SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Mark One
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2004
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-26284
MILESTONE SCIENTIFIC INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-3545623
State or other jurisdiction (I.R.S. Employer
or organization) Identification No.)
220 South Orange Avenue, Livingston, New Jersey 07039
(Address of principal executive office) (Zip Code)
(973) 535-2717
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) or the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
As of May 14, 2004, the Registrant had a total of 9,663,906 shares of Common
Stock, $.001 par value, outstanding.
1
FORWARD LOOKING STATEMENTS
When used in this Quarterly Report on Form 10-QSB, 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.
2
MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES
I N D E X
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
March 31, 2004 (Unaudited) and December 31, 2003 4
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2004 and 2003(Unaudited) 5
Condensed Consolidated Statement of Changes in Stockholders'
Equity (Deficiency) Three Months Ended March 31, 2004 6
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2004 and 2003 (Unaudited) 7-8
Notes to Condensed Consolidated Financial Statements 9-12
ITEM 2. Management's Discussion and Analysis or Plan of Operation 13-16
ITEM 3 Controls and Procedures 17
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Small Business Issuer Purchases of
Equity Securities 18
ITEM 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
3
MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2004 December 31, 2003
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 6,333,456 $ 3,277
Accounts receivable, net of allowance for doubtful accounts at March 31, 2004
and December 31, 2003 of $29,598 and $28,814, respectively 483,072 388,900
Inventories 430,717 426,711
Advances to contract manufacturer 246,683 228,497
Deferred debt financing costs, net 1,122 33,522
Prepaid expenses 76,480 117,184
------------ ------------
Total current assets 7,571,530 1,198,091
Deferred registration costs -- 248,815
Equipment, net 326,241 242,243
Other assets 25,773 27,341
------------ ------------
Totals $ 7,923,544 $ 1,716,490
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Account payable $ 662,232 $ 1,689,591
Accrued expenses 88,096 59,540
Accrued interest 4,092 231,296
Deferred compensation payable to officer/stockholder 37,500 640,000
Notes payable, net of debt discount of $13,220 86,780 1,141,186
Notes payable-officer/stockholder -- 358,215
------------ ------------
Total current liabilities 878,700 4,119,828
Notes payable -- 41,333
------------ ------------
Total liabilities 878,700 4,161,161
------------ ------------
Commitments and Contingencies
Stockholder's Equity (Deficiency):
Preferred stock, par value $.001; authorized 5,000,000 shares -- --
8% Cumulative convertible preferred, par value $.001; authorized
25,365 shares issued and outstanding 25 25
Common stock, par value $.001; authorized 50,000,000 shares;
9,697,239 shares issued and 6,146,011 shares issued at
March 31,2004 and December 31, 2003, respectively 9,697 6,146
Additional paid-in capital 52,665,106 42,660,349
Accumulated deficit (44,718,468) (44,199,675)
Treasury stock, at cost, 33,333 shares (911,516) (911,516)
------------ ------------
Total stockholders' equity (deficiency) 7,044,844 (2,444,671)
------------ ------------
Totals $ 7,923,544 $ 1,716,490
============ ============
See Notes to Condensed Consolidated Financial Statements.
4
MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(Unaudited)
March 31, 2004 March 31, 2003
Net sales $ 1,094,223 $ 1,125,725
Cost of sales 546,300 549,084
------------ ------------
Gross profit 547,923 576,641
------------ ------------
Selling, general and administrative expenses 984,868 758,981
Charge in connection with the closing of
Deerfield, IL facility -- 52,723
Research and development expenses 41,211 32,001
------------ ------------
Totals 1,026,079 843,705
------------ ------------
Loss from operations (478,156) (267,064)
Interest income 12,134 --
Interest expense (52,771) (241,181)
------------ ------------
Net loss $ (518,793) $ (508,245)
============ ============
Loss per share - basic and diluted $ (.07) $ (.12)
============ ============
Weighted average shares outstanding-basic and diluted 7,566,255 4,211,123
============ ============
See Notes to Condensed Consolidated Financial Statements.
