SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A2
Mark One
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period ended June 30, 2000
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
-----------------------------------------------------
(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 August 11, 2000 the Registrant had a total of 10,652,898 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 June 30,
2000 and December 31, 1999 4
Condensed Consolidated Statements of Operations
for the six and three months ended June 30, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
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Part 1. Financial Information
ITEM 1. Condensed Consolidated Financial Statements
Milestone Scientific Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
ASSETS (unaudited) *
----------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 48,938 $ 242,843
Accounts receivable 592,299 297,778
Inventories 1,385,915 1,717,094
Prepaid expenses 60,649 192,636
------------ ------------
Total current assets 2,087,801 2,450,351
PROPERTY AND EQUIPMENT, NET 1,443,822 1,669,769
PATENTS, NET 1,369,446 1,491,724
OTHER ASSETS 10,318 10,318
------------ ------------
Total assets $ 4,911,387 $ 5,622,162
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,458,734 $ 996,120
Accrued expenses 212,150 246,453
------------
10% SENIOR CONVERTIBLE NOTES 955,724 --
------------ ------------
Total current liabilities 2,626,608 1,242,573
------------ ------------
3% SENIOR CONVERTIBLE NOTES -- 2,250,000
------------ ------------
COMMITMENT AND CONTINGENCIES -- --
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, par value $.001; authorized,
25,000,000 shares; 10,752,898 issued as of
June 30, 2000 and 8,864,898 issued
as of December 31, 1999 10,753 8,865
Additional paid-in capital 33,306,286 30,877,375
Accumulated deficit (30,120,744) (27,845,135)
Treasury stock, at cost, 100,000 shares (911,516) (911,516)
------------ ------------
Total stockholders' equity 2,284,779 2,129,589
------------ ------------
Total liabilities and stockholders' equity $ 4,911,387 $ 5,622,162
============ ============
</TABLE>
*Derived from audited financial statements at December 31, 1999
See notes to condensed financial statements
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Milestone Scientific Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the six and three months ended June 30,
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 2,933,797 $ 1,534,154 1,523,004 $ 865,984
Cost of sales 1,271,556 816,771 631,848 317,457
------------ ----------- ------------ -----------
Gross profit (loss) 1,662,241 717,383 891,156 548,527
------------ ----------- ------------ -----------
Selling, general and
Administrative expenses 3,459,811 3,704,619 1,824,484 2,016,155
Research and development expenses 198,950 109,456 97,750 40,610
------------ ----------- ------------ -----------
3,658,761 3,814,075 1,922,234 2,056,765
------------ ----------- ------------ -----------
Loss from operations (1,996,520) (3,096,692) (1,031,078) (1,508,238)
Settlement cost - Spinello lawsuit (228,500) -- -- --
Loss from termination of
Wisdom product line -- (76,345) -- (76,345)
Interest expense (54,133) (29,631) (33,979) (21,541)
Interest income 3,544 56,285 1,836 28,563
------------ ----------- ------------ -----------
Net loss $ (2,275,609) $(3,146,383) $ (1,063,221) $(1,577,561)
============ =========== ============ ===========
Loss per share - basic and diluted $ (.21) $ (.36) $ (.10) $ (.18)
============ =========== ============ ===========
Weighted average shares outstanding 10,652,898 8,717,882 10,326,480 8,717,882
============ =========== ============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
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Milestone Scientific Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30,
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Net loss $(2,275,609) $(3,146,383)
Adjustments to reconcile net loss to
net cash used in operating activities
Amortization 122,278 141,672
Depreciation 234,748 227,276
Non cash portion of settlement of Spinello lawsuit 203,500 --
Changes in assets and liabilities
Other assets -- 281
Accounts receivable (294,521) 145,930
Inventories 331,179 (380,390)
Prepaid expenses 131,987 (168,291)
Accounts payable 462,614 (110,857)
Accrued expenses (34,303) 78,368
----------- -----------
Net cash used in operating activities (1,118,127) (3,212,394)
----------- -----------
Cash flows from investing activities
Capital expenditures (8,801) (70,178)
Sale of treasury bills, net -- 1,592,516
----------- -----------
Net cash (used in) provided by investing activities (8,801) 1,522,338
----------- -----------
Cash flows from financing activities
Net proceeds from issuance of senior notes 955,724 2,250,000
Repayment under line of credit -- (100,000)
Cost associated with registering shares (22,701) --
----------- -----------
Net cash provided by financing activities 933,023 2,150,000
----------- -----------
NET (DECREASE)/INCREASE IN CASH
AND CASH EQUIVALENTS (193,905) 459,944
Cash and cash equivalents at beginning of period 242,843 316,706
----------- -----------
Cash and cash equivalents at end of period $ 48,938 $ 776,650
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 50,947 $ 6,458
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
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Milestone Scientific Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2000
(unaudited)
Supplemental schedule of noncash financing activities:
In December 1999, the holders of 3% Convertible Notes agreed, and in February
2000 formalized the agreement to convert at a modified price of $1.25 per share,
all $2,250,000 of such notes into 1,800,000 shares common stock.
