SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
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, 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
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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 12, 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 March 31,
2000 and December 31, 1999 4
Condensed Consolidated Statements of Operations
for the three months ended March 31, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 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 14
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
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
ASSETS (unaudited) *
----------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 458,065 $ 242,843
Accounts receivable 470,612 297,778
Inventories 1,467,668 1,717,094
Prepaid expenses 161,604 192,636
------------ ------------
Total current assets 2,557,949 2,450,351
PROPERTY AND EQUIPMENT, NET 1,557,390 1,669,769
PATENTS, NET 1,430,585 1,491,724
OTHER ASSETS 10,318 10,318
------------ ------------
Total assets $ 5,556,242 $ 5,622,162
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,039,444 $ 996,120
Accrued expenses 146,097 246,453
------------ ------------
Total current liabilities 1,185,541 1,242,573
------------ ------------
3% SENIOR CONVERTIBLE NOTES -- 2,250,000
------------ ------------
10% SENIOR CONVERTIBLE NOTES 1,000,000 --
------------ ------------
COMMITMENT AND CONTINGENCIES -- --
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, par value $.001; authorized,
25,000,000 shares; 10,752,898 issued as of
March 31, 2000 and 8,864,898 issued
as of December 31, 1999 10,753 8,865
Additional paid-in capital 33,328,987 30,877,375
Accumulated deficit (29,057,523) (27,845,135)
Treasury stock, at cost, 100,000 shares (911,516) (911,516)
------------ ------------
Total stockholders' equity 3,370,701 2,129,589
------------ ------------
Total liabilities and stockholders' equity $ 5,556,242 $ 5,622,162
============ ============
</TABLE>
*Derived from audited financial statements at December 31, 1999
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)
2000 1999
---- ----
Revenues $ 1,410,793 $ 668,170
Cost of sales 639,708 499,314
------------ -----------
Gross profit 771,085 168,856
------------ -----------
Selling, general and
administrative expenses 1,635,327 1,688,464
Research and development expenses 101,200 68,846
------------ -----------
1,736,527 1,757,310
------------ -----------
Loss from operations (965,442) (1,588,454)
Settlement costs - Spinello lawsuit (228,501) --
Interest income (expense), net (18,445) 19,632
------------ -----------
NET LOSS $ (1,212,388) $(1,568,822)
============ ===========
Loss per share - basic and diluted $ (.12) $ (.18)
============ ===========
Weighted average shares outstanding 10,000,063 8,717,882
============ ===========
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>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Net loss $(1,212,388) $(1,568,822)
Adjustments to reconcile net loss to
net cash used in operating activities
Amortization 61,139 61,139
Depreciation 117,600 118,314
Non cash portion of Settlement of Spinello lawsuit 203,500 --
Changes in assets and liabilities
Other assets -- 606
Accounts receivable (172,834) (109,862)
Inventories 249,426 (374,862)
Prepaid expenses 31,032 (50,881)
Accounts payable 43,324 310,936
Accrued expenses (100,356) (20,355)
----------- -----------
Net cash used in operating activities (779,557) (1,633,787)
----------- -----------
Cash flows from investing activities
Capital expenditures (5,221) (58,625)
Sale and (purchase) of treasury bills, net -- 1,517,940
----------- -----------
Net cash provided by (used in) investing activities (5,221) 1,459,315
----------- -----------
Cash flows from financing activities
Net proceeds from issuance of senior notes 1,000,000 2,250,000
----------- -----------
Repayment under line of credit -- 50,000
Net cash provided by financing activities 1,000,000 2,300,000
----------- -----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 215,222 2,125,528
Cash and cash equivalents at beginning of period 242,842 316,706
----------- -----------
Cash and cash equivalents at end of period $ 458,065 $ 2,442,234
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 27,375 $ 3,931
=========== ===========
</TABLE>
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, 2000
(unaudited)
Supplemental schedule of non-cash 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 CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 is 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 March
31, 2000 and the results of operations for the three month period ended
March 31, 2000 and March 31, 1999 and cash flows for the three month
period ended March 31, 2000 and 1999, respectively.
