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 September 30, 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 November 13, 1997 the Registrant had a total of 8,281,666 shares of
Common Stock, $.001 par value, outstanding.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION Page
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets (unaudited)
at September 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations
(unaudited) for the nine and three months
ended September 30, 1997 and 1996 4
Consolidated Statements of Changes in Stockholders' Equity for
the nine months ended September 30, 1997 (unaudited)
and the year ended December 31, 1996 5
Consolidated Statements of Cash Flows
(unaudited) for the nine months ended
September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 8
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 6. Exhibits and reports on Form 8-K
SIGNATURES
2
<PAGE>
Part 1. Financial Information
ITEM 1. Financial Statements
Milestone Scientific Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
(unaudited)
September 30 December 31
1997 1996
CURRENT ASSETS
Cash and cash equivalents $ 12,737,942 $ 779,359
Accounts receivable 395,669 323,746
Inventories 551,319 508,727
Prepaid expenses 109,940 20,788
------------ -----------
Total current assets 13,794,870 1,632,620
Property and equipment, net 706,859 281,378
Patents, net 1,994,004 2,039,816
Deferred financing costs -- 635,000
Other assets 32,012 68,132
------------ -----------
Total assets $ 16,527,745 $ 4,656,946
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit - bank $ 175,000 $ 75,000
Accounts payable 815,881 483,537
Accrued expenses 25,400 102,310
Deferred revenue -- 38,517
------------ -----------
Total current liabilities 1,016,281 699,364
------------ -----------
STOCKHOLDERS' EQUITY
Common stock, par value $.001;
Authorized, 10,000,000 shares;
issued and outstanding, 7,689,872
shares at September 30, 1997 7,690 4,633
Additional paid-in capital 21,404,649 6,819,341
Deficit (5,900,875) (2,736,352)
Unearned compensation -- (130,040)
------------ -----------
Total stockholders' equity 15,511,464 3,957,582
------------ -----------
Total liabilities and stockholders' equity $ 16,527,745 $ 4,656,946
============ ===========
See notes to consolidated financial statements
3
<PAGE>
Milestone Scientific Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
For the nine and three months ended September 30,
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 2,305,460 $ 154,856 $ 670,896 $ 47,471
Cost of Sales 1,461,252 96,243 463,389 23,215
----------- ----------- ----------- -----------
Gross Profit 844,208 58,613 207,507 24,256
----------- ----------- ----------- -----------
Selling, general and
administrative expenses 3,634,957 1,631,329 1,384,425 791,070
Research and development expenses 418,344 98,710 144,581 34,937
----------- ----------- ----------- -----------
4,053,301 1,730,039 1,529,006 826,007
----------- ----------- ----------- -----------
Loss from operations (3,209,093) (1,671,426) (1,321,499) (801,751)
----------- ----------- ----------- -----------
Other income and expense
Interest income (net) 39,503 56,888 6,937 14,177
Other income (net) 5,067 72,926 2,467 --
Minority interest in net
loss of subsidiary -- 175,040 -- 68,794
----------- ----------- ----------- -----------
44,570 304,854 9,404 82,971
----------- ----------- ----------- -----------
NET LOSS $(3,164,523) $(1,366,572) $(1,312,095) $ (718,780)
=========== =========== =========== ===========
Loss per share $ (0.59) $ (0.30) $ (0.23) $ (0.16)
=========== =========== =========== ===========
Weighted average shares outstanding 5,406,024 4,557,333 5,797,931 4,610,000
=========== =========== =========== ===========
</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 nine months ended September 30, 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
March Private Placement of Units 852,262 852 1,991,063 1,991,915
Compensation expense 130,040 130,040
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 18,010 18 118,692 118,710
September Private Placement of Units 1,666,666 1,667 9,746,800 9,748,467
Warrants Exercised 449,584 450 1,471,604 1,472,054
Warrants issued to Consultants 807,219 807,219
Net loss for the nine months
ended September 30, 1997 (3,164,523) (3,164,523)
---------- ----------- ----------- ----------- --------- -----------
Balance, September 30, 1997 7,689,872 $ 7,690 $21,404,649 ($5,900,875) $ -0- $15,511,464
========== =========== =========== =========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
Milestone Scientific Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30,
(unaudited)
1997 1996
------------ -----------
Cash flows from operating activities
Net loss $ (3,164,523) $(1,366,572)