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Milestone Scientific Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
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,
1999 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, 1999 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 June 30,
2000 and the results of operations for the three and six month periods
ended June 30, 2000 and June 30, 1999 and cash flows for the month periods
ended June 30, 2000 and 1999, respectively.
The results reported for the three and six-month periods ended June 30,
2000 are not necessarily indicative of the results of operations, which
may be expected for a full year.
NOTE 2 -BASIS OF PRESENTATION
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, subsequent to its
first fiscal quarter in 1998, the Company has incurred substantial losses
from operations. In addition, the Company has used, rather than provided,
cash in its operations during the six months ended June 30, 2000.
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(R) product and the Company's ability to obtain necessary financing
through June 30, 2001. 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(R), is a major advance in
dentistry and may ultimately become the accepted method for delivering
local dental anesthesia, the Company continues to take steps aimed at
growing and strengthening the end user base thereby gaining greater
acceptance of The Wand(R) and translating to increased revenue through
higher
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disposable handpiece usage. On October 1, 1999, the Company began selling
the Wand(R), disposable handpieces and dental needles directly to dentists
in the United States. Milestone also began offering quantity discounts on
disposable handpieces and dental needles under certain monthly buying
programs. During the six months ended June 30, 2000, the Company increased
its sales force and customer service staff to handle its new sales
programs. Further, it continues to
o provide assistance to dental and dental hygiene schools which
include The Wand(R) in their curriculum;
o visit, obtain feedback and provide further support to current
Wand(R) users;
o distribute The Wand(R) technique videos and technical
bulletins to its current users;
o sell additional units to current Wand(R) users and o develop
its market overseas.
Since the end of the first quarter of this year Milestone has operated
with less than adequate working capital. At June 30, 2000, the Milestone
had $48,938 in cash and negative working capital of $538,807. Several
steps have been taken to improve liquidity and meet Milestone's working
capital needs:
o In April 2000, Leonard Osser, Chairman and CEO, agreed to
provide the following financing to Milestone:
o a $200,000 line of credit under which funds can be
borrowed until December 31, 2000 with a maturity of
February 1, 2001. Borrowed funds bear interest at a 9%
annual interest rate;
o guarantees that sales in year 2000 to two foreign
countries through two specified distributors will be
paid in full in 90 days.
o the option, should the line of credit be insufficient,
to defer payment of his full salary until January 3,
2001.
o A deferral of all interest and principal payments, until
January 3, 2001, on $250,000 face amount of 10% Senior
Secured Promissory Notes which he holds.
o In July 2000, Milestone borrowed the $200,000 under this line
of credit.
o On June 19, 2000, Mr. Osser remitted $50,584 to the Company,
pursuant to his distributor payment guarantee.
o In April 2000, Stephen A. Zelnick, a director and holder of
$50,000 face amount of 10% Senior Secured Promissory Notes
agreed to defer all interest and principal payments, until
January 3, 2001
o On July 31, 2000, Milestone reached agreement with K. Tucker
Anderson, a major existing investor, under a $1,000,000 line
of credit, pursuant to a purchase and line of credit agreement
dated July 31, 2000. The $500,000 loan is due on June 30, 2003
and any additional loans under the line of
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credit are due December 31, 2003. The initial loan and any
additional loans bear interest at 8% per annum. The investor
received warrants for 70,000 shares exercisable at the fair
market value of a share on the date of grant and will receive
warrants for an additional 20,000 shares, exercisable at the
fair market value of the shares at the time the warrant is
issued, for each additional $100,000 borrowed under the line
of credit. Milestone, at its option, can force conversion of
$300,000 of the initial loan into equity in connection with
defined future financing at the same price and on
substantially similar payment terms as used in future
financing. If we exercise this option then the number of
shares to be issued will be determined by dividing $300,000 by
the price per share by the investor in the future financing.
