SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Mark One
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 2000
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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 November 13, 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 September 30,
2000 and December 31, 1999 4
Condensed Consolidated Statements of Operations
for the nine and three months ended September 30, 2000
and 1999 5
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 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 13
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to Vote of Security Holders 20
ITEM 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
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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>
ASSETS September 30 December 31
2000 1999
(unaudited) *
--------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 561,104 $ 242,843
Accounts receivable 720,505 297,778
Inventories 1,133,118 1,717,094
Prepaid expenses 233,065 192,636
------------ ------------
Total current assets 2,647,792 2,450,351
PROPERTY AND EQUIPMENT, NET 1,347,892 1,669,769
PATENTS, NET 1,308,301 1,491,724
OTHER ASSETS 10,318 10,318
------------ ------------
Total assets $ 5,314,303 $ 5,622,162
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,023,698 $ 996,120
Accrued expenses 328,169 226,390
Accrued Interest 66,905 20,063
Notes Payable-Short Term 200,000 --
10% senior convertible notes 840,055 --
------------ ------------
Total current liabilities 2,458,827 1,242,573
------------ ------------
NOTES PAYABLE-LONG TERM 1,324,094 2,250,000
------------ ------------
COMMITMENT AND CONTINGENCIES -- --
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, par value $.001; authorized,
25,000,000 shares; 10,752,898 issued as of
September 30, 2000 and 8,864,898 issued
as of December 31, 1999 10,753 8,865
Additional paid-in capital 33,578,366 30,877,375
Accumulated deficit (31,146,221) (27,845,135)
Treasury stock, at cost, 100,000 shares (911,516) (911,516)
------------ ------------
Total stockholders' equity 1,531,382 2,129,589
------------ ------------
Total liabilities and stockholders' equity $ 5,314,303 $ 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 nine and three months ended September 30,
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 4,465,876 $ 2,045,210 $ 1,532,079 $ 511,056
Cost of sales 2,163,252 1,044,489 891,696 227,718
------------ ----------- ------------ -----------
Gross profit 2,302,624 1,000,721 640,383 283,338
------------ ----------- ------------ -----------
Selling, general and
Administrative expenses 5,012,701 5,217,767 1,552,890 1,513,148
Research and development expenses 251,014 398,180 52,064 288,724
------------ ----------- ------------ -----------
5,263,715 5,615,947 1,604,954 1,801,872
------------ ----------- ------------ -----------
Loss from operations (2,961,091) (4,615,226) (964,571) (1,518,534)
Settlement cost - Spinello lawsuit (228,500) -- -- --
Loss from termination of
Wisdom product line -- (76,345) -- --
Interest expense (116,563) (47,411) (62,430) (17,691)
Interest income 5,068 70,178 1,524 13,804
------------ ----------- ------------ -----------
Net loss $ (3,301,086) $(4,668,804) $ (1,025,477) $(1,522,421)
============ =========== ============ ===========
Loss per share - basic and diluted $ (.32) $ (.54) $ (.10) $ (.18)
============ =========== ============ ===========
Weighted average shares outstanding 10,435,286 8,718,054 10,652,898 8,718,393
============ =========== ============ ===========
</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 nine months ended September 30,
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Net loss $(3,301,086) $(4,668,804)
Adjustments to reconcile net loss to
net cash used in operating activities
Amortization 194,417 202,811
Depreciation 353,707 352,389
Non cash compensation for services rendered 95,000 --
Non cash portion of settlement of Spinello lawsuit 203,500 --
Changes in assets and liabilities
Accounts receivable (422,727) 279,409
Inventories 583,976 (601,865)
Prepaid expenses (40,429) (64,912)
Other assets -- 280
Accounts payable 27,578 165,464
Accrued expenses 101,779 98,928
Accrued interest 46,842 --
----------- -----------
Net cash used in operating activities (2,157,443) (4,236,300)
----------- -----------
Cash flows from investing activities
Capital expenditures (31,830) (70,181)
Sale of treasury bills, net -- 2,758,174
----------- -----------
Net cash (used in) provided by investing activities (31,830) 2,687,993
----------- -----------
Cash flows from financing activities
Net proceeds from issuance of notes 1,840,055 2,250,000
Proceeds from (repayments under) lines of credit 700,000 (150,000)
Cost associated with registering shares (32,521) (2,000)
----------- -----------
Net cash provided by financing activities 2,507,534 2,098,000
----------- -----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 318,261 549,693
Cash and cash equivalents at beginning of period 242,843 316,706
----------- -----------
Cash and cash equivalents at end of period $ 561,104 $ 866,399
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 58,727 $ 316
=========== ===========
</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 nine months ended September 30, 2000
(unaudited)
Supplemental schedule of noncash financing activities:
On July 31, 2000, warrants to purchase 70,000 shares @ $3.00 per share were
issued in connection with the draw dawn of $500,000 of a $1,000,000 line of
credit. This resulted in a $186,900 debt discount and an equal increase in
additional paid in capital.
