U.S. SECURITIES AND EXCHANGE COMMISSION
                          Washington, DC 20549

                              FORM 10-KSB

(Mark One)
[x] Annual report under Section 13 or 13(d) of the Securities Exchange Act
    of 1934 for the fiscal year ended December 31, 1999

[ ] Transition report under section 13 or 15(d) of the Securities Exchange
    Act of 1934 for the transition period from _____________ to ____________.

Commission File Number: 0-10690

                        SCIENCE DYNAMICS CORPORATION
               (Name of Small Business Issuer in its Charter)

                   DELAWARE                         22-2011859
    (State of Other Jurisdiction        (IRS Employer Identification Number)
     Incorporation or organization )

                           1919 Springdale Road
                    Cherry Hill, New Jersey 08003-1609
                 (Address of principal executive offices)

Issuer's telephone number: 856-424-0068

Securities registered under Section 12(b) of the Exchange Act:

  Title of each Class                Name of each exchange on which registered
----------------------              -------------------------------------------
        None                                         N/A


Securities registered under Section 12(g) of the Exchange Act:

                     COMMON STOCK, $0.01 PAR VALUE
                          (Title of Class)

Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for 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 no disclosure will be contained,
to the best of 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]

The issuer's revenues for the fiscal year ending December 31, 1999 were
$2,347,984.

As of March 21, 2000, the aggregate market value of the voting and non-voting
common stock of the registrant held by non-affiliates of the registrant
computed by reference to the average bid and asked price of such common
equity on that date was $140,663,079  million

As of March 21, 2000, the issuer had 17,444,151 outstanding shares of
Common Stock.

Transitional small business format  Yes ___    No  X

<PAGE>

PART I

ITEM 1. DESCRIPTION OF BUSINESS

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

Science Dynamics Corporation (the "Company" or "SciDyn") was incorporated in
the State of Delaware May 1973 and commenced operations in July 1977.  During
the past 22 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 (PSTN).  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 embarked on
transforming the Company into a predominately software design and system
integration Company.

Over the past few 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, Frame Relay and the Internet 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), and
large independent telephone operating companies.

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 is continuing to focus it's strategy on becoming a key
provider of enabling technologies required for the convergence of
traditional and new communications media infrastructures.

The telecommunications industry is still moving forward with the early stages
of shifting traditional circuit switched traffic such as voice and fax to new
packet based networks.  The market for products and technology to enable the
shift of these established services to lower cost and more advanced data
networks is growing faster then ever.  It will take many years to displace a
major portion of the currently installed circuit switched infrastructure.
This provides two major opportunities in the next few years.  First a need to
bridge the old circuit switched networks with newer packet based networks.
This challenge demands high quality dependable gateway equipment and services.
Second new emerging carriers building from the ground up on these advanced
packet based networks require equipment that can help them offer the services
and features that are currently deployed in the existing circuit switched
networks.  Certainly the deciding factor will be up to the public and
corporate users of these networks.  Traditional telecom carriers are currently
in an intense battle to keep customers and prevent costly churning of user
accounts.  Offering more advanced features with realizable benefits to the
end user is the key to winning this battle.  This will hold true as
packet based network providers attempt to lure customers to their new
technology.  One key factor here is the ability to provide new features at a
faster pace then competition. Packet based networks and much of the
technology supporting this network relies more heavily on software driven
systems.  These systems along with the inherent ability of these networks to
overcome distance and access to data obstacles means a greater ability to
provide features quickly and more creatively then ever before.

-2-
<PAGE>
Management believes that current products and development strategy teamed
with Science Dynamics strong telecommunications background will provide a
solid product to meet today's needs and the advancements required to progress
the packet based telecom revolution.


PRODUCTS
--------

IP Telephony

One of the current impacts of IP Telephony is the way it is driving the
convergence of the IT and telecoms markets.  Both of these traditional markets
are now seeing a paradigm shift to IP Telephony.  IP Telephony is crossing
traditional parameters and amalgamating historically separated disciplines on
an IP network.  This means the carriers and companies of the world are
starting to send voice over the packet networks that previously were used
only for data.   This is an opportunity for dynamic companies to take their
experience and expertise and apply it in markets not traditionally open to
them.

By crossing borders IP Telephony allows companies like Science Dynamics to
diversify from their traditional core technology and enhance and develop
bridges between the existing data and telecoms infrastructures.

The difference between the current circuit switched PSTN, which provides a
dedicated end-to-end connection and the packet switched IP network, which
provides a virtual connection is the enhancement of bandwidth utilization.
By sharing bandwidth as data networks do, new operators are able to provide
a cheaper alternative to the existing incumbent operators.  The focus in
today's market is to bring these two very different forms of communication
together so as to interwork and interconnect throughout the world.

SciDyn's IP Telephony products are designed to enhance the new operators
abilities to combine the technologies of the new IP based networks with the
traditional feature rich circuit networks without forfeiting the key
functionality of the IP network-adaptability.

The SciDyn system features a modular architecture that permits our customers
to add new product and service features without extensive product cost or
development time. Based on publicly available data provided by large
telecommunications service providers, management believes our modular
architecture enables the provision of new and existing communications
services at a lower cost than the provision of communications services by
traditional telephone companies. The IP Integrator product range addresses
the various market segments.  The IntegratorC-2100(r) Series focus is the
Corporate Enterprises, the IntegratorC-2300(r) focus is for large ISPs and
Telco Carriers and the IntergratorC-2500(r) Series focus is intended to
address the needs of PTT/Telco Carriers.

The SciDyn differentiator for the carrier class IP Telephony market is our
proprietary software solution, BubbleLink(r).  This software enhances
the IntegratorC-2000(r) series of IP Gateways by providing functionality,
such as easily manipulated voice response announcements and adaptability,
such as integrating third party software applications quickly and efficiently
giving operators the ability to stay ahead of the competition.

SciDyn offers BubbleLink(r) throughout its current IP Telephony Gateway
product range.  This includes our high capacity versatile IntegratorC-2308(r),
which has one of the smallest footprints in the industry.  This compact
gateway offering provides up to 240 lines in half the space of its
closest competitor.

The IntegratorC-2500(r) series is capable of housing anywhere from 3360 lines
up to over 5,000 lines to meet the largest carrier requirements.