o In August 2000, Milestone reached agreement with another major
existing investor, not yet reflected in a signed document, for
a $1,000,000 2-year secured loan, bearing interest at 20% per
year and payable in cash or through the issuance of additional
20% notes on which both interest and principal are payable at
the maturity of the 2-year secured loan. The loan is
prepayable in cash at any time and is prepayable, with accrued
interest, in Milestone common stock after March 31, 2001.
Stock issued in payment of this debt will be valued at 85% of
then market prices.
In addition to the financings described above, Milestone continues to
explore additional equity and debt financings and is currently holding
discussions with several additional potential investors. However, there
can be no assurances that any of the financings now under discussion, or
the unconsummated portion of the financings specifically described above
will be consummated. Unless one or more of these or other financings is
consummated, or Milestone is able to generate sufficient positive cash
flow from operations, it may be unable to pay its obligations as they
mature. Failure to do so could force Milestone to scale back or
discontinue operations.
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 equivalents, plus any other potentially dilutive
securities outstanding, unless the effect is anti-dilutive.
For the six months ended June 30, 2000 and 1999, 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 38,000 shares of common
stock at $2.063 per share were issued to certain employees during the six
months ended June 30, 2000 but were not included in the computation of
diluted loss per share because the effect would have been anti-dilutive.
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 six months
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ended June 30, 1999 but were not included in the computation of diluted
loss per share because the effect would have been anti-dilutive.
11
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NOTE 4 - 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 sought 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.
As a result of various pretrial motions, the only claims remaining in the
litigation with Dr. Spinello were 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 January 2000, prior to trial, Milestone settled its previously pending
lawsuits with Dr. Spinello DDS, and former Chairman and Director of
Research of Spintech, and Glenn Spinello in the United States District
Court of New Jersey and in the Court of Common Pleas, York County
Pennsylvania, respectively. As part of the settlement, Dr. Spinello and
Glenn Spinello, each conveyed to Milestone all of their equity interests
in Spintech. Additionally, Dr. Spinello assigned to Milestone any rights
that he had to technology relating to The Wand(R) handpiece or technology
developed while he was employed at Spintech and agreed to cooperate in
filing and to assign to Milestone any future patent applications covering
that technology. In return for the conveyance of Spintech equity, the
assignment of technology, and the resolution of all disputes between the
parties, including the discontinuance with prejudice of all legal actions,
Milestone paid $25,000 to Dr. Spinello and issued to him 80,000 shares
(with a market value of approximately $80,000 at the time agreement was
reached) and issued 8,000 shares to Glenn Spinello. Glenn Spinello, Ronald
Spinello's son, was the controller and a director of Spintech, prior to
April 1997. Spintech is now a more than 75% owned subsidiary of Milestone.
Class Action Lawsuit
In June 2000, the previously pending class action lawsuit in the United
States District Court of New Jersey was dismissed by the Court, with
prejudice, for failure to state a claim. No appeal was filed by the
plaintiff prior to the expiration of the time for filing such an appeal.
Derivative Action Lawsuit
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In August 2000, the previously pending derivative action in the Court of
Chancery of the State of Delaware in Newcastle County, was dismissed upon
application by the plaintiff and approved by the Court. The dismissal was
without cost or expense to any party.
NOTE 5 - REVOLVING CREDIT LINE and PRIVATE PLACEMENTS
On April 5, 2000, Leonard Osser, the Chairman and CEO of Milestone, signed
an agreement which included a provision for a $200,000 line of credit with
a maturity of February 1, 2001 and 9% annual interest rate for the Company
through December 31, 2000. During the third quarter of 2000, the Company
borrowed the $200,000 under the line of credit.