The results reported for the three-month period ended March 31, 2000 are
not necessarily indicative of the results of operations, which may be
expected for a full year.
NOTE 2 -LIQUIDITY 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, 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 three months ended March 31, 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 January 1, 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 hand piece 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. During the first quarter of 2000, the Company increased its sales
force and customer service staff. Furthermore, it continues to a) develop
its market overseas; b) provide assistance to dental and dental hygiene
schools which include The Wand(R) in their curriculum; c) visit, obtain
feedback and provide further support to current Wand(R) users; d)
distribute The Wand(R) technique videos and technical bulletins to its
current users; and e) sell additional units to current Wand(R) users.
As of March 31, 2000, the Company had $458,065 in aggregate cash and cash
equivalents. Management believes that through the proper utilization of
these existing funds, revenues generated from international distributors
and from continued increases in domestic disposable handpiece sales,
expense reductions achieved through cost containment programs, and the
additional financing described below, it will have sufficient cash to meet
its needs over the next twelve months.
In addition, on April 5, 2000 Leonard Osser, the Chairman and CEO of the
Company, signed an agreement which provides the Company through December
31, 2000 with the following: 1) a $200,000 line of credit with a maturity
of February 1, 2001 and a 9% annual interest rate; 2) guarantees that
sales in 2000 to two foreign countries through two specified distributors
will be paid in 90 days; and 3) the option, should the line of credit be
insufficient, to defer payment of his full salary until January 3, 2001.
Furthermore, Mr. Osser and one other participant in the February 2000
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.
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, 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
quarter ended March 31, 2000 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.
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 the effect
would have been anti-dilutive.
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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,
ascertaining violation of his employment agreement and other claims. On
May 20, 1997 Glenn R. Spinello filed a Complaint in the Court of Common
Pleas, York County Pennsylvania that was subsequently removed to the
United States District Court for the Middle District of Pennsylvania,
alleging violation of his employment agreement. Milestone and Spintech
filed an answer and counterclaims Glen Spinello's complaint.
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, the Company agreed to settle its claim
against Dr. Spinello, the counterclaims asserted by Dr. Spinello and the
claims asserted by and against Glenn Spinello. Various stipulations
incorporating that settlement were executed in February 2000.
Under the agreement, Dr. Spinello has assigned to Milestone any rights
that he has to technology relating to "The Wand(R)" handpiece or
technology developed while he was employed at Spintech and has agreed to
cooperate in filing and to assign to Milestone any future patent
applications covering that technology. Dr. Spinello and Glenn Spinello
each also agreed to convey to Milestone all of his equity interests in
Spintech. In return for the assignment of technology, the conveyance of
Spintech equity and the resolution of all disputes between the parties,
including the discontinuance with prejudice of pending legal actions,
Milestone has paid $25,000 to Dr. Spinello and issued to him 80,000 shares
and to Glenn Spinello 8,000 shares. Spintech is now a more than 75% owned
subsidiary of Milestone.
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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 Consolidated 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 do not state a cause of action
under the Federal Securities Law and on May 21, 1999 served a motion to
dismiss the Consolidated Complaint for failure to state a claim. The class
has responded to the motion and the Company filed a reply. The Motion was
submitted to the Court in September 1999, but no decision has yet been
rendered. Instead, on March 1, 2000, the Court held oral argument on the
Motion to Dismiss, at the end of which the court requested supplemental
memoranda of law on one issue. The Supplemental Memoranda Of Law were
filed on March 16 and 22, 2000. If the Motion to Dismiss is not granted,
the company believes that the allegations contained in the Class Action
Complaint are without merit and it intends to vigorously defend the
action. Specifically, Milestone believes that its financial statements
presented fairly its results of operations, that the information which it
has publicly disclosed did 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(R)
embodies superior technology, is a major advance in dentistry and may
ultimately become the accepted method for delivering local dental
anesthesia.