Adjustments to reconcile net loss to
net cash used in operating activities
Amortization of excess of purchase
price over tangible net assets 174,054 172,158
Amortization and depreciation 57,823 2,841
Loss applicable to minority interest -- (175,040)
Compensation expense 450,660 577,500
Changes in assets and liabilities
(Increase) in accounts receivable (71,923) (22,518)
(Increase) decrease in inventories (42,592) 25,306
(Decrease) in prepaid expenses (89,152) (83,557)
(Increase) decrease in other assets (1,313) 950
Increase in accounts payable 332,344 24,037
(Decrease) increase in accrued expenses (76,910) 2,019
(Decrease) in Deferred Revenue (38,517) --
------------ -----------
Net cash used in operating activities (2,470,049) (842,876)
------------ -----------
Cash flows from investing activities
Capital expenditures (403,054) (117,533)
Acquisition costs of minority interest in Spintech (9,532) --
------------ -----------
Net cash used in investing activities (412,586) (117,533)
------------ -----------
Cash flows from financing activities
Net proceeds from private placements 13,269,164
Net proceeds from issuance of common stock 1,472,054 1
Proceeds from issuance of debt 100,000 14,902
------------ -----------
Paid in capital
Net cash provided by financing activities 14,841,218 14,903
------------ -----------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS 11,958,583 (945,506)
Cash and cash equivalents at beginning of Period 779,359 2,331,639
------------ -----------
Cash and cash equivalents at end of Period $ 12,737,942 $ 1,386,133
============ ===========
See notes to consolidated financial statements.
6
<PAGE>
Milestone Scientific Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the nine months ended September 30,
(unaudited)
1997 1996
---------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the period for
Income taxes $ -- $ --
---------- ----------
Interest $ 16,644 $ --
---------- ----------
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.
In 1997, 18,009 shares of common stock were issued in exchange for approximately
737 shares of Spintech common stock (approximately 1%). The value of the stock
and associated legal costs at date of acquisition is shown in patents.
See notes to consolidated financial statements.
7
<PAGE>
Milestone Scientific Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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
September 30, 1997, and the results of operations, changes in
stockholders' equity and cash flows for the nine-month periods ended
September 30, 1997 and 1996, respectively.
The results reported for the nine-month period ended September 30, 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
September 30, 1997 Consolidated Financial Statements include the
nine month 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.
In connection with the acquisition of Princeton PMC, additional
shares of common stock could be issued depending upon the Company's
average earnings over the next two years as defined. The Company is
obligated to issue 159,900 shares of its common stock if certain
income levels are achieved. The fair value of the common stock would
be classified as compensation expense charged to the statement of
operations.
8
<PAGE>
Milestone Scientific Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
NOTE 2 - ACQUISITIONS (continued)
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 September 30, 1997
Consolidated Financial Statements include the operating results of
Wisdom.
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 September 30, 1997.
The Company also holds a series of annual options to purchase, for a
nominal amount, an additional 3% of Spintech's outstanding shares
following each of the first five fiscal years commencing after the
closing of the stock purchase (or an aggregate of 15% of such shares
if all of the options are exercised). Each option is exercisable
only if Spintech does not achieve a specified pretax profit target
as defined in the applicable fiscal year. As a result of Spintech
not achieving the specified pretax profit in 1996, the Company
exercised their option in 1997.
On several occasions, during 1997, the company offered to those
minority shareholders of Spintech who are accredited investors, the
opportunity to exchange their Spintech shares for Milestone. The
conversion offer ranged from 6.1 to 24.43 shares of Milestone for 1
share of Spintech. These offers were for restricted shares. As of
September 30, 1997, 737 shares of Spintech were converted, which
together with the above exercise increased Milestone's ownership of
Spintech to 69%. The value of the converted shares and associated
legal costs are shown in patents, as a result of the value being in
excess of the tangible net assets of Spintech.