As of February 1, 2000, the Company concluded a $1 million institutional
private placement of 10% Senior Secured Promissory Notes due June 30, 2001
and Warrants to purchase 142,857 shares of Milestone Common Stock with
Cumberland Associates LLC, Strategic Restructuring Partnership L.P., a
former principal of Cumberland Associates, two officers of the
Corporation, an affiliate of one of its directors and six other
individuals. The Notes are secured by all present and future inventories
of Milestone and are prepayable out of a portion of the proceeds generated
by sales of "Wand(R)" units. The Warrants are exercisable at prices
increasing from $1.75 per share in the first year of $7.00 per share in
the fifth year, subject to anti-dilution protection in the event of stock
dividends and certain capital changes. Purchasers of the Warrants were
granted rights to participate in certain future security offerings by
Milestone. Furthermore, on April 5, 2000, Leonard Osser, the Chairman and
CEO of Milestone, and Stephen A. Zelnick, a director as participants in
the private placement agreed to amend the Company's promissory note
agreement so as to defer all payments including interest until January 3,
2001. These notes comprised $300,000 of the $1,000,000 private placement.
In March 1999, the Company had 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.
In December 1999, the holders of the 3% Convertible Notes agreed to accept
1,800,000 shares in full payment and satisfaction and in conversion of all
$2,250,000 of such notes. Of the 1,800,000 shares, which were to be
issued, only the 200,000 shares to Mr. Osser were held in escrow and
pending shareholder approval. The latter shares were approved for
distribution by the Milestone shareholders at the Annual Stockholder's
Meeting on July 13, 2000. The Company recognized a non-cash debt
conversion expense of $731,250 in the fourth quarter of 1999.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
During the first half of 2000, the Company took significant steps to grow
The Wand(R) ownership base and increase the daily utilization by domestic
dentists. It dramatically increased the direct sales force and the
Company's presence at national, regional and local trade shows as part of
its direct sales approach.
Internationally, the Company established additional distribution
agreements, which provided for the sale of The Wand(R) in Canada and
Brazil. Also, the Company received approval to sell The Wand(R) and its
disposable handpieces in Japan.
Furthermore, the Company received approval for use of The Wand(R) in
medicine by the FDA, $1,000,000 was raised through a private placement, a
$200,000 line of credit was established and the Spinello lawsuit was
settled.
Subsequently, the Company received a $500,000 advance from an investor as
part of a $1,000,000 line of credit. Also, the Company completed an
agreement for the distribution of The Wand(R) through Central and South
America exclusive of Brazil and Mexico.
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Three months ended June 30, 2000 compared to three months ended June 30,
1999
Statement of Operations
Net sales for the three months ended June 30, 2000 and June 30, 1999 were
$1,523,004 and $865,984, respectively. The $657,020 increase reflects an
approximate 275% increase in domestic sales of The Wand(R) and a 67%
increase in domestic sales of its disposable handpiece. It also includes a
45% aggregate increase in The Wand(R) unit sales to foreign distributors
including Canada and includes the initial shipment of 1,100 units for
distribution in Brazil.
Cost of sales for the three months ended June 30, 2000 and June 30, 1999
were $631,848 and $317,457, respectively. The $314,391 increase is mainly
attributable to an increase in Wand(R) unit and disposable handpiece sales
volume as well as an increase in manufacturing costs due to the disposable
handpiece design enhancements introduced during the fourth quarter of
1999. The increase was partially offset by the recovery of approximately
$50,000 in previously written down inventory.
For the three months ended June 30, 2000, the Company generated a gross
profit of $891,156 as compared to a gross profit of $548,527 for the three
months ended June 30, 1999. The increase in gross profit is attributable
to increased sales volume.
Selling, general and administrative expenses for the three months ended
June 30, 2000 and 1999 were $1,824,484 and $2,016,155, respectively. The
$191,671 decrease is mainly attributable to $127,000 decrease in legal
expenses, $17,000 in second quarter 1999 expenses related to the
discontinued Wisdom product line and a $25,000 decrease in consulting
expenses.
Research and development cost for the three months ended June 30, 2000 and
June 30, 1999 were $97,750 and $40,610, respectively. The $57,140 increase
is primarily attributable to costs associated with The Wand(R).