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
September 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/A. 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
September 30, 2000 and the results of operations for the three and nine
month periods ended September 30, 2000 and September 30, 1999 and cash
flows for the nine month periods ended September 30, 2000 and 1999,
respectively.
The results reported for the three and nine month periods ended September
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 nine months ended September 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 September 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
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greater acceptance of The Wand(R) and translating to increased revenue
through higher disposable handpiece usage. In September 2000, the Company
unveiled two domestic sales initiatives. It introduced the Wand(R) Plus
drive unit with several enhancements including cruise control feature.
Secondly, dental practitioners can now avail themselves to a 90 day trial
program, which requires a commitment to purchase specified quantities of
disposable handpieces and needles during the trial period without any
payment on deposit for the unit. The Company continues to sell the Wand(R)
model and offers quantity discounts on disposable handpieces and dental
needles under monthly buying programs. During the nine months ended
September 30, 2000, the Company increased its sales force and customer
service staffs 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 overseas markets.
At September 30, 2000, Milestone had $561,104 in cash, working capital of
$188,965 and access to an additional $500,000 under a line of credit.
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 payment guarantees on year 2000 sales to certain foreign
countries through two specified distributors;
o the option, should the line of credit be insufficient,
to defer payment of his full salary until January 3,
2001; and
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 On June 19, 2000, Mr. Osser remitted $50,584 to the Company,
pursuant to his distributor payment guarantee.
o In July 2000, Milestone borrowed the $200,000 under this line
of credit and in August 2000, Mr. Osser deferred the remaining
$76,109 of his 2000 salary.
o In April 2000, a director and holder of $50,000 in 10% Senior
Secured Promissory Notes agreed to defer all interest and
principal payments, until January 3, 2001
o In August 2000, Milestone borrowed $500,000 from a major
existing investor, under a $1,000,000 line of credit, pursuant
to an agreement
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not yet reflected in signed documents. 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 on the date of grant of $3.00 per share 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.
o In August 2000, Milestone borrowed $1,000,000 from two funds
managed by Cumberland Associates LLC pursuant to a 2-year
secured loan, which bears interest at 20% per year and is
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 90% of the average closing price during
the first fifteen of the eighteen trading days preceding the
date of payment but in no event at more that $5.00, subject to
adjustment in the event of stock splits, stock dividends or
other capital changes.
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 nine months ended September 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 227,000 shares of common
stock at prices ranging from .88 to $2.19 were issued to all officers and
certain employees during the nine months ended September 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 152,000 shares of common
stock at prices ranging from $1 to $3 per share were issued during the
nine months ended September 30,
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1999 but were not included in the computation of diluted loss per share
because the effect would have been anti-dilutive.
NOTE 4 - LITIGATION
Spinello Lawsuits
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
which 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 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.
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
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 LINES and PRIVATE PLACEMENTS
In August 2000, as detailed in Note 2, the Company borrowed $500,000 under
a newly established $1,000,000 line of credit and borrowed $1,000,000
pursuant to a 2-year 20% secured loan.
In July 2000, as detailed in Note 2, the company borrowed the $200,000
under the line of credit provided by Leonard Osser, the Chairman and CEO
of Milestone, on April 5, 2000.
