization of these costs begins 
       when a product's technological feasibility has been established and 
       ends when the product is available for general release to customers.  
       Amortization  is computed on an individual product basis and is the 
       greater of:  (a) the ratio of current gross revenues for a product to 
       the total current and anticipated future gross revenues for that 
       product or (b) the straight-line method over the estimated economic 
       life of the product.  Currently the Company is using an estimated 
       economic life of five years for all capitalized software costs.  The 
       amount of software development costs capitalized was $521,234 in 1998 
       and 1997.  The amortization was $104,247 in 1998, and $104,246 in 
       1997.


    h) Income Taxes:

       The Company elected to adopt the provisions of Statement of Financial 
       Accounting Standards No. 109 "Accounting for Income Taxes", (SFAS 
       109) in 1992.  Under SFAS 109, deferred income taxes are recognized 
       for the tax consequences in future years of differences between the 
       tax basis of assets and liabilities and their financial reporting 
       amounts at each year end based on enacted tax laws and statutory tax 
       rates applicable to the periods in which the differences are expected 
       to affect taxable income.  Valuation allowances are established when 
       necessary to reduce deferred tax assets to the amount expected to be 
       realized.  Income tax expense (credit) is the tax payable (receivable) 
       for the period and the change during the period in deferred tax assets 
       and liabilities.  Prior years' financial statements have not been 
       restated for the accounting change (see Note 5).

    i) Revenue Recognition:

       Sales and related cost of sales are recognized upon shipment.

    j) Impairment of Long-Lived Assets:

       Effective January 1, 1996, the Company adopted Statement of Financial 
       Accounting Standards (SFAS) No. 121, Accounting for the impairment of 
       Long-Lived Assets and for Long-Lived Assets to be disposed of.  SFAS 
       No. 121 requires the Company to review the recoverability of the 
       carrying amount of its long-lived assets whenever  events or changes 
       in circumstances indicate that the carrying amount of an asset might 
       not be recoverable.
 
       In the event that facts and circumstances indicate that the carrying 
       amount of long-lived assets may be impaired, an evaluation of 
       recoverability would be performed.  If an evaluation is required, the 
       estimated future undiscounted cash flows associated with the asset 
       would be compared to the assets' carrying amount to determine if a 
       write-down to fair value is required.  Fair value may be determined by 
       reference to discounted future cash flows over the remaining useful 
       life of the related asset.  Such adoption did not have a material 
       effect on the Company's consolidated financial position or results of 
       operations.
-27-
<PAGE>
                  SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    k) Fair Value Disclosures:
       The carrying amounts reported in the Consolidated Balance Sheets for 
       cash and cash equivalents, accounts receivable, accounts payable and 
       accrued expenses, approximate fair value because of the immediate or 
       short-term maturity of these financial instruments.

    l) Stock Options:
       The Company accounts for its stock options in accordance with the 
       provisions of Accounting Principles Board (APB) Opinion No. 25, 
       Accounting for Stock Issued to Employees, and related interpretations. 
       As such, compensation expense would be recorded on the date of grant 
       only if the current market price of the underlying stock exceeded the 
       exercise price.  On January 1, 1996, the Company adopted the 
       disclosure requirements of Statement of Financial Accounting Standards 
       (SFAS) No. 123, Accounting for Stock-Based Compensation.  Had the 
       Company determined Compensation Cost based on fair value at the grant 
       date for stock options under SFAS No. 123 the effect would have been 
       immaterial.

    m) Comprehensive Income
       During the year ended December 31, 1998 the Company adopted Statement 
       of Financial Accounting Standards (SFAS) No. 130, "Reporting 
       Comprehensive Income."  SFAS 130 requires the reporting of 
       Comprehensive income in addition to net income from operations.  
       Comprehensive income is a more inclusive financial reporting 
       methodology that includes disclosure of certain financial information 
       in the calculation of net income.  The Company does not have any 
       Comprehensive income as determined by SFAS 130.

2)  Accounts Receivable:
    The Company evaluates its accounts receivable on a customer by customer 
    basis and has determined that no allowance for doubtful accounts is 
    necessary at December 31, 1998 and 1997.