The loss from operations for the three-month ended June 30, 2000 and June
30, 1999 were $1,031,078 and $1,508,238, respectively.
In April 1999, the Company discontinued its selling effort with regards to
the Wisdom product line excluding Splatrfree(TM) prophy angles. $76,345 in
aggregate costs were incurred in terminating the product line. They
included $19,291 for uncollectible receivables, $15,692 in aggregate
termination compensation and employee benefits, $5,066 for a lease buyout,
$18,793 in previously unamortized acquisition costs, and $17,503 to write
off inventory.
The Company incurred interest expenses of $33,979 for the three months
ended June 30, 2000 as compared to $21,541 of interest for the same period
for calendar 1999. The $12,438 difference is attributable to higher
average borrowings in 2000 including the $1,000,000 private placement.
Interest income generated from treasury bills during the second quarter of
1999 is the reason for the $26,727 decrease in interest income for the
three months ended June 30, 2000.
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The net loss for the three months ended June 30, 2000 was $1,063,221 as
compared to a net loss of $1,577,561 for the quarter ended June 30, 1999.
The $514,340 reduction in net loss is attributable to higher sales volume
for The Wand(R) and its disposable handpiece and a reduction in selling
general and administrative expenses. This was partially offset by as
increase interest expenses and a decrease in interest income.
Six months ended June 30, 2000 compared to six months ended June 30, 1999
Statement of Operations
Net sales for the six months ended June 30, 2000 and June 30, 1999 were
$2,933,797 and $1,534,154, respectively. The $1,399,643 increase reflects
an approximate 264% increase in domestic sales of The Wand(R) and an 83%
increase in domestic sales of its disposable handpiece. It also includes
an 89% aggregate increase in Wand(R) unit sales to foreign distributors.
The increase in foreign sales includes the shipment of 500 Wand(R) units
and approximately 100,000 disposable handpieces to the Company's
authorized dealer in Japan and 1100 Wand(R) units for distribution in
Brazil. These increases were partially offset by the $174,086 net sales
generated from the discontinued Wisdom toothbrush line during the six
months of 1999.
Cost of sales for the six months ended June 30, 2000 and June 30, 1999
were $1,271,556 and $816,771, respectively. The $454,785 increase is
mainly attributable to an increase in Wand(R) unit and disposable
handpiece sales partially offset by the recovery of approximately $170,000
in previously written down inventory and the $152,230 in cost of sales
during the first half of 1999 that related to the discontinued Wisdom
product line.
For the six months ended June 30, 2000, the Company generated a gross
profit of $1,662,241 or 56.7% as compared to a gross profit of $891,156 or
46.7% for the six months ended June 30, 1999.
Selling, general and administrative expenses for the six months ended June
30, 2000 and 1999 were $3,459,811 and $3,704,619, respectively. The
$244,808 decrease is attributable to a $63,000 aggregate decrease in
selling and marketing expenses associated with The Wand(R), a $147,000
decrease in legal expenses and $74,767 in 1999 expenses related to the
discontinued Wisdom products.
Research and development cost for the six months ended June 30, 2000 and
June 30, 1999 were $198,950 and $109,456, respectively. The $89,494
increase is primarily attributable to costs associated with The Wand(R).
The loss from operations for the six months ended June 30, 2000 and June
30, 1999 were $1,996,520 and $3,096,692, respectively.
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The Company incurred interest expenses of $54,133 for the six months ended
June 30, 2000 as compared to $29,631 of interest income for the same
period for calendar 1999. The $24,502 difference is attributable to higher
average borrowings in 2000 including the $1,000,000 private placement.
Interest income generated from treasury bills during the first six months
of 1999 is the reason for the $52,741 decrease in interest income for the
six months ended June 30, 2000.
In February 2000, the Company executed a settlement of the lawsuit between
two former employees, Ronald Spinello, DDS, former Chairman and Director
of Research of Spintech and his son, Glen Spinello. Milestone paid $25,000
to Dr. Spinello and issued to him 80,000 shares and to Glen Spinello 8,000
shares. Since the market price of the shares was $2.3125 per share, the
Company recognized a $228,500 expense for the settlement.