5
Milestone Scientific Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
Three Months Ended March 31, 2004
(Unaudited)
Preferred Stock Common Stock
--------------- ------------ Additional
Paid-in Accumulated Treasury
Shares Amount Shares Amount Capital Deficit Stock Total
------------------------------------------------------------------------------------------
Balance January 1, 2004 25,365 $ 25 6,146,011 $6,146 $42,660,349 $(44,199,675) ($911,516) $(2,444,671)
Proceeds from equity financing, net 2,880,000 2,880 7,817,224 7,820,104
Common stock issued for payment of
outstanding debt and related interest 492,087 492 1,603,712 1,604,204
Common stock issued for payment of
accounts payable 61,350 61 199,939 200,000
Common stock issued for payment of
deferred compensation 117,791 118 383,882 384,000
Net loss (518,793) (518,793)
------------------------------------------------------------------------------------------
Balance March 31, 2004 25,365 25 9,697,239 $9,697 $52,665,106 $(44,718,468) ($911,516) $ 7,044,844
==========================================================================================
See Notes to Condensed Consolidated Financial Statements.
6
MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(Unaudited)
2004 2003
----------- ---------
Cash flows from operating activities:
Net loss $ (518,793) $(508,245)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 9,192 9,331
Amortization of debt discount and deferred financing costs 36,660 101,701
Loss on disposal of fixed assets -- 11,248
Changes in operating assets and liabilities:
Increase in accounts receivable (94,172) (374,980)
(Increase) decrease in inventories (4,006) 11,794
(Increase) decrease in advances to contract manufacturer (18,186) 26,081
Decrease in prepaid expenses 40,704 26,430
Decrease in other assets 1,568 --
Increase (decrease) in accounts payable (578,544) 182,290
Increase (decrease) in accrued interest (81,215) 139,480
Increase in accrued expenses 28,556 59,006
(Decrease) increase in deferred compensation (218,500) 80,000
----------- ---------
Net cash used in operating activities (1,396,736) (235,864)
----------- ---------
Cash flows from investing activities-payment for capital expenditures (93,189) (6,500)
----------- ---------
Cash flows from financing activities:
Proceeds from note payable - officer/stockholder -- 95,537
Payments to note payable - officer/stockholder -- (62,322)
Proceeds from issuance of notes payable -- 200,000
Proceeds from equity financing, net 7,820,104 --
----------- ---------
Net cash provided by financing activities 7,820,104 233,215
----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,330,179 (9,149)
Cash and cash equivalents beginning of period 3,277 9,683
----------- ---------
Cash and cash equivalents end of period 6,333,456 $ 534
=========== =========
Supplemental disclosures of cash flow information cash paid during the period for
Interest $ 97,326 $ 0
=========== =========
See Notes to Condensed Consolidated Financial Statements.
7
MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(Unaudited)
Supplemental schedule of noncash financing activities:
In February 2004, in consideration for payment of $2,188,204 of aggregate
accounts payable, deferred compensation, accrued interest and notes payable, the
Company issued 335,614 units. Each unit consisted of 2 shares of the Company's
Common stock (671,228 shares of common stock) and a warrant.
In March 2003, pursuant to the 6%/12% promissory note agreements, the Company
converted $78,479 of accrued interest into additional principal.
See Notes to Condensed Consolidated Financial Statements.
8
MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Summary of accounting policies:
The unaudited condensed consolidated financial statements of Milestone
Scientific Inc. and Subsidiaries (the "Company") have been prepared in
accordance with accounting principles generally accepted in the United
States of America for interim financial information. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements.
These unaudited condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes
thereto for the year ended December 31, 2003 included in the Company's
Annual Report on Form 10-KSB. The accounting policies used in preparing
these unaudited condensed consolidated financial statements are the same
as those described in the December 31, 2003 consolidated financial
statements.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of
normal recurring entries) necessary to present fairly the financial
position as of March 31, 2004 and the results of operations for the three
months ended March 31, 2004 and 2003.