-3-
<PAGE>


Video over Frame Relay

In 1997, SciDyn launched a new way to carry video conferencing.  The
VFX-250S, a hardware based Frame Relay Access Device (FRAD), designed to
carry video streams through the frame relay network.  As the largest data
network protocol in the world, frame relay seemed an obvious choice for
adding video connectivity to its wide complement of features.

Traditionally, video conferencing has been carried via leased lines or ISDN
circuits.  In the US market, due to the proliferation of ISDN availability,
video conferencing has been able to take off with a relatively high growth
curve.  This is not true in the international markets where leased lines and
ISDN circuits are either not readily available or prove to be rather costly.
Video conferencing suite manufacturers such as PictureTel, the industry
leader, found markets outside of ISDN enabled networks have proven to be slow
and tedious.

By leveraging the proliferation of frame relay networks throughout the world
SciDyn intends to market the VFX-250 products in markets where ISDN and leased
line services are not available.  This has proven very successful in markets
such as Brazil where SciDyn has shipped in excess of a hundred units over the
past year.

Canada's Provincial Government of the Northwest Territories (GNWT) signed a
contract with Lucent to supply video conferencing via their data network over
an 18-month period. SciDyn collaborated with Lucent Technologies to supply our
VFX-250 products in 1999.

Recent discussions and visits to China, where three countrywide frame relay
networks are presently under construction, have created opportunities with
all of the new network operators. Trials are continuing and we anticipate
possible business in the latter part of 2000.

SciDyn continues to build on the relationships it has developed with data
networking partners and continues to be a component of their network
offering.  By selling via the network suppliers, such as Lucent, SciDyn is
able to serve a far broader customer base and reach additional markets that
would not have been addressable.

Trials continue in China and South Korea and deployments in Brazil continue
to proceed steadily.  With some anticipated further development of the VFX
family and some investment in the promotion of the product line we anticipate
an overall increase in sales over the next twelve months.


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.

-4-
<PAGE>

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).

During this year the company released a new Commander II AdminManager software
module. This new software module provides the Commander II with a
sophisticated Graphical User Interface (GUI) with new inmate phone control
features. These new features were based on recommendations by several of the
Company's major customers. Additionally, the Company completed development on
the Commander II Voice Recognition feature. The Company expects to complete the
Commander II Integrated Recording and Inmate debit systems during the next 12
months. During this year, the Company will be exploring business opportunities
with the major telephone companies in providing the Commander II inmate phone
control system with call transaction (price per call) programs.


Error Correction Algorithm

The Company completed the acquisition of the "Error Detection and Correction
System for Use with Address Translation Memory Controller" patent, in
exchange for 172,029 shares of common stock valued at $100,000.  Such patent
provides the Company with the ability to embed in certain technology an error
correction method that should substantially reduce data transmission errors.
This correction device is designed to reduce costly retransmission and can
be utilized across various data transport mediums.

We believe the Error Detection and Correction (EDAC) patented algorithm is
superior to the presently used Reed-Soloman System, both in cost and
capability.  The patent, which we intend to make available to others on a
royalty basis, can be utilized on virtually any data transmitting system,
from fiber optics to satellite transmission.  Since both transmitting and
receiving stations must utilize the same algorithm, the Company's primary
task is to initially convince new or redesigned applications to utilize
SciDyn's patent for each end of the application.

The Patent, which has been issued in the United States with application in
many foreign countries, is for a data transmission system for use in a mass
memory system, which includes an EDAC that corrects all single component
errors and detects all double component errors.  High-speed operation permits
use of the EDAC on address and control lines as well as on data lines.  In
memory systems, which use virtual memory addressing, further efficiency and
economy is achieved by incorporating a partial implementation of the EDAC
encoding in the same virtual memory address translation unit in which the
virtual memory address is calculated.

We believe the Error Detection and Correction Device is directly applicable to
SciDyn's business including landline, internet, and radio frequency uses such
as wireless (local area networks) LAN's and satellite transmissions.


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 an 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.

-5-
<PAGE>

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.


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.

We believe that continual enhancements of our 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 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.

Crystal Group has been selected as the hardware integration source for
Science Dynamics and its entire range of IP Telephony Gateways.  Crystal
Group's CS900 computer chassis provides the Carrier Class high-level quality
of hardware and integration services required by Science Dynamics for their
VoIP infrastructure.   By integrating Science Dynamics products with Crystal's
hardware platform, the two companies will be capable of a high level of
service and support to telecommunications companies worldwide.

Inventories consist of raw materials, work in process, and finished goods.
The Company believes by utilizing a just in time purchasing philosophy and
maintaining a quantity of inventory adequate to insure a quick turn around
time it will be able meet most customers' requirements.

-6-
<PAGE>

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 has traditionally served its customer base by selling and account
managing directly.  Recently the Company has broadened its geographic reach
by increasing its dependence upon resellers and distribution partners.  This
strategy has allowed the Company to address markets it has not been able to
approach in the past.  By shifting the emphasis away from direct sales and
addressing the reseller and system integration market, we believe the Company
can develop and accelerate our penetration into the international market.

Currently, through its partnership program, the Company is pursuing sales
opportunities in South America, Europe and Asia/Pacific.  The international
market is far more attractive for products such as the VFX 250S video over
frame relay FRAD as frame relay penetration is far higher than ISDN
throughout the rest of the world.  Contacts in South America are especially
proving to be an early adopter of our VFX technology.  The positioning of
partners throughout the various regions allows the Company to expand its
presence and develop the market where typically it would prove to be
prohibitively expensive.

Marketing activities have been focusing on the new IP Telephony product line.
Attending trade shows, meeting with relevant trade magazines and producing
new partner presentation packs are some of the programs developed to position
and transition the Company into the new IP Telephony market place.
Preparation for the launch of the new product line has led to increasing market
awareness of the Company and its new role as a re-energized, re-focused new
look telecoms supplier.

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.

We anticipate 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.


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.

-7-
<PAGE>
We believe that the rapid technological developments in the telecommunications
industry may limit the protection afforded by patents.  Since a patent
generally defines what and how to competitors, that information often allows
mutations by rivals to circumvent the original patent. Accordingly, we
believe that our 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 has instituted an annual maintenance contract entitling
customers to software updates, technical support and technical bulletins.


