Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2008
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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 001-14053
Milestone Scientific Inc.
(Exact name of registrant as specified in its charter)
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| Delaware |
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13-3545623 |
State or other jurisdiction of
Incorporation or organization
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(I.R.S. Employer
Identification No.) |
220 South Orange Avenue, Livingston Corporate Park, Livingston, NJ 07039
(Address of principal executive offices)
Registrant’s telephone number, including area code 973-535-2717
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $.001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405
of the Securities Act. o Yes þ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13
or Section 15(d) of the Act. o Yes þ No
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. þ Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
As of June 30, 2008, the last business day of the Company’s most recently completed second
fiscal quarter, the aggregate market value of the common stock held by non — affiliates of the
issuer was $5,565,591. This amount is based on the closing price of $0.62 per share of the
Company’s common stock as of such date, based on the Nasdaq Over-the-Counter Bulletin Board.
As of March 16, 2009 the registrant has a total of 12,925,694 shares of Common Stock, $0.001
par value outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part of the Form
10-K (e.g., Part I, Part II, etc.)
into which the document is incorporated: (1) Any annual report to security holders; (2) Any
proxy or information statement;
and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933.
The listed documents should be
clearly described for identification purposes (e.g., annual report to security holders for
fiscal year ended December 24, 1980).
None
MILESTONE SCIENTIFIC INC.
Form 10-K Annual Report
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
Certain statements made in this Annual Report on Form 10-K are “forward-looking statements”
(within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans
and objectives of management for future operations. Such statements involve known and unknown
risks, uncertainties and other factors that may cause actual results, performance or achievements
of Milestone to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. The forward-looking statements included
herein are based on current expectations that involve numerous risks and uncertainties. Milestone’s
plans and objectives are based, in part, on assumptions involving the continued expansion of
business. Assumptions relating to the foregoing involve judgments with respect to, among other
things, future economic, competitive and market conditions and future business decisions, all of
which are difficult or impossible to predict accurately and many of which are beyond the control of
Milestone. Although Milestone believes that its assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate. In light of the
significant uncertainties inherent in the forward-looking statements included herein, particularly
in view of Milestone’s early stage operations, the inclusion of such information should not be
regarded as a representation by Milestone or any other person that the objectives and plans of
Milestone will be achieved. The Company undertakes no obligation to revise or update publicly any
forward-looking statements for any reason.
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PART I
Item 1. Description of Business
All references in this report to “Milestone,” “us,” “the”, “Company”, “Milestone” or
Milestone Scientific refer to Milestone Scientific Inc., and its former subsidiary, Spintech, Inc.
(“Spintech”), unless the context otherwise indicates. Milestone have rights to the following
trademarks: CompuDent®, CompuMed®, CompuFlo®, The
Wand®, The Wand Plus®, The SafetyWand®, Cool Blue
Wand®, Cool Blue Tooth Whitening System™, Dynamic Pressure Sensing
Technology®, STA Single Tooth Anesthesia™, Ionic White® (light
emitting diode), and Ionic White™ (whitening toothpaste). Milestone was incorporated in
the State of Delaware in 1989.
BUSINESS
Background
Milestone is engaged in pioneering proprietary, highly innovative technological systems and
solutions for the medical and dental markets. From its inception, the Company has focused its
energy and resources on redefining the global standard of care for injection techniques by making
the experience more comfortable for the patient and by reducing the anxiety and stress of giving
injections for the healthcare provider.
In 1997, Milestone first introduced The Wand® (CompuDent® system) and
the disposable Wand handpiece. CompuDent provides painless injections for all routine dental
treatments, including root canals, crowns, fillings and cleanings. Milestone’s Computer-Controlled
Local Anesthetic Delivery (CCLAD) system does not look like a syringe. It does not feel like a
syringe. And, what’s more, it works better than a syringe, resulting in a more pleasant experience
for the patient and practitioner. With more than 18,000 CompuDent systems sold within four months
of its market introduction, this represented the most successful launch in the history of small
equipment sales in U.S. dentistry.
Milestone subsequently expanded its product offerings with the introduction of the
CompuMed® advanced injection system, designed for use in a wide range of applications
within the Medical industry, including cosmetic surgery, hair restoration surgery, podiatry,
colorectal surgery, nasal and sinus surgery, dermatology and orthopedics, among others.
Central to Milestone’s intellectual property platform and current product development strategy
is its patented CompuFlo™ technology for the precise delivery of medicaments. The CompuFlo
pressure/force CCLAD technology is an advanced, patented and FDA approved medical technology for
the painless and accurate delivery of drugs, anesthetics and other medicaments into all tissue
types, as well as for the aspiration of bodily fluids or previously injected substances. Its
regulation and control of flow rate continues to provide the CompuDent and CompuMed benefits of
painless injections, while its Dynamic Pressure Sensing® capability provides visual and
audible in-tissue pressure feedback, identifying tissue types to the healthcare provider. This
pressure feedback extends the benefit of painlessness from anesthetics with known viscosities to a
wide range of liquid drugs and other medicaments with varying viscosities and flow rates. Dynamic
Pressure Sensing also allows the healthcare provider to know when certain types of tissues have
been penetrated and permits the healthcare provider to inject medicaments precisely at the desired
location. Thus, pressure feedback can prevent the suffusion of tissue outside the intended target
area, a vitally important characteristic in the injection of chemotherapeutics and other toxic
substances.
The CompuFlo technology consists of two critical elements. One element is the ability to
determine exit pressure In Situ (in the injection site tissue) at the tip of the needle in real
time. This minimizes tissue damage (and eliminates the pain of the injection) because the flow
rate and pressure of the injection are controlled. The other critical element of the technology is
an integrated injection database of algorithms that have been defined which allow for the
measurement of the exit pressure. This database of algorithms contains the critical components of
specific drugs, parameters of needles, tubing and syringes and all other pertinent components for
the safe and efficacious delivery of medications for all procedures.
The CompuFlo technology also consists of a disposable injection handpiece that provides for
precise tactile control during the injection, an electromechanical (computer controlled) fluid
delivery system and the ability to record data from the injection event. As confirmed by numerous
noted medical and dental experts within academia and the clinical practice arenas, CompuFlo has the
potential to greatly increase the safety and efficacy of many injection procedures that currently
rely upon over 150-year-old hypodermic syringe technology and the tactile senses and delivery
expertise of the administrator.
On September 14, 2004, Milestone Scientific was issued United States Patent No. 6,786,885 for
the CompuFlo technology, entitled “Pressure/Force Computer Controlled Drug Delivery System with
Exit Pressure.” Proprietary software, working with an innovative technology, allows the system to
continuously monitor and control the exit pressure of fluid and/or medication during an injection.
This same technology also enables doctors to accurately identify different tissue types based on
exit pressure during an injection. The technology has numerous applications in both medicine and
dentistry, including epidural and intra-articular injections.
In December 2004, the United States Patent Office issued a “Notice of Allowance” for
patent protection on two additional critical elements of the CompuFlo automated drug delivery
technology: “Drug Delivery System with Profiles” and “Pressure/Force Computer Controlled Drug
Delivery with Automated Charging”.
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In December 2005, Milestone submitted a pre-market notification to the US Food and
Drug Administration (FDA) on its CompuFlo technology, which was subsequently cleared by the FDA in
July of 2006. This initial submission was critical for Milestone’s continuing efforts to develop
and commercialize this important technology. Milestone has identified a number of potential
applications for CompuFlo, including self-administered drug delivery, arthritic joint pain
management and epidurals.
After receiving FDA 510(k) Pre-market Notification acceptance for the marketing and sale of
the STA Single Tooth Anesthesia System™ (STA System), Milestone introduced the
instrument to market in February 2007 at the Chicago Dental Society’s 143rd Midwinter
Meeting. The STA System is a patented CCLAD system that incorporates the “pressure feedback”
elements of Milestone’s patented CompuFlo technology, thereby allowing dentists to administer
injections accurately and painlessly into the periodontal ligament space, effectively anesthetizing
a single tooth. This injection is of significant value in that it allows the dentist to profoundly
anesthetize the patient within one or two minutes, allowing for a significant savings of waiting
time. The patient will suffer neither pain nor collateral anesthesia in the cheek, lips or tongue
at any time. The STA System is also capable of performing all of the injections that can be done
with a conventional dental syringe, including the palatal-anterior superior alveolar, anterior
middle superior alveolar and inferior alveolar nerve block. The STA System achieves these
injections predictably and reliably.
Initial market response to the STA System following its commercial debut in February 2007
proved to be less than robust. Moreover, at that time, the Company had granted exclusive US and
Canadian distribution and marketing rights for the STA System to Henry Schein, Inc., the largest
distributor of healthcare products and services to office-based practitioners in the combined North
American and European markets. Following several months of lackluster sales and after making
critical senior management changes, Milestone initiated an in-depth market study to reassess its
positioning and marketing strategies for the STA System. The insight gained from this study led
management to define and implement a new messaging platform, created to emphasize key benefits that
Milestone discovered are of most value to dental professionals. This refined product messaging was
launched in January 2008 and is in constant review.
During the second quarter of 2008, Milestone elected to forego renewing the exclusive
marketing and distribution agreement originally signed with Henry Schein, Inc.; instead, the
Company granted Schein non-exclusive distribution rights to both market and sell the STA System and
related disposable handpieces to dental professionals in the U.S. and Canada. In June 2008,
Milestone expanded the domestic distribution network with the addition of Patterson Dental Supply
as a non-exclusive distributor. Patterson has the largest direct sales force in the industry,
totaling approximately 1,400 sales representatives and equipment/software specialists addressing
the needs of the U.S. and Canadian dental markets. Later in the year, Benco Dental, Burkhart
Dental, Goetze Dental and Atlanta Dental Supply — all notable regional distributors — were granted
non-exclusive distribution and marketing rights to the STA System, thereby expanding Milestone’s
domestic distribution network comprised of over 2,450 independent reps.
Despite being granted CE Mark approval of the STA System in June 2007 by European regulatory
authorities, Milestone elected to initiate its international launch in the first quarter of 2008.
Following the launch of the STA System‘s new messaging platform in early 2008, Milestone granted
exclusive marketing and distribution rights to two foreign distributors: Istrodent Pty Ltd AB, a
leading distributor serving the Southern Africa dental market; and Unident AB, a leading supplier
of dental products in the Scandinavian countries of Denmark, Sweden, Norway and Iceland.
CompuFlo™ Advanced Injection Technology — Core Technology
CompuFlo™ is a revolutionary new technology for injections. CompuFlo enables health
care practitioners to monitor and precisely control “pressure,” “rate” and “volume” during all
injections and can be used to inject all liquid medicaments as well as anesthetics. CompuFlo can
also be used to aspirate body fluids.
Negative side effects from the use of traditional hypodermic drug delivery injection
systems are well documented in dental and medical literature and include risk of death, transient
or permanent paralysis, pain, tissue damage and post-operative complications. The pain and tissue
damage are a direct result of uncontrolled flow rates and pressures that are created during the
administration of drug solutions into human tissue. While several technologies have been capable of
controlling flow rate, the ability to accurately and precisely control pressure has been
unobtainable until the development of CompuFlo.
Precisely controlling in-tissue pressure increases patient safety by reducing the risk of
tissue damage and post-treatment pain related to excessive pressure that may occur during certain
injections. Identification of the tissue, in which the needle tip is imbedded, is believed to be
highly important in epidural injections, intra-articular injections and numerous organ,
subcutaneous and intramuscular injections.
CompuFlo‘s pressure sensing technology provides an objective tool that consistently and
accurately identifies the epidural space by correctly detecting the difference in pressure between
the ligamentum flavum and the extraligamentary tissue. In studies utilizing the CompuFlo technology
the epidural space has been correctly identified 100 % of the time. Knowing the precise location
of a needle during an epidural injection procedure provides a measure of safety not presently
available to doctors using conventional syringes, who identify the epidural space by relying on the
subjective perception of loss of resistance to air or saline.
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In the absence of curative procedures, arthritis patients are obliged to endure painful
multiple annual injections for a lifetime. Often these injections are not efficacious, because the
doctor using a syringe failed to locate the intra-articular space or did not inject the appropriate
volume of hyaluronic acid or other medicament into that space. The CompuFlo technology
has been successful in administering viscous hyaluronic acid and other medicaments into the
intra-articular space in both small and large joints using its computer-controlled pressure sensing
capabilities in an independent animal study.
There are a number of injectable drugs routinely self-administered in a home or office setting
using spring loaded automatic injection devices by people who suffer from long term chronic
conditions such as Multiple Sclerosis and Rheumatoid Arthritis. The CompuFlo technology, using
pressure sensing capabilities, can serve as a painless subcutaneous injection method for these
self-administered drugs. A significant reduction in pain during delivery will have a positive
impact on compliance, which is a major consideration when physicians are determining which drugs to
prescribe.
The CompuFlo technology is patented and embedded in an FDA approved prototype. The technology
is currently being used in the STA System, that is being sold worldwide in the dental market. Over
35 million patient injections have been given with these two instruments. The CompuFlo technology
has been tried and proven in human and animal studies, as well as by dentists in most parts of the
world who are using the STA System in their practices. Over 70 publications have validated the
efficacy and safety of the CompuDent and CompuMed technologies in a variety of medical injection
applications. Milestone will continue to work to develop and introduce products that substantially
improve the standard of care for patients around the world.