The results reported for the three months ended March 31, 2004 and 2003
are not necessarily indicative of the results of operations which may be
expected for a full year.
Note 2 - Public Offering:
On February 23, 2004, the Company completed a $9.4 million Public Offering
($7.8 after underwriters' discount, underwriters' non accountable expense
allowance and other expenses). The Public Offering consisted of the sale
of 1,440,000 units at a price of $6.52 per unit. Each unit consisted of
two shares of common stock (2,880,000 shares of common stock) and one
warrant. The warrants included in the units are exercisable at any time
after they became separately tradable on March 19, 2004 and until their
expiration on February 20, 2009, five years after the date of the closing
of the Public Offering at an exercise price equal to $4.89 (150% of the
closing market price of our common stock on the pricing date of the
Offering). Some or all of the warrants may be redeemed by us at a price of
$0.01 per warrant, by giving not less than 30 days notice to the holders
of the warrants, which the Company may do at any time, beginning 6 months
after the effective date of this Offering and once the closing price for
the Company's common stock on the principal exchange on which it trades
(AMEX) has equaled or exceeded 200% of the price of the Company's common
stock on the effective date of the Offering. The common stock included in
the units and the warrants traded only as a unit until March 18, 2004, 30
days following the closing date of the Public Offering.
Net proceeds of the Public Offering were used to pay down promissory
notes, credit facilities, interest and deferred compensation. The
remainder of the proceeds of approximately $7.8 million will be used
primarily to expand and support sales and marketing efforts for CompuDent
in the United States, including new marketing and advertising campaigns,
support the launch of the recently announced SafetyWand product line,
expand international sales efforts and develop commercial models of
products using other new subcutaneous injection technology.
9
MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2 - (concluded)
Upon the closing of the Public Offering (February 23, 2004) the Company
satisfied $2,341,000 of obligations due to the Company's CEO and a major
investor as per an October 2003 agreement. These obligations consisted of
promissory notes, accrued interest and deferred compensation. The Company
satisfied these obligations by issuing to the major investor and the
Company's CEO 304,939 units at a price of $6.52 per unit (609,878 shares
of common stock) and approximately $353,000 in cash. These units were
issued with the same terms and price as those in the Public Offering.
In February 2004, the Company issued to its general counsel 30,675 units
at a price of $6.52 per unit (61,350 shares of common stock) for payment
of the $200,000 accounts payable.
Note 3 - Basic and diluted net loss per common share:
The Company presents "basic" earnings (loss) per common share and, if
applicable, "diluted" earnings per common share pursuant to the provisions
of Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"). Basic earnings (loss) per common stock is calculated
by the dividing net income or loss applicable to common stock by the
weighted average number of common shares outstanding during each period.
The calculation of diluted earnings per common share is similar to that of
basic earnings per common share, except that the denominator is increased
to include the number of additional common shares that would have been
outstanding if all potentially dilutive common shares, such as those
issuable upon the exercise of stock options, warrants, and the conversion
of notes payable were issued during the period. The rights of the
Company's preferred and common stock holders are substantially equivalent.
The Company has included the 25,365 preferred shares from the date of
their issuance in the weighted average number of shares outstanding in the
computation of basic loss per share for the three months ended March 31,
2004 and 2003 in accordance with the "two class" method of computing
earnings (loss) per share set forth in SFAS 128.
Since the Company had net losses for the three months ended March 31, 2004
and 2003, the assumed effects of the exercise of 1,309,920 and 1,048,486
outstanding stock options and warrants, and the conversion of notes
payable into common stock at March 31, 2004 and 2003, were not included as
their effect would have been anti-dilutive.
Note 4 - Significant Customer:
The Company had one foreign customer who accounted for approximately 13.1%
and 31.1%, of its net sales for the three months ended March 31, 2004 and
2003, respectively. At March 31, 2004, receivables from this customer were
approximately 77.6% of the Company's total accounts receivable.