In April 1999, the Company discontinued its selling effort with regards to
the Wisdom product line excluding Splatrfree(TM) prophy angles. $76,345 in
aggregate costs were incurred in terminating the product line. They
included $19,291 for uncollectible receivables, $15,692 in aggregate
termination compensation and employee benefits, $5,066 for a lease buyout,
$18,793 in previously unamortized acquisition costs, and $17,503 to write
off inventory.
The net loss for the six months ended June 30, 2000 was $2,275,609 as
compared to a net loss of $3,146,383 for the six months ended June 30,
1999. The $870,774 reduction in net loss is attributable to higher sales
volume for The Wand(R) and its disposable handpiece and a reduction in
selling general and administrative expenses. This was partially offset by,
an increase in interest expenses and a decrease in interest income.
Liquidity and Capital Resources
At June 30, 2000, the Company had negative working capital of $538,807. It
consisted primarily of outstanding accounts payable and 10% senior
convertible notes. For the six months ended June 30, 2000, the Company
decreased cash and cash equivalents by $193,905.
For the six month ended June 30, 2000, the Company's net cash used in
operating activities was $1,118,127. This was primarily attributable to a
net loss of $2,275,609 adjusted for non cash items of $122,278 for patent
amortization, $234,748 for depreciation, and $203,500 for a lawsuit
settlement; a $294,521 increase in accounts receivable, a $331,179
decrease in inventory; a $131,987 decrease in prepaid expenses; a decrease
in accrued expenses of $34,303 and a $462,614 increase in accounts
payable.
The Company used $8,801 in investing activities for the six months ended
June 30, 2000. These expenditures covered retooling cost for product
modifications.
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Financing activities provided $955,724 for the period. The Company, as
described below, raised $1,000,000 through a private placement. On May 1,
2000, it made $44,276 in aggregate payments to its note holders.
Since the end of the first quarter of this year Milestone has operated
with less than adequate working capital. At June 30, 2000, the Milestone
had $48,938 in cash and negative working capital of $538,807. Several
steps have been taken to improve liquidity and meet Milestone's working
capital needs:
o In April 2000, Leonard Osser, Chairman and CEO, agreed to
provide the following financing to Milestone:
o a $200,000 line of credit under which funds can be
borrowed until December 31, 2000 with a maturity of
February 1, 2001. Borrowed funds bear interest at a 9%
annual interest rate;
o guarantees that sales in year 2000 to two foreign
countries through two specified distributors will be
paid in full within 90 days.
o the option, should the line of credit be insufficient,
to defer payment of his full salary until January 3,
2001.
o A deferral of all interest and principal payments, until
January 3, 2001, on $250,000 face amount of 10% Senior
Secured Promissory Notes which he holds.
o In July 2000, Milestone borrowed the $200,000 under this line
of credit.
o On June 19, 2000, Mr. Osser remitted $50,584 to the Company,
pursuant to his distributor payment guarantee.
o In April 2000, Stephen A. Zelnick, a director and holder of
$50,000 face amount of 10% Senior Secured Promissory Notes
agreed to defer all interest and principal payments, until
January 3, 2001
o On July 31, 2000, Milestone reached agreement with K. Tucker
Anderson, a major existing investor under a $1,000,000 line of
credit, pursuant to a purchase and line of credit agreement
dated at July 31, 2000. The $500,000 loan is due on June 30,
2003 and any additional loans under the line of credit are due
December 31, 2003. The initial loan and any additional loans
bear interest at 8% per annum. The investor received warrants
for 70,000 shares exercisable at the fair market value of a
share on the date of grant and will receive warrants for an
additional 20,000 shares, exercisable at the fair market value
of the shares at the time the warrant is issued, for each
additional $100,000 borrowed under the line of credit.
Milestone, at its option, can force conversion of $300,000 of
the initial loan into equity in connection with defined future
financings.
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o In August 2000, Milestone reached agreement with another major
existing investor, although not yet reflected in a signed
document, for a $1,000,000, 2-year secured loan, bearing
interest at 20% per year and payable in kind. The loan is
prepayable in cash at any time and is prepayable, with accrued
interest, in Milestone common stock after March 31, 2001.