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Derivative Action Lawsuit
In February 1999, a purported owner of Milestone stock 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 and former officers and directors in
accordance with the indemnification provisions of its Certificate of
Incorporation. Because the allegations of the Derivative Complaint are so
closely tied to the allegations of the Class Complaint, the Derivative
Plaintiff's counsel has agreed with the Company that no response to the
Derivative Complaint is due until 60 days after the Court in the Class
Action decides the motion to dismiss.
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.
On June 24, 1999, American Alliance filed a complaint in the United States
District Court for the Southern District of New York seeking a declaratory
judgment that it is not liable under its policy for the claim asserted in
the amended class complaint as well as the derivative complaint. On July
9, 1999 the Company filed its own declaratory judgment action against
American Alliance and St. Paul in the United States District Court for the
District of New Jersey seeking a declaration that the claims asserted in
the Consolidated Complaint in the Class Action and in the Derivative
Action are covered by the Excess Director's and Officer's Insurance
Policies. On August 4, 1999, the District Judge in New Jersey
administratively terminated the Company's action until the previously
filed New York Action was resolved or dismissed. Thereafter, the Company
filed an answer in which it denied the material allegations of the
complaint and counterclaimed in the New York Action seeking the same
relief as it sought in its complaint in the New Jersey Action. Both
American Alliance and the Company each requested leave from the Judge in
the New York Action to make a motion for summary judgment and to dismiss
the complaint, respectively. Instead, since any decision on the scope of
coverage of the excess policies will, in large part,
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depend upon whether the Class Action complaint is dismissed, in whole or
in part, the District Judge in the New York Action decided to hold in
abeyance any action on American Alliance's complaint and Milestone's
answer and counterclaim until a decision is rendered by the District Court
in New Jersey in the Class Action.
NOTE 5 - PRIVATE PLACEMENT
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 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, and in
February 2000 formalized the agreement to convert all $2,250,000 of such
notes into common stock at a modified price of $1.25 per share. Of the
1,800,000 shares that were to be issued, only the 200,000 shares to Mr.
Osser are being held in escrow and pending shareholder approval.
Since the scheduled conversion price was $2.50 per share, 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 quarter 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.
Additionally, the Company received approval to sell The Wand(R) and its
disposable handpiece in Japan, $1,000,000 was raised through a private
placement and the Spinello lawsuit was settled.
Three month ended March 31, 2000 compared to three month ended March 31,
1999
Statement of Operations
Net sales for the three months ended March 31, 2000 and March 31, 1999
were 1,410,793 and 668,170, respectively. The $742,623 increase reflects
an approximate 100% increase in domestic sales of the Wand(R) and its
disposable handpiece. It also includes a nearly four fold aggregate
increase in sales to foreign distributors including Canada. The increase
in foreign sales includes the initial shipment of 500 Wand(R) units and
approximately 50,000 disposable handpiece to the Company's authorized
dealer in Japan. These increases were partially offset by the $189,864 net
sales generated from the discontinued Wisdom toothbrush line during the
first quarter of 1999.
Cost of sales for the three months ended March 31, 2000 and March 31, 1999
were $639,708 and $499,134, respectively. The $140,574 increase is mainly
attributable to an increase in Wand(R) unit and disposable handpiece sales
volume partially offset by the recovery of approximately $120,000 in
previously written down inventory and the $146,817 in cost of sales during
the first quarter of 1999 which related to the discontinued Wisdom product
line.
For the three months ended March 31, 2000, the Company generated a gross
profit of $771,085 or 54.7% as compared to a gross profit of $168,856 or
25.2% for the three months ended March 31, 1999.
Selling, general and administrative expenses for the three months ended
March 31, 2000 and 1999 were $1,635,327 and $1,688,464, respectively. The
$53,137 decrease is attributable to a $106,000 aggregate decrease in
selling and marketing expenses associated with the Wand(R) and $57,400 in
first quarter 1999 expenses related to the discontinued Wisdom products.
This was partially offset by an aggregate increase in $30,000 increase in
director and officer insurance and $36,000 increase in consulting
expenses.
Research and development cost for the three months ended March 31, 2000
and March 31, 1999 were $101,200 and $68,846, respectively. The $32,354
increase is primarily attributable to costs associated with the Wand(R).
