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, 1999
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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
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MILESTONE SCIENTIFIC INC.
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(Exact name of Registrant as specified in its charter)
Delaware 13-3545623
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State or other jurisdiction (I.R.S. Employer
of organization) Identification No.)
220 South Orange Avenue, Livingston, New Jersey 07039
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(Address of principal executive office) (Zip Code)
(973) 535-2717
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(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 14, 1999 the Registrant had a total of 8,717,882 shares of Common
Stock, $.001 par value, outstanding.
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Forward looking statements
When used in this Quarterly Report on Form 10-Q, the words "may", "will",
"should", "expect", "believe", "anticipate", "continue", "estimate", "project",
"intend" and similar expressions are intended to identify forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act regarding events, conditions and financial trends that
may affect the Company's future plans of operations, business strategy, results
of operations and financial condition. The Company wishes to ensure that such
statements are accompanied by meaningful cautionary statements pursuant to the
safe harbor established in the Private Securities Litigation Reform Act of 1995.
Prospective investors are cautioned that any forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties and
that actual results may differ materially from those included within the
forward-looking statements as a result of various factors. Such forward-looking
statements should, therefore, be considered in light of various important
factors, including those set forth herein and others set forth from time to time
in the Company's reports and registration statements files with the Securities
and Exchange Commission (the "Commission"). The Company disclaims any intent or
obligation to update such forward-looking statements.
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INDEX
PART I. FINANCIAL INFORMATION Page
ITEM 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets at March 31,
1999 and December 31, 1998 4
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
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Part 1. Financial Information
ITEM 1. Condensed Consolidated Financial Statements
Milestone Scientific Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $2,442,234 $316,706
Investments - treasury bills 1,750,000 3,267,940
Accounts receivable 540,769 430,907
Inventories 1,630,124 1,255,262
Prepaid expenses 178,144 127,263
----------- ----------
Total current assets 6,541,271 5,398,078
PROPERTY AND EQUIPMENT, NET 1,972,181 2,031,870
PATENTS 1,675,136 1,736,275
OTHER ASSETS 29,391 29,997
----------- ----------
$10,217,979 $9,196,220
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit - bank $200,000 $150,000
Accounts payable 855,641 544,705
Accrued expenses 144,947 165,302
----------- ----------
Total current liabilities 1,200,588 860,007
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SENIOR CONVERTIBLE NOTES
STOCKHOLDERS' EQUITY 2,250,000
----------- ----------
Common stock, par value $.001; authorized,
25,000,000 shares; 8,817,822 issued as of March 31,
1999 and December 31, 1998 8,818 8,818
Additional paid-in capital 30,111,734 30,111,734
Accumulated deficit (22,441,645) (20,872,823)
Treasury stock, at cost, 100,000 shares (911,516) (911,516)
----------- ----------
Total stockholders' equity 6,767,391 8,336,213
----------- ----------
Total liabilities and stockholders' equity $10,217,979 $9,196,220
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
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Milestone Scientific Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31,
(unaudited)
1999 1998
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Revenues $668,170 $5,260,149
Cost of sales 499,314 2,681,891
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Gross profit 168,856 2,578,258
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Selling, general and 1,688,464 2,259,491
administrative expenses 68,846 130,167
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Research and development expenses 1,757,310 2,389,658
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Income (loss) from operations (1,588,454) 188,600
Interest income (net) 19,632 169,479
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NET INCOME (LOSS) $(1,568,822) $358,079
=========== ===========
Income (loss) per share - basic and diluted $(.18) $.04
=========== ===========
Weighted average shares outstanding 8,717,882 8,733,373
=========== ===========
See notes to consolidated financial statements.
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Milestone Scientific Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31,
(unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $(1,568,822) $ 358,079
Adjustments to reconcile net loss to
net cash used in operating activities
Amortization 61,139 61,138
depreciation 118,314 49,122
Compensation expense 94,805
Changes in assets and liabilities
Other assets 606 326
Accounts receivable (109,862) (3,432,126)
Inventories (374,862) 417,922
Prepaid expenses (50,881) (138,077)
Accounts payable 310,936 733,964
Accrued expenses (20,355) 421,305
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Net cash used in operating activities (1,633,787) (1,433,542)
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Cash flows from investing activities
Capital expenditures (58,625) (1,658,099)
Sale and (purchase) of treasury bills, net 1,517,940 (2,055,722)
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Net cash provided by (used in) investing activities 1,459,315 (3,713,821)
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Cash flows from financing activities
Net proceeds from issuance of senior notes 2,250,000
Net proceeds from issuance of common stock 1,042,284
Borrowing (repayment) under line of credit 50,000 (25,000)
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Net cash provided by financing activities 2,300,000 1,017,284
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NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS 2,125,528 (4,130,079)
Cash and cash equivalents at beginning of period 316,706 9,775,019
----------- -----------
Cash and cash equivalents at end of period $ 2,442,234 $ 5,644,940
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 3,931 $ 4,841
----------- -----------
</TABLE>
See notes to consolidated financial statements.