9
<PAGE>
Milestone Scientific Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
NOTE 3 - PRIVATE PLACEMENT
In September 1997, the company sold, in a private placement, an
aggregate of 1,666,666 units at $6.00 per unit for net cash proceeds
of $9,923,466, less non cash costs for warrants issued to counsel in
connection with the private placement of $174,999 for a net amount
of $9,748,467. Each unit consisted of one share of common stock at
$6.00 and one warrant to purchase one share at an exercisable price
of $9.00 per share. Each warrant entitles the holder to purchase one
share of common stock for two years from the closing of the
offering. In addition, the company issued to its counsel warrants to
purchase 83,333 units, exercisable at $6.00 per unit, each unit
consisting of one share of common stock and a warrant to purchase
one share of common stock at an exercise price of $9.00.
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 $3,345,698, less non cash costs for shares issued in connection
with the private placement of $1,353,783 for a net amount of
$1,991,915. 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.
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 initial purchase by Milestone of a 65% equity
interest in Spintech and injunctive relief. On May 21, 1997, Dr.
Spinello filed an answer and counterclaim which denies the material
allegations of the complaint and seeks recovery for breach of the
defendant's employment agreement, initiates a derivative action
against Milestone with respect to various expenditures and actions
for which Defendant, on behalf of Spintech, seeks an amount in
excess of $75,000, alleges civil conspiracy against Milestone with
respect to certain of those matters and the entry into the
employment agreement with Defendant and seeks indemnification for
expenses, including attorneys
10
<PAGE>
Milestone Scientific Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
NOTE 4 - LITIGATION (continued)
fees, in the pending action. On May 25, 1997 the Company filed a
reply to counterclaims which denied all of the material allegations
of the counterclaims. On October 13, 1997, Dr. Spinello filed an
"Amended Answer and Counterclaim" with the Court. That "Amended
Answer and Counterclaim" purported to, inter alia, amend certain of
the counterclaims against the Company; add a fraud in the inducement
claim against the Company and its Chief Executive Officer, Leonard
Osser; and add a jury demand. However, the "Amended Answer and
Counterclaim" was ineffective to accomplish any of those purposes
because the Court's Scheduling Order required any party seeking to
amend its pleading and/or add new parties to obtain leave of Court
before doing so, which Dr. Spinello did not do. Dr. Spinello's
counsel has advised the Company that they intend to make a motion to
obtain such leave to amend. The Company intends to oppose any motion
to amend because, inter alia, as a matter of law, the fraud in the
inducement claim against the Company as set forth in the proposed
"Amended Answer and Counterclaim" does not state a cause of action.
No date has yet been set as to when Dr. Spinello will make the
motion seeking leave to amend. 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.
On May 20, 1997, Glenn R. Spinello filed a Complaint in the Court of
Common Pleas, York County, Pennsylvania seeking damages as a result
of the alleged breach of his Employment Agreement. On June 20, 1997,
the company and Spintech filed a notice of Removal which transferred
venue of Glenn Spinello's lawsuit to the United States District
Court for the Middle District of Pennsylvania. On June 27, 1997, the
Company and Spintech filed an Answer to Glenn Spinello's Complaint
which denied the material allegations of the Complaint and asserted
counterclaims based upon Glenn Spinello's breach of his Employment
Agreement. On July 27, 1997 Glenn Spinello filed a reply to the
counterclaims by the Company and Spintech, denying the material
allegations of the counterclaims, and the parties to that action
have begun discovery.
11
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
During 1997, the company completed two Private Placements to accredited
investors. The September Private Placement consisted of 1,666,666 units, each
consisting of one share of common stock at $6.00 per share and one common stock
purchase warrant exercisable at $9.00 per share. The company received gross
proceeds of $9,999,996. The March Private Placement consisted of 852,262 units,
each consisting of one share of Common Stock and one Common Stock Purchase
Warrant exercisable at $4.72 per share through a placement agent. The company
received gross proceeds of $4,022,500.
Three Months Ended September 30, 1997 as compared to the Three Months
Ended September 30, 1996
Statement of Operations
Revenues and Cost of Goods Sold increased to $670,896 and $463,389 respectively
in 1997 from $49,471 and $23,215 in 1996, an increase of $633,425 and $440,174.