10
MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 - Notes Payable
A) Short term notes payable consist of $100,000 in 6% promissory notes:
During June 2003, the Company issued a $50,000 promissory note to an
existing investor. The note bears interest at 6% and matures on
November 27, 2004. At the Company's option, the principal and
interest is payable on the maturity date in common stock at a rate
of one share of our common stock for every $.936 of indebtedness.
Additionally, the Company granted the investor warrants to purchase
53,419 shares of our common stock at a per share price of $1.56 with
an estimate fair value of $14.423 at any time or from time to time
during the period commencing on June 4, 2003 and ending June 3,
2005. This resulted in an initial increase to debt discount and to
additional paid-in capital of $14,423. As of March 31, 2004, the
unamortized portion of the debt discount was $6,410.
During September 2003, the Company issued a $50,000 promissory note
to an existing investor. The note bears interest at 6% and matures
on March 24, 2005. At the option of the Company, the principal and
interest are payable on the maturity date in common stock at a rate
of one share of common stock for every $3.30 of indebtedness.
Additionally, Milestone granted the investor warrants to purchase
5,000 of common stock at a per share price of $6.00 with an estimate
fair value of $10,400 at any time or from time to time during the
period commencing from June 4, 2003 through June 5, 2005. This
resulted in an initial increase to debt discount and to additional
paid-in capital of $10,400. As of March 31, 2004, the unamortized
portion of the debt discount was $6,810.
Note 6 - Legal Proceedings
On June 10, 2002, a former distributor, Henry Schein, Inc., sued
Milestone in the Supreme Court of the State of New York for $110,851
claimed to be due them for returned merchandise. The Company
answered the Complaint denying the material allegations. The action
lay dormant until late 2003 when the Company and Schein entered into
a settlement in principle whereby the Company will provide Schein
with certain inventory, and Schein will provide the Company with
Release and a Stipulation Discontinuance with prejudice. It is
expected the settlement will be finalized in the second quarter of
2004.
On May 9, 2003, Milestone was served with a Breach of Contract
Complaint. In the complaint, the plaintiff, Korman/Lender Management
(landlord of the facility formerly used by Milestone in Deerfield,
IL) sought damages of $17,755 plus costs, including attorney's fees,
interest and continuing rental obligation. In March 2004, the
parties reached an out of court settlement for $43,500 and exchanged
mutual releases.
The Company believes that these claims have been adequately provided
for in its unaudited condensed consolidated financial statements.
11
MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7 - Employee Stock Option Plan
As of March 31, 2004, there were 198,447 outstanding options granted under
the Milestone 1997 Stock Option Plan. The Company accounts for these plans
under the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations. No
stock-based employee compensation cost is reflected in net loss, as all
options granted under those plans had an exercise price equal to the
market value of the underlying common stock on the dates of grant. The
following table illustrates on net loss and loss per share as if the
Company had applied the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation.
The fair value of each option granted is estimated on the date of the
grant using the Black-Scholes option pricing model with the following
assumptions used for the grants in the quarters ended March 31, 2004 and
2003, respectively: dividend yield of 0%; expected volatility of 135%;
risk free interest rate of 2.5% and 4.5%; and expected lives of 5 years.
Three Months ended
March 31
2004 2003
---- ----
Net loss, as reported $(518,793) $(508,245)
Deduct: Total stock-based
employee compensation expenses
determined under fair value based
method for all awards (5,531) (56,154)
--------- ---------
Net loss, pro forma $(524,324) $(564,399)
========= =========
Loss per share: Basic and diluted
As reported $ (.07) $ (.12)
========= =========
Pro forma $ (.07) $ (.13)
========= =========
12
ITEM 2. Management's Discussion and Analysis or Plan of Operation.
OVERVIEW
During the past two years we have operated under significant cash
constraints and as a result have not been able to adequately support sales and
marketing efforts at the levels required to maintain and increase revenues.
These cash constraints were eliminated on February 23, 2004 with the raise of
approximately $9.4 million of gross proceeds (approximately $7.8 million after
underwriter's discount, underwriter's expense allowance and other offering
related expenses) in an underwritten public offering.