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Milestone Scientific Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
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.
These financial statements should be read in conjunction with the
financial statements and notes thereto for the year ended December 31,
1998 included in the Company's Annual Report on Form 10-KSB. The
accounting policies used in preparing these financial statements are the
same as those described in the December 31, 1998 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, 1999 and the results of operations for the three month period ended
March 31, 1999 and March 31, 1998 and cash flows for the three month
period ended March 31, 1999 and 1998, respectively.
The results reported for the three month period ended March 31, 1999 are
not necessarily indicative of the results of operations, which may be
expected for a full year.
NOTE 2 - REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the company as a going concern. However, the Company has
sustained substantial losses from operations after the introduction of its
Wand(TM) product, and has experienced significant returns of this product
subsequent to its first fiscal quarter in 1998. In addition, the Company
has used, rather than provided, cash in its operations during the
three-month period ended March 31, 1999.
In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts shown in
the accompanying balance sheet is dependent upon continued operations of
the Company, which in turn is dependent upon the success of the Company's
Wand(TM) product. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts or amounts and classification of liabilities that might be
necessary should the Company be unable to continue in existence.
Based on management's belief that The Wand(TM), is a major advance in
dentistry and may ultimately become the accepted method for delivering
local dental anesthesia, the Company is taking steps that are aimed at
growing and strengthening the end user base thereby gaining greater
acceptance of The Wand(TM) and translating to increased revenue through
higher disposable handpiece usage. These steps include a) expanding the
market oversees,
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b) obtaining feedback and providing further support to current Wand users,
c) increasing the number of dental schools which include The Wand(TM) in
their curriculum, d) distributing new The Wand(TM) technique video and
technical bulletins to its current users, e) conducting direct to patient
advertising with specialized sales effort in test markets and f)
maintaining a well trained service staff.
As of March 31, 1999, the Company had approximately $4.2 million in
aggregate cash, cash equivalents and treasury bills. Management believes
that through the proper utilization of these existing funds and the
expense reductions achieved through cost containment programs, it will
have sufficient cash to meet its needs over the next twelve months.
NOTE 3 - LOSS PER SHARE
Basic loss per common share is computed using the weighted average number
of common shares outstanding. Diluted loss per common share is computed
using the weighted average common shares outstanding after giving effect
to potential common stock from stock options based on the treasury stock
method, plus any other potentially dilutive securities outstanding, unless
the effect is anti-dilutive.
For the three months ended March 31, 1999 and 1998, the assumed exercise
of certain dilutive options and warrants were anti-dilutive. Accordingly,
basic and diluted loss per share is based on the weighted average common
shares outstanding.
Options and warrants, in aggregate, to purchase 83,000 shares of common
stock at $3 per share were issued in aggregate to one officer and certain
key personnel during the three month ended March 31, 1999 but were not
included in the computation of diluted loss per share because effect would
have been anti-dilutive.
Options and warrants, in aggregate, to purchase 157,000 shares of common
stock at prices ranging from $21.25 to $23 per share were issued during
the quarter ended March 31, 1998 but were not included in the computation
of diluted earnings per share because their exercise price was greater
than the average market price of the common shares.
During the three months ended March 31, 1998 options and warrants to
purchase 131,722 shares of common stock were exercised at prices ranging
from $4.72 to $9 for which the company realized proceeds of $1,042,277
NOTE 4 - STOCK BASED COMPENSATION
On January 15, 1999 the Company issued 83,000 options to certain of its
employees having an exercise price of $3.00 which expire on January 15,
2004. In accordance with the proforma disclosure requirements of Statement
of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation, the total estimated fair value of the options (using the
Black-Scholes Option Pricing Model) was $154,000, which is amortized over
the related 3 year vesting period of these options. Accordingly, for the
quarter ended March 31, 1999, the issuance of these options would have
increased the net loss by $38,818 and have no effect on the loss per
common share.