3)  Inventories:

    Inventories consist of the following:

                                           1998                 1997
                                           ----                 ----

 Raw materials                        $ 197,643        $      88,242
 Work in process                              -               61,999
 Finished goods                         280,851              172,289
                                        -------              -------

 Totals                                $478,494        $     322,530
                                        =======              =======

-28-
<PAGE>

                  SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4)  Property and Equipment:


    A summary of the major components of property and equipment is as follows:
     
                                              1998                 1997
                                              ----                 ----

    Computers, fixtures and equipment  $ 1,342,408          $ 1,256,652  

    Leasehold improvements                       -                    -  
                                         ---------            ---------
                                         1,342,408            1,256,652  

    Less accumulated depreciation and
    amortization                        (1,111,320)          (1,036,592)
                                         ---------            ---------

    Totals                             $   231,088          $   220,060 
                                         =========            ========= 
					 

5)  Income Taxes:
	
    In 1992, the Company adopted Statement of Financial Accounting Standards 
    No. 109, Accounting for Income Taxes.  Under the provision of SFAS No. 
    109, the Company elected not to restate prior years due to immateriality. 
    In 1992, the effect of the change was to decrease the net loss by 
    $308,000 (.10 per share).  The deferred tax asset recognized in the 
    accompanying balance sheet at December 31, 1998 and 1997 is $308,000.

    At this time, the Company does not believe it can reliably predict 
    profitability for the long-term.  Accordingly, the deferred tax asset 
    applicable to 1998 and 1997 operations has been reduced in its entirety 
    by the valuation allowance.  However, the Company believes it is more 
    likely than not that it will realize the net deferred tax asset based 
    upon the Company's future profitability and therefore not necessary to 
    reduce the deferred tax asset of $308,000 that resulted from the 1992 
    operations.

    As a result of the operating losses for the years ended December 31, 1990 
    and 1992 - 1998 the Company has available to offset future taxable income 
    a net operating loss of $9,397,364 expiring 2005 - 2018.  In addition, 
    research credits expiring 2005 - 2013 are available to offset future 
    taxes.

    The components of the provision (credit) for income taxes from continuing
    operations is as follows:


                                        1998          1997          
                                        ----          ----          
    Deferred
           Federal                   $     -       $     -       
    Current
           Federal                         -             -       
           State                           -             -       
                                     -------       -------       
                                     $     -       $     -       
                                     -------       -------       
-29-
<PAGE>
                  SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    Differences between the tax provision computed using the statutory federal
    income tax rate and the effective income tax rate on operations are as
    follows:
                                        1998          1997
                                        ----          ----

    Federal statutory rate         $(352,344)    $(347,490)  
    Research tax credits                   -             -   
    Tax benefit not provided due
          to valuation allowance     352,344       347,490   
    Surtax exemptions, net                 -             -   
    Other                                  -             -   
                                     -------       -------   
                                     $     -       $     -   
                                     -------       -------   

     Components of the Company's deferred tax assets and liabilities are as
     follows:

                                                          December 31,
                                                      1998            1997
                                                      ----            ----
    Deferred tax assets:
        Tax benefits related to net  operating 
        loss carryforwards and  research 
                tax credits                     $3,144,625      $2,792,281
                                                ----------      ----------
    Total deferred tax assets                    3,144,625       2,792,281
    Valuation allowance for
             deferred tax assets                 2,836,625       2,484,281
                                                ----------      ----------
    Net deferred tax assets                     $  308,000       $ 308,000



6)  COMMITMENTS

    a) Leases

       The company leases their office, sales and manufacturing facilities 
       and certain vehicles under non-cancelable operating leases with 
       varying terms.  The leases generally provide that the Company  pay the 
       taxes, maintenance and insurance expenses related to the leased 
       assets.  Future minimum lease payments required under operating leases 
       that have initial or remaining non-cancelable lease terms in excess of 
       one year, as of December 31, 1998 are as follows:

 
                                       1999                $   214,717
                                       2000                    201,322
                                       2001                    193,622
                                       2002                    185,483
                                       2003                    185,483
                                 After 2003                    243,644
                                                               -------
               Total minimum lease payments                 $1,224,291

Rent expense for the years ended December 31, 1998 and 1997 was 
$150,037,and $197,769 respectively.
         
