SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Mark One
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended March 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
Commission File Number 0-26284
MILESTONE SCIENTIFIC INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-3545623
--------------------------- ----------------
State or other jurisdiction (I.R.S. Employer
of organization) Identification No.)
220 South Orange Avenue, Livingston, New Jersey 07039
-----------------------------------------------------
(Address of principal executive office) (Zip Code)
(201) 535-2717
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of May 8, 1997 the Registrant had a total of 5,562,774 shares of
Common Stock, $.001 par value, outstanding.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION Page
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheet (unaudited)
at March 31, 1997 and December 31, 1996 3
Consolidated Statements of Operations
(unaudited for the three months ended
March 31, 1997 and 1996 4
Consolidated Statements of Changes in
Stockholders' Equity for the three months
ended March 31, 1997 (unaudited)
and the year ended December 31, 1996 5
Consolidated Statements of Cash Flows
(unaudited) for the three months ended
March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION 12
ITEM 1. Legal Proceedings 12
ITEM 6. Exhibits and reports on Form 8-K 12
SIGNATURES 14
2
<PAGE>
Milestone Scientific Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(unaudited)
March 31 December 31
1997 1996
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,372,317 $ 779,359
Accounts receivable 486,943 323,746
Inventories 486,951 508,727
Prepaid expenses 113,249 20,788
------------ -----------
Total current assets 4,459,460 1,632,620
PROPERTY AND EQUIPMENT, NET 306,385 281,378
PATENTS 1,983,082 2,039,816
DEFERRED FINANCING COSTS 635,000
OTHER ASSETS 159,124 68,132
------------ -----------
$ 6,908,051 $ 4,656,946
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit - bank $ 75,000 $ 75,000
Accounts payable 497,751 483,537
Accrued expenses 131,418 102,310
Deferred revenue 38,517 38,517
------------ -----------
Total current liabilities 742,686 699,364
------------ -----------
STOCKHOLDERS' EQUITY
Common stock, par value $.001;
authorized, 10,000,000 shares;
issued and outstanding, 5,562,774
shares at March 31, 1997
Additional paid-in capital 5,562 4,633
Deficit 9,657,223 6,819,341
Unearned compensation (3,432,380) (2,736,352)
(65,040) (130,040)
------------ -----------
6,165,365 3,957,582
------------ -----------
$ 6,908,051 $4,656,946
============ ===========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
Milestone Scientific Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31,
(unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Revenues $ 760,123 $ 74,358
Cost of Sales 471,572 52,526
------------ -----------
Gross Profit 288,551 21,832
------------ -----------
Selling, general and administrative expenses 924,511 416,189
Research and development expenses 65,654 37,798
------------ -----------
990,165 453,987
------------ -----------
Loss from operations (701,614) (432,155)
------------ -----------
Other income
Interest income (net) 3,592 23,714
Other income (net) 1,994 7,926
Minority interest in net loss of subsidiary - 67,073
------------ -----------
5,586 98,713
------------ -----------
NET LOSS (696,028) $ (333,442)
============ ===========
Loss per share $(.14) $(.07)
============ ===========
Weighted average shares outstanding 4,840,527 4,480,000
============ ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
Milestone Scientific Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the year ended December 31, 1996 and
the three months ended March 31, 1997 (unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
------------ paid-in Unearned
Shares Amount capital Deficit compensation Total
--------- ---------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 4,480,000 $4,480 $5,690,895 $(786,824) $(390,040) $4,518,511
Shares issued in connection with
the business combinations
accounted for as purchases 23,350 23 111,076 111,099
Shares issued to Consultants 130,000 130 382,370 382,500
Compensation expense 260,000 260,000
Warrants issued to placement agent 635,000 635,000
Net loss for the year ended
December 31, 1996 (1,949,528) (1,949,528)
--------- ---------- --------- ----------- --------- ---------
Balance, December 31, 1996 4,633,350 4,633 6,819,341 (2,736,352) (130,040) 3,957,582