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NOTE 5 - LITIGATION
Spinello Lawsuits
On March 26, 1997, Milestone and Spintech commenced legal action in the
United States District Court of New Jersey against Ronald Spinello, DDS,
former Chairman and Director of Research of Spintech. In the complaint,
plaintiffs seek recovery of compensatory and punitive damages for
extortion and tortuous 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 December 30, 1997, Dr. Spinello made a motion for leave
to join as an additional Defendant on Counterclaim the Company's Chairman,
Leonard Osser, and to file an amended Answer and Counterclaim against the
Company. Both the Company and Mr. Osser opposed the motion and in
addition, the Company made a Cross-Motion to dismiss certain claims
asserted in the initial Answer and Counterclaim. The additional claims
which Dr. Spinello sought to assert against the Company include a fraud in
the inducement claim based upon the alleged failure of the Plaintiffs to
advise Dr. Spinello of the legal effects of his employment agreement; and
a civil conspiracy claim. Dr. Spinello also sought to add a jury demand
through his amended pleading. The Company's Cross-Motion sought to dismiss
all of Dr. Spinello's claims, except his claim for unpaid salary, on the
basis that his derivative claim is fatally defective because he did not
make any demand upon Spintech, the entity on whose behalf he purports to
bring suit, and his indemnification claim is fatally defective because the
claims against him do not arise by reason of the fact that Dr. Spinello
was an officer or director of Spintech.
On May 5, 1998, the United States Magistrate Judge issued a Report
recommending that the Court grant Milestone's motions to dismiss the
counterclaims brought by defendant Spinello for a shareholder's derivative
action and civil conspiracy, finding that defendant Spinello had failed
"to state a claim upon which relief may be granted." The Report also
recommended that the Court dismiss defendant Spinello's counterclaim for
indemnification against Milestone and a portion of the indemnification
claim against Spintech. In a second decision, the Magistrate Judge denied
defendant Spinello's motion to join Milestone's Chairman as an additional
party and to file an amended answer asserting revised and additional
counterclaims against Milestone and Spintech. The Magistrate Judge
determined that defendant Spinello's proposed amended counterclaims "are
futile and could not withstand a motion to dismiss under federal rule of
civil procedure 12(b)(6)". Defendant Spinello timely filed an appeal
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from the May 5, 1998 Order and objections to the Report. On August 24,
1998, a United States District Judge for the District of New Jersey issued
a memorandum opinion and signed an Order denying Dr. Spinello's appeal of
the May 5, 1998 Order and affirming the May 5, 1998 Order in its entirety.
The Judge further denied in its entirety Dr. Spinello's objections to the
Report and granted the Company's motion to dismiss counts one, two, three
and four of Dr. Spinello's initial Counterclaim.
As a result of the affirmance of the May 1998 Order and the adoption of
the Report granting the Company's motion to dismiss, the only claims
remaining in the litigation with Dr. Spinello are Milestone's claims
against Dr. Spinello and Dr. Spinello's counterclaim for unpaid salary for
the period subsequent to his alleged wrongful termination, and a portion
of his indemnification claim against Spintech.
In October 1998, the Company received a settlement demand from Counsel for
Dr. Spinello and Glenn Spinello which stated that, notwithstanding the
United States District Judge's decision, substantial claims remain to be
litigated and that there are substantial risks to Milestone from this
litigation. The settlement demand letter, which was not accepted by the
Company, does not describe the nature of any claims that Dr. Spinello
could assert against the Company, but it does allude to potential
litigation in other forums and the possibility of future litigation
brought by minority stockholders of the Company. If Dr. Spinello does seek
to assert additional claims, or if minority stockholders should assert
claims, against the Company, the Company intends to vigorously defend such
claims and believes that it has meritorious defenses thereto.
On March 5, 1999, the parties completed discovery. On April 15, 1999, the
parties made various dispositive motions for summary judgment on almost
all of the issues remaining in the case. The motions are scheduled to be
heard by the Court on June 14, 1999. If the motions for summary judgment
are not granted, the Court will hold a trial on any remaining issues in
late 1999. The Company believes that it has meritorious defenses to Dr.