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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 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. Furthermore, on April 5, 2000, the Chairman and CEO of
Milestone, Leonard Osser and one other participant 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 nine months ended September 30, 2000, the Company took
significant steps to grow The Wand(R) ownership base and increase the
daily utilization by domestic dentists. It increased the direct sales
force from 3 to 12 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
throughout Central and South America. Also, the Company received approval
to sell The Wand(R) and its disposable handpieces in Japan.
Furthermore, during this period of time, the Company received approval
from the FDA to market the Wand(R) to medical practitioners, $2,000,000
was raised through a private placement, lines of credit totaling
$1,200,000 were established and the Spinello lawsuit was settled.
Three months ended September 30, 2000 compared to three months ended September
30, 1999
Statement of Operations
Net sales for the three months ended September 30, 2000 and September 30,
1999 were $1,532,079 and $511,056, respectively. The $1,021,023 or 200%
increase reflects a ten fold aggregate increase in The Wand(R) unit sales
for foreign distribution including Canada and the initial shipment of
1,000 units for distribution in Mexico. The increase in net sales also
includes an approximate 70% increase in domestic sales of The Wand(R) and
a 39% increase in domestic sales of its disposable handpiece. For the
three months ended September 30, 2000, domestic sales of Wand(R) units
increased by 79 to 192 and domestic disposable handpiece sales increased
by 132,800 to 475,750 when compared to the same period in 1999. $8,000 was
generated from the disposable handpieces and needles sales associated with
the 120 Wand(R) units placed (but not sold) in September under the
Company's new 90-day trial program.
Cost of sales for the three months ended September 30, 2000 and September
30, 1999 were $891,696 and $227,718, respectively. The $663,978 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 $204,000 in previously written down finished goods
inventory.
For the three months ended September 30, 2000, the Company generated a
gross profit of $640,383 as compared to a gross profit of $283,338 for the
three months ended September 30, 1999. The increase in gross profit is
attributable to increased sales volume.
Selling, general and administrative expenses for the three months ended
September 30, 2000 and 1999 were $1,552,890 and $1,513,148, respectively.
The $39,742 increase is mainly attributable to $95,000 in expenses
representing the cumulative impact of warrants revalued
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in conjunction with the first quarter private placement and by a $151,000
aggregate increase in selling and marketing expenses associated with the
Wand(R) as the Company increased its sales force, customer service staff
and its trade show presence. These increases were partially offset by a
$77,000 decrease in legal expenses, and a $147,000 decrease in consulting
expenses.
Research and development costs for the three months ended September 30,
2000 and September 30, 1999 were $52,064 and $288,724, respectively. The
$236,660 difference is the result of higher costs incurred during the
third quarter of 1999 which were associated with the development of
product improvements.
The loss from operations for the three months ended September 30, 2000 and
September 30, 1999 were $964,571 and $1,518,534, respectively.
The Company incurred interest expenses of $62,430 for the three months
ended September 30, 2000 as compared to $17,691 of interest for the same
period for calendar 1999. The $44,741 difference is attributable to higher
average borrowings and $10,994 in amortization of the debt discount
associated with the detachable warrants from the $1,000,000 credit line
established in August, 2000. Interest income generated from treasury bills
during the third quarter of 1999 accounted for the $12,280 decline in
interest income for the three months ended September 30, 2000.
The net loss for the three months ended September 30, 2000 was $1,025,477
as compared to a net loss of $1,522,421 for the quarter ended September
30, 1999. The $496,944 reduction in net loss is attributable to higher
sales volume for The Wand(R) and its disposable handpiece. This was
partially offset by as increase in selling general and administrative
expenses and an increase in interest expenses and a decrease in interest
income.
Nine months ended September 30, 2000 compared to nine months ended September 30,
1999
Statement of Operations
Net sales for the nine months ended September 30, 2000 and September 30,
1999 were $4,465,876 and $2,045,210, respectively. The $2,420,666 or 118%
increase reflects an approximate 214% increase in domestic sales of The
Wand(R) and a 65% increase in domestic sales of its disposable handpiece.