Private Placement of Units 852,262 852 2,347,702 2,348,554
Compensation expense 65,000 65,000
Shares Issued For Capital Assets 12,000 12 80,238 80,250
Shares issued to Consultants 58,000 58 369,692 369,750
Shares issued in connection
with conversion offer to
minority Shareholders of Spintech 7,162 7 40,250 40,257
Net loss for the three months
ended March 31, 1997 (696,028) (696,028)
--------- ---------- --------- ----------- --------- ---------
Balance, March 31, 1997 5,562,774 $5,562 $9,657,223 ($3,432,380) $(65,040) $6,165,365
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
Milestone Scientific Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31,
(unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $(696,028) $(333,442)
Adjustments to reconcile net loss to
net cash used in operating activities
Amortization of excess of purchase
price over tangible net assets 57,385
Amortization and depreciation 66,255 947
Loss applicable to minority interest (67,073)
Compensation expense 65,000 65,000
Changes in assets and liabilities
(Increase) in other assets (2,527) (3,138)
(Increase) in accounts receivable (163,197) (10,293)
Decrease (Increase) in inventories 21,776 (9,862)
(Increase) Decrease in prepaid expenses (75,550) 927
Increase in accounts payable 14,214 37,175
(Decrease) increase in accrued expenses 29,108 (10,004)
----------- -----------
Net cash used in operating activities (740,949) (272,378)
----------- -----------
Cash flows from investing activities
Capital expenditures (51,439) (83,975)
Acquisition costs of minority interest in Spintech (5,392) -
----------- -----------
Net cash used in investing activities (56,831) (83,975)
----------- -----------
Cash flows from financing activities
Net proceeds from private placement 3,390,738 -
----------- -----------
Net cash provided by financing activities $3,390,738 -
----------- -----------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS 2,592,958 (356,353)
Cash and cash equivalents at beginning of Period 779,359 2,331,639
----------- -----------
Cash and cash equivalents at end of Period $3,372,317 $1,975,286
=========== ===========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
Milestone Scientific Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the three months ended March 31,
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for
Income taxes $ - $ -
---------- ----------
Interest $ 5,812 $ -
---------- ----------
</TABLE>
In 1997, 54,000 shares of common stock were issued for services performed
associated with the 1997 private placement. The value of the above shares,
deferred financing and other costs incurred in 1996 were applied against the net
proceeds in 1997.
In 1997, 12,000 shares of common stock were issued in exchange for capital
assets to be delivered in 1997. Since the capital assets were not yet received
such amount is included in other assets.
In 1997, 7,162 shares of common stock were issued in exchange for approximately
469 shares of Spintech common stock (approximately 1%). The value of the stock
and associated legal costs at date of acquisition is shown in other assets.
See notes to consolidated financial statements.
7
<PAGE>
Milestone Scientific Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
The unaudited interim financial statements of Milestone Scientific Inc. and
Subsidiaries (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (consisting of normal recurring entries)
necessary to present fairly the financial position as of March 31, 1997,
and the results of operations, changes in stockholders' equity and cash
flows for the three-month periods ended March 31, 1997 and 1996,
respectively.
The results reported for the three-month period ended March 31, 1997 are
not necessarily indicative of the results of operations which may be
expected for a full year.
NOTE 2 - ACQUISITIONS
PRINCETON PMC
In March 1996, the Company, entered into a shareholder's agreement to
form Princeton PMC, a corporation, to engage in the marketing and sale
of dental products. The Company contributed $85,000 for 200 shares of
this entity representing a two-thirds ownership. Only the March 31,
1997 Consolidated Financial Statements include the operating results of
Princeton PMC.
In November 1996, the Company purchased the remaining one-third of
Princeton PMC's outstanding stock for 100 shares of its common stock.
The acquisition has been recorded using the purchase method of
accounting. The purchase price approximated the net tangible assets
acquired.