-30-
<PAGE>
                  SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    b) Employment Agreements:

       The Company maintains employment agreements with three officers,  two 
       of whom are also directors of the Company.  The employment agreements 
       contain change in control provisions that would entitle each of the 
       three to receive up to 2.99 times their annual salary if there is a 
       change in control in the Company (as defined) and a termination of 
       their employment.  The maximum contingent liability under these 
       agreements in such event is approximately  $ 1,016,600.


7)  Intangible Assets:

    On November 7, 1996, the Company acquired "Intellectual Property", 
    issuing 1,500,000 shares of its common stock.   Based on technical 
    reviews of the property and the business potential of the technology, the 
    Company valued the "Intellectual Property" at $1,500,000.  The Company 
    began amortizing the property on January 1, 1997 over a period of five 
    years.  The amortization for 1998 and 1997 amounted to $300,000 for each 
    year.

    Subsequent to the transaction on November 7, 1996 the seller's President 
    Alan C. Bashforth became President and Chief Executive Officer at a 
    management fee of $160,000 per year.

8) Stock Options and Warrants:

   On April 27, 1992, the shareholders approved the adoption of a successor 
   Incentive Stock Option Plan encompassing 200,000 shares, excluding 90,950 
   that had not been subject to grants under the initial Plan.  To date, net 
   option grants with respect to 178,500 have been awarded, with 305,075 
   shares remaining available for future awards.

   During 1998, no shares were awarded. In 1997, a total of 62,000 shares 
   were awarded, sixteen individuals participated in the Plan as a result of 
   grant of options awarded.  The share price of options on award ranged 
   from  $0.81 to $0.88 utilizing the market price of shares on date of 
   award.  To date, 78,425 shares have been exercised.  No options have been 
   awarded nor can be awarded at less than market value at the time of 
   grant.  Warrants to acquire 20,000 shares exercisable at $0.78 are 
   outstanding at December 31, 1998. 

   As allowed by FASB 123, the Company has elected to continue to follow 
   Accounting Principles Board Opinion No. 25, "Accounting For Stock Issued 
   to Employees" (APB25) in accounting for its stock option plans.  Under 
   APB 25, the Company does not recognize compensation expense on the 
   issuance of its stock options because the option terms are fixed and the 
   exercise price equals the market price of the underlying stock on the 
   grant date.

   As required by FASB 123, the Company has determined the pro-forma 
   information as if the Company had accounted for stock options granted 
   since January 1, 1996, under the fair value method of FASB 123.  An 
   option pricing model similar to the Black-Scholes was used with the 
   following weighted average assumptions used for grants in the year 1998 
   and 1997, respectively: expected volatility of 80 percent; risk free 
   interest rate of 6% and 5.5% respectively and expected lives of 5 years. 
   The pro-forma effect of these options on net earnings was not material. 
   These pro-forma calculations only include the effects of 1997 and 1998 
   grants.  As such, the impacts are not necessarily indicative of the 
   effects on reported net income of future years.

-31-
<PAGE>   
                  SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9) Major Customers:

   During 1998, three customers and their operating subsidiaries accounted 
   for 82.95%, 4.69% and 3.45% of total sales.  During 1997, three customers 
   and their operating subsidiaries accounted for 88.7%, 4.3% and 3% of 
   total sales.  


10) Earnings (Loss) Per Share:

    In February 1997, the Financial Accounting Standards Board issued 
    Statements of Financial Accounting Standards ("SFAS") No. 128.  
    "Earnings Per Share" applicable for financial statements issued for 
    periods ending after December 15, 1997.  As required the Company adopted 
    "SFAS" No. 128 for the year ended December 31, 1997 and restated all 
    prior period earnings per share figures.  The Company has presented basic 
    earnings per share.  Basic earnings per share excludes potential dilution 
    and is calculated by dividing income available to common stockholders by 
    the weighted average number of outstanding common shares.  Diluted earnings
    per share incorporates the potential dilutions from all potentially 
    dilutive securities that would have reduced earnings per share.  Since the 
    potential issuance of additional shares would reduce loss per share they 
    are considered anti-dilutive and are excluded from the calculation.   

    The weighted average number of shares used to compute basic earnings 
    (loss) per share was 14,535,649 in 1998 and 13,590,656 in 1997. 
 
-32-
<PAGE>