Spinello's claims and meritorious claims against Dr. Spinello. Moreover,
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. On March 16, 1999,
the parties completed discovery. On April 16, 1999, Glenn Spinello made a
motion for summary judgment on his claims against the Company, and on May
3, 1999 the Company filed its opposition thereto. If the motion is denied,
the case should be scheduled
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for trial in late 1999. The Company believes it has meritorious defenses
to Glenn Spinello's claims and meritorious counterclaims against Glenn
Spinello.
Class Action Lawsuit
In 1998, several class action lawsuits were commenced against the Company,
certain present and former executive officers, one outside director and
consultants in the United States District Court for the District of New
Jersey. The District Judge before whom the cases are pending has entered
an order consolidating all of the class actions into one consolidated
action. The Complaints contain generally overlapping and similar
allegations of violations of the Securities Exchange Act of 1934,
including allegations that the Company and certain of the other defendants
violated the Act by issuing false and misleading financial statements and
disseminating misleading statements about, among other things, the demand
for the Company's principal product, its expected sales growth, the
acceptance of that product by dental professionals, shipments during
certain time periods and misrepresentations as to third-party evaluations
of the efficacy of the product through failure to disclose the issuance of
stock options to certain consultants. On October 22, 1998, the District
Judge entered an order appointing lead plaintiff to represent the
interests of all class members. On March 28, 1999, the District Judge
appointed lead counsel to represent the class. On April 28, 1999, the
class filed a consolidate and amended class action complaint, naming as
defendants the Company and three present and former executive officer and
director. The Consolidated Complaint alleges that the Company issued false
and misleading statements concerning, among other things, certain studies
and reports on the Company's products, the Company's backlog and the
amount of reserve taken for returns. Milestone believes that the material
allegations of the Consolidated Complaint does not state a cause of action
under the Federal Securities Law and intends to move to dismiss the
complaint for failure to state a claim. To the extent that the Court does
not dismiss the complaint at this early stage, Milestone intends to
vigorously defend against the Class Action. Specifically, Milestone
believes that its financial statements presents fairly its results of
operations, that the information which it has publicly disclosed does not
contain any material misstatements or misrepresentations and that stock
options issued to persons who published research reports were issued for
other services for the Company, principally service as spokespersons and
demonstrators of the Company's product. Further, the Company continues to
believe that The Wand(TM) embodies superior technology, is a major advance
in dentistry and may ultimately become the accepted method for delivering
local dental anesthesia.
Derivative Action Lawsuit
In February 1999, a purported owner of Milestone stock, had commenced a
derivative action on behalf of the Company, in the Court of Chancery of
the State of Delaware in Newcastle County, against certain present and
former executive officers and directors. In the action, plaintiff alleges
that, based on the same facts as the class actions described above, the
defendants engaged in violations of the securities laws, committed fraud
and securities fraud, wasted corporate assets and damaged the Company's
reputation. As a derivative action, even if the plaintiff is successful,
any award, after deduction of plaintiff's costs and disbursements, would
be payable to the Company. Nevertheless, Milestone believes that the
material allegations of the complaint lack merit and intends to provide a
legal defense for its present
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and former officers and directors in accordance with the indemnification
provisions of its Certificate of Incorporation.
Insurance Broker and Carrier
In January 1999, the Company filed a complaint against its insurance
broker (Frank Crystal Financial Services) and the two excess insurers
[American Alliance and St. Paul] in the United States District Court for
the District of New Jersey. American Alliance and St. Paul were in dispute
with the Company because they claim that the Company did not timely submit
the appropriate application. As a result, American Alliance refused to
issue a policy and St. Paul, which issued a policy, has refused to cover
the class actions described above. In April 1999, the Company reached a
settlement of this action, as a result of which American Alliance issued
the Excess Director's and Officer's Insurance Policy; the Company agreed
that claims arising prior to the date of the policy were not covered by
the policy and the parties reserved all of their arguments and positions
with respect to any other coverage issues including those that resulted
from the Consolidated and Amended Class Action Complaint referred to
above.
NOTE 6 - EMPLOYEE BENEFIT PLANS
In January 1999, the Company offered to all full-time employees, a Board
approved 401K plan. The plan allows eligible employees to contribute into
specified investments vehicle 2% to 15% of their before tax salaries, (up
to the IRS limit). Although the plan does not contain any mandatory
matching provision, it allows the Company to contribute a discretionary
contribution on a matching and/or profit sharing basis. The Company's
contributions, if any, vest in increments of 20%, beginning upon the
completion of 2 years of service. An employee will become fully vested
after completing 6 years of service.