For the nine months ended September 30, 2000, domestic sales of Wand(R)
units increased by 933 to 1,369 and domestic disposable handpieces sales
increased by 540,750 to 1,373,250 when compared to the same period in
1999. The increase in net sales also includes a 197% aggregate increase in
Wand(R) unit sales for foreign distributions. The increase in foreign
sales includes the shipment of 1000 Wand(R) units and approximately
100,000 disposable handpieces to the Company's authorized dealer in Japan.
It also includes 2,100 Wand(R) units and 121,000 disposable handpieces for
distribution in Brazil and Mexico. These increases were partially offset
by $174,086 of net sales generated from the discontinued Wisdom toothbrush
line during the first nine months of 1999.
Cost of sales for the nine months ended September 30, 2000 and September
30, 1999 were $2,163,252 and $1,044,489, respectively. The $1,118,763
increase is mainly attributable to an increase in Wand(R) unit and
disposable handpiece sales partially offset by the recovery of
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approximately $374,000 in previously written down finished goods
inventory and the $152,230 in cost of sales during the first half of 1999
which related to the discontinued Wisdom product line.
For the nine months ended September 30, 2000, the Company generated a
gross profit of $2,302,624 or 51.6% as compared to a gross profit of
$1,000,721 or 48.9% for the nine months ended September 30, 1999.
Selling, general and administrative expenses for the nine months ended
September 30, 2000 and 1999 were $5,012,701 and $5,217,767, respectively.
The $205,066 decrease is attributable to a $224,000 decrease in legal
expenses, a $136,000 decrease in consulting expenses, and $74,767 in 1999
expenses related to the discontinued Wisdom products, partially offset by
an $88,000 aggregate increase in selling and marketing expenses associated
with The Wand(R) and $95,000 in expenses representing the cumulative
impact of warrants revalued in conjunction with the first quarter private
placement.
Research and development costs for the nine months ended September 30,
2000 and September 30, 1999 were $251,014 and $398,180, respectively. The
$147,166 difference is primarily attributable to a decrease in costs
associated with product improvements.
The loss from operations for the nine months ended September 30, 2000 and
September 30, 1999 were $2,961,091 and $4,615,226, respectively.
The Company incurred interest expenses of $116,563 for the nine months
ended September 30, 2000 as compared to $47,411 of interest expense for
the same period for calendar 1999. The $69,152 difference is attributable
to a higher average interest rate on lower average borrowings in 2000 and
$10,994 in amortization of the debt discount associated with the
detachable warrants from the $1,000,000 credit line established in August,
2000. Interest income generated from treasury bills during the first nine
months of 1999 as compared to mininal investments during the same period
in 2000, accounted for the $65,110 decrease in interest income for the
nine months ended September 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 nine months ended September 30, 2000 was $3,301,086
as compared to a net loss of $4,668,884 for the nine months ended
September 30, 1999. The $1,367,798 reduction in net loss is attributable
to higher sales volume for The Wand(R) and its disposable handpiece, the
recovery of a portion of previously written down inventory and a reduction
in
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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 September 30, 2000, Milestone had $561,104 in cash and working capital
of $188,965. For the nine months ended September 30, 2000, the Company
increased cash and cash equivalents by $318,261.
For the nine months ended September 30, 2000, the Company's net cash used
in operating activities was $2,157,443. This was primarily attributable to
a net loss of $3,301,086 adjusted for non cash items of $194,417 for
amortization, $353,707 for depreciation, $95,000 for non cash
compensation, and $203,500 for a lawsuit settlement; a $422,727 increase
in accounts receivable, a $583,976 decrease in inventory; a $40,429
increase in prepaid expenses; a increase in accrued expenses of $101,779,
a $46,842 increase in accrued interest and a $27,578 increase in accounts
payable.
For the nine months ended September 30, 2000, the Company used $31,830 in
investing activities. These expenditures covered retooling cost for
product modifications, leasehold improvements, and additional furniture
and fixtures.
Financing activities provided $2,507,534 for the period. The Company, as
described below, raised $2,000,000 through private placements and has
drawn $700,000 in aggregate from two credit lines. As of September 30,
2000, it made $159,945 in aggregate principal payments and $23,572 in
interest to these note holders.