Product Platform
Milestone has developed and brought to market a highly differentiated portfolio of industry
innovations. Thus far, the Company’s proprietary solutions have succeeded in elevating the
standard of care in the professional dental arena. The product portfolio includes:
STA Single Tooth Anesthesia System™ (STA System)
The STA Single Tooth Anesthesia System™ (STA System) is a patented,
computer-controlled local anesthesia delivery system that incorporates the “pressure feedback”
elements of Milestone’s patented CompuFlo technology, thereby allowing dentists to administer
injections accurately into the periodontal ligament space, effectively anesthetizing a single
tooth. While the periodontal ligament injection has been available for some time, there has been no
effective technology that allows dentists to easily perform the procedure painlessly, safely and
predictably until now. With this unique procedure dentists can easily and predictably anesthetize a
single tooth root tooth in one minute and a multiple root tooth in two minutes, without first
administering a general blocking injection and waiting up to 15 minutes (or longer if the blocking
injection needs to be re-administered) before proceeding to anesthetize the target tooth. A device
which allows dentists to effectively anesthetize a single tooth will greatly enhance the
productivity of dental practices and, when combined with the painless injection capabilities
already present in the CompuDent system, such a device provides a compelling value in the
marketplace. The STA System will generate recurring revenues from per-patient disposable
handpieces.
Since its market introduction in the spring of 2007, the STA System has received rave reviews
and awards from the dental industry. In July 2007, noted industry publication Dentistry Today
featured the STA System as one of the “Top 100 Products in 2007,” helping to promote much broader
recognition of the instrument and validating STA‘s value proposition for dentists and patients,
alike. In early 2008, Medical Device & Diagnostic Industry magazine distinguished the STA System
as a 2008 Medical Design Excellence Award winner in the “Dental Instruments, Equipment and
Supplies” product category. Of the 33 products to receive this coveted award, the STA was one of
only two winning products that serve dental practitioners. In December 2008, Milestone continued
to win broad acclaim for the STA System by winning a “Townie Choice Award". The “Townie Choice”
awards were originally started by Dr. Howard Darran and Farran Media, publisher of Dentaltown
Magazine, to assist dentists in making product purchasing decisions, and are considered the
“people’s choice” of the products and services available to the dental industry today. That same
month, the STA System was also named as a Dental Products Report “Top 100 2008 Product of
Distinction.”
CompuDent®
CompuDent (also known as the Wand Plus® in Europe) is Milestone’s
proprietary, patented Computer-Controlled Local Anesthetic Delivery (CCLAD) system and predecessor
of the STA System. CompuDent delivers anesthesia at a precise and consistent rate below a
patient’s pain threshold. Over the years, CompuDent has been widely heralded as a revolutionary
device, considered one of the major advances in dentistry in the 20th Century. The
instrument has been favorably evaluated in more than 50 peer reviewed or independent clinical
research reports. CompuDent, including its ergonomically designed single-use handpieces (The
Wand®), provides numerous, well documented benefits:
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CompuDent minimizes the pain associated with palatal, mandibular block and all other injections,
resulting in a more comfortable injection experience for the patient; |
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the pencil grip used with The Wand handpieces allows unprecedented tactile sense and accurate control; |
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new injections made possible with the CompuDent technology eliminate collateral numbness of the
tongue, lips and facial muscles; |
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bi-directional rotation of The Wand handpieces eliminates needle deflection resulting in greater
success and more rapid onset of anesthesia in mandibular block injections; |
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the use of a single patient use, disposable handpieces minimizes the risk of cross contamination; and |
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the ergonomic design of The Wand handpieces makes an injection easier and less stressful to
administer, lowering the risk of carpal tunnel syndrome. |
Despite CompuDent’s many benefits, including the administration of less painful and
more comfortable injections, dentists in the United States have been slow to give up the use of
traditional syringes. Dentists have all been trained to use syringes in dental school and often
have become accustomed to and comfortable with their use during many years of clinical practice, in
spite of the obvious reluctance and/or fear of the patient in relation to injections administered
by hypodermic syringe. There are approximately 40 million dental phobics, those people afraid to
visit a dentist, in the United States. Therefore, Milestone believes there is a disconnect in the
way dentists perceive their patients’ attitudes toward injection by hypodermic syringe. The
CompuDent is used today by thousands of dentists around the world, many of whom have long since
abandoned the over 150-year old syringe.
CompuMed®
CompuMed is a patented computer-controlled injection system geared to the needs of the medical
market and providing benefits similar to CompuDent. CompuMed allows many medical procedures, now
requiring intravenous sedation, to be performed with only local anesthesia due to dramatic pain
reduction. Also, dosages of local anesthetic can often be significantly reduced, thus reducing side
effects, accelerating recovery times, lowering costs and eliminating potential complications.
CompuMed has accumulated clinical evidence demonstrating benefits from use in colorectal surgery;
podiatry; dermatology, including surgery for the removal of basal cell carcinomas and other
oncological dermatologic procedures; nasal and sinus surgery, including rhinoplasty; hair
transplantation and cosmetic surgery, among others.
The Wand®
The Wand handpieces is used in conjunction with the STA, CompuDent and CompuMed systems. It
is an ergonomically designed and patented handpieces that enables all traditional and newer
injections, such as AMSA, P-ASA and Modified-PDL, to be more comfortable and easier to deliver.
Moreover, the pen-like grasp of The Wand allows bi-directional rotation during injection, which
prevents needle deflection that occurs with a traditional syringe. A straighter path results in a
more accurate injection, meaning fewer missed mandibular blocks, and more rapid onset of
anesthesia. Missed blocks are reported in the literature to occur 30% of the time. This raises both
patient anxiety and difficulties for the dentists in managing their business. While awaiting
profound anesthesia, the dentist is losing time and money.
The SafetyWand®
The SafetyWand is the first, patented safety-engineered injection device that
conforms to regulatory standards while also meeting the clinical needs of dental and medical
practitioners. Following the adoption of the Federal Needlestick Safety and Prevention Act,
Milestone developed, and in September 2003 the FDA approved marketing of, Milestone’s SafetyWand
disposable handpiece, a patented injection device that incorporates safety engineered sharp
protection features to aid in the prevention of needlesticks. The SafetyWand is the first patented
injection device to be fully compliant with OSHA regulations under the federal Needlestick Safety
Act while meeting the clinical needs of dentists.
The SafetyWand represents the culmination of two years’ effort to develop a safer
injection device for dentists, physicians and hygienists. While safety injection devices have been
mandated since 2000 under federal law, OSHA had been unable to enforce this law against dentists
because of the inadequacy of existing devices to meet both the requirements of the law and the
clinical needs of dentists. The SafetyWand meets these requirements and provides dental
practitioners with a safer retractable needle device, with single hand activation, which is
reusable multiple times during a single patient visit; yet small and sleek enough not to obscure
the dentist’s sometimes limited field of view. While SafetyWand is now available commercially, OSHA
has not begun, in a meaningful way, to enforce existing regulations requiring the use of safety
engineered devices. OSHA is empowered to levy substantial fines for failure to use these devices.
Competition
Milestone’s proprietary, patented Computer-Controlled Local Anesthesia Delivery (CCLAD)
systems compete with disposable and reusable syringes that generally sell at lower prices and that
use established and well-understood methodologies in both the dental and medical marketplaces.
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Milestone’s systems compete on the basis of their performance characteristics and the benefits
provided to both the practitioner and the patient. Clinical studies have shown that the systems
reduce fear, pain and anxiety for many patients, and Milestone believes that they can reduce
practitioner stress levels, as well. The Company’s newest product introduction, the STA
System, can be used for all dental injections that can be performed with a traditional dental
syringe. Moreover, the STA System can also be used for new and modified dental injection techniques
that cannot be performed with traditional syringes. These new techniques allow for faster
procedures shortening chair-time, minimizing the numbing of the lips and facial muscles, enhancing
practice productivity, reducing stress and virtually eliminating pain and anxiety for both the
patient and the dentist.
Milestone faces intense competition from many companies in the medical and dental device
industry, possessing substantially greater financial, marketing, personnel, and other resources.
Most competitors have established reputations, stemming from their success in the development,
sale, and service of competing dental products. Further, rapid technological change and research
may affect the products. Current or new competitors could, at any time, introduce new or enhanced
products with features that render the products less marketable or even obsolete. Therefore, the
company must devote substantial efforts and financial resources to improve existing products, bring
products to market quickly, and develop new products for related markets. In addition, the ability
to compete successfully requires that Milestone establish an effective distribution network as well
as support this distribution with a strong marketing plan. Historically, Milestone has been
unsuccessful in executing the marketing plans for the products, primarily due to resource
constraints. New products must be approved by regulatory authorities before they may be marketed.
Milestone cannot assure you that it can compete successfully; that competitors will not develop
technologies or products that render the products less marketable or obsolete; or, that Milestone
will succeed in improving the existing products, effectively develop new products, or obtain
required regulatory approval for those products.
Patents and Intellectual Property
Milestone holds the following U.S. utility and design patents:
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Computer Controlled Drug Delivery Systems |
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Hypodermic Anesthetic Injection Apparatus & Method |
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5,180,371 |
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1/19/1993 |
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Dental Anesthetic and Delivery Injection Unit |
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6,022,337 |
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2/8/2000 |
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Design for a Dental Anesthetic Delivery System Holder |
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D422,361 |
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4/4/2000 |
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Design for a Dental Anesthetic Delivery System Housing |
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D423,665 |
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4/25/2000 |
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Design for a Dental Anesthetic Delivery System Handle |
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D427,314 |
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6/27/2000 |
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Dental Anesthetic Delivery Injection Unit |
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6,132,414 |
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10/17/2000 |
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Dental Anesthetic Delivery Injection Unit |
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6,152,734 |
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11/28/2000 |
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Microprocessor-controlled Fluid Dispensing Apparatus |
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6,159,161 |
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12/12/2000 |
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Pressure/Force Computer Controlled Drug Delivery System |
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6,200,289 |
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3/13/2001 |
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Dental Anesthetic and Delivery Injection Unit with Automated Rate Control |
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6,652,482 |
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11/25/2003 |
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Pressure/Force Computer Controlled Drug Delivery System with Exit Pressure |
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6,786,885 |
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9/17/2004 |
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Pressure/Force Computer Controlled Drug Delivery System with Automated
Charging |
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6,887,216 |
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5/3/2005 |
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Drug Delivery System with Profiles |
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6,945,954 |
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9/20/2005 |
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Cartridge Holder for Anesthetic and Delivery Injection Device |
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D558,340 |
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12/25/2007 |
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Design for Drive Unit for Anesthetic |
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D566,265 |
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4/8/2008 |
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Design for Drive Unit for Anesthetic |
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D579,540 |
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10/28/2008 |
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Drug Infusion Device with Tissue Identification Using Pressure Sensing |
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7,449,008 |
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11/11/2008 |
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Engineered Sharps Injury Protection Devices |
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Handpiece for Injection Device with a Retractable and Rotating Needle |
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6,428,517 |
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8/6/2002 |
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Safety IV Catheter Device |
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6,726,658 |
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4/27/2004 |
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Safety IV Catheter Infusion Device |
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6,905,482 |
|
|
|
6/14/2005 |
|
Handpiece for Injection Device with a Retractable and Rotating Needle |
|
|
6,966,899 |
|
|
|
11/22/2005 |
|
During the 2008 and 2007 fiscal years, Milestone expensed $168,516 and $397,354, respectively,
on research and development activities. The higher costs incurred in 2007 were primarily associated
with the intensified effort towards the final development of the Single Tooth Anesthetic (STA)
delivery system and continuing efforts on the CompuFlo technology.
7
Milestone relies on a combination of patent, copyright, trade secret, and trademark laws and
employee and third party nondisclosure agreements to protect intellectual property rights. Despite
the precautions taken by Milestone to protect the products,
unauthorized parties may attempt to reverse engineer, copy, or obtain and use products and
information that Milestone regarded as proprietary, or may design products serving similar purposes
that do not infringe on Milestone’s patents. In 2006 Milestone began infringement actions in China
against four companies Milestone believe are infringing the CompuDent patents. These and other
litigations may be necessary to protect the intellectual property rights and could result in
substantial cost to us and diversion of the efforts with no guarantee of success. One of the four
infringement actions was resolved in favor of Milestone. The other three litigations remain in
process. The Company’s failure to protect its proprietary information and the expenses of doing so
could have a material adverse effect on the operating results and financial condition.
On October 2, 2008, Milestone announced that it had acquired additional patent rights with
respect to painless anesthetic injections — specifically rights related to controlling the flow
rate or pressures used in providing these injections — through the issuance of 260,000 shares of
restricted common stock. In connection with the acquisition, Milestone also agreed to terminate
its Declaratory Judgment action against Dr. Milton Hodosh related to claimed infringements of his
patent rights and Dr. Hodosh agreed to terminate his infringement action against the Company. Each
party was responsible for their own legal fees.
In the event that the products infringe upon patent or proprietary rights of others, Milestone
may be required to modify processes or to obtain a license. There can be no assurance that
Milestone would be able to do so in a timely manner, upon acceptable terms and conditions, or at
all. The failure to do so would have a material adverse effect on the Company.