INDUSTRY
--------

In 1999 two of the fastest growing equipment categories in the
telecommunications market were computer-telephone integration (CTI) up 66.2
percent over 1998 and video conferencing equipment up 14.3 percent over
last year.  These represent two of the key markets the Company has
repositioned for and is now currently addressing.

The overall growth in the telecommunications sector including equipment and
services generated over $517.6 billion last year growing by more than 11
percent over the previous year.  According to the Telecommunications Industry
Association (TIA), growth in telecommunication equipment sales reached double
digits again, outperforming last year by over 11 percent, reaching in excess
of $135 billion in sales.

According to Frost & Sullivan, the worldwide IP telephony market should exceed
over $8 billion within the next two years.  Major focus is on the
deregulation of the telecommunications industry throughout the world.

The United Nation's International Telecommunications Union (ITU) research has
found that within the OECD (Organization of Economic Cooperation and
Development) member states competition has progressed further than others in
allowing competition within their national markets.  On the basis of
telecommunication revenues, 96 percent of the market was open to unrestricted
competition.  Liberalization continues to accelerate throughout the world,
increasing competition and fueling the double-digit growth in the equipment
supplier market.

The Company has chosen to focus on two of the fastest growing segments in the
telecommunications market place.  We believe this foresight, in positioning
the company to address these markets, will allow the Company to grow with the
same rapidity as the current markets.


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

Due the nature of the IP telephony market, we recognize that we have chosen
to address a highly competitive market place.  The competition has grown
considerably in the last year and now there are over 100 gateway products
presently offered in the market place.  The majority of those competing in
the industry today trace their roots back to the data world.  With their
traditional focus on data networking, the competition has found difficulty in
meeting all of the telecommunication requirements the new and existing
operators have for operating a full network.  Conversely SciDyn has attacked
the market from twenty-two years of telecom experience.

-8-
<PAGE>
Companies like Clarent have begun to address these issues.  They are
increasing port densities and providing the types of services traditional
telcos offer.  On the other side Nortel and Lucent have bought data networking
expertise with the purchase of Bay Networks and Ascend respectively and are
presently adapting their telecommunications know how to the new technologies.

With the introduction of the large players like Lucent and Nortel, price per
port becomes a major market driver.  Cisco, known in the industry for
creative financing packages also pushes the price envelope by providing pay
as you grow funding for new carriers.

The video over frame relay market has little direct competition.  Rather, it
must address the alternative solutions such as ISDN availability within the
international markets.  The proliferation of ISDN has been a major driver
within the US market and has forced the Company to focus primarily on the
international market where frame relay is far more prolific.


CUSTOMERS
---------

The major customers in 1999 were Bell Operating Companies and independent
telecommunications with three customers accounting for 64.63%, 10.31%
and 9.71% of total revenue.  With the introduction of the new product lines,
the Company has expanded its customer base globally and anticipates less
reliance on any single market or territory.


EMPLOYEES
---------

As of March 21, 2000, the Company employed 28 persons on a full time basis.
The Company supplements full-time employees with subcontractors and part-time
individuals, consistent with workload requirements.   The Company's continued
success depends heavily upon its ability to retain highly qualified and
competent personnel. The Company is operating in a high growth industry,
which is experiencing fierce competition for experienced and talented
personnel.  The employees have demonstrated their dedication and conviction
to the Company's success working long hours.  Many of the employees had been
unable to utilize their accrued vacation time and due to cash constraints
there were no increases granted during the year.  In recognition of their
efforts, the board of directors unanimously approved a resolution for the
employees to purchase stock options at a price of fifty cents ($.50); the
market value of the stock during the time the vacation was earned. The
Company provided its employees with appropriate equity-linked incentives to
advance the interests of the Company and its stockholders.


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.

-9-
<PAGE>

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 lessee will eventually require the entire area and
SciDyn 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.

-10-
<PAGE>

PART II

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

The Registrant's Common Stock 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, 1998 and December 31, 1999 were as follows:

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

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

              1999
              ----
              First                 $.88              $.38
              Second                 .91               .69
              Third                 1.47               .75
              Fourth                6.00              1.19


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

As of December 31, 1999, 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. In the latter part
of February 2000, SciDyn submitted its application to be relisted on the
Nasdaq SmallCap(SM) Market.

-11-
<PAGE>


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

GENERAL BUSINESS OVERVIEW
-------------------------

Last year management made a serious strategic decision to divert most of our
development efforts towards the IP system.   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.   In the first half of
the year, the Company entered its first contractual arrangement for voice
transmission over IP with OSCM, a company in Israel.

The first system for OSCM was deployed and the traffic results proved our
system to operate successfully.  The next step was to rollout additional
systems to OSCM.  The contractual agreement required funds to be transferred
for equity participation in SciDyn by OSCM and upfront equipment payment
arrangements.  The financial commitments were not met and a letter dated
November 22, 1999, was sent to OSCM by SciDyn's legal counsel terminating the
contract.

Early in the year SciDyn commenced working with a next generation telco,
@IPbell, a newly launched worldwide IP Telephony operator in the creation of
a worldwide network design.  SciDyn's IP platform is a key component of the
worldwide network.  Experts from both companies formulated the strategy to
implement worldwide IP deployment, which then provided the focus for SciDyn's
subsequent development on their system. This relationship brought SciDyn into
a working partnership with Cisco, Hewlett Packard and Oracle, all of which
are responsible for some part of the @IPbell network.  The @IPbell rollout is
anticipated to begin in the second quarter of 2000 and should encompass more
than 300 nodes before the end of the year.

During the past year the company, through its partnership association, has
gained considerable knowledge and experience in enhancing the development of
the system for IP Telephony.  The Company has revised its development and
implementation of the products accordingly to the direction of the
marketplace.  Management believes that the penetration of the IP Telephony
will provide significant growth potential.

Late last year as the product reached a commercially viable stage,
opportunities were pursued in the Asian market with positive responses.
Relationships have been formulated with potential partners and discussions
are currently underway to finalize distribution agreements.

China is still formulating its IP regulatory strategy, however the response
from new operators is pushing the Chinese government and positive moves are
anticipated before the end of the year.