During our last two fiscal years we have generated most of our revenues
through sales of our CompuDent system and The Wand disposable handpiece used
with that system. Revenues have been earned domestically and internationally
through sales in more than 25 countries. During this period handpiece sales have
provided a growing portion of our revenues, reflecting a growing base of new
customers for our systems internationally and more intensive use of their
systems by a relatively stagnant base of customers domestically. Though we have
continued to sell new systems domestically, a large part of our domestic sales
during this period represented the sale of upgraded units or additional units to
our existing customer base. Our limited domestic sale of new systems reflects
our limited sales and marketing efforts as a result of cash constraints. We
expect to use a portion of the proceeds of the recently completed offering to
increase sales and marketing expense and believe these increases should generate
additional revenue. The following table shows a breakdown of our revenues,
domestically and internationally, by product category, and the percentage of
total revenue by each product category:
THREE MONTHS ENDED MARCH 31,
----------------------------
2004 2003
---- ----
DOMESTIC
CompuDent $ 219,180 26.6% $ 185,425 28.1%
Handpieces 549,169 66.5% 423,959 64.2%
Other 56,689 6.9% 51,230 7.7%
---------- ----- ---------- -----
Total Domestic 825,038 100.0% $ 660,614 100.0%
========== ===== ========== =====
INTERNATIONAL
CompuDent $ 78,780 29.3% $ 244,425 52.6%
Handpieces 176,310 65.5% 218,112 46.9%
Other 14,095 5.2% 2,574 .5%
---------- ----- ---------- -----
Total International $ 269,185 100.0% $ 465,111 100.0%
========== ===== ========== =====
DOMESTIC/INTERNATIONAL ANALYSIS
Domestic $ 825,038 75.4% $ 660,614 58.7%
International 269,185 24.6% 465,111 41.3%
---------- ----- ---------- -----
Totals $1,094,223 100.0% $1,125,725 100.0%
========== ===== ========== =====
13
Summary of Critical Accounting Policies
Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which
have been prepared in accordance with accounting principles generally
accepted in the Untied States of America. The preparation of these
consolidated financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including
those related to accounts receivable, inventories, advances to our
contract manufacturer, stock based compensation and contingencies. We base
our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources.
Actual results may differ from those estimates under different assumptions
or conditions.
Inventory
Inventories principally consist of finished goods and component parts
stated at the lower cost (first-in, first-out method) or market.
Impairment of Long-Lived Assets
We review long-lived assets for impairment whenever circumstances and
situations change such that there is an indication that the carrying
amounts may not be recovered.
Revenue Recognition
Revenue is recognized when title passes at the time of shipment and
collectibility is reasonably assured.
Results of Operations
The consolidated results of operations for the three months ended March
31, 2004 reflect growth of our user base and the initial additional expenditures
necessary to further expand our customer base both domestically and abroad. The
net loss for the three months ended March 31, 2004, represents a 2% increase
from the same period in 2003.
The following table sets forth for the periods presented, statement of
operations data as a percentage of revenues. The trends suggested by this table
may not be indicative of future operating results.
THREE MONTHS ENDED MARCH 31,
----------------------------
2004 2003
---- ----
Net sales $1,094,223 100.0% $1,125,725 100.0%
Cost of sales 546,300 49.9% 549,084 48.8%
Gross profit 547,923 50.1% 576,641 51.2%
Selling, general & administrative
expenses 984,868 90.1% 758,981 67.4%
Closing of Deerfield, II facility 0 0% 52,723 4.7%
Research & development 41,211 3.8% 32,001 2.8%
Loss from operations (478,156) (43.7%) (267,064) (23.7%)
14
Three months ended March 31, 2004 compared to three month ended March 31, 2003
Net sales for the three months ended March 31, 2004 and 2003 were
$1,094,223 and $1,125,725, respectively. The $31,502 or 2.8% decrease is
primarily related to an approximate $196,000 decrease in international sales
partially offset by a $34,000 aggregate increase in CompuDent and CompuMed sales
domestically and a $125,000 increase in domestic sales of the Wand handpieces.