Government Regulation
The FDA cleared the CompuDent system and its disposable handpieces for marketing in the U.S.
for dental applications in July 1996; the CompuMed system for marketing in the U.S. for medical
applications in May 2001; and, the Safety Wand for marketing in the U.S. for dental applications in
September 2003. For us to commercialize the other products in the U.S., Milestone will have to
submit additional 510(k) applications with the FDA. Milestone received FDA 510 (k) approval for
the STA System in August 2006.
The manufacture and sale of medical devices and other medical products are subject to
extensive regulation by the FDA pursuant to the FDC Act, and by other federal, state and foreign
authorities. Under the FDC Act, medical devices must receive FDA clearance before they can be
marketed commercially in the U.S. Some medical products must undergo rigorous pre-clinical and
clinical testing and an extensive FDA approval process before they can be marketed. These processes
can take a number of years and require the expenditure of substantial resources. The time required
for completing such testing and obtaining such approvals is uncertain, and FDA clearance may never
be obtained. Delays or rejections may be encountered based upon changes in FDA policy during the
period of product development and FDA regulatory review of each product submitted. Similar delays
also may be encountered in other countries. Following the enactment of the Medical Device
Amendments to the FDC Act in May 1976, the FDA classified medical devices in commercial
distribution into one of three classes. This classification is based on the controls necessary to
reasonably ensure the safety and effectiveness of the medical device. Class I devices are those
devices whose safety and effectiveness can reasonably be ensured through general controls, such as
adequate labeling, pre-market notification, and adherence to the FDA’s Quality System Regulation
(“QSR”), also referred to as “Good Manufacturing Practices” (“GMP”) regulations. Some Class I
devices are further exempted from some of the general controls. Class II devices are those devices
whose safety and effectiveness reasonably can be ensured through the use of special controls, such
as performance standards, post-market surveillance, patient registries, and FDA guidelines. Class
III devices are those which must receive pre-market approval by the FDA to ensure their safety and
effectiveness. Generally, Class III devices are limited to life-sustaining, life-supporting or
implantable devices.
If a manufacturer or distributor can establish that a proposed device is “substantially
equivalent” to a legally marketed Class I or Class II medical device or to a Class III medical
device for which the FDA has not required pre-market approval, the manufacturer or distributor may
seek FDA marketing clearance for the device by filing a 510(k) Pre-market Notification. The 510(k)
Pre-market Notification and the claim of substantial equivalence may have to be supported by
various types of data and materials, including test results indicating that the device is as safe
and effective for its intended use as a legally marketed predicate device. Following submission of
the 510(k) Pre-market Notification, the manufacturer or distributor may not place the device into
commercial distribution until an order is issued by the FDA. By regulation, the FDA has no specific
time limit by which it must respond to a 510(k) Pre-market Notification. At this time, the FDA
typically responds to the submission of a 510(k) Pre-market Notification within 90 days. The FDA
response may declare that the device is substantially equivalent to another legally marketed device
and allow the proposed device to be marketed in the U.S. However, the FDA may determine that the
proposed device is not substantially equivalent or may require further information, such as
additional test data, before the FDA is able to make a determination regarding substantial
equivalence. Such determination or request for additional information could delay market
introduction of products and could have a material adverse effect on us. If a device that has
obtained 510(k) Pre-market Notification clearance is changed or modified in design, components,
method of manufacture, or intended use, such that the safety or effectiveness of the device could
be significantly affected, separate 510(k) Pre-market Notification clearance must be obtained
before the modified device can be marketed in the U.S.. If a manufacturer or distributor cannot
establish that a proposed device is substantially equivalent to a legally marketed device, the
manufacturer or distributor will have to seek pre-market approval of the proposed device, a more
difficult procedure requiring extensive data, including pre-clinical and human clinical trial data,
as well as extensive literature to prove the safety and efficacy of the device.
8
Though the STA System, CompuDent, the Safety Wand and CompuMed have received FDA marketing
clearance, there can be no assurance that any of the other products under development will obtain
the required regulatory clearance in a timely manner, or at all. If regulatory clearance of a
product is granted, such clearance may entail limitations on the indicated uses for which the
product may be marketed. In addition, modifications may be made to the products to incorporate and
enhance their functionality and performance based upon new data and design review. There can be no
assurance that the FDA will not request additional information relating to product improvements;
that any such improvements would not require further regulatory review, thereby delaying the
testing, approval and commercialization of product improvements; or, that ultimately any such
improvements will receive FDA clearance.
Compliance with applicable regulatory requirements is subject to continual review and will be
monitored through periodic inspections by the FDA. Later discovery of previously unknown problems
with a product, manufacturer, or facility may result in restrictions on such product or
manufacturer, including fines, delays or suspensions of regulatory clearances, seizures or recalls
of products, operating restrictions and criminal prosecution and could have a material adverse
effect on the Company.
Milestone is subject to pervasive and continuing regulation by the FDA, whose regulations
require manufacturers of medical devices to adhere to certain QSR requirements as defined by the
FDC Act. QSR compliance requires testing, quality control and documentation procedures. Failure to
comply with QSR requirements can result in the suspension or termination of production, product
recall or fines and penalties. Products also must be manufactured in registered establishments. In
addition, labeling and promotional activities are subject to scrutiny by the FDA and, in certain
circumstances, by the Federal Trade Commission. The export of devices is also subject to regulation
in certain instances.
The Medical Device Reporting (“MDR”) regulation obligates us to provide information to the FDA
on product malfunctions or injuries alleged to have been associated with the use of the product or
in connection with certain product failures that could cause serious injury. If, as a result of FDA
inspections, MDR reports or other information, the FDA believes that Milestone are not in
compliance with the law, the FDA can institute proceedings to detain or seize products, enjoin
future violations, or assess civil and/or criminal penalties against us, the officers or employees.
Any action by the FDA could result in disruption of operations for an undetermined time.
In June 2007, Milestone received a CE mark for the marketing of the STA System in Europe. In
June 2003 Milestone received a CE mark for marketing of the Safety Wand and The Wand Handpieces
with Needle in Europe. In July 2003, Milestone obtained regulatory approval to sell CompuDent and
its handpieces in Australia and New Zealand.
Product Liability
Failure to use any of the products in accordance with recommended operating procedures could
potentially result in health hazards or injury. Failures of the products to function properly could
subject the company to claims of liability. Milestone maintains liability insurance in an amount
that Milestone believes is adequate. However, there can be no assurance that the insurance coverage
will be sufficient to pay product liability claims brought against the Company. A partially or
completely uninsured claim, if successful and of significant magnitude, could have a material
adverse effect on the Company.
Employees
On December 31, 2008 Milestone had a total of 18 employees, consisting of three executive
officers, a vice president of sales and marketing, a director of marketing, a director of
International and Professional Relations, a director of engineering, five sales representatives,
four customer service representatives, a staff accountant , and an administrative manager.
Milestone also has a full time consultant who serves as a Director of Clinical Affairs.
Item 1A. CERTAIN RISK FACTORS THAT MAY AFFECT GROWTH AND PROFITABILITY
The following factors may affect the growth and profitability of Milestone and should be
considered by any prospective purchaser or current holder of Milestone’s securities:
Milestone has no history of profitable operations. Continuing losses could exhaust capital
resources and force us to discontinue operations.
For the years ended December 31, 2008 and 2007 revenues were approximately $6.6 million and
$6.4 million, respectively. In addition, Milestone has had losses for each year since the
commencement of operations, including net losses of approximately $1.2 million and $2.9 million for
2008 and 2007, respectively. At December 31, 2008, Milestone had an accumulated deficit of
approximately $57.2 million. At December 31, 2008, the Company had cash and cash equivalents
$743,665 and working capital of $1,532,688. Additionally, the Company secured a line of credit in
the aggregate amount of $1.0 million in 2007. This Line of Credit was amended to $1.3 million in
2008. Additionally, in 2008 the Company borrowed $450,000 as a Long Term Note. Both the Line of
Credit and the Long Term Note were loaned from a stockholder, as discussed in Note H to the
Financial Statements. The Company is
actively pursuing the generation of positive cash flows from operating activities through
increases in revenues based upon management’s assessment of present contracts and current
negotiations and reductions in operating expenses.
9
As of December 31, 2008, the Company believes that it has sufficient cash reserves to meet all
of its anticipated obligations for the next 12 months. However, if the Company requires a need for
a higher level of marketing and sales effort, or if the Company is unable to generate positive cash
flows from its operating activities it will need to raise additional capital. There is no assurance
that the Company will be able to achieve positive operating cash flows or that additional capital
can be raised on the terms and conditions satisfactory to the Company if at all. If additional
capital is required and it cannot be raised, then the Company would be forced to curtail its
development activities, reduce marketing expenses for existing dental products or adopt other cost
savings measures, any of which might negatively affect the Company’s operating results.
The Company’s recurring losses and negative operating cash flows raise substantial doubt about
its ability to continue as a going concern.
Milestone cannot become successful unless it gains greater market acceptance for its products and
technology.
As with any new technology, there is substantial risk that the marketplace will not accept the
potential benefits of this technology or be unwilling to pay for any cost differential with the
existing technologies. Market acceptance of CompuDent, STA System, the SafetyWand, CompuMed and
CompuFlo depends, in large part, upon the ability to educate potential customers of the product’s
distinctive characteristics and benefits and will require substantial marketing efforts and
expense. More than 30,000 instruments of the CompuDent or its predecessors have been sold worldwide
since 1998. Since being introduced to market in February 2007, more than 1,700 instruments of the
STA System have been sold. Milestone cannot assure that its current or proposed products will be
accepted by practitioners or that any of the current or proposed products will be able to compete
effectively against current and alternative products.
The Company’s limited distribution channels must be expanded in order to become successful.
Future revenues depend on the Company’s ability to market and distribute the anesthetic
injection technology successfully. In the U.S. Milestone relies on several distributors, an outside
sales representative group, and a direct sales team. Abroad, Milestone lacks appropriate
distribution in many markets. To be successful, the Company will need to engage additional
distributors, provide for their proper training and ensure adequate customer support. Milestone
cannot assure that it will be able to hire and retain an adequate sales force or engage suitable
distributors, or that the sales force or distributors will be able to successfully market and sell
the products.
Milestone depends on three principal manufacturers. If the Company cannot maintain its existing
relationships or develop new ones, it may have to cease operations.
Milestone has informal arrangements with the manufacturer of the STA System, CompuDent and
CompuMed instruments and with one of the principal manufacturers of the handpieces, for those
instruments, respectively. Pursuant to the informal arrangements, they manufacture these products
under specific purchase orders without minimum purchase commitment. Milestone has a manufacturing
agreement with one of the principal manufacturers of its handpieces pursuant to which they
manufacture products under specific purchase orders but without minimum purchase commitments.
Milestone has been supplied by the manufacturer of the STA System, CompuDent and CompuMed since the
commencement of production in 1998, one of the manufacturers of its handpieces since 2002 and the
other manufacturer of handpieces since 2003. However, termination of the manufacturing relationship
with any of these manufacturers could significantly and adversely affect the ability to produce and
sell the products. Though Milestone has established an alternate source of supply for the
handpieces in China and other alternate sources of supply exist, Milestone would need to recover
its existing tools or have new tools produced to establish relationships with new suppliers.
Establishing new manufacturing relationships could involve significant expense and delay. Any
curtailment or interruptions of the supply, whether or not as a result or termination of the
relationship, would have an adverse affect.
Milestone may be subject to product liability claims that are not fully covered by insurance and
that could put the Company under financial strain.
Milestone could be subject to claims for personal injury from the alleged malfunction or
misuse of the dental and medical products. While Milestone carries liability insurance that is
believed to be adequate, the Company cannot assure that the insurance coverage will be sufficient
to pay such claims should they be successful. A partially or completely uninsured claim, if
successful and of significant magnitude, could have a material adverse effect on the Company.
Milestone relies on the continuing services of the Chairman, Chief Executive Officer and Director
of Clinical Affairs.
Milestone depends on the personal efforts and abilities of the Chairman, Chief Executive
Officer, and the Director of Clinical Affairs. Milestone maintains a key man life insurance policy
in the amount of $1,000,000 on the life of the Chairman. However, the
loss of his services or the services of each of the Chief Executive Officer or Director of
Clinical Affairs, on whom Milestone maintains no insurance, could have a materially adverse effect
on the business.
10
The market price of Milestone’s common stock has been volatile and may continue to fluctuate
significantly because of various factors, some of which are beyond the Company’s control.
Milestone’s stock price has been extremely volatile, fluctuating over the last two years
between closing prices of $.20 and $3.62. The market price of common shares could continue to
fluctuate significantly in response to a variety of factors, some of which may be beyond the
Company’s control.
Milestone is controlled by a limited number of shareholders.
Milestone’s principal shareholders, Leonard Osser and K. Tucker Andersen, beneficially own
22.8% of the issued and outstanding shares of common stock. As a result, they have the ability to
exercise substantial control over the Company’s affairs and corporate actions requiring shareholder
approval, including electing directors, selling all or substantially all of the assets, merging
with another entity or amending its certificate of incorporation. This de facto control could
delay, deter or prevent a change in control and could adversely affect the price that investors
might be willing to pay in the future for the Company’s securities.
Future sales or the potential for sale of a substantial number of shares of Milestone’s common
stock could cause the trading price of common stock and warrants to decline and could impair the
Company’s ability to raise capital through subsequent equity offerings.