South Africa is proving to be a serious telecommunications market.  The
growth of GSM services in South Africa in the last three years has outstripped
Europe in percentage terms.  The South Africans eagerness to adopt new
technology and evolve their once antiquated telecommunications network has
provided business opportunities for telecom suppliers.  SciDyn has an
opportunity to work with a current supplier in South Africa who currently
controls almost 70% of the mobile telecoms market.

-12-
<PAGE>
The Company's net sales results for the year ended December 31, 1999 were
$2,347,984 a decrease of $2,004,622 from sales of $4,352,606 for the year
ended December 31, 1998. The Company's revenue in 1999 was predominantly
derived from the Commander Product Line and a portion from the VFX-250S
product line.  The weaker results were largely due to management's strategic
decision to redirect the majority of its engineering talent to the ongoing
development of the IP Telephony system. The strategy for 1999 was to
generate sales revenue from the IP system via the OSCM agreement that resulted
in a disappointing outcome along with the Commander Inmate 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.  The sales for this product have been primarily in South America,
with future sales opportunities generating from China.   The sales and
marketing team will continue to pursue additional venues for this product
producing a base line source of revenue in the coming year.

The Company is continuously exploring new niche opportunities, introducing new
product offerings and marketing and sales initiatives to increase market
share and value for our customers. Our strategic objective is to be the
leading provider of IP telephony solutions to telecommunications service
providers worldwide.  The focus of our strategy included providing the
core technology enabling the delivery of a broad range of IP telephony
services; increase our penetration of the service provider market; target key
growth markets worldwide; promote strategic relationships between our
customers; extend our technology leadership position; and deliver added value
through customer support and services and continuing to actively pursue
business alliance candidates that complement or support the Company's core
competencies.

Subsequent Events

On January 28, 2000, the board of directors accepted the resignation of Alan
Bashforth from his positions as CEO and President of the Corporation.  Alan
Bashforth had disclosed to the Board at the time he joined the Corporation
that he was personally involved with the development of what has become
@IPbell, the next generation Telco.   The Board encouraged the development of
@IPbell as a separate entity because it offered the prospect of being a
significant outlet for the Corporation's equipment without requiring the
expenditure by the Corporation of funds at a time such funds were unavailable
to the Corporation.  At the time the @IPbell concept was disclosed to the
Board as a project Alan was working on, the Board had noted that as an
equipment provider it would have been competitively unwise for it to be
perceived in the market as moving into competition with its service provider
customers by undertaking the development of @IPbell.  Further it was noted
that there are regulatory restrictions preventing the Corporation from
conducting its present business and acting as a carrier.

The board recognized Alan Bashforth's valuable contribution to the
Corporation over the past several years, and particularly his important role
in bringing to the Corporation the opportunity to serve as an equipment
provider to the IP Telephony marketplace. In a letter agreement dated
January 28, 2000, the Company agrees that Bashforth shall be free to enter
into full-time employment as President and CEO of @IPbell and prior contracts
relating to employment or consultancy agreements were terminated.  The Company
and @IPbell mutually acknowledge and agree that Alan Bashforth may provide
consulting services to the Company on specified terms and conditions.

The board unanimously elected Joy C. Hartman as the CEO and President.  The
compensation package offered  $175,000 per annum with 100,000 stock options to
be awarded at $5.00.  Fifty thousand (50,000) options would be immediately
vested and the remaining fifty thousand (50,000) vested at year-end.

Alan Bashforth will assume the position of vice chairman of the board and has
been retained in a consultancy role. The consultancy agreement provides an
equitable agreement for the Company as well as for Alan Bashforth. As
consideration for the two-year consultancy, the agreement contains the
following arrangements.  Consultancy Fee would be $120,000 per year.  As an
additional incentive not to be construed as a sales forecast, 250,000 options
at $5.00 are granted, exercisable based upon a milestone of the achievement of
twenty million (20M) in sales revenue and an average stock price of $20 over a
three-month period for the year 2000.

-13-
<PAGE>

For the year 2001, 250,000 options or warrants at $5.00 are granted,
exercisable upon the achievement of forty million (40M) in sales revenue and
an average stock price of $40 over a three month period.  The remaining
directors receive 100,000 options or warrants at $5.00 on the same milestone
basis of achievement.  Lyndon Keele, Sheldon Hofferman, Joy Hartman and Ken
Ray would receive 50,000 in the year 2000, 50,000 in the year 2001 and Anand
Kumar would receive 10,000 each year pro-rated on the years of service.


In February 2000, the Company concluded an agreement with @IPbell, a
next-generation provider of IP networks, to supply next generation IP
telephony gateway solutions worth initially in excess of $16 million. Under
the terms of the multi-million dollar agreement @IPbell is contracted to
purchase the Company's C-2308 IP Telephony gateway systems for a minimum
50-site deployment over the next twelve months.


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,
                                            1999           1998
                                            ----            ----

             Sales                    $2,347,984      $4,352,606
             Net Loss                $(2,054,886)    $(1,036,306)
             Net Loss Per Share           $(0.12)          $(.07)


                                    OPERATING EXPENSES     PERCENT OF SALES
                                    ------------------     ----------------
                                      1999       1998        1999     1998
                                      ----       ----        ----     ----

     Cost of Goods Sold         $1,330,886  $1,694,557       56.7%    38.9%

     Research & Development      1,331,521   1,219,687       56.7%    28.0%

     Selling, General & Admin    1,728,244   2,470,534       73.6%    56.8%

     Total Operating Costs
     and Expenses               $4,390,651  $5,384,778      187.0%   123.7%



Sales for the fiscal year ended December 31, 1999 were $2,347,984 compared to
sales of $4,352,606 in the 1998 fiscal year.  The sales revenue consists of
sales of our integrated hardware and software products, as well as revenue
generated from the maintenance and support of those products.  The primary
factor that affected the sales performance was the decision of our largest
patron for inmate systems to freeze all new software/system purchases during
the 1999 year extending through the first quarter of 2000 to insure Y2K
compliance of all existing installations. This was also true of our largest
client for VRS systems and the CIMS software enhancements.  In addition to
this action, they have also become more conservative in pursuing new business
opportunities as they strive for increased profitability.  Over the past year,
the Company has committed its resources in the continual research and
development of the IP Telephony product.   Management believes the effect of
this strategy will provide changes in the composition of our customer base
resulting in sales growth, customer advantage and ultimately increased
shareholder value.