The decrease in foreign sales is largely attributable to the timing of orders by
Milestone's largest distributor.
Cost of sales for the three months ended March 31, 2004 and 2003 were
$546,300 and $549,084, respectively. The $2,784 decrease is attributable
primarily to the decrease in international sales.
For the three months ended March 31, 2004, Milestone generated a gross
profit of $547,923 or 50% as compared to a gross profit of $576,641 or 51% for
the three months ended March 31, 2003.
Selling, general and administrative expenses for the three months ended
March 31, 2004 and 2003 were $984,868 and $758,981, respectively. The $225,887
increase is attributable primarily to an approximate increase of $53,000 in
expenses associated with the sale and marketing of the Wand technology, a
$71,000 increase in legal and professional fees, a $84,000 expenditure for
foreign patent applications and a $24,000 increase in insurance expenses.
For the three months ended March 31, 2003, Milestone incurred cost
totaling $52,723 which relates to the closing of its facility in Deerfield, IL.
Research and development expenses for the three months ended March 31,
2004 and 2003 were $41,211 and $32,001, respectively. These costs are associated
with the development of Milestone's SafetyWand and variations to the CompuFlo
technology.
The loss from operations for the three months ended March 31, 2004 and
2003 were $478,156 and $267,064, respectively. The $211,092 increase in loss
from operations is explained above.
Interest expense of $52,771 was incurred for the three months ended March
31, 2004 as compared to $241,181 for the year ended March 31, 2003. The decrease
is mainly attributable to an aggregate of $7 million debt to equity conversion
in September 2003 and February 2004.
The net loss for the three months ended March 31, 2004 was $518,793 as
compared to a net loss of $508,245 for the year ended March 31, 2003. The
$10,548 increase in net loss is explained above.
Liquidity and Capital Resources
As shown in the accompanying condensed consolidated financial statements,
Milestone incurred net losses of approximately $519,000 and $508,000 and
negative cash flows from operating activities of approximately $1,397,000 and
$236,000 during the three months ending March 31, 2004 and 2003, respectively.
Management believes that initial concerns about the Company's historical cash
constraints were eliminated at the closing of the public offering on February
23, 2004, as discussed below.
15
Public Offering
On February 23, 2004, the Company closed a $9.4 million Public Offering
(the "Offering") ($7.8 after underwriter discount, underwriter non accountable
expense allowance and other expenses). The Offering consisted of the sale of
1,440,000 units at a price of $6.52 per unit. Each unit consisted of two shares
of common stock and one warrant. The warrants included in the units are
exercisable at any time after they become separately tradable until their
expiration date, five years after the date of the closing of the Offering of an
exercise price equal to $4.89 (150% of the closing market price of our common
stock on the pricing date of this Offering). Some or all of the warrants may be
redeemed by us at a price of $0.01 per warrant, by giving not less than 30 days
notice to the holders of the warrants, which the Company may do at any time,
beginning 6 months from the effective date of this Offering after the closing
price for the Company's common stock on the principal exchange on which it
trades (i.e. AMEX) has equaled or exceeded 200% of the price of the Company's
common stock on the effective date of this Offering. The common stock included
in the units and the warrants traded only as a unit until March 18, 2004, 30
days following the closing date of the Public Offering.
Net proceeds of the Offering were used to pay down promissory notes, the
credit facilities, interest and deferred compensation as discussed above. The
remainder of the proceeds of approximately $6.3 million will be used primarily
to expand and support sales and marketing efforts for CompuDent in the United
States, including new marketing and advertising campaigns, support the launch of
the recently announced SafeyWand product line, expand international sales effort
and develop commercial models of products using other new subcutaneous injection
technologies.
Upon the closing of the Offering, the Company, in accordance with an
October 2003 agreement, satisfied $2,341,000 of obligations due to the Company's
CEO and a major investor through the issuance of 304,939 units at a price of
$6.52 and approximately $353,000 in cash. These units were issued with the same
terms and price as those in the Offering. The obligations satisfied consisted of
promissory notes, accrued interest and deferred compensation.