Sales of a substantial number of shares of Milestone’s common stock in the public markets, or
the perception that these sales may occur, could cause the market price of the stock to decline and
could materially impair its ability to raise capital through the sale of additional equity
securities. At December 31, 2008, Milestone had outstanding options and warrants to purchase
3,601,245, shares of common stock at prices ranging from $0.30 to $5.00 per share with a weighted
average exercise price of $3.92. Holders of these warrants and options are given the opportunity to
profit from a rise in the market price of the common stock and are likely to exercise their
securities at a time when the Company would be able to obtain additional equity capital on more
favorable terms. Thus, the terms upon which the Company will be able to obtain additional equity
capital may be adversely affected, since the holders of outstanding options and warrants can be
expected to exercise them at a time when Milestone would, in all likelihood, be able to obtain any
needed capital on terms more favorable than the exercise terms provided by such outstanding
securities. The market price of the common shares has been volatile and may continue to fluctuate
significantly because of various factors, some of which are beyond the Company’s control.
In February 2009, 2,147,946 warrants at $4.89 to issue the equivalent number of shares of the
Company’s common stock expired.
Implementation of procedures to comply with the Sarbanes-Oxley Act and SEC rules concerning
internal controls may be so costly that compliance could have an adverse effect on the Company.
The Management of the Company has assessed the effectiveness of internal control over
financial reporting as of December 31, 2008. In making this assessment, management used the
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company complied with Sarbanes-Oxley
requirements to include in the annual report a management report on the effectiveness of the
internal control over financial reporting. However, this annual report does not include an
attestation report of the Company’s registered public accounting firm regarding internal control
over financial reporting. In 2005, Milestone hired an outside consultant to assist with the
development and implementation of the necessary internal controls and reporting procedures. In 2008
and 2007, the Company utilized the outside consultant on a quarterly basis to review compliance
with the internal controls over financial reporting. This expense amounted to $71,478 and $67,333
in 2008 and 2007, respectively and the cost is expected to continue in 2009.
Item 1B. Unresolved Staff Comments
None
Item 2. Description of Property
The office is located in Livingston Corporate Park in Livingston, New Jersey. The Company
leases approximately 6,300 square feet of office space, the lease term expires June 30, 2009 at a
monthly cost of $7,317 which Milestone believes to be competitive. The Company is currently in the
process of reviewing the current lease and negotiating with the landlord for possible extension of
the lease term. The leased office space is in good condition. A third party distribution and
logistics center in Pennsylvania handles shipping and order fulfillment on a month-to-month basis.
11
Milestone does not own or intend to invest in any real property. Milestone currently has no
policy with respect to investments or interests in real estate, real estate mortgages or securities
of, or interests in, persons primarily engaged in real estate activities.
Item 3. Legal Proceedings
In October 2008, Milestone announced that it acquired additional patent rights with respect to
painless anesthetic injections — specifically rights related to the flow rate or pressure used in
providing these injections — through the issuance of 260,000 shares of restricted common stock. In
connection with this acquisition, Milestone also agreed to terminate its Declaratory Judgment
action against Dr. Milton Hodosh related to claim infringements of his patent rights and Dr. Hodosh
agreed to terminate his existing infringement action against the Milestone. Each party is
responsible for their own legal fees.
At the present time, the Company is not involved in any significant litigation.
Item 4. Submission of matters to a Vote of Security Holders
None.
12
PART II
|
|
| Item 5. |
Market for Common Equity and Related Stockholder Matters and Small Business Issuer
Purchases of Equity Securities |
Market Information
Milestone’s Common Stock is traded on the NASDAQ’s OTC Bulletin Board (“OTCBB”) under the
symbol “MLSS”. Milestone’s warrants were traded on the OTCBB under the symbol “MLSSW” until
February 2009, when the warrants expired. The quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.
Common Stock
The following table sets forth the high and low sales prices of the Common Stock, as quoted by
the OTCBB
| |
|
|
|
|
|
|
|
|
| |
|
HIGH |
|
|
LOW |
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
1.57 |
|
|
$ |
0.75 |
|
Second Quarter |
|
$ |
1.05 |
|
|
$ |
0.56 |
|
Third Quarter |
|
$ |
0.80 |
|
|
$ |
0.30 |
|
Fourth Quarter |
|
$ |
0.40 |
|
|
$ |
0.20 |
|
2007 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
3.62 |
|
|
$ |
1.12 |
|
Second Quarter |
|
$ |
2.90 |
|
|
$ |
1.52 |
|
Third Quarter |
|
$ |
2.49 |
|
|
$ |
1.55 |
|
Fourth Quarter |
|
$ |
2.50 |
|
|
$ |
1.55 |
|
Holders
According to the records of the transfer agent, there were approximately 54 and 67
shareholders of record of the common stock as of December 31, 2008 and 2007. However, the Company
believes that there are approximately 2,400 and 2,600 beneficial owners of the Company’s common
stock at December 31, 2008 and 2007, respectively.
Dividends
The holders of the Common Stock are entitled to receive such dividends as may be declared by
Milestone’s Board of Directors. Milestone has not paid and does not expect to declare or pay any
dividends in the foreseeable future.
For information regarding securities authorized under the equity compensation plan, see Item
12.
Sales of Unregistered Securities
See NOTE I — STOCKHOLDERS’ EQUITY, to the financial statements for the issuance of
unregistered securities.
ITEM 6. Selected Financial Data
Milestone are a “smaller reporting company” as defined by Regulations S-K and as such, are not
providing the information contained in this item pursuant to Regulation S-K.
ITEM 7. Management’s Discussion and Analysis of Financial condition and Results of Operations.
The following discussions of the financial condition and results of operations should be read
in conjunction with the financial statements and the notes to those statements included elsewhere
in this annual report. Certain statements in this discussion and elsewhere in this report
constitute forward-looking statements, within the meaning of section 21E of the Exchange Act, that
involve risks and uncertainties. The actual results may differ materially from those anticipated in
these forward-looking statements. See “Certain Risk Factors” on page 11 of this Form 10-K.
13
OVERVIEW
Through strict expense discipline and the implementation of key operational initiatives during
2008, the Company was able to make considerable progress with its efforts to achieve two primary
strategic business goals for the year:
| |
• |
|
Optimizing the tactical approach to product sales and marketing in order to materially
increase penetration of the global dental and medical markets with a proprietary, patented
Computer-Controlled Local Anesthesia Delivery (C-CLAD) solution, the STA System; and |
| |
• |
|
Identifying and pursuing strategic collaborations with third parties to jointly develop
new products utilizing the CompuFlo pressure force technology for novel new dental and
medical applications. |
In order to succeed in achieving these goals, it is essential that Milestone have the best
people possible. In January of 2008, Joseph D’Agostino joined Milestone as the Acting Chief
Financial Officer, bringing the Company the skill, talent and experience that are necessary to help
us grow and meet critical business plan objectives. Following a nine month performance assessment
by the Board of Directors, Mr. D’Agostino was officially named Milestone’s Chief Financial Officer
in October of this year.
Mr. D’Agostino’s addition to the senior management team has served to strongly complement the
hiring of Robert Presutti, who joined Milestone as Vice President of Sales and Marketing in
September 2007, and the appointment by the Board of Directors of former Bayer senior executive Joe
Martin as the new CEO in December 2007.
Milestone has continued to leverage the product and market intelligence Milestone derived from
in-depth customer and dental industry surveying that Milestone conducted in late 2007, to assess
and evaluate pricing, positioning and marketing strategies related to the innovative dental
injection solution, the STA System. The insight gained from these studies led management to define
and implement a comprehensive new messaging platform created to emphasize key benefits that
Milestone has discovered is of most value to dental professionals. This refined product messaging
was launched in January 2008.
Based on the fact that Milestone continues to achieve its month-over-month revenue and cash
flow objectives in keeping with management’s plan of execution and long term growth strategy, the
Company believes its refined product positioning is resonating with dental professionals, helping
to generate increasing sales and marketing activity within the independent distributor network.
First International C-CLAD Summit
A key 2008 event for Milestone was the first International C-CLAD Summit hosted by the Company
in New Orleans this past February, where many of the dental industry’s most prominent and respected
authorities assembled to review, discuss and explore opportunities for the STA System. A monograph
summarizing the Summit’s proceedings was issued in early June 2008. Specifically, there was
consensus among panel participants agreeing that use of the STA System provides the best way to
administer a Palatal Injection and Intraligamentary Injection; agreement that the STA System is the
instrument of choice to minimize pain disruptive behavior; and unanimous agreement that the STA
System should become “the standard of care for administering anesthesia by dental practitioners.”
STA System Wins Broad Industry Recognition
Since its market introduction in the spring of 2007, the STA System has received rave reviews
and awards from the dental industry. In July 2007, noted industry publication Dentistry Today
featured the STA System as one of the “Top 100 Products in 2007,” helping to promote much broader
recognition of the instrument and validating the STA System‘s value proposition for dentists and
patients, alike. Earlier this year, Medical Device & Diagnostic Industry magazine distinguished
the STA System as a 2008 Medical Design Excellence Award winner in the “Dental Instruments,
Equipment and Supplies” product category. Of the 33 products to receive this coveted award, the
STA System was one of only two winning products that serve dental practitioners. In December, the
STA System was again recognized as one of the dental industry’s best technological innovations,
winning a “Townie Choice Award” from Dentaltown Magazine in the category “Anesthetics: Technique
System”. This marked the second consecutive year that Milestone won a “Townie Choice Award” — in
2007, the Company won the same award for its CompuDent/The Wand. Also in December 2008,
Milestone’s STA System was named as a Dental Products Report “Top 100 2008 Product of Distinction.
Each year, DPR spotlights the year’s Top 100 products. Of these 100 products, 50 are the ones most
often inquired about by DPR‘s readers via an online and Product Information Card reader service
program. The other 50 represent “New Classics,” which recognize both old and newer products and
categories chosen by DPR‘s editorial team for their “perceived impact on driving innovation or
helping to establish a new, higher standard of care for patients.” The STA System was recognized
as a “New Classic” in the Technology category.
14
Domestic Dental Distribution Network
In the second quarter of this year, Milestone turned its attention to expanding the domestic
network of dental distributors, with a goal of increasing market awareness and promoting stronger
sales growth of the STA System.
On the domestic front, the Company elected to forego renewing the exclusive marketing and
distribution agreement originally signed in early 2007 with Henry Schein, Inc., the largest
distributor of healthcare products and services to office-based practitioners in the combined North
American and European markets. Rather, the Company granted Schein non-exclusive distribution
rights to both market and sells the STA System and related disposable handpieces to dental
professionals in the United States and Canada; and in June of this year, welcomed Patterson Dental
Supply as a non-exclusive distributor, as well. Patterson has the largest direct sales force in the
industry, totaling approximately 1,400 sales representatives and equipment/software specialists
addressing the needs of the United States’ and Canadian dental markets.
On July 16, 2008, Milestone announced that leading independent dental supply companies — Benco
Dental, Burkhart Dental, Inc., and Goetze Dental — also joined the Company’s growing domestic
distribution network under non-exclusive agreements.
Founded in 1930, Benco is the largest independently owned dental supply company in the U.S.,
and one of the nation’s fastest growing dental distributors. Burkhart Dental has thrived and
prospered as a family owned and managed dental supply company for 120 years, now serving over 5,000
dental customers in the Western U.S. from offices in Alaska, Colorado, Oregon, Arizona, California,
Nevada, Texas, Utah and Washington. Originally established in 1884 as the St. Joseph Drug Company,
Goetze Dental has also endured as a family-owned and managed independent dental supplier for five
generations. Currently, the Company markets a broad range of leading dental products and services
to a customer base comprised of more than 10,000 dental professionals operating primarily in nine
U.S. Midwestern states.
In October, Milestone added Atlanta Dental Supply to its U.S. distribution network. Atlanta
Dental is an industry leading employee-owned dental supply and service company based in Duluth,
Georgia that has been serving the U.S. Southeast dental community for 140 years.
Milestone is now actively engaged in the continuing process of training and providing ongoing
sales and marketing support to more than 2,450 independent sales representatives serving the U.S.
and Canadian markets. As of December 31, 2008, Milestone had completed training of approximately
80% of Patterson’s national sales force, as well as a majority of the representatives employed by
Benco, Burkhart and Goetze. Training of Atlanta Dental reps commenced in the fourth quarter and
is expected to be completed in the first quarter of 2009.
International Dental Distribution Network
In June, the Company granted exclusive marketing and distribution rights to two foreign
distributors — Istrodent Pty Ltd AB, a leading distributor serving the Southern Africa dental
market; and Unident AB, who is now introducing the STA System to dentists in the Scandinavian
countries of Denmark, Sweden, Norway and Iceland. Both companies have proven to be among
Milestone’s strongest marketing allies outside of the U.S., achieving notable sales performance in
their respective regions while supporting the historical worldwide marketing efforts for The Wand.
At the FDI Annual World Dental Congress held in Sweden in late September, Unident launched its
formal STA System marketing program to the European dental community and enjoyed a strong and
favorable response from show attendees.
Throughout 2009, the Company will continue to focus on expanding Milestone’s worldwide sales
and marketing resources to accelerate STA System sales momentum around the world. Particular
emphasis will be on establishing defined distribution channels in Canada and South America.
Moreover, Milestone will continue reinforcing and supporting the growing global independent sales
and distribution network through training, Milestone-sponsored advertising and marketing campaigns,
trade show participation and creative sales incentive programs.