Stock issued in payment of this debt will be valued at a small
discount from then market prices, subject to a maximum price.
In addition to the financings described above, Milestone continues to
explore additional equity and debt financings and is currently holding
discussions with several additional potential investors. However, there
can be no assurances that any of the financings now under discussion or
the unconsummated portion of the financings specifically described above
will be consummated. Unless one or more of these or other financings is
consummated or Milestone is able to generate sufficient positive cash flow
from operations, it may be unable to pay its obligations as they mature.
Failure to do so could force Milestone to scale back or discontinue
operations.
PRIVATE PLACEMENTS
As detailed below, prior to June 30, 2000 and during 1999 the concluded
$3,250,000 in private placements.
As of February 1, 2000, the Company concluded a $1 million institutional
private placement of 10% Senior Secured Promissory Notes due June 30, 2001
and Warrants to purchase 142,857 shares of Milestone Common Stock with
Cumberland Associates LLC, Strategic Restructuring Partnership L.P., a
former principal of Cumberland Associates, two officers of the
Corporation, an affiliate of one of its directors and six other
individuals. The Notes are secured by all present and future inventories
of Milestone and are prepayable out of a portion of the proceeds generated
by sales of "Wand(R)" units. The Warrants are exercisable at prices
increasing from $1.75 per share in the first year of $7.00 per share in
the fifth year, subject to anti-dilution protection in the event of stock
dividends and certain capital changes. Purchasers of the Warrants were
granted rights to participate in certain future security offerings by
Milestone.
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.
In December 1999, the holders of the 3% Convertible Notes agreed to accept
1,800,000 shares in full payment and satisfaction and in conversion of all
$2,250,000 of such notes. The 1,800,000 shares are to be issued and are
currently being registered by Milestone.
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DENTAL OPERATIONS
Domestic
The Company continues to take steps aimed at growing and strengthening the
end user base thereby gaining greater acceptance of The Wand(R) and
translating to increased revenue through higher disposable handpiece
usage. On October 1, 1999, the Company began a new sales initiative,
permitting dentists in the United States to order the Wand(R) directly
through Milestone and to avail themselves of certain quantity discounts
when purchasing disposable handpieces and dental needles through a monthly
program. During the first half of 2000, the Company increased its sales
and customer service staff, and increased its presence at trade shows.
Subsequent to June 30, 2000, it began an aggressive campaign to increase
the number of national seminars it presents and to offer mini seminars in
the offices of proficient user. Furthermore, the Company has developed
several programs that allow the dental practitioners a variety of purchase
and payment plans. It also continues to a) provide assistance to dental
and dental hygiene schools which include The Wand(R) in their curriculum;
b) visit, obtain feedback and provide further support to current Wand(R)
users; c) distribute The Wand(R) technique videos and technical bulletins
to its current users; and d) sell additional units to current Wand(R)
users.
Internationally
The Company has continued to expand its presence overseas. In February
2000, Milestone received approval to market The Wand(R) in Japan. The
Company immediately shipped 500 units and has shipped approximately
100,000 disposable handpieces through June 30, 2000. During the second
quarter of 2000, agreements have been reached and distribution has begun
to sell The Wand(R) in Brazil and Canada. Previously, the Company had
begun shipping The Wand(R) for distribution throughout Europe and in
Taiwan, China, Israel, and South Africa.
MEDICAL OPERATIONS
In June 2000, the Company received approval for the FDA to market The
Wand(R) for medical use. The Company sells The Wand(R) to physicians, its
intention is to set up in the medical market a complete staff to sell and
market The Wand(R) for wide distribution once sufficient capital is
raised. Further, a working prototype of a device for the delivery of
multi-volume medicaments and anesthetic and with other added features of
interest to medical practitioners has been developed and will be submitted
to the FDA for approval to market the medicine.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: (b) Reports on Form 8-K:
NONE NONE
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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/Mitchell G. Kuhn
----------------------------------------
Mitchell G. Kuhn, President and
Chief Operating Officer
/s/Thomas M. Stuckey
----------------------------------------
Thomas M. Stuckey, Vice President and
Chief Financial Officer
Dated: December 18, 2000
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