-14-
<PAGE>

Cost of Goods Sold increased 17.8% as a percentage of sales from 38.9% for
the year ended December 1998 to 56.7% for the year ended December 1999.  The
absolute decrease in dollars amounted to $363,671 in the year ended
December 1999.  The percentage of sales upshot and the absolute dollars effect
was directly related to the weaker sales level.

Research and Development expenses in 1999 increased 9.2% to  $1,331,521
compared to $1,219,687 in 1999, an increase of $111,834.   The actual
increase was partially offset by additional funding received to exert maximum
efforts for the development of the IP Telephony product by the next
generation Telco for the future success of the Company.  Research and
development expenses consist of payroll and related expenses for research and
development personnel, costs related to systems infrastructure and expenses for
testing facilities and equipment.  The absolute dollar increases in research
and development expenses were attributable to an increase and reallocation of
the number of research and development personnel and expenses related to
establishing a new testing facility. 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 expects
to continue to make substantial investments in the research and development
team to maintain a highly skilled force of design engineers for new product
development, the key to the future.

Selling, general and administration expenses decreased 30.1% as a percentage
of sales.  Sales and marketing expenses consist primarily of compensation and
related costs for sales personnel, marketing personnel, sales commissions,
marketing programs, public relations, promotional materials, travel expenses
and trade show exhibit expenses.  This decrease reflects the reallocation of
personnel to research and development activities and the funding received
from the next generation Telco to promote market awareness and prospective
customer interest. The Company expects to incur substantial expenditures
related to sales and marketing activities, the recruitment of additional sales
and marketing personnel and the expansion of our domestic and international
distribution channels.

Interest expense was incurred as part of the cost related to the accounts
receivable financing agreement with The CIT Group/Commercial Services.  The
agreement provided a solution to the cash flow fluctuation experienced during
the variability of the sales performance.  The agreement with CIT Group
terminated January 31, 2000.   Management believes that the forecasted sales
and additional funds received through the private placement will generate
sufficient cash flow eliminating the need for the factoring arrangement.


LIQUIDITY & CAPITAL RESOURCES
-----------------------------

Net cash used for operating activities for the years ended December 31, 1999
and 1998 was $874,925 and $578,177 respectively.  The use of cash in operating
activities in 1999 resulted primarily from the net loss, the decrease in the
trade receivables and other receivable, the inventory reduction, and the
decrease in accounts payable and accrued expenses.

Net cash used in investing activities was $123,555 in 1999 and $85,755 in
1998. The increase in cash used for investing activities in 1999 was
primarily attributable to capital expenditures for the purchase of computer
related equipment for development of the Company's current and new products.
The Company expects to increase its capital expenditures to maximize
development efforts of new products and applications.  The Company had no
significant commitments as of December 31, 1999 for capital expenditures.

Net cash provided by financing activities in 1999 was $1,641,024.  The cash
provided by financing activities was attributable principally to proceeds
from the issuance of common stock offset by the elimination of the loan.
During the year ended December 1999, the Company initiated private placement
offerings pursuant to which one million two hundred eighteen thousand shares
(1,218,000) of Common Stock were sold.  The Company received net proceeds of
$1,713,692 dollars.  All such proceeds have and will be used to fund product
development, sales, and the Company's general operating expenses.

-15-
<PAGE>
At December 31, 1999, the Company had $674,793 in cash and cash equivalents
and $666,648 in working capital, compared with  $32,249 in cash and cash
equivalents and $563,327 in working capital at December 31, 1998. Current
liabilities at December 31, 1999 were $640,086, 30.4% less than current
liabilities of $919,985 at December 31, 1998.   The increase in the cash and
cash equivalents and the working capital for the year ended December 31, 1999
are attributable to the proceeds derived from the private placements.  The
decrease in the current liabilities for the year ended December 31, 1999
resulted from the reduction of accounts payable offset by the increase in
accrued expenses which consisted of the finders fees for the private
placement, accrued vacation expenses and travel and related expenses
accumulated by an officer of the Company.

Although the Company has no material commitments for capital expenditures,
management anticipates a substantial increase in working capital and capital
expenditures consistent with our anticipated growth plan.  The Company, by
means of the plan, seeks to retain the services of persons who are now
employees and consultants, to secure and retain the services of new employees
and/or consultants as needed and to provide incentives for such persons to
exert maximum efforts for the success of the Company. The amounts and timing
of these expenditures will vary depending on a number of factors, including
the amount of cash generated by our operations, competitive and technological
developments and the rate of growth of our business.

Due to the emerging and evolving nature of the IP telephony market, the
management plans to initiate an additional private placement to facilitate
the scope of our planned deployment, product development and marketing
efforts.   The proceeds of the offering will also provide for potential
acquisitions of additional products and technologies, or to establish joint
ventures that the Company believes will complement our current or future
business.

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.

-16-
<PAGE>


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

   Alan C. Bashforth  49       President and Director since November 7, 1996

   Kenneth P. Ray     66       Director since May, 1990

   Joy C. Hartman     51       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  55       Director since September 17, 1997

   Anand Kumar        54       Director since July 8, 1999

The information concerning the officers and Directors is as of
December 31, 1999.  On January 28, 2000, the board of directors accepted the
resignation of Alan Bashforth from his positions as CEO and President of the
Corporation. The board unanimously elected Joy C. Hartman as the CEO and
President. Alan Bashforth assumed the position of vice chairman of the board
and has been retained in a consultancy role.

There were five board meetings during 1999.  All the directors had 100%
attendance except for Anand Kumar who was unable to attend one meeting.

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

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.

-17-
<PAGE>

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
SCIDYN 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.

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.

ANAND KUMAR, received a Ph.D. Candidacy degree in Communications and a M.S.
degree in Electrical Engineering from the University of Connecticut.  He also
received a B.S. degree in Electrical Engineering (Honors) from Jadavpur
University, India.  In 1980 he was a Founder of Communications Strategies
Group, a technology consulting firm serving clients in North America, Europe
and Asia.  He continues to be a principle of such Company.  He has thirty
years of experience in the telecommunications and electronics industries
including: Executive Vice President of FaciliCom International, Washington
International Teleport - 1986 - 1992, Founder and Chief Executive Officer,
General Telephone & Electronics - 1978 - 1980 Manager, Marketing Services and
Product Development.