New Product Development and Commercialization
In keeping with the Company’s stated 2008 goal for leveraging the patented CompuFlo technology
in new medical applications, Milestone’s management team has also continued to identify and pursue
opportunities to form strategic collaborations in the areas of self-administered drug delivery,
injections for osteoarthritis pain management and epidurals. In 2009, Milestone will expand the
field of potential applications in focus to include pediatric injections.
In November 2007, the Company entered into a collaborative agreement with a globally
diversified healthcare company to conduct a feasibility study evaluating the potential application
of the CompuFlo technology for injecting certain medicaments produced by this leading company. The
initial study has been successfully completed and the Company hopes to leverage its findings to
progress strategic partnering and product development opportunities.
The response to Milestone’s proprietary technology from prospective new partners whom
Milestone has engaged in meaningful teaming discussions has continued to be encouraging.
Throughout 2008, the Company met with a variety of healthcare companies who expressed interest in
potential applications of the CompuFlo technology. As Milestone progresses through 2009, the
Company will
maintain its pursuit of CompuFlo-based product development prospects that are deemed the most
promising and commercially viable, and offer the greatest potential for allowing Milestone to fully
realize the product development and commercialization opportunities.
15
The following table shows a breakdown of Milestone’s product sales (net), domestically and
internationally, by product category, and the percentage of product sales (net) by each product
category:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Twelve Months Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
DOMESTIC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instruments |
|
$ |
914,431 |
|
|
|
21.1 |
% |
|
$ |
1,554,825 |
|
|
|
33.8 |
% |
Handpieces |
|
|
3,373,159 |
|
|
|
77.7 |
% |
|
|
2,960,048 |
|
|
|
64.5 |
% |
Other |
|
|
54,097 |
|
|
|
1.2 |
% |
|
|
78,783 |
|
|
|
1.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Domestic |
|
$ |
4,341,687 |
|
|
|
100.0 |
% |
|
$ |
4,593,656 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTERNATIONAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instruments |
|
$ |
695,513 |
|
|
|
30.9 |
% |
|
$ |
442,689 |
|
|
|
26.5 |
% |
Handpieces |
|
|
1,550,992 |
|
|
|
68.8 |
% |
|
|
1,201,532 |
|
|
|
72.0 |
% |
Other |
|
|
7,333 |
|
|
|
0.3 |
% |
|
|
24,731 |
|
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International |
|
$ |
2,253,838 |
|
|
|
100.0 |
% |
|
$ |
1,668,952 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DOMESTIC/INTERNATIONAL ANALYSIS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
4,341,687 |
|
|
|
65.8 |
% |
|
$ |
4,593,656 |
|
|
|
73.4 |
% |
International |
|
|
2,253,838 |
|
|
|
34.2 |
% |
|
|
1,668,952 |
|
|
|
26.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Product Sales |
|
$ |
6,595,525 |
|
|
|
100.0 |
% |
|
$ |
6,262,608 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company earned gross profits of 60% and 55% in the years ended December 31, 2008 and 2007,
respectively. However, the revenues and related gross profits have not been sufficient to support
overhead, new product introduction and research and development expenses. Although the Company
anticipates expending funds for research and development in 2009, these amounts will vary based on
the operating results for each quarter. The Company has incurred operating losses and negative cash
flows from operating activities since its inception. The Company at December 31, 2008 expects to
have sufficient cash reserves to meet all of its anticipated obligations for the next twelve
months. Additionally, the Company is actively pursuing the generation of positive cash flows from
operating activities through increase in revenue, assessment of current contracts and current
negotiations and reduction in operating expenses. If positive cash flow cannot be achieved or if
additional capital is required and it cannot be raised, then the Company would be forced to curtail
its development activities, reduce marketing for existing dental products or adopt other cost
saving measures, any of which might negatively affect the Company’s operating results.
In 2009, the Company plans to further support increased sales and marketing activity through
trade show appearances, increased advertising to dental professionals, and costs associated with
the support of the global distribution network.
Current Product Platform
Milestone has developed and in some cases brought to market a highly differentiated
portfolio of industry innovations. Specifically, Milestone’s proprietary solutions for application
in professional dentistry and a wide range of medical applications include:
| |
• |
|
STA Single Tooth Anesthesia System™ (STA System) - In February of 2007,
Milestone introduced to market the STA System, a patented CCLAD system that incorporates
the “pressure force feedback” elements of Milestone’s patented CompuFlo technology, thereby
allowing dentists to administer injections accurately and painlessly into the periodontal
ligament space, effectively anesthetizing a single tooth. The STA System is also capable
of performing all of the injections that can be done with a conventional dental syringe,
including the palatal-anterior superior alveolar, anterior middle superior alveolar and
inferior alveolar nerve block. The STA System achieves all of these injections predictably
and reliably including the Periodontal-Intraligamentary injection (Single Tooth Anesthesia)
that provides an almost immediate onset of profound anesthesia to a single tooth.
Milestone received FDA 510(k) Pre-market Notification acceptance in August 2006 and was
granted a CE Mark by European regulatory authorities in June 2007. |
16
The STA System has been the subject of numerous articles published in leading trade
magazines, dental journals and online blogging sites since its market introduction early in
2007. Since its market introduction in the spring of 2007, the STA System has received
positive reviews and awards from the dental industry. In July 2007, noted industry
publication Dentistry Today featured the STA System as one of the “Top 100 Products in 2007,”
helping to promote much broader recognition of the instrument and validating STA‘s value
proposition for dentists and patients, alike. Earlier this year, Medical Device & Diagnostic
Industry magazine distinguished the STA System as a 2008 Medical Design Excellence Award
winner in the “Dental Instruments, Equipment and Supplies” product category. Of the 33
products to receive this coveted award, the STA was one of only two winning products that
serve dental practitioners. In December, the STA System was again recognized as one of the
dental industry’s best technological innovations, winning a “Townie Choice Award” from
Dentaltown Magazine in the category “Anesthetics: Technique System”. This marked the second
consecutive year in a row that Milestone won a “Townie Choice Award” — in 2007, the Company
won the same award for its CompuDent/The Wand. Also in December 2008, Milestone’s STA
System was named as a Dental Products Report “Top 100 2008 Product of Distinction. Each
year, DPR spotlights the year’s Top 100 products. Of these 100 products, 50 are the ones most
often inquired about by DPR‘s readers via an online and Product Information Card reader
service program. The other 50 represent “New Classics,” which recognize both old and newer
products and categories chosen by DPR‘s editorial team for their “perceived impact on driving
innovation or helping to establish a new, higher standard of care for patients.” The STA
System was recognized as a “New Classic” in the Technology category.
| |
• |
|
CompuDent® — CompuDent was distinguished by Dentaltown Magazine as the winner
of a “2006 Townie Choice Award”, CompuDent is Milestone’s proprietary, patented
computer-controlled local anesthetic delivery system which delivers anesthesia at a precise
and consistent rate below a patient’s pain threshold. CompuDent has been widely heralded
as a revolutionary device, considered one of the major advances in dentistry of the
Twentieth Century and favorably evaluated in approximately 50 peer reviewed or independent
clinical research reports. CompuDent is the predecessor device to the STA System. |
| |
• |
|
CompuMed® — CompuMed is a patented computer-controlled injection system
geared to the needs of the medical market and providing benefits similar to CompuDent.
CompuMed allows many medical procedures, now requiring intravenous sedation, to be
performed with only local anesthesia due to dramatic pain reduction. Also, dosages
of local anesthetic can often be significantly reduced, thus reducing side effects,
accelerating recovery times, lowering costs and eliminating potential complications.
CompuMed is now gaining growing clinical evidence demonstrating benefits from use in
colorectal surgery; podiatry; dermatology, including surgery for the removal of basal cell
carcinomas and other oncological dermatologic procedures; nasal and sinus surgery,
including rhinoplasty; hair transplantation and plastic surgery, among others. |
| |
• |
|
The Wand® — Used in conjunction with the STA, CompuDent or CompuMed systems,
The Wand is an ergonomically designed and patented handpiece that enables all traditional
and newer injections, such as AMSA, P-ASA and Modified-PDL, to be more comfortable and
easier to deliver. Moreover, the pen-like grasp of The Wand allows bi-directional rotation
during injection, which prevents needle deflection that can occur with a traditional
syringe. A straighter path results in a more accurate injection, meaning fewer missed
blocks, and more rapid onset of anesthesia. |
| |
• |
|
The SafetyWand® — The Safety Wand was the first, patented safety-engineered
injection device that conforms to standards while also meeting the clinical needs of dental
and medical practitioners. The Federal Needlestick Prevention Act (U.S.) has mandated the
use of products with “engineered safety injury protection” to eliminate accidental needle
sticks, thus providing Milestone with an invaluable marketing platform to position The
SafetyWand as a powerful and capable alternative to traditional injection devices. The
SafetyWand was the first patented injection device to be fully compliant with OSHA
regulations under the Act. |
Technology Rights
The technology underlying the SafetyWand and CompuFlo technology and an improvement to the
controls for CompuDent were developed by the Director of Clinical Affairs and assigned to
Milestone. The Company purchased this technology pursuant to an agreement dated January 1, 2005,
for 43,424 shares of restricted common stock and $145,000 in cash, paid on April 1, 2005. In
addition, the Director of Clinical Affairs will receive additional deferred contingent payments of
2.5% of the total sales of products using some of these technologies, and 5% of the total sales of
products using some of the other technologies. If products produced by third parties use any of
these technologies, under a license from Milestone, then he will also receive the corresponding
percentage of the consideration received by us for such sale or license.
17
Summary of Critical Accounting Policies and Significant Judgments and Estimates
Milestone’s discussion and analysis of the financial condition and results of operations are
based upon its financial statements, which have been prepared in accordance with accounting
principles, generally accepted in the U.S. The preparation of these 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, the Company evaluates its estimates, including those related to
accounts receivable, inventories, stock-based compensation and contingencies. The Company bases its
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.
While significant accounting policies are more fully described in Note B to the financial
statements included elsewhere in this report, the Company believes that the following accounting
policies and significant judgments and estimates are most critical in understanding and evaluating
the reported financial results.
Accounts Receivable
The realization of Accounts Receivable will have a significant impact on the Company.
Consequently, Milestone estimates losses resulting from the inability of its customers to make
payments for amounts billed. The collectability of outstanding amounts is continually assessed.
Inventories
Inventory costing, obsolescence and physical control are significant to the on-going operation
of the business. Inventories principally consist of finished goods and component parts stated at
the lower of cost (first-in, first-out method) or market. Inventory quantities on hand are reviewed
on a quarterly basis and a provision for excess and obsolete inventory is recorded if required
based on past and expected future sales.
Impairment of Long-Lived Assets
The long lived assets of the Company, principally patents and trademarks are the base features
of the business. Milestone reviews long-lived assets for impairment whenever circumstances and
situations change such that there is an indication that the carrying amounts may not be
recoverable. The carrying value of the asset is evaluated in relation to the operating performance
and future undiscounted cash flows of the underlying assets.
Revenue Recognition
Revenue from product sales is recognized net of discounts and allowances to domestic
distributor on the date of arrival of the goods at the customer’s location as shipments are FOB
destination. Shipments to international distributors are FOB the warehouse and revenue is therefore
recognized on shipment. In both cases the price to the buyer is fixed and the collectability is
reasonably assured. Further, the Company has no obligation on these sales for any post
installation, set-up or maintenance, these being the responsibility of the buyer. Customer
acceptance is considered made at delivery. Milestone’s only obligation after sale is the normal
commercial warranty against manufacturing defects if the alleged defective unit is returned within
the warranty period.
Royalty income is recognized as earned based on reports received from the licensee and related
royalty expense is accrued during the same period.
18
Results of Operations
The following table sets forth for the consolidated results of operations for the year ended
December 31, 2008 compared to 2007 as a percentage of revenues. The trends suggested by this table
may not be indicative of future operating results:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Twelve Months Ended |
|
| |
|
December 31, 2008 |
|
|
December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products sales, net |
|
$ |
6,595,525 |
|
|
|
99 |
% |
|
$ |
6,262,608 |
|
|
|
98 |
% |
Royalty income |
|
|
28,282 |
|
|
|
1 |
% |
|
|
128,105 |
|
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
6,623,807 |
|
|
|
100 |
% |
|
|
6,390,713 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold |
|
|
2,681,116 |
|
|
|
40 |
% |
|
|
2,898,048 |
|
|
|
45 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
3,942,691 |
|
|
|
60 |
% |
|
|
3,492,665 |
|
|
|
55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
5,502,762 |
|
|
|
83 |
% |
|
|
6,577,086 |
|
|
|
103 |
% |
Research and development expenses |
|
|
168,516 |
|
|
|
3 |
% |
|
|
397,354 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
5,671,278 |
|
|
|
86 |
% |
|
|
6,974,440 |
|
|
|
109 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(1,728,587 |
) |
|
|
-26 |
% |
|
|
(3,481,775 |
) |
|
|
-54 |
% |
Other income |
|
|
541,133 |
|
|
|
8 |
% |
|
|
543,079 |
|
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1,187,454 |
) |
|
|
-18 |
% |
|
$ |
(2,938,696 |
) |
|
|
-46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2008 compared to year ended December 31, 2007
Total revenues for the twelve months ended December 31, 2008 and 2007 were $6,623,807 (product
sales of $6,595,525 and royalty income of $28,282) and $6,390,713 (product sales of $6,262,608 and
royalty income of $128,105), respectively. The total increase in product sales of $332,917, or 5%,
is a direct result of the continued implementation of the new sales distribution model and price
change that began in the second quarter of 2008, along with improvement in the international
market. The decrease in sales volume of domestic instruments by $640,394, or 41% in 2008 over 2007,
was due to the distributor’s slow sell through of instruments sold into distribution in 2007.