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The loss from operations for the three-month ended March 31, 2000 and
March 31, 1999 were $965,442 and $1,588,454, respectively.
The Company incurred net interest expenses of $18,445 for the three months
ended March 31, 2000 as compared to $19,632 of net interest income for the
same period for calendar 1999. The $38,077 difference is attributable to
higher average borrowings in 2000 including the $1,000,000 private
placement and interest income generated from treasury bills during the
first quarter of 1999.
The net loss for the three months ended March 31, 2000 was $1,212,388 as
compared to a net loss of $1,568,822 for the quarter ended March 31, 1999.
The $356,434 reduction in net loss is attributable to higher sales volume
for the Wand(R) and its disposable handpiece at a higher average profit
margin and a reduction in selling general and administrative expenses.
This was partially offset by costs associated with the settlement of the
Spinello lawsuit and net interest expense.
Liquidity and Capital Resources
At March 31, 2000, the Company's working capital was $1,372,408. It
consisted primarily of cash generated from private placement in February
2000 and from inventories.
For the three month ended March 31, 2000, the Company increased cash and
cash equivalents by $215,222.
For the three month ended March 31, 2000, the Company's net cash used in
operating activities was $779,557. This was primarily attributable to a
net loss of $1,212,388 adjusted for non cash items of $61,139 for patent
amortization, $117,600 for depreciation, and $203,500 for a lawsuit
settlement; a $172,834 increase in accounts receivable, a $249,426
decrease in inventory; a $31,032 decrease in prepaid expenses; a decrease
in accrued expenses of $100,356 and a $43,324 increase in accounts
payable.
The Company used $5,221 in investing activities for the three month ended
March 31, 2000. These expenditures covered retooling cost for product
modifications.
Financing activities provided $1,000,000 for the period. The Company, as
described below, raised these funds through a private placement.
As of March 31, 2000, the Company had $458,065 in aggregate cash. In
addition, on April 5, 2000 Leonard Osser, the Chairman and CEO of the
Company, signed an agreement which provides the Company through December
31, 2000 with the following: 1) a $200,000 line of credit with a maturity
of February 1, 2001 and a 9% annual interest rate; 2) payment guarantees
on year 2000 sales to certain foreign countries through two specified
distributors; and 3) the option, should the line of credit be
insufficient, to defer payment of his full salary until January 3, 2001.
Furthermore, Mr. Osser and one other participant in the February 2000
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.
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Also, 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. During
the first quarter of 2000, the Company increased its sales and customer
service staff. Furthermore, it continues to a) develop its market
overseas; b) provide assistance to dental and dental hygiene schools which
include The Wand(R) in their curriculum; c) visit, obtain feedback and
provide further support to current Wand(R) users; d) distribute The
Wand(R) technique videos and technical bulletins to its current users; and
e) sell additional units to current Wand(R) users.
In August 1999, the Company submitted an application to the FDA to market
for medical use a similar device The Wand(R). A working prototype of an
improved device for delivery of multi-volume anesthetic and other
medicaments and with other added features of interest to medical
specialists has been developed and will be submitted to the FDA.
Private Placement
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, 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" units. The Warrants are exercisable at prices
increasing from $1.75 per share in the first year to $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.
Subsequent to year-end, in February 2000, the holders of the 3%
Convertible Notes agreed to convert all $2,250,000 of such notes into
common stock at a $1.25 per share. Of the 1,800,000 shares that were to be
issued, only the 200,000 shares to Mr. Osser are being held in escrow and
pending shareholder approval.
Year 2000 Compliance
The Company experienced no disruption with regards to the year 2000. It
had developed a plan which included the upgrade of its internal
information system and insured that its operating systems were compliant
with the requirements to process transactions in the year 2000. The cost
was not significant for overall compliance. The Company reviewed its own
equipment and determined that the equipment was either Year 2000 compliant
or not affected by the Year 2000 issues. Also, the Company contacted its
vendors, on whom it relies, and they too were Year 2000 complaint.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 10.21 Purchase Agreement
Exhibit 10.22 Accord and Satisfaction of 3% Convertible Notes
(b) Reports on Form 8-K:
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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