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.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

The following table sets forth certain information as of March 21, 2000 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
  Name and Address                                        Beneficially        Percent of
  Beneficial Owner                          Title           of Shares     Outstanding Shares(1)
  ----------------                          -----           ---------     ------------------
 <S>                                     <C>               <C>           <C>

  Golden Phoenix, LTD                     5% Owner
  P.O. Box  350, Fairfax Station,                           2,969,121                 16.82%
  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                   8.50%
  St. Mary, Jersey  C.I.                President, CEO
  Alan C. Bashforth, President of    through Jan 28, 2000
   the Company controls ICT                Director

  Edwin S. Marks                          5% Owner         1,129,000                   6.40%
  135 East 57th Street
  27th Floor
  New York, New York  10022

  Lyndon A. Keele                     Chairman of the        800,685                   4.54%
  701 Garwood Road                         Board
  Moorestown, NJ   08057

  Joy C. Hartman                    CEO/President            210,185(2)                1.19%
  27 Hogan Way                        Commencing
  Moorestown, NJ   08057             Jan 28, 2000
                                    CFO/Treasurer
                                   Secretary, Director

  Kenneth P. Ray                          Director            39,000(3)                0.22%
  909 Darfield Drive
  Raleigh, NC   27615

  All Directors and
  Officers as a Group(3)                                   6,647,991                  37.67%


</TABLE>




(1) Calculated on the basis of outstanding shares plus for each person any
securities that person has the right to acquire pursuant to options, warrants,
conversion privileges or other rights.  For a total number of 17,649,151,
shares outstanding as of March 21, 2000.

(2) Includes 300 shares owned by Ms. Hartman's children.  In addition to the
35,185 shares owned, Ms. Hartman holds incentive options to acquire 155,000
shares and 20,000 warrants.

(3) In addition to the 9,000 shares owned by Mr. Ray, an outside Company
Director, Mr. Ray holds incentive options to acquire 30,000 shares.

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

In January, the Company entered into an agreement for consulting services
with Alan Bashforth.  The consulting services primarily related to
identifying, evaluating, and recommending business strategies for the Company.
For details of this consultancy agreement refer to the subsequent event note
under Item 6 of the 10KSB.

In February 2000, the Company entered into another agreement with @IPbell, a
next-generation provider of IP networks to supply next generation IP telephony
gateway solutions worth initially in excess of $16 million.  Alan Bashforth,
one of @IPbell's principals is a member of the Company's board of directors.

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 17, 2000............................................. Page 24

   Consolidated Balance Sheets as of
   December 31, 1999 and 1998. ..................................... Page 25

   Consolidated Statements of Operations,
   two years ended December 31, 1999................................ Page 26

   Consolidated Statements of Cash Flows,
   two years ended December 31, 1999................................ Page 27

   Consolidated Statements of Changes in
   Shareholders' Equity, two years ended
   December 31, 1999....................................... ........ Page 28

   Notes to Consolidated Financial Statements........................Page 29-36

-20-
<PAGE>

2. INDEX OF EXHIBITS

   Exhibit No.      Description of Exhibit
   -----------      ----------------------
   3.11             The Articles of Incorporation

   3.21             By-Laws

   23               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.

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


-21-
<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/Joy C. Hartman
    ------------------------
    CEO/President

DATED: March 30, 2000


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 Directors  March 30, 2000
    ----------------------                                       --------------
    Lyndon A. Keele


BY: /s/ Joy C. Hartman       CEO/President commencing            March 30, 2000
    ----------------------        Jan 28, 2000                   --------------
    Joy C. Hartman               CFO, Treasurer,
                              Secretary and Director


BY: /s/ Alan C. Bashforth    CEO/President through Jan 28, 2000  March 30, 2000
    ----------------------   Director since Nov. 7, 1996         --------------
    Alan C. Bashforth


BY: /s/ Sheldon C. Hofferman Director since September 17, 1997   March 30, 2000
    ------------------------                                     --------------
    Sheldon C. Hofferman


BY: /s/ Anand Kumar          Director since July 8, 1999         March 30, 2000
    ------------------------                                     --------------
    Anand Kumar


BY: /s/ Kenneth P. Ray       Director since May, 1997            March 30, 2000
    ------------------------                                     --------------
    Kenneth P. Ray

-22-
<PAGE>


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

                     Index to Consolidated Financial Statements



Report of Independent Accountants dated March 17, 2000...........   Page 24

Consolidated Balance Sheets as of December 31, 1999 and 1998........Page 25

Consolidated Statements of Operations, two years
ended December 31, 1999.............................................Page 26

Consolidated Statements of Changes in Shareholders' Equity,
two years ended December 31, 1999...................................Page 27

Consolidated Statements of Cash Flows, two years
ended December 31, 1999.............................................Page 28

Notes to Consolidated Financial Statements..........................Page 29-36


-23-
<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, 1999 and 1998 and
the related consolidated statements of operations, shareholders' equity and
cash flows for the years ended December 31, 1999 and 1998.  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, 1999 and 1998
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


370 Lexington Avenue
Suite 1205
New York, NY  10017

March 17, 2000


-24-
<PAGE>



<TABLE>
                           SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                                  CONSOLIDATED BALANCE SHEETS
                               AS OF DECEMBER 31, 1999 AND 1998

<CAPTION>
                        ASSETS
                                                                    December 31,
                                                             1999                   1998
                                                             ----                   ----

<S>                                                   <C>                     <C>
Current assets:
   Cash and cash equivalents                           $      674,793          $      32,249
   Accounts receivable - trade                                157,040                266,403
   Accounts receivable - other                                 63,677                659,900
   Inventories                                                361,039                478,494
   Other current assets                                        50,185                 46,266
                                                       --------------          -------------
      Total current assets                                  1,306,734              1,483,312
                                                       --------------          -------------

Property and equipment, net                                   260,543                231,088
Software development costs, net of
  accumulated amortization of $521,234
  in 1999 and $382,239 in 1998                                      -                138,996
Deferred income taxes                                         308,000                308,000
Intangible Assets, net of accumulated
 amortization of $900,000 in 1999 and
 $600,000 in 1998.                                            600,000                900,000
Other assets                                                  133,776                 41,418
                                                       --------------          -------------
      Total assets                                     $    2,609,053          $   3,102,814
                                                       ==============          =============


         LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Loan Payable                                        $          -            $     100,000
   Accounts payable                                           215,409                638,493
   Accrued expenses                                           424,677                181,492
                                                       --------------          -------------
      Total current liabilities                               640,086                919,985
                                                       --------------          -------------

Commitments

Shareholders' equity -
   Common stock - .01 par value,
      45,000,000 shares authorized,
      17,286,278 and 15,861,449 issued
      17,160,478 and 15,735,649 outstanding
       in 1999 and 1998 respectively.                         172,862                158,614
   Additional paid-in capital                              12,556,205             10,729,429
   (Deficit)                                              (10,362,267)            (8,307,381)
                                                       --------------          -------------
                                                            2,366,800              2,580,662
   Common stock held in treasury,
    at cost                                                  (397,833)              (397,833)
                                                       --------------          -------------
   Total shareholders' equity                               1,968,967              2,182,829
                                                       --------------          -------------
   Total liabilities and shareholders'
    equity                                             $    2,609,053          $   3,102,814
                                                       ==============          =============

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

-25-
<PAGE>

<TABLE>
                           SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                              CONSOLIDATED STATEMENTS OF OPERATIONS
                         FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

<CAPTION>

                                                    1999                             1998
                                                    ----                             ----
<S>                                         <C>                              <C>

 NET SALES                                   $      2,347,984                 $     4,352,606
                                             ----------------                 ---------------



Operating costs and expenses:

      Cost of sales                                 1,330,886                       1,694,557
      Research and development                      1,331,521                       1,219,687
      Selling, general
          and administrative                        1,728,244                       2,470,534
                                             ----------------                 ---------------

                                                    4,390,651                       5,384,778
                                             ----------------                 ---------------

Operating (loss)                                   (2,042,667)                     (1,032,172)

Other (expenses):
   Interest expense                                   (12,219)                         (4,134)
                                             ----------------                 ---------------


Net (Loss)                                   $     (2,054,886)                $    (1,036,306)
                                             ================                 ===============



Net (Loss) per common share
  basic and diluted                          $          (0.12)                $         (0.07)
                                             ================                 ===============

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

</TABLE>
-26-
<PAGE>

<TABLE>
                                SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                               FOR THE YEARS ENDED DECEMBER 31,1999 AND 1998

<CAPTION>

                                                             1999                   1998
                                                             ----                   ----
<S>                                                    <C>                  <C>
Cash flows from operating activities:
   Net (loss)                                           $ (2,054,886)        $    (1,036,306)
                                                        ------------         ---------------
Adjustments to reconcile net (loss) to
 net cash  provided by (used for)
 operating activities:
   Depreciation                                               94,101                  74,727
   Amortization of capitalized software                      138,996                 104,247
   Amortization of Intangible assets                         300,000                 300,000
Changes in operating assets and liabilities:
   (Increase) decrease in:
    Accounts receivable                                      109,363                 347,513
    Other receivable                                         596,223                (659,900)
    Inventories                                              117,455                (155,964)
    Other current assets                                      (3,919)                  5,934
    Other assets                                               7,642                  (2,179)
   Increase (decrease) in:
     Accounts Payable and                                          -                       -
        accrued expenses                                    (179,900)                443,751
                                                        ------------         ---------------

Total adjustments                                          1,179,961                 458,129
                                                        ------------         ---------------

 Net cash provided by (used for)
  operating activities                                      (874,925)               (578,177)
                                                        ------------         ---------------

Cash flows from investing activities:

 Purchase of property and equipment - net                   (123,555)                (85,755)
                                                        ------------         ---------------

   Net cash (used) in investing activities                  (123,555)                (85,755)
                                                        ------------         ---------------

Cash flows from financing activities:                                                      -
 Increase (decrease) in
  Loan Payable                                              (100,000)                100,000
 Issuance of common stock                                  1,741,024                       -
                                                        ------------         ---------------

   Net cash (used in) provided
    by financing activities                                1,641,024                 675,000
                                                        ------------         ---------------

Net increase (decrease) in
 cash and cash equivalents                                   642,544                  11,068

Cash and cash equivalents -
 beginning of period                                          32,249                  21,181
                                                        ------------         ---------------

Cash and cash equivalents -
 end of period                                          $    674,793         $        32,249
                                                        ============         ===============

    The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-27-
<PAGE>
<TABLE>

                                                SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                                         CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                             FOR THE TWO YEARS ENDED DECEMBER 31, 1999 AND 1998
<CAPTION>


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

Exercise of Stock Options               34,800            348           26,984                  -             -             -
Issuance of common stock
 net of related expenses             1,218,000         12,180        1,701,512                  -             -           -
Common Stock issued
 for patent                            172,029          1,720           98,280

Net loss                                     -              -                -         (2,054,886)            -           -
                                   -----------      ---------     ------------      -------------       -------     ---------


Balance
 December 31, 1999                  17,286,278      $ 172,862     $ 12,556,205      $ (10,362,267)      125,800     $ 397,833
                                   ===========      =========     ============      =============       =======    ==========

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

-28-
<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 1999 and 1998.  Cash paid for
        interest was $ 4,134 in 1998 and $12,219 in 1999.

-29-
<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, 1999, the capitalized software development costs were
        fully amortized.  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 amortization was $138,996 in 1999, and $104,247 in 1998.


    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.

-30-
<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.

    n)  New Accounting Pronouncements
        In January 1999, the Company adopted American Institute of Certified
        Public Accountants Statement of Position, "Accounting for Computer
        Software Developed for or Obtained for Internal Use" (SOP 98-1).
        SOP 98-1 applies to all nongovernmental entities and provides revised
        guidance for the accounting treatment for software, which is
        internally developed, acquired, or modified solely to meet the
        entity's internal needs.  SOP 98-1 did not have a material effect on
        the Company's financial statements or results of operations for the
        year ended December 31, 1999.

        In June 1998, Statement of Financial Accounting Standards SFAS
        No. 133 "Accounting for Derivative Instruments and Hedging Activities"
        was released.  The statement requires the recognition of all
        derivatives as either assets or liabilities in the balance sheet and
        the measurement of those instruments at fair value.  The accounting
        for changes in the fair value of a derivative depends on the planned
        use of the derivative and the resulting designation.  The Company is
        required to implement this statement in the first quarter of fiscal
        2000.  The Company has not used derivative instruments and believes
        the impact of adoption of this statement will not have a significant
        effect on the financial statements.