Instruments sold to a distributer in 2007 did not arrive at the end users until 2008. In the
domestic market, handpiece sales increased by $413,111, ($277,142 increase in CompuDent sales,
$135,969 increase in STA) or 14%. On the international scene, instrument sales increased in 2008
over 2007 by $252,824, or 57%, principally due to the increase in STA instruments ($271,984).
Internationally, handpiece sales increased. The increase in handpiece sales internationally was
$349,460 or 29% due to increased sales of CompuDent handpieces ($241,208) and STA ($108,252)
handpieces.
Royalty income resulted from granting United Systems Inc. a license to manufacture, market,
and sublicense Tooth Whitening System to the consumer market. Royalty income for the years ended
December 31, 2008 and 2007, respectively, was $28,282 and $128,105. The decrease of $99,823 or 78%
reflected increased retail competition in this increasingly highly competitive market. In January
2009, the Company abandoned its rights to a portfolio of technology centered around the use of blue
light emitting diodes (LED) for a variety of dental treatments and diagnostic applications. At the
same time, the Company terminated its license agreement for the use of the technology with United
Systems Inc. There were no costs or expenses related to this abandoning of rights or the
termination of the licensee agreement.
Cost of products sold for the years ended December 31, 2008 and 2007 were $2,681,116 and
$2,898,048, respectively. The $216,932 decrease in product cost or 7% is primarily attributable to
product mix. Slow moving and overstocked inventories totaling approximately $82,000 and $62,000
were charged off to cost of products sold during the year ended December 31, 2008 and 2007,
respectively.
For the year ended December 31, 2008, Milestone’s gross profit increased by 5% over year ended
December 31, 2007, due to product mix, with higher handpiece sales. For the years ending December
31, 2008 and 2007, Milestone generated a gross profit of $3,942,691 or 60% as compared to a gross
profit of $3,492,665 or 55%, respectively. The total dollar increase in gross profit was $450,026
in 2008. Additionally, included in gross profit for the years ended December 31, 2008 and 2007, the
Company recorded a write-down of slow moving inventory in the aggregate of $82,000 and $62,000,
respectively.
Selling, general and administrative expenses for the years ended December 31, 2008 and 2007
were $5,502,762 and $6,577,086, respectively. The $1,074,324 or 16%, net decrease spanned several
key areas of the Company. Marketing expense decreased in 2008 by net $16,440, with an increase of
$210,000 in advertising media placement in 2008, offset by a reduction in the 2007 STA launch
program of $214,000. General and administrative expenses decreased by $1,092,772 primarily due to a
decrease in professional fees (accounting and legal) by $590,396 and a reduction in bad debt write
offs ($69,378). Additionally, there was a 2007 write-off of molds and tooling ($233,000) that did
not occur in 2008. Sales expenses increased by $223,257, due to an increase in commissions to an
outside sales representative of $170,000 and an increase in relocation expense of $24,000.
Salaries for the year ended December 31, 2008 were relatively consistent as compared to the same
period in 2007.
19
Research and development expenses for the years ended December 31, 2008 and 2007 were $168,516
and $397,354, respectively. The decrease of $228,838 was attributable to a reduction in such cost
in 2008 after the launch of the STA product in the first quarter of 2007.
The loss from operations for the years ended December 31, 2008 and 2007 was $1,728,587 and
$3,481,775, respectively. The $1,753,188 or 50% decrease in loss from operations is explained
above.
Interest expense was $116,374 and amortization of debt issuance was $27,446, relating to the
Line of Credit and Long Term Note. See Note H to the Financial Statements.
Other Income includes $675,930 and $552,005 in 2008 and 2007, represent the sale of tax
credits under the New Jersey Technology Business Tax Certificate Program, net of interest income
and expense for the respective periods.
For the reasons explained above, net loss for the year ended December 31, 2008 was $1,187,454
as compared to a net loss of $2,938,696 for the year ended December 31, 2007. The $1,751,242, or
60%, decrease in net loss is primarily a result of a significant increase in gross margin dollars
and a reduction in selling, general and administrative expenses.
Liquidity and Capital Resources
As of December 31, 2008, the Company had cash and cash equivalents of $743,665 and working
capital of $1,532,688. The working capital increased by $40,426 from December 31, 2007. Net current
assets decreased by approximately $707,000, principally in inventories ($917,000) and advances to
contract manufacturers ($402,000), offset by an increase in accounts receivable of $579,000 and
prepaid expenses of $49,000. Current liabilities decreased by net $748,000 principally by a
reduction in accounts payable of approximately $1,027,000, offset by an increase in accrued
expenses, primarily accrued commissions (77,000), accrued bonuses ($90,000) and accrued interest
($86,000). The Company has taken positive steps to reduce inventory levels and advances to contract
manufacturers and will continue this effort in the future. Milestone incurred net losses of
$1,187,454 and $2,938,696 and negative cash flows from operating activities of $442,006 and
$1,150,670 for the years ended December 31, 2008 and 2007, respectively.
For the year ended December 31, 2008, net cash used in operating activities was $442,006. This
was attributable primarily to a net loss of $1,187,454 adjusted for noncash items of $507,284 and
changes in operating assets and liabilities of $238,164. The decrease in noncash items in 2008 of
$730,581 as compared to 2007 is principally due to elimination of bad debts write off ($69,378) and
loss on write-off of patent rights ($157,640), along with reduction in Common Stock and options
issued for compensation, consulting, and vendor services ($270,064) and loss on sale/disposal of
equipment ($239,275).
For the year ended December 31, 2008, Milestone used $309,332 in investing activities,
primarily attributable to legal fees related to payment for patent rights.
As of December 31, 2008 and 2007, Milestone recorded on the Balance Sheet a $1.3 million and
$1.0 million, respectively, Line of Credit from a stockholder. The borrowings require a one percent
fee at the date of borrowing and an interest rate of six percent per annum, payable at the maturity
of the note. The Company borrowed an additional $450,000 from the same shareholder in 2008. In
December 2008, the Company refinanced the $450,000 note, extending the due date to June 30, 2012.
The Line of Credit and the additional borrowing in 2008 are classified as a Long Term Note Payable
on the Balance Sheet at December 31, 2008. See Note H — Line of Credit to the Financial Statements.
The Company has incurred operating losses and negative cash flows from operating activities
since its inception. The Company is actively pursuing the generation of positive cash flows from
operating activities through an increase in revenue based upon management’s assessment of present
contracts and current negotiations and reductions in operating expenses. As of December 31, 2008,
the Company believes that it has sufficient cash reserves to meet all of its anticipated
obligations for the next twelve months. However, if the Company requires a need for a higher level
of marketing and sales effort, or if the Company is unable to generate positive cash flows from its
operating activities it will need to raise additional capital. There is no assurance that the
Company will be able to achieve positive operating cash flows or that additional capital can be
raised on the terms and conditions satisfactory to the Company if at all. If additional capital is
required and it cannot be raised, then the Company would be forced to curtail its development
activities, reduce marketing expenses for existing dental products or adopt other cost savings
measures, any of which might negatively affect the Company’s operating results.
The Company’s recurring losses and negative operating cash flows raises substantial doubt
about its ability to continue as a going concern. The accompanying financial statements do not
include any adjustment that might result from the outcome of this uncertainty.
20
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that are currently material or
reasonably likely to be material to the financial position or results of operations.
Contractual Obligations
The
impact of the contractual obligations at December 31, 2008, expected on the liquidity and
cash flows in future periods, is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due by Period |
|
| |
|
|
|
|
|
Less than 1 |
|
|
|
|
|
|
|
| |
|
Total |
|
|
Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
Long-term debt obligations |
|
$ |
1,750,000 |
|
|
$ |
— |
|
|
$ |
1,300,000 |
|
|
$ |
450,000 |
|
Capital lease obligations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Operating lease obligations |
|
|
66,384 |
|
|
|
52,294 |
|
|
|
14,090 |
|
|
|
— |
|
Purchase obligations (1) |
|
|
1,359,668 |
|
|
|
1,359,668 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,176,052 |
|
|
$ |
1,411,962 |
|
|
$ |
1,314,090 |
|
|
$ |
450,000 |
|
| |
|
|
| (1) |
|
Purchase obligations include agreements for the purchase of units and handpieces. The
agreements are referred as purchase orders. All handpieces and STA
units purchase orders
are for delivery in less than one year. |
Recent Accounting Pronouncements
See “Note B-19 — Summary of Significant Accounting Policies” to the financial statements for
explanation of recent accounting pronouncements impacting the Company.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Milestones is a “smaller reporting company” as defined by Regulation S-K and as such, is not
providing the information contained in this item pursuant to Regulation S-K.
Item 8. Financial Statements
The financial statements of Milestone required by this Item are set forth beginning on page
F-1.
Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of the design and operation of the Company’s disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period
covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief
Financial Officer have concluded that the disclosure controls and procedures as of December 31,
2008 are effective to ensure that information required to be disclosed in the reports the Company
files or submits under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the SEC’s rules and forms and that such information is accumulated and
communicated to the Company’s management, including the Chief Executive Officer and Chief Financial
Officer, to allow timely decisions regarding disclosure.
21
Management’s Annual Report on Internal Control Over Financial Reporting
Milestone management is responsible for establishing and maintaining an adequate system of internal
control over financial reporting. The internal control over financial reporting includes those
policies and procedures that:
| |
• |
|
pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets; |
| |
• |
|
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of the financial statements in
accordance with generally accepted accounting principles in the
United States, and that the receipts and expenditures are being
made only in accordance with authorizations of the management and
directors; and |
| |
• |
|
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
assets that could have a material effect on the financial
statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate. All internal control systems,
no matter how well designed, have inherent limitations. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to financial statement preparation
and presentation. Because of the inherent limitations of internal control, there is a risk that
material misstatements may not be prevented or detected on a timely basis by internal control over
financial reporting. However, these inherent limitations are known features of the financial
reporting process. Therefore, it is possible to design into the process safeguards to reduce,
though not eliminate, this risk.
Milestone management assessed the effectiveness of its system of internal control over financial
reporting as of December 31, 2008. In making this assessment, management used the framework in
Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”). Based on the assessment and the criteria set forth by COSO,
management believes that the Company did maintain effective internal control over financial
reporting as of December 31, 2008.
This annual report does not include an attestation report of the Company’s registered public
accounting firm regarding internal control over financial reporting. Management’s report was not
subject to attestation by the Company’s registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.
There have been no significant changes in the Company’s internal control over financial reporting
identified in connection with the evaluation that occurred during the Company’s last fiscal quarter
that have materially affected, or that are reasonably likely to materially affect, the Company’s
internal controls over financial reporting.
Item 9B. Other Information
None.
PART III
|
|
| Item 10. |
Directors, Executive Officers, Promoters, Control Persons and Corporate Governance;
Compliance with Section 16 (a) of the Exchange Act. |
Milestone’s directors are elected annually by the shareholders and serve for one-year terms
until his/her successor is elected and qualified or until such director’s earlier death,
resignation or removal. The executive officers and key personnel are appointed by and serve as the
pleasure of the Board of Directors.
The current executive officers and directors of Milestone and their respective ages as of
March 16, 2009 are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| NAME |
|
AGE |
|
|
POSITION |
|
|
DIRECTOR SINCE |
|
Leonard A. Osser |
|
|
61 |
|
|
Chairman |
|
|
1991 |
|
Joe W. Martin |
|
|
56 |
|
|
Chief Executive Officer |
|
|
2008 |
|
Joseph D’Agostino |
|
|
57 |
|
|
Chief Financial Officer |
|
|
|
|
Pablo Felipe Serna Cardenas (2) |
|
|
33 |
|
|
Director |
|
|
2006 |
|
Leonard M.
Schiller (1)(2) |
|
|
67 |
|
|
Director |
|
|
1997 |
|
Jeffrey
Fuller (1) |
|
|
63 |
|
|
Director |
|
|
2003 |
|
Leslie
Bernhard (1)(2) |
|
|
64 |
|
|
Director |
|
|
2003 |
|
| |
|
|
| (1) |
|
Member of the Audit Committee |
| |
| (2) |
|
Member of the Compensation Committee |
22
Key Personnel
The following are the names of individuals who are not executive officers of Milestone but are
deemed key personnel of Milestone, their respective ages and positions as of March 16, 2009:
| |
|
|
|
|
|
|
|
|
| NAME |
|
AGE |
|
|
POSITION |
Eugene Casagrande, D.D.S. |
|
|
65 |
|
|
Director of Professional Relations |
Mark Hochman, D.D.S. |
|
|
51 |
|
|
Director of Clinical Affairs |
Robert A. Presutti |
|
|
56 |
|
|
Vice President of Sales and Marketing |
Leonard Osser, Chairman of the Board
Leonard Osser has served as Milestone’s Chairman since 1991. From 1991 through 2007, he also
served as Chief Executive Officer of the Company. From 1980 until the consummation of Milestone’s
public offering in November 1995, he was primarily engaged as the principal owner and Chief
Executive Officer of U.S. Asian Consulting Group, Inc., a New Jersey-based provider of consulting
services specializing in distressed or turnaround situations in both the public and private
markets.