These increases are primarily due to the following factors:
A) The acquisition of Wisdom in December 1996. This has resulted in
increased sales and cost of goods sold of approximately $606,000 and
$414,000.
B) Launch of the "SplatrFree(TM)" product in March 1997 which has
resulted in sales and cost of goods sold of approximately $65,000
and $38,000.
Selling, General and Administrative expenses increased to $1,384,425 in 1997
from $791,070 in 1996 an increase of $593,355. The increase is primarily due to
the following:
A) The acquisition of Wisdom in December 1996. This has resulted in
increased expenses of approximately $307,000.
B) Increased salaries, marketing, travel and other administrative costs
of approximately $165,000 associated with the launch of "The
Wand(TM)".
C) Increased legal costs of approximately $55,000 associated with the
lawsuit against Ronald Spinello.
D) Settlement of a dispute regarding royalties previously paid on a
needle destroying product for $55,000.
Research and Development costs increased to $144,581 in 1997 from $34,937 in
1996, an increase of $109,644 reflecting increased costs to develop "The
Wand(TM)".
Net Interest decreased to $6,937 in 1997 from $14,177 in 1996, a decrease of
$7,240, primarily due to interest expense on new borrowings from a line of
credit.
12
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operation (continued)
Nine Months Ended September 30, 1997 as compared to the Nine Months Ended
September 30, 1996
Statement of Operations
Revenues and Cost of Goods Sold increased to $2,305,460 and $1,461,252
respectively in 1997 from $154,856 and $96,243 in 1996 an increase of $2,150,604
and $1,365,009. These increases are primarily due to the following factors:
A) The acquisition of Wisdom in December 1996. This has resulted in
increased sales and cost of goods sold of approximately $1,841,000
and $1,217,000.
B) Launch of the "SplatrFree(TM)" product in March 1997 which has
resulted in sales and cost of goods sold of approximately $149,000
and $80,000.
C) Increased sales and cost of goods sold of SDS units (1996 sales were
primarily TAPS units, which were replaced by the SDS units) which
approximated $316,000 and $102,000. In addition, the Company entered
into an exclusive distributorship agreement for distribution of its
SDS products in June 1997. During the term of five months, both
parties will attempt to negotiate a contract which will result in
either, a sell off of the company's right, title and interest in the
SDS products, longer term of exclusive distribution or non exclusive
distribution arrangement. As a result of this agreement, all SDS
products held in inventory were sold to the distributor in June
1997, which approximated $200,000 in sales.
Selling, General and Administrative expenses increased to $3,634,957 in 1997
from $1,631,329 in 1996 an increase of $2,003,628. The increase is primarily due
to the following:
A) The acquisition of Wisdom in December 1996, which has resulted in
increased expenses of approximately $1,234,000.
B) Increased salaries, marketing, travel and other administrative costs
of approximately $400,000 associated with the launch of The
Wand(TM).
C) Marketing costs of approximately $160,000 associated with the launch
of the SplatrFree(TM) Product.
D) Increased legal costs of approximately $100,000 associated with the
lawsuit against Ronald Spinello.
E) Settlement of a dispute regarding royalties previously paid on a
needle destroying product for $55,000.
Research and Development costs increased to $418,344 in 1997 from $98,710 in
1996, an increase of $319,634 reflecting increased costs to develop "The
Wand(TM)".
Net Interest decreased to $39,503 in 1997 from $56,888 in 1996, a decrease of
$17,385, primarily a result of the increase from new borrowings from a line of
credit.
13
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operation (continued)
Liquidity and Capital Resources
At September 30, 1997, the Company's working Capital was $12,778,589, primarily
reflecting the net cash proceeds of $9,923,466 from the September private
placement. The company intends to use the funds for development engineering,
tooling, marketing and other expenses associated with the introduction of "The
Wand(TM)", development of other products and general corporate purposes
including working capital.