        In December 1999, the Securities and Exchange Commission staff
        released Staff accounting bulletin No. 101, Revenue Recognition in
        Financial Statements ("SAB No. 101"), which provided guidance on the
        recognition, presentation and disclosure of revenue in financial
        statements.  SAB No. 101 did not impact the Company's revenue
        recognition policy.

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

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, 1999 and 1998.

3)  Inventories:

Inventories consist of the following:



                                           1999                 1998
                                           ----                 ----

 Raw materials                          $64,020             $197,643
 Work in process                              -                    -
 Finished goods                         297,019              280,851
                                        -------              -------

 Totals                                $361,039             $478,494
                                        =======              =======


4)  Property and Equipment:

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

                                              1999                 1998
                                              ----                 ----

Computers, fixtures and equipment         $547,775           $1,342,408

Less accumulated depreciation             (287,232)          (1,111,320)
                                         ---------            ---------

Totals                                   $ 260,543            $ 231,088
                                         =========            =========

-32-
<PAGE>

                    SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 1999 and 1998 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 1999 and 1998 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 - 1999 the Company has available to offset
    future taxable income a net operating loss of $11,422,364 expiring
    2005 - 2019.  In addition, research credits expiring 2005 - 2014 are
    available to offset future taxes.

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


                                       1999           1998
                                       ----           ----

    Deferred
           Federal                   $    -          $   -
    Current
           Federal                        -              -
           State                          -              -
                                     ------          -----
                                     $    -          $   -
                                     ------          -----

    Differences between the tax provision computed using the statutory
    federal income tax rate and the effective income tax rate on operations
    are as follows:

                                        1999          1998
                                        ----          ----

    Federal statutory rate         $(698,661)    $(352,344)
    Research tax credits                   -             -
    Tax benefit not provided due
          to valuation allowance     698,661       352,344
    Surtax exemptions, net                 -             -
    Other                                  -             -
                                     -------       -------
                                     $     -       $     -
                                     -------       -------

-33-
<PAGE>


                    SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

                                                          December 31,
                                                      1999            1998
                                                      ----            ----
    Deferred tax assets:
        Tax benefits related to net  operating
        loss carryforwards and  research
                tax credits                     $3,843,286      $3,144,625
                                                ----------      ----------
    Total deferred tax assets                    3,843,286       3,144,625
    Valuation allowance for
             deferred tax assets                 3,535,286       2,836,625
                                                ----------      ----------
    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, 1999 are as follows:

                                      2000           $   201,897
                                      2001               193,622
                                      2002               185,483
                                      2003               185,483
                                      2004               243,664
                                After 2005               242,448
                                                         -------
              Total minimum lease payments            $1,252,597

        Rent expense for the years ended December 31, 1999 and 1998 was
        $60,227 and $150,037 respectively.

-34-
<PAGE>

                    SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        b) Employment Agreement:

           The Company has an employment agreement with one officer, who is
           also a director of the Company.  The employment agreement contains
           change in control provisions that would entitle the officer to
           receive up to 2.99 times the annual salary if there is a change in
           control in the Company (as defined) and a termination of employment.
           The maximum contingent liability under this agreement in such event
           is approximately  $ 523,250.


    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 1999 and 1998 amounted to
        $300,000 for each year.

    8)  Stock Options and Warrants

        On November 17, 1999 the Company amended the Incentive Stock Option
        Plan, authorizing an additional share increase of 1,088,000 shares.

        In 1999 60,000 shares were awarded, four individuals participated in
        the plan as a result of the grant of options awarded.  The share
        price of options awarded was utilizing the market price of shares on
        date of award.  During the latter part of 1999, the Board of
        Directors approved a resolution for employees to utilize their
        accrued vacation time to purchase options.  In the fiscal year 2000
        the accrued vacation was converted into 224,173 options.   34,800
        shares were exercised in 1999 none in 1998.    In 1998 no shares were
        awarded.  The total amount of shares granted and not exercised at
        December 31, 1999 amounted to 202,700 shares at exercise prices
        ranging from 0.50 to 1.00 per share.

        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
        1999 and 1998, respectively: expected volatility of 80 percent; risk
        free interest rate of 7% and 6% 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 1998 and 1999 grants.  As such, the impacts are not necessarily
        indicative of the effects on reported net income of future years.

-35-
<PAGE>

                    SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    9)  Major Customers:

        During 1999, three customers and their operating subsidiaries
        accounted for 64.63%, 10.31% and 9.71% of total sales.  During 1998,
        three customers and their operating subsidiaries accounted for 82.95%,
        4.69% and 3.45% 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 16,777,070 in 1999 and 14,535,649 in 1998.

   11)  Subsequent Events:

        On January 28,2000 the Board of Directors accepted the resignation of
        Alan Bashforth from his position as CEO and President of the Company.
        Alan Bashforth will assume the position of vice chairman of the board
        and be retained in a consultancy role.  As consideration for the
        two-year consultancy, the agreement calls for an annual fee of
        120,000 per year plus the following incentive not to be construed as
        a sales forecast:  The granting of 250,000 options exercisable at
        $5.00 per share based upon a milestone of the achievement of
        Twenty million in sales revenue and an average stock price of
        $20 over a three month period for the year 2000.  For the year 2001,
        250,000 options or warrants exercisable at $5.00 per share upon the
        achievement of forty million in sales revenue and an average stock
        price of $40 over a three month period.  The remaining directors
        receive 100,000 options or warrants at $5.00 on the same milestone
        basis of achievement.  Four directors would receive 50,000 each in
        the year 2000 and 50,000 each in the year 2001 and one director
        would receive 10,000 each year.

        Also on January 28, 2000 the board elected Joy C. Hartman CEO and
        President at a salary of 175,000 per annum.  In addition she received
        100,000 stock options exercisable at $5.00 per share, 50,000 vesting
        immediately and 50,000 at December 31, 2000.

        In February 2000, the Company signed an agreement with @IPbell to
        supply next generation IP telephony gateway solutions worth initially
        in excess of 16 million.