NOTE 7 - PRIVATE PLACEMENT
In March 1999, the Company concluded a $2 million institutional private
placement with Cumberland Partners, other investment funds managed by or
affiliated with Cumberland Associates and certain principals of Cumberland
Associates. An additional $250,000 was raised from the Chairman and Chief
Executive Officer of Milestone, on the same terms and conditions. The
investors purchased, at face value, 3% Senior Convertible Notes Due 2003,
convertible into Milestone Common Stock at prices increasing from $2.50
per share in the first year to $6.00 per share in the fourth year, subject
to antidilution protection in the event of stock dividends and certain
capital changes. Purchasers of the Notes were granted rights to
participate in certain future security offerings by Milestone.
NOTE 8 - WISDOM
In April 1999, the Company discontinued its selling effort with regards to
the Wisdom product line excluding Splatr Free(TM) prophy angles. The
discontinued products generated net sales of $147,317 and an operating
loss of $22,428 for the three months ended March 31, 1999. For the three
months ended March 31, 1998, these products generated $455,147 in net
sales and $55,159 of operating income.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
The Company launched The Wand(TM) (a computer controlled system that
enables virtually "painless" injections) during the first quarter of 1998.
The products early success was then tempered by significant returns and
declining sales during the last seven and a half months of 1998. Based on
further research and development and user feedback, several product
improvements were made. This has resulted in a significant decline in
returns. During the last week of the first quarter of 1999, the Company
began shipping The Wand to its international partners.
Three month ended March 31, 1999 compared to three month ended March 31,
1998
Statement of Operations
The results of operations for the three months ended March 31, 1999 as
compared to the three months ended March 31, 1998, reflect a severe
decline in the sales volume for The Wand(TM). As a result of a $4.3
million decline in net sales for The Wand(TM), including disposable
handpieces, Company net sales for the three month ended March 31, 1999
were $668,170. This represents a $4,591,979 or 87% decrease when compared
to net sales of $5,260,149 for the three months ended March 31, 1998.
Also, cost of sales for the three months ended March 31, 1999 as compared
to the three months ended March 31, 1998 declined from $2,681,891 to
$499,314, a $2,182,577 reduction. For the three month March 31, 1999, the
Company generated a gross profit of $168,856 as compared to a gross profit
of $2,578,258 for the three month March 31, 1998.
Selling, general and administrative expenses for the three month ended
March 31, 1999 and March 31, 1998 were $1,688,464 and $2,259,492
respectively. The $571,028 or 25% decrease is primarily attributable to
approximately $247,000 aggregate decrease in selling and marketing
expenses associated with The Wand(TM) and a $285,000 reduction in general
and administrative expenses. The latter reduction includes a decrease in
corporate salaries of approximately $54,000 and a $94,805 decrease in
compensation expense related to option grants.
Research and development costs for the three months ended March 31, 1999
and March 31, 1998 were $68,846 and $130,167, respectively. The $61,321
decrease is primarily attributable to the cost incurred in developing "The
Wand(TM)" during 1998.
Net interest income for the three month ended March 31, 1999 and March 31,
1998 were $19,632 ad $169,479 respectively. The $149,847 decrease is
primarily attributable to lower aggregate investing and higher aggregate
borrowings under the Company's line of credit.
The net loss for the three month ended March 31, 1999 was $1,568,822 and
as compared to net income of $358,079 for the three months ended March 31,
1999. The decrease reflects a sharp decline in Wand(TM) sales volume.
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Liquidity and Capital Resources
At March 31, 1999, the Company's working capital was $5,340,683 It
consisted primarily of cash generated from private placements in March
1999 and from inventories.
For the three month ended March 31, 1999, the Company increased cash and
cash equivalents by $2,125,528, providing $1,459,315 from investing
activities and $2,300,000 from financing activities.
For the three month ended March 31, 1999, the Company's net cash used in
operating activities was $1,633,787 This was primarily attributable to a
net loss of $1,568,822, adjusted for non cash items of $61,139 for patent
amortization, $118,314 for depreciation, a $109,862 increase in accounts
receivable, a $374,862 increase in inventory, a $50,881 increase in
prepaid expenses, a decrease in accrued expenses of $20,355 and a $310,936
increase in accounts payable
The $1,459,315 provided by investing activities for the three month ended
March 31, 1999 was attributable to the maturing of $1,517,940 in treasury
bills, offset by $58,625 in capital expenditures. These expenditures
covered retooling cost for product modifications.