WISDOM
In December 1996, the Company completed the purchase of Wisdom's
outstanding stock by issuing 23,250 shares of its common stock valued
at $110,437. The acquisition has been recorded using the purchase
method of accounting. The cost was less than the subsidiary's net
assets at the date of acquisition. The excess of net assets over cost
has been applied to reduce the amounts assigned to noncurrent assets of
the subsidiary. Only the March 31, 1997 Consolidated Financial
Statements include the operating results of Wisdom.
8
<PAGE>
Milestone Scientific Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
NOTE 2 - ACQUISITIONS (continued)
SPINTECH
In November 1995, the Company completed the purchase of 65% of
Spintech's outstanding stock on a fully diluted basis for $2,700,000.
The Company paid $2,026,495, which represents the $2,700,000 less
amounts advanced to Spintech amounting to $632,500 plus interest of
$41,005. The acquisition has been recorded using the purchase method of
accounting. The excess of the aggregate purchase price over the net
tangible assets acquired was allocated to patents and is being
amortized over ten years. The operating results of Spintech have been
included in the Company's consolidated financial statements since the
date of acquisition. The minority interest has been valued at zero as
of March 31, 1997.
In January 1997 the Company offered to minority shareholders of
Spintech to exchange 1 Spintech share for 15.27 shares of Milestone.
This offer is for restricted shares. As of March 31, 1997, 469 shares
of Spintech were converted, which increased Milestone's ownership of
Spintech to 66%. The value of the converted shares and associated legal
costs are shown in other assets, as a result of the value being in
excess of the tangible net assets of Spintech.
NOTE 3 - PRIVATE PLACEMENT
In March 1997, the company sold, in a private placement, an aggregate
of 852,262 units at $4.72 per unit for net cash proceeds of $3,390,738,
less non cash costs for shares issued in connection with the private
placement of $1,042,184 for a net amount of $2,348,554. Each unit
consisted of one share of common stock and one common stock purchase
warrant. Each warrant entitles the holder to purchase one share of
common stock for three years from the closing of the offering at an
exercise price of $4.72 per share. In addition, the placement agent
received warrants to purchase 85,226 units at $4.72 per unit.
9
<PAGE>
Milestone Scientific Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
NOTE 4 - LITIGATION
On March 26, 1997, Milestone and Spintech commenced legal action in the
United States District court of New Jersey against Ronald Spinello,
DDS, Chairman and Director of Research of Spintech. In the complaint,
plaintiffs seek recovery of compensatory and punitive damages in excess
of $4,000,000 for extortion and tortious interference with existing and
prospective contract and business relationships, a declaratory judgment
that Dr. Spinello has no personal rights to certain technology
developed while he was employed as Director of Research of Spintech
relating to the design and production of ancillary components of its
computer controlled local anesthetic delivery system, a declaratory
judgment that plaintiffs have not breached Dr. Spinello's employment
agreement or the agreement for the purchase by Milestone of a 65%
equity interest in Spintech and injunctive relief. No answer has yet
been filed.
Milestone has been advised by its patent counsel that all technology
developed by Dr. Spinello while employed by Spintech is owned by
Spintech. The Company believes that ownership of the technology
relating to these ancillary components which are the subject of this
litigation in no way prevents the manufacture and sale of its
anesthetic delivery system at economically viable prices.
10
<PAGE>
Management's Discussion and Analysis or Plan of Operation
In March 1997, the company consummated a private placement of registered
securities through a placement agent. The company received gross proceeds of
$4,022,500 for 852,262 units, each consisting of one share of Common Stock and
one Common Stock Purchase Warrant exercisable at $4.72 per share. The private
placement was over subscribed and the company accepted subscriptions for more
than the maximum number of units offered.
Statement of Operations
Revenues and Cost of Goods Sold increased to $740,123 and $471,572 respectively
in 1997 from $74,358 and $52,526 in 1996 an increase of $658,765(922%) and
$419,146(797%), primarily a result of the acquisition of Wisdom in December
1996.