Joe W. Martin, Chief Executive Officer
Joe Martin originally joined Milestone Scientific in May 2007 as CEO of the Company’s medical
division, Milestone Medical, and was subsequently appointed as the Company’s new CEO in December
2007. Prior to Milestone, he served as President of the Diabetes Care Division (DCD) at Bayer
HealthCare. He also served as a member of the Bayer HealthCare Executive Committee. From 1992
through 2004, Mr. Martin rose through the ranks at Bayer in managerial posts that included Senior
Vice President and General Manager, Self-Testing Business Segment at Bayer AG — Diagnostics
Division; Senior Vice President and General Manager, Point of Care Business Segment; Country
Manager — United Kingdom and Ireland; and Vice President, Marketing — Immunodiagnostic Business
Unit. From 1980 through 1992, Mr. Martin held various sales, marketing and general management
roles of increasing responsibility, both domestically and internationally, at Abbott Laboratories -
Diagnostic Division. He is a graduate of the University of Houston where he earned a Bachelors of
Business Administration degree in Marketing and Accounting. Mr. Martin is the Past President of the
Biomedical Marketing Association and served on the Board of Directors of Life Treatment Centers in
South Bend, Indiana.
Joseph D’Agostino, Chief Financial Officer
Joining Milestone in January 2008 as Acting CFO, Joseph D’Agostino brings to Milestone a
wealth of finance and accounting experience earned over 25 years serving both publicly and
privately held companies. Following a nine month performance assessment by the Board of Directors,
Mr. D’Agostino was officially named Milestone’s Chief Financial Officer in October 2008. A
results-oriented and decisive leader, he has specific proven expertise in treasury and cash
management, strategic planning, information technology, internal controls, Sarbanes-Oxley
compliance, operations and financial and tax accounting. Immediately prior to joining Milestone,
Mr. D’Agostino served as Senior Vice President and Treasurer of Summit Global Logistics, a publicly
traded, full service international freight forwarder and customs broker with operations in the
United States and China. Previous executive posts also included Executive Vice President and CFO
of Haynes Security, Inc., a leading electronic and manned security solutions company serving
government agencies and commercial enterprises; Executive Vice President of Finance and
Administration for Casio, Inc., the U.S. subsidiary of Casio Computer Co., Ltd., a leading
manufacturer of consumer electronics with subsidiaries throughout the world; and Manager of
Accounting and Auditing for Main Hurdman’s National Office in New York City (merged into KPMG). Mr.
D’Agostino is a Certified Public Accountant and holds memberships in the American Institute of
CPA’s, New Jersey Society of CPA’s, Financial Executive Institute, Consumer Electronics Industry
Association and Homeland Security Industry Association. He is a graduate of William Paterson
University where he earned a Bachelor of Arts degree in Science.
Mark Hochman, D.D.S., Director of Clinical Affairs
Dr. Hochman has served as Director of Clinical Affairs and Director of Research and
Development since 1999. He has a Doctorate of Dental Surgery with advanced training in the
specialties of Periodontics and Orthodontics from New York University of Dentistry and has been
practicing dentistry since 1984. He holds a faculty appointment as a clinical associate professor
at NYU School of Dental Surgery. Recognized as a world authority on Advanced Drug Delivery
Systems, Dr. Hochman has published numerous articles in this area, and shares in the responsibility
for inventing much of the technology currently available from Milestone.
Robert (Bob) A. Presutti, Vice President of Sales and Marketing
Bob Presuitti brings Milestone nearly 30 years of professional sales and marketing experience,
primarily within the medical and dental industries, with emphasis on new product introductions. As
Director of Professional Sales at Optiva/Philips Healthcare, Inc., he helped to establish Sonicare
as the #1 most recommended and dispensed electric toothbrush among dental professionals, and drove
product sales from $5 million to over $28 million in a five year period. Immediately prior to
joining Milestone, Mr. Presutti
served as Director of Professional Sales at Grinrx Corporation, a start-up dental company in
Washington. In May of 2005, he was recruited by the CEO of Brite Smile, Inc. to serve as Executive
Vice President of Sales. In this role, he led the rebuilding of the dental product company’s sales
organization and relaunched its in-office whitening procedure in the professional dental channel.
While at Thermoscan, Inc. and Medtronic, Nortech Division, Mr. Presutti held various sales
management and market development positions of increasing responsibility. Mr. Presutti holds a
Bachelor of Arts degree in Business Administration from Monmouth University.
23
Dr. Eugene Casagrande, Director of International & Professional Relations
Since 1998, Dr. Casagrande has served as Director of Professional Relations, charged with
pursuing a broad range of clinical and industry-related strategic business opportunities for the
Company. He has also lectured both nationally and internationally at over 35 dental schools and in
over 22 countries on Computer-Controlled Local Anesthesia Delivery. Dr. Casagrande is past
president of the California State Board of Dentistry and the Los Angeles Dental Society and is a
Fellow of the American and International Colleges of Dentists and has served on the faculty of the
University of Southern California, School of Dentistry.
Leonard M. Schiller has been a director of Milestone since April 1997. Mr. Schiller has been a
partner in the Chicago law firm of Schiller, Klein & McElroy, P.C. since 1977. He has also been
President of The Dearborn Group, a residential property management and real estate acquisition
company since 1980.
Jeffrey Fuller has been a director of Milestone since January 2003. Mr. Fuller has been
president and owner of two municipal water supply systems, Hudson Valley Water Co. and Lake Lenape
Water Co. since 1983 and in addition has been an executive recruiter since 1995. Early in his
career, for a period of two years, he was an auditor with Arthur Andersen LLP, and thereafter, for
four years, a senior internal auditor with the Dreyfus Corp. Mr. Fuller has been an adjunct
professor since 2002 at Berkeley College, NY, teaching several courses including Accounting.
Leslie Bernhard has been a director of Milestone since May 2003. Ms. Bernhard co-founded
AdStar, Inc., and since 1986 has been its President, Chief Executive Officer and a director. AdStar
is an application service provider for the newspaper classified advertising industry.
Pablo Felipe Serna Cardenas has been a director of Milestone since June 2006. He is the
founder of SPOT Investments, a European-based financial services firm. Previously, from 2001 to
2005, he was a director and Senior Manager at Dynamic Decisions Group Ltd, an equity research and
valuation consulting firm. In that capacity, Mr. Serna Cardenas led the corporate finance team at
Dynamic Decisions in investment banking and project valuation consulting. Prior to joining Dynamic
Decisions, from 1999-2001, Mr. Serna Cardenas served as an associate with Real Options Group. Real
Options Group is an international academic research center consulting to business entities. Before
joining Real Options Group, Mr. Serna Cardenas was the general manager with Estudios, Consultorias
y Asesorias Financieras, a Financial Consulting firm in Columbia.
Milestone’s Board of Directors has established compensation and audit committees. The
Compensation Committee reviews and recommends to the Board of Directors the compensation and
benefits of all the officers of Milestone, reviews general policy matters relating to compensation
and benefits of employees of Milestone, and administers the issuance of stock options to
Milestone’s officers, employees, directors and consultants. All compensation arrangements between
Milestone and its directors, officers and affiliates are reviewed by the Compensation Committee,
the members are all independent directors. The Audit Committee meets with management and
Milestone’s independent auditors to determine the adequacy of internal controls and other financial
reporting matters. The Board of Directors has determined that Jeffrey Fuller qualifies as an Audit
Committee Financial Expert pursuant to Item 407 (d)(5) of Regulation S-B. Mr. Fuller is
independent, as that term is defined in the listing standards of the NYSE Alternext.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires Milestone’s officers and
directors, and persons who own more than ten percent (10%) of a registered class of Milestone’s
equity securities to file reports of ownership and changes in ownership with the Securities and
Exchange Commission (“SEC”). Officers, directors and greater than ten percent (10%) stockholders
are required by SEC regulations to furnish Milestone with copies of all Section 16(a) forms they
file.
To the best of Milestone’s knowledge, based solely on review of the copies of such forms
furnished to Milestone, or written representations that no other forms were required, Milestone
believes that all Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent (10%) shareholders were complied with during 2008.
Code of Ethics
Milestone has adopted a code of ethics that applies to its principal executive officer,
principal financial officer and other persons performing similar functions. This code of ethics is
filed herewith as an exhibit to this annual report and is posted on Milestone’s web site at
www.milesci.com. Milestone will also provide a copy of the Code of Ethics to any person
without charge, upon written request addressed to the Chief Financial Officer, Joseph D’Agostino at
the principal executive office, located at 220 South Orange Avenue, Livingston, NJ, 07039.
24
Item 11. Executive Compensation.
The following Summary Compensation Table sets forth all compensation earned, in all
capacities, during the fiscal years ended December 31, 2008 and 2007 by (i) Milestone’s Chairman
and (ii) the most highly compensated executive officers, other than the Chairman who were serving
as executive officers at the end of the 2008 fiscal year and whose salary as determined by
Regulation S-B, Item 402, exceeded $100,000 (the individuals falling within categories (i) and (ii)
are collectively referred to as the “Named Executive Officers”).
SUMMARY OF COMPENSATION TABLE
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Option |
|
|
|
|
| NAME AND PRINCIPAL POSITION |
|
YEAR |
|
|
Salary |
|
|
Bonuses |
|
|
Compensation |
|
|
Awards (2) |
|
|
Total |
|
Leonard A. Osser |
|
|
2008 |
|
|
$ |
200,000 |
(1) |
|
|
— |
|
|
$ |
18,408 |
|
|
|
— |
|
|
$ |
218,408 |
|
Chairman |
|
|
2007 |
|
|
$ |
300,000 |
(1) |
|
|
|
|
|
$ |
16,660 |
(1) |
|
|
|
|
|
$ |
316,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joe W. Martin |
|
|
2008 |
|
|
$ |
300,000 |
|
|
$ |
70,000 |
|
|
$ |
3,696 |
|
|
$ |
80,000 |
(2) |
|
$ |
453,696 |
|
Chief Executive Officer |
|
|
2007 |
|
|
$ |
184,483 |
|
|
$ |
80,000 |
|
|
$ |
909 |
|
|
|
— |
|
|
$ |
265,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph D’Agostino |
|
|
2008 |
|
|
$ |
165,000 |
|
|
$ |
28,000 |
|
|
$ |
2,737 |
|
|
|
|
|
|
$ |
195,737 |
|
Chief Financial Officer |
|
|
2007 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
— |
|
| |
|
|
| (1) |
|
Includes $100,000 and $150,000 in deferred compensation in 2008 and 2007, respectively,
in accordance with his employment agreement to be paid in common stock and not paid until
the termination of the agreement in 2012 (under new employment agreement) or thereafter, if
further extended. Other compensation represents payments made for health insurance
coverage. |
| |
| (2) |
|
The amounts in this column reflect the expense recognized for financial statement
reporting purposes for the fiscal year ended December 31, 2008, in accordance with SFAS
123(R), “Share-based Payments.” for outstanding stock options granted as part of the stock
option plan. For details used in the assumption calculating the fair value of the option
reward, see Note B to the Financial Statements for the year ended December 31, 2008, which
is located on pages F-7 through F-11 of the Annual Report on Form 10-K. Compensation cost
is generally recognized over the vesting period of the award. The number of shares
underlying this option award totaled 80,000 shares. See the table below entitled
“Outstanding Equity Awards at December 31, 2008 and 2007. |
Employment Contracts
In December 2003, Milestone entered into an employment agreement with Mr. Osser for a
five-year term commencing January 1, 2004. This agreement was terminated effective December 31,
2007. Milestone entered into a new agreement with Mr. Osser effective January 1, 2008. The new
agreement is for five years ending on December 31, 2012. As part of the new agreement the Chairman
has relinquish the title and position of CEO and concentrate on assisting the new CEO of the
Company in (i) management and oversight of vendors in China and other key vendors, (ii) arranging
for, and consummating financing transactions and (iii) conducting investor relations. Under the new
agreement, the Chairman will receive a base compensation of $200,000 per year payable, one half in
cash and one half in common stock valued at the closing price of the common stock on January 31 of
each year with respect to the then current year. While the number of shares to be issued will be
determined each year, the stock will not be issued until the end of the term of the agreement.
In accordance with his employment contract, 83,333 shares of common stock were recorded as of
January 31, 2008, to be paid out at the end of the contract. At December 31, 2008 the full
settlement amount under the current and previous employment contracts is $700,000, 504,639 shares
of common stock of deferred compensation and, accordingly, such amount has been classified in
stockholder’s equity, with the common shares classified as to be issued.
In accordance with the employment contract, an additional 181,818 share of common stock were
recorded as of January 31, 2009, to be paid out at the end of the contract. As of January 31, 2009,
the full settlement amount under the current and previous employment contract is $800,000 and
686,457 share of common stock.
Milestone entered into an agreement with Joe W. Martin, CEO effective May 2, 2007. The term of
the contract is for a five year period ending on December 31, 2012. Under this agreement the CEO
will receive a base cash compensation of $300,000 per year, $150,000 of which may be payable in
stock at the CEO’s election upon written notice to the Company. The stock would be valued at the
average closing price of the common stock, during the first 15 trading days of the last full month
of each year. In, addition, the CEO
may earn annual bonuses up to an aggregate of $400,000, payable one half in cash and one half
in common stock, contingent upon Milestone achieving predetermined annual cash flow, revenue, unit
sales and earnings as defined in the employment agreement.