To improve liquidity and meet Milestone's working capital needs, the
Company has taken several steps including raising additional short and
long term funds. They are as follow:
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 payment guarantees on year 2000 sales to certain foreign
countries through two specified distributors;
o the option, should the line of credit be insufficient,
to defer payment of his full salary until January 3,
2001; and
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 On June 19, 2000, Mr. Osser remitted $50,584 to the Company,
pursuant to his distributor payment guarantee.
o In July 2000, Milestone borrowed the $200,000 under this line
of credit and in August 2000, Mr. Osser deferred the remaining
$76,109 of his 2000 salary.
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o In April 2000, a director and holder of $50,000 in 10% Senior
Secured Promissory Notes agreed to defer all interest and
principal payments, until January 3, 2001
o In August 2000, Milestone borrowed $500,000 from a major
existing investor, under a $1,000,000 line of credit, pursuant
to an agreement not yet reflected in signed documents. 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 on the date of grant of
$3.00 per share 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.
o In August 2000, Milestone borrowed $1,000,000 from two funds
managed by Cumberland Associates LLC pursuant to a 2-year
secured loan, which bears interest at 20% per year and is
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 90% of the average closing price during
the first fifteen of the eighteen trading days preceding the
date of payment but in no event at more that $5.00, subject to
adjustment in the event of stock splits, stock dividends or
other capital changes.
In addition to the financings described above and henceforth 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
Prior to the $1,000,000, 2-year secured loan described above, Milestone
had 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 to $7.00 per share in
the fifth year, subject to
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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.
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 into increased revenue through higher disposable handpiece
usage. In September 2000, the Company unveiled two domestic sales
initiatives. It introduced the Wand(R) Plus drive unit with several
enhancements including a cruise control feature. Secondly, dental
practitioners can now avail themselves to a 90 day trial program, which
requires a commitment to purchase specified quantities of disposable
handpieces and needles without any outlay for the unit during the
demonstration period. The Company continues to sell the Wand(R) model and
offers quantity discounts via a monthly program when purchasing disposable
handpieces and dental needles. During 2000, the Company increased its
sales and customer service staffs, and increased its presence at trade
shows. In addition, the Company has embarked on a campaign to increase the
number of national seminars it presents and to offer mini seminars in the
offices of proficient users. 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. Through
September 30, 2000, the Company shipped 1,000 units and approximately
100,000 disposable handpieces to its authorized dealers in Japan. During
2000, agreements have been reached and distribution has begun to sell The
Wand(R) in Canada, Mexico, Brazil and remainder of Central and South
America. Approximately, 2,400 units and 260,000 disposable handpieces have
been shipped in aggregate to these areas in 2000. Previously, the Company
had begun shipping The
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Wand(R) for distribution throughout Europe and in Taiwan, China, Israel,
and South Africa. Practitioners in Great Britain, Germany and Italy make
up the majority of the European end users to date.
PROPOSED MEDICAL OPERATIONS
In June 2000, the Company received approval from the FDA to market The
Wand(R) for medical use. Once sufficient capital is raised, it is the
Company's intention to create an independent sales and marketing staff for
distribution to the medical community. Further, an working prototype of a
device for the delivery of multi-volume medicaments and anesthetic along
with other added features of interest to medical practitioners has been
developed and will be submitted to the FDA for approval.
SUBSEQUENT EVENTS
In October 2000, the Company sold 155 units and approximately 164,000
disposable handpieces, domestically. Furthermore, 268 units were placed
during the month under the 90-day trial program. Aggregate revenue
generated from disposable handpieces and needle sales as direct result of
the 90-day program was approximately $32,000.
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ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Election of Board of Directors
The Company held its 2000 Annual Meeting of Stockholders on July 13, 2000.
At the meeting, stockholders reelected all board members which were
presented,
Appointment of Grant Thornton LLP as auditors for 2000
For 9,315,193 Against 7,830 Abstain 2,555
Ratification of issuance of 200,000 shares to Chief Executive Officer in payment
of debt.
For 4,811,022 Against 135,709 Abstain 17,162
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: November 13, 2000
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