In February 2004, the Company issued to its general counsel 30,675 units
at a price of $6.52 per unit for payment of $200,000 of accounts payable.
Cash flow results
As of March 31, 2004, the Company has cash and cash equivalents of
$6,333,456 and working capital of $6,692,830.
For the three months ended March 31, 2004, the Company's net cash used in
operating activities was $1,396,736. This was attributable primarily to a net
loss of $518,793 adjusted for noncash items of $45,852 (of which $36,660 was
amortization of debt discount and deferred financing costs); a $94,172 increase
in accounts receivable; a $4,006 increase in inventories; a $18,186 increase in
advances to contract manufacturer; a decrease in prepaid expenses of $40,704; a
$1,568 decrease in other assets; a decrease in accounts payable of $578,544; an
$81,215 decrease in accrued interest; a $28,556 increase in accrued expenses;
and a $218,500 decrease in deferred compensation.
For the three months ended March 31, 2004, the Company used $93,189 in
investing activities for capital expenditures.
For three months ended March 31, 2004, the Company generated $7,820,104
from financing activities as it completed the $9.4 million Offering after the
underwriters' discount of $657,216, underwriters' non accountable expense of
$281,664 and other expenses totaling $629,816.
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ITEM 3. CONTROLS AND PROCEDURES
a) Evaluation of Disclosure Controls and Procedures. Milestone's management,
with the participation of the chief executive officer and the chief financial
officer, carried out an evaluation of the effectiveness of Milestone's
"disclosure controls and procedures" (as defined in the Securities Exchange Act
of 1934 (the "Exchange Act") Rules 13a-15(e) and 15-d-15(e)) as of the end of
the period covered by this quarterly report (the "Evaluation Date"). Based upon
that evaluation, the chief executive officer and the chief financial officer
concluded that, as of the Evaluation Date, Milestone's disclosure controls and
procedures are effective, providing them with material information relating to
Milestone as required to be disclosed in the reports Milestone files or submits
under the Exchange Act on a timely basis.
b) Changes in Internal Control over Financial Reporting. There were no changes
in Milestone's internal controls over financial reporting, known to the chief
executive officer or the chief financial officer, that occurred during the
period covered by this report that has materially affected, or is reasonably
likely to materially affect, Milestone's internal control over financial
reporting.
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PART II
ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES
Recent Sales of Unregistered Securities
On February 23, 2004 we issued 120,994 units to our Chief Executive
Officer, Leonard Osser in satisfaction of $404,877 of debt and interest and
$384,000 of accrued compensation and 183,946 units to K. Tucker Andersen, a
major shareholder, in satisfaction of $1,199,327 of debt and interest. Also, on
February 23, 2004, we issued 30,675 units to a service provider in satisfaction
of $200,000 worth of services rendered. All of the above-mentioned units are
similar to those offered to the public in the February 2004 public offering,
consisting of two shares of common stock and one warrant to purchase one share
of common stock at an exercise price of $4.89 and were valued at $6.52, the
initial price. The units were acquired for investment by accredited investors
and may be issued without registration under the Securities Act of 1933, as
amended, pursuant to the exemptions provided under sections 4(2) and 4(6). The
units, which are restricted securities and bear a restrictive legend, are
subject to stop transfer restrictions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
31.1 Chief Executive Officer Certification pursuant to section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Chief Financial Officer Certification pursuant to section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Chief Executive Officer Certification pursuant to section 906
of the Sarbanes-Oxley Act of 2002.
32.2 Chief Financial Officer Certification pursuant to section 906
of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
On February 24, 2004, the Registrant filed a report on Form 8-K
regarding its issuance of a prior release announcing finance results
for the fiscal year ended December 31, 2003.
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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, thereunto duly
authorized.
MILESTONE SCIENTIFIC INC.
Registrant
/s/ Leonard Osser
-------------------------------------
Leonard Osser Chairman and
Chief Executive Officer
/s/ Thomas M. Stuckey
-------------------------------------
Thomas M. Stuckey, Vice President and
Chief Financial Officer
Dated: May 17, 2004
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