Selling, General and Administrative expenses increased to $924,511 in 1997 from
$416,189 in 1996 an increase of $508,382(122%) reflecting, primarily the
acquisition of Wisdom and higher marketing and administrative costs as the
company positions itself for expected higher levels of operations.
Research and Development costs increased to $65,654 in 1997 from $37,798 in
1996, an increase of $27,856 reflecting increased costs to develop the Wand.
Net Interest decreased to $3,592 in 1997 from $23,714 in 1996, a decrease of
$20,122, primarily a result of the use of the proceeds from the public offering
in late 1995.
Liquidity and Capital Resources
At March 31, 1997, the Company's working Capital was $3,716,774, primarily
reflecting the net cash proceeds of $3,390,738 from the private placement. The
company intends to use the funds for development engineering, tooling, marketing
and other expenses associated with the introduction of "The Wand", development
of other products and general corporate purposes including working capital.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
On March 26, 1997, Milestone and Spintech commenced legal action in the
United States District court of New Jersey against Ronald Spinello, DDS,
Chairman and Director of Research of Spintech. In the complaint, plaintiffs
seek recovery of compensatory and punitive damages in excess of $4,000,000
for extortion and tortious interference with existing and prospective
contract and business relationships, a declaratory judgment that Dr.
Spinello has no personal rights to certain technology developed while he
was employed as Director of Research of Spintech relating to the design and
production of ancillary components of its computer controlled local
anesthetic delivery system, a declaratory judgment that plaintiffs have not
breached Dr. Spinello's employment agreement or the agreement for the
purchase by Milestone of a 65% equity interest in Spintech and injunctive
relief. No answer has yet been filed.
Milestone has been advised by its patent counsel that all technology
developed by Dr. Spinello while employed by Spintech is owned by Spintech.
The Company believes that ownership of the technology relating to these
ancillary components which are the subject of this litigation in no way
prevents the manufacture and sale of its anesthetic delivery system at
economically viable prices.
ITEM 6. Exhibits and reports on Form 8-K
(a) Exhibits
10.1 Form of Warrant Agreement dated as of March 13,
1997.(1)
10.2 Agency Agreement dated February 4, 1997.(2)
10.3 Form of Purchase Option granted to the Placement Agent
and Designees dated as of March 13, 1997.(3)
- --------------------
(1) Incorporated by reference to exhibit 99.1 of the Company's
Registration Statement on Form S-3 No. 333-26237.
(2) Incorporated by reference to exhibit 99.2 of the Company's
Registration Statement on Form S-3 No. 333-26237.
(3) Incorporated by reference to exhibit 99.3 of the Company's
Registration Statement on Form S-3 No. 333-26237.
12
<PAGE>
(b) Reports on Form 8-K:
The Registrant filed the following report on Form 8-K during the
quarter ended March 31, 1997.
Date Item Reported
March 13, 1997 Item 5. Other Events
Item 7. Financial Statements, Pro Forma
Financial Information and Exhibits
13
<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MILESTONE SCIENTIFIC INC.
(Registrant)
Date: May 12, 1997 /s/ Leonard Osser
-------------------------------------
LEONARD OSSER
President, Chief Executive Officer and
Chief Financial and Accounting Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements contained in the Registrant's Form 10-QSB for the quarter
ending March 31, 1997 and is qualified in its' entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,372,317
<SECURITIES> 0
<RECEIVABLES> 486,943
<ALLOWANCES> 0
<INVENTORY> 486,951
<CURRENT-ASSETS> 4,459,460
<PP&E> 306,385
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,908,051
<CURRENT-LIABILITIES> 742,686
<BONDS> 0
0
0
<COMMON> 5,562
<OTHER-SE> 6,159,803
<TOTAL-LIABILITY-AND-EQUITY> 6,908,051
<SALES> 0
<TOTAL-REVENUES> 760,123
<CGS> 471,572
<TOTAL-COSTS> 471,572
<OTHER-EXPENSES> 990,165
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (696,028)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (696,028)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> 0
</TABLE>