Financing activities provided $2,300,000 for the period. The Company, as
described below, raised $2,000,000 in the institutional private placement
and $250,000 from the sale of similar securities to its Chairman and CEO.
As of March 31, 1999, the Company had approximately $4.2 million in
aggregate cash, cash equivalents and treasury bills. This includes
2,250,000 raised through a private placement in March 1999 as detailed
below. Management believes that through the proper utilization of these
existing funds, the expense reductions achieved through cost containment
programs, the Company will have sufficient cash to meet its needs for the
next twelve months.
Also, the Company has taken steps that are aimed at growing and
strengthening the end user base thereby gaining greater acceptance of The
Wand(TM) and translating to increased revenue through higher disposable
handpiece usage. These steps include a) expanding its market overseas, b)
obtaining feedback and providing further support to current Wand users, c)
increasing the number of dental schools which include The Wand(TM) in
their curriculum, d) distributing Wand(TM) technique videos and technical
bulletins to its current users, e) conducting direct to patient
advertising with specialized sales effort in test markets and f)
maintaining a well trained service staff.
During the first quarter of 1999, the Company achieved two major
objectives in its international marketing effort. In January 1999, "The
Wand(TM)" was approved under the Medical Device Directive 93/42/EEC, a
requirement for all dental and medical devices distributed throughout the
European Union. This authorizes the Company to apply the CE mark to the
product. In February 1999, the Company entered into an agreement for the
international distribution of "The Wand(TM)" by the Dent-X dental division
of AFP Imaging Corporation ("AFP"), through the international distribution
network previously established by AFP for its dental and medical products.
Under the agreement, Milestone continues to be responsible for
distribution of "The Wand(TM)" in the United States, Canada, China, Hong
14
<PAGE>
Kong and Taiwan. AFP assumed certain existing international distribution
arrangements previously established by Milestone in South Africa, Israel
and certain other countries. AFP has an extensive network of foreign
distributors and representatives. Its foreign sales, or domestic sales for
export, constituted more than one-third of its total sales in fiscal 1998.
AFP is a medical and dental imaging equipment supplier whose products are
widely applied in medical and dental diagnostics.
The Company intends to submit a new application to the FDA for a
technologically similar device to The Wand(TM), specifically designed to
address the need to deliver widely varying volumes of anesthetic and other
medicaments for various medical disciplines. A working prototype device
for delivery of multi-volume anesthetic and other medicaments has been
developed. Also, the Company will continue to develop product enhancements
and improvements. The raising of additional capital to fund these efforts
will continually be evaluated by management.
Private Placement
In March 1999, the Company received $2 million from an institutional
private placement with Cumberland Partners, other investment funds managed
by or affiliated with Cumberland Associates and certain principals of
Cumberland Associates. An additional $250,000 was raised from Leonard
Osser, Chairman and Chief Executive Officer of Milestone, under the same
terms and conditions. The investors purchased, at face value, 3% Senior
Convertible Notes Due 2003, convertible into Milestone Common Stock at
prices increasing from $2.50 per share in the first year to $6.00 per
share in the fourth year, subject to anti-dilution protection in the event
of stock dividends and certain capital changes. The shares underlying the
Notes have been registered by Milestone and the purchasers of the Notes
have been granted rights to participate in certain future security
offerings by Milestone.
Year 2000 Compliance
The Company has developed a plan to insure its operating systems are
compliant with the requirements to process transactions in the year 2000.
This plan includes the upgrade of its internal information systems which
the Company believes will not entail significant costs related to these
upgrades. Also, the Company has reviewed its own equipment and determined
that the equipment is either Year 2000 compliant or not affected by the
Year 2000 issues.
The Company is in the process of contacting its vendors, on whom it
relies, to assure that their systems are or will be Year 2000 compliant.
Responses are evaluated so as to ensure that critical vendors are Year
2000 compliant. Also, the Company is developing contingency plans to
address the most likely worst case scenarios from potential Year 2000
disruptions.
The Year 2000 compliance effort is ongoing and will continue to develop as
new information becomes available.
15
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
NONE
(b) Reports on Form 8-K:
NONE
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
MILESTONE SCIENTIFIC INC.
-------------------------
Registrant
/s/ Thomas M. Stuckey
-------------------------------------
Thomas M. Stuckey, Vice President and
Chief Financial Officer
Dated: May 14, 1999
17
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