14
<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 initial purchase by Milestone of a 65% equity interest in Spintech and
injunctive relief. On May 21, 1997, Dr. Spinello filed an answer and
counterclaim which denies the material allegations of the complaint and
seeks recovery for breach of the defendant's employment agreement,
initiates a derivative action against Milestone with respect to various
expenditures and actions for which Defendant, on behalf of Spintech, seeks
an amount in excess of $75,000, alleges civil conspiracy against Milestone
with respect to certain of those matters and the entry into the employment
agreement with Defendant and seeks indemnification for expenses, including
attorneys fees, in the pending action. On May 25, 1997 the Company filed a
reply to counterclaims which denied all of the material allegations of the
counterclaims. On October 13, 1997, Dr. Spinello filed an "Amended Answer
and Counterclaim" with the Court. That "Amended Answer and Counterclaim"
purported to, inter alia, amend certain of the counterclaims against the
Company; add a fraud in the inducement claim against the Company and its
Chief Executive Officer, Leonard Osser; and add a jury demand. However,
the "Amended Answer and Counterclaim" was ineffective to accomplish any of
those purposes because the Court's Scheduling Order required any party
seeking to amend its pleading and/or add new parties to obtain leave of
Court before doing so, which Dr. Spinello did not do. Dr. Spinello's
counsel has advised the Company that they intend to make a motion to
obtain such leave to amend. The Company intends to oppose any motion to
amend because, inter alia, as a matter of law, the fraud in the inducement
claim against the Company as set forth in the proposed "Amended Answer and
Counterclaim" does not state a cause of action. No date has yet been set
as to when Dr. Spinello will make the motion seeking leave to amend.
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.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings (continued)
On May 20, 1997, Glenn R. Spinello filed a Complaint in the Court of
Common Pleas, York County, Pennsylvania seeking damages as a result of the
alleged breach of his Employment Agreement. On June 20, 1997, the company
and Spintech filed a notice of Removal which transferred venue of Glenn
Spinello's lawsuit to the United States District Court for the Middle
District of Pennsylvania. On June 27, 1997, the Company and Spintech filed
an Answer to Glenn Spinello's Complaint which denied the material
allegations of the Complaint and asserted counterclaims based upon Glenn
Spinello's breach of his Employment Agreement. On July 27, 1997 Glenn
Spinello filed a reply to the counterclaims by the Company and Spintech,
denying the material allegations of the counterclaims, and the parties to
that action have begun discovery.
ITEM 4. Submission of Matters to a Vote of Security Holders:
A. The Annual meeting of Stockholders was held on Tuesday, September
23, 1997.
B. Not applicable.
C. At the Annual Meeting the following matters were approved by the
vote indicated:
1. Election of nine directors:
For Authority Withheld
--- ------------------
4,643,124 5,900
2. Approval of the Company's 1997 Stock Option Plan:
For Against Abstain
--- ------- -------
3,370,478 62,344 6,700
3. Confirmation of the Appointment of Grant Thornton LLP as
Auditors for the Fiscal Year Ending December 31, 1997
For Against Abstain
--- ------- -------
4,601,424 48,600
ITEM 6. Exhibits and reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the three months
ended September 30, 1997.
16
<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MILESTONE SCIENTIFIC INC.
(Registrant)
Date: 11/14/97 /s/ Leonard Ossser
----------------------------------
LEONARD OSSER
President and Chief Executive Officer
/s/ Pat Mele
----------------------------------
Pat Mele III
Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The
Financial Statements contained in the registration Form 10-QSB for the quarter
ended September 30, 1997 for Milestone Scientific Inc. and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 12,737,942
<SECURITIES> 0
<RECEIVABLES> 395,669
<ALLOWANCES> 0
<INVENTORY> 551,319
<CURRENT-ASSETS> 13,794,870
<PP&E> 706,859
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,527,745
<CURRENT-LIABILITIES> 1,016,281
<BONDS> 175,000
0
0
<COMMON> 7,690
<OTHER-SE> 15,503,774
<TOTAL-LIABILITY-AND-EQUITY> 16,527,745
<SALES> 2,305,460
<TOTAL-REVENUES> 2,305,460
<CGS> 1,461,252
<TOTAL-COSTS> 1,461,252
<OTHER-EXPENSES> 4,053,301
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,164,523)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,164,523)
<EPS-PRIMARY> (.59)
<EPS-DILUTED> 0
</TABLE>