In addition, if in any year of the term of the agreement the CEO earns a bonus, he shall also
be granted five-year stock options to purchase twice the number of shares earned. Each such option
is to be exercisable at a price per share equal to the fair market value of a share on the date of
grant (110% of the fair market value if the CEO is a 10% or greater stockholder on the date of
grant). The options shall vest and become exercisable to the extent of one-third of the shares
covered at the end of each of the first three years following the date of grant, but shall only be
exercisable while the CEO is employed by Milestone or within 30 days after the termination of his
agreement.
25
Objective of Executive Compensation Program
The primary objective of the executive compensation program is to attract and retain
qualified, energetic managers who are enthusiastic about the mission and culture. A further
objective of the compensation program is to provide incentives and reward each manager for their
contribution. In addition, Milestone strives to promote an ownership mentality among key leadership
and the Board of Directors.
The Compensation Committee reviews and approves, or in some cases recommends for the approval
of the full Board of Directors, the annual compensation procedures for the Named Executive
Officers.
The compensation program is designed to reward teamwork, as well as each manager’s individual
contribution. In measuring the Named Executive Officers’ contribution, the Compensation Committee
considers numerous factors including the growth, strategic business relationships and financial
performance. Regarding most compensation matters, including executive and director compensation,
the management provides recommendations to the Compensation Committee; however, the Compensation
Committee does not delegate any of its functions to others in setting compensation. Milestone does
not currently engage any consultant to advice on executive and/or director compensation matters.
Stock price performance has not been a factor in determining annual compensation because the
price of Milestone’s common stock is subject to a variety of factors outside of the control.
Milestone does not have an exact formula for allocating between cash and non-cash compensation.
Annual executive chief officer compensation consists of a base salary component and periodic
stock option grants. It is the Compensation Committee’s intention to set totals for the chief
executive officer for cash compensation sufficiently high enough to attract and retain a strong
motivated leadership team, but not so high that it creates a negative perception with the other
stakeholders. The chief executive officer receives stock option grants under the stock option plan.
The number of stock options granted to the executive officer is made on a discretionary rather than
a formula basis by the Compensation Committee. The chief executive officer’s current and prior
compensation is considered in setting future compensation. In addition, Milestone reviews the
compensation practices of 28 other companies. To some extent, the compensation plan is based on the
market and the companies that compete for executive management. The elements of the plan (e.g.,
base salary, bonus and stock options) are similar to the elements used by many companies. The exact
base pay, stock option grant, and bonus amounts are chosen in an attempt to balance the competing
objectives of fairness to all stakeholders and attracting/retaining executive managers.
Outstanding Equity Awards at December 31, 2008 and 2007
The following table includes certain information with respect to the value of all unexercised
options previously awarded to the Named Executive Officers. There were no stock awards granted in
2008 and 2007.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 Options Awards |
|
|
|
|
|
|
2007 Options Awards |
|
|
|
|
| |
|
Number of Securities |
|
|
|
|
|
|
|
|
|
|
Number of Securities |
|
|
|
|
|
|
|
| |
|
Underlying Unexercised |
|
|
Option Exercise |
|
|
Option Expiration |
|
|
Underlying Unexercised |
|
|
Option Exercise |
|
|
Option Expiration |
|
| Name |
|
Options Exercisable |
|
|
Price ($) |
|
|
Date |
|
|
Options Exercisable |
|
|
Price ($) |
|
|
Date |
|
Leonard Osser |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16,667 |
(1) |
|
$ |
0.87 |
|
|
|
1/1/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joe W. Martin |
|
|
80,000 |
|
|
$ |
1.00 |
|
|
|
4/25/2013 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
| (1) |
|
fully vested on 1-1-06 |
Compensation of Directors
Milestone paid no cash or stock based compensation to its directors in 2008 and 2007. On June
5, 2008 and 2007, Milestone awarded to each of its independent directors stock options expiring on
June 4, 2013 and 2012, respectively, for the purchase of 20,000 shares of its common stock, one
half of each grant was exercisable immediately and the remaining one half exercisable one year
after the grant, at $0.74 at $1.68 per share for the options granted on June 5, 2008 and 2007,
respectively, with respect to the years ending with Milestone’s 2008 and 2007 annual meeting.
26
The following table provides compensation information for the year ended December 31, 2008 and
2007 for each of the independent directors. Milestone does not pay any directors’ fees. Directors
are reimbursed for the costs relating to attending board and committee meetings.
Director Compensation
| |
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
| Name |
|
Option Awards (1) |
|
|
Option Awards (1) |
|
Leonard M. Schiller |
|
$ |
14,800 |
(2) |
|
$ |
22,200 |
(3) |
Jeffrey Fuller |
|
$ |
14,800 |
(2) |
|
$ |
22,200 |
(3) |
Leslie Bernhard |
|
$ |
14,800 |
(2) |
|
$ |
22,200 |
(3) |
Pablo Felipe Serna
Cardenas |
|
$ |
14,800 |
(2) |
|
$ |
22,200 |
(3) |
| |
|
|
| (1) |
|
Amounts are calculated using the provisions of Statement of Financial Accounting
Standards (SFAS) No. 123R, Share-based Payments. |
| |
| (2) |
|
On June 5, 2008, each
of Milestone’s independent directors was awarded options
exercisable for 20,000 shares of common stock at $0.74 per share. |
| |
| (3) |
|
On June 5, 2007, each of Milestone’s independent directors was awarded options
exercisable for 20,000 shares of common stock at $1.68 per share. |
|
|
|
| Item 12. |
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The following table, together with the accompanying footnotes, sets forth information, as of
March 16, 2009 and 2008, regarding stock ownership of all persons known by Milestone to own
beneficially more than 5% of Milestone’s outstanding common stock, Named Executives, all directors,
and all directors and officers of Milestone as a group:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
March 16, 2009 |
|
|
March 31, 2008 |
|
| |
|
Shares of Common Stock |
|
|
Percentage |
|
|
Shares of Common Stock |
|
|
Percentage |
|
| Names of Benefical Owner (1) |
|
Beneficially Owned (2) |
|
|
of Ownership |
|
|
Beneficially Owned (2) |
|
|
of Ownership |
|
Executive Officers and Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leonard Osser |
|
|
1,353,413 |
(3) |
|
|
11.34 |
% |
|
|
1,465,406 |
(3) |
|
|
12.53 |
% |
Joe W. Martin |
|
|
426,061 |
(4) |
|
|
3.30 |
% |
|
|
— |
|
|
|
|
* |
Joseph D’Agostino |
|
|
29,231 |
(5) |
|
|
|
* |
|
|
— |
|
|
|
|
* |
Leonard Schiller |
|
|
113,228 |
(6) |
|
|
|
* |
|
|
93,228 |
(6) |
|
|
|
* |
Pablo Felipe Serna Cardenas |
|
|
50,000 |
(7) |
|
|
|
* |
|
|
30,000 |
(7) |
|
|
|
* |
Jeffrey Fuller |
|
|
90,000 |
(8) |
|
|
|
* |
|
|
76,667 |
(8) |
|
|
|
* |
Leslie Bernhard |
|
|
80,000 |
(9) |
|
|
|
* |
|
|
66,667 |
(9) |
|
|
|
* |
All directors & executive officers as group (7 persons) |
|
|
2,141,933 |
|
|
|
16.57 |
% |
|
|
1,731,968 |
|
|
|
14.81 |
% |
K. Tucker Andersen |
|
|
1,475,033 |
(10) |
|
|
11.41 |
% |
|
|
1,483,969 |
(10) |
|
|
12.68 |
% |
| |
|
|
| * |
|
Less than 1% |
| |
| (1) |
|
The addresses of the persons named in this table are as follows: Leonard A. Osser, Joe
W. Martin and Joseph D’Agostino are all at 220 South Orange Avenue, Livingston Corporate
Park, Livingston, NJ 07039; Leonard M. Schiller, Schiller, Klein & McElroy, P.C., 33 North
Dearborn Street, Suite 1030, Chicago, Illinois 60602; Pablo Felipe Serna Cardenas, Via
Camillo Golgi 2 Opera, Italy 20090; Jeffrey Fuller, Eagle Chase, Woodbury, NY 11797; Leslie
Bernhard, AdStar, Inc., 4553 Glencoe Avenue, Suite 325, Marina del Rey, California 90292;
K. Tucker Anderson, c/o Cumberland Associates LLC, 1114 Avenue of the Americas, New York,
New York 10036. |
| |
| (2) |
|
A person is deemed to be a beneficial owner of securities that can be acquired by such
person within 60 days from March 16, 2009 and 2008, as applicable, upon the exercise of
options and warrants or conversion of convertible securities. Each beneficial owner’s
percentage ownership is determined by assuming that options, warrants and convertible
securities that are held by such person (but not held by any other person) and that are
exercisable or convertible within 60 days from the filing of this report have been
exercised or converted. Except as otherwise indicated, and subject to applicable community
property and similar laws, each of the persons named has sole voting and investment power
with respect to the shares shown as beneficially owned. All percentages are determined
based on the number of all shares, including those underlying options exercisable within 60
days from the filing of this report held by the named individual, divided by 12,925,694 and
11,697,837 outstanding shares on March 16, 2009 and March 31, 2008, respectively, plus
those shares underlying options exercisable within 60 days from the filing of this report
held by the named individual or the group. |
| |
| (3) |
|
March 31, 2008 includes 120,994 shares issuable upon the exercise of warrants within 60
days of the date hereof, which are exercisable at $4.89. The warrants noted in 2008 expired
in February 2009. |
| |
| (4) |
|
March 16, 2009 includes 190,505 shares held by Mr. Martin, 80,000 options at $1.00 per
share issued in April 2008 and 155,556 options at $0.45 per share issued in February 2009.
The stock options are exercisable to the extent of one third (1/3) of the option granted at
the expiration of each of the first three years, beginning one year after the date of
grant. |
27
| |
|
|
| (5) |
|
Includes 29,231 shares held by Mr. D’Agostino. |
| |
| (6) |
|
March 16, 2009 includes 110,000 stock options, the 80,000 options listed in March 31,
2008, an additional 20,000 shares at $0.74 issued in June 2008 and 13,228 shares held by
Mr. Schiller. March 31, 2008, includes 80,000 shares subject to stock options, one half of
each grant was exercisable immediately and the remaining one half exercisable one year
after the grant date as follows: 20,000 shares at $3.27 per share, 20,000 shares at $1.40
per share, 20,000 shares at $0.83 per share and 20,000 shares at $1.68. Also included is
13,228 shares held by Mr. Schiller. |
| |
| (7) |
|
March 16, 2009 includes 50,000 stock options, the 30,000 options listed in March 31,
2008 and an additional 20,000 shares at $0.74 issued in June 2008. March 31, 2008 includes
30,000 shares subject to stock options, one half of each grant was exercisable immediately
and the remaining one half exercisable one year after the grant date as follows: 10,000
shares at $0.83 per share and 20,000 shares at $1.68. |
| |
| (8) |
|
March 16, 2009 includes 90,000 stock options, 20,000 shares at $0.74 issued in June
2008, 20,000 shares at $3.27 per share, 20,000 shares at $1.40 per share, 10,000 shares at
$0.83 and 20,000 shares at $1.68 per share. March 31, 2008 includes 76,667 shares subject
to stock options, one half of each grant was exercisable immediately and the remaining one
half exercisable one year after the grant date as follows: 6,667 shares at $1.50 per share,
20,000 shares at $3.27 per share, 20,000 shares at $1.40 per share, 10,000 shares at $0.83
per share and 20,000 shares at $1.68. |
| |
| (9) |
|
March 16, 2009 includes 80,000 stock options, 20,000 shares at $3.27, 20,000 shares at
$1.40, 20,000 shares at $1.68 and 20,000 shares at $0.74. March 31, 2008 includes 66,667
shares subject to stock options, one half of each grant was exercisable immediately and the
remaining one half exercisable one year after the grant date as follows: 6,667 shares at
$1.50 per share, 20,000 shares at $3.27 per share, 20,000 shares at $1.40 per share and
20,000 shares at $1.68. |
| |
| (10) |
|
March 16, 2009 includes 175,000 stock options, 130,000 at $5.00 and 45,000 at $0.32.
March 31, 2008 included 183,946 shares subject to warrants all of which are exercisable
within 60 days of the date hereof at $4.89 these warrants expired in February 2009. The
2008 amount includes 100,000 shares subject to warrants at $5.00 per share. |
Securities Authorized for Issuance Under Equity Compensation Plans
Equity Compensation Plan Information
The following table summarizes the (i) options granted under the Milestone 1997 and 2004 Stock
Option Plans, and (ii) options and warrants granted outside the Milestone 1997 and 2004 Stock
Option Plans, as of December 31, 2008. The shares covered by outstanding options and warrants are
subject to adjustment for changes in capitalization, stock splits, stock dividends and similar
events. No other equity compensation has been issued.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Number of securities (1) |
|
| |
|
Number of Securities (1) to |
|
|
Weighted-average exercise |
|
|
remaining available for |
|
| |
|
be issued upon exercise of |
|
|
price of outstanding |
|
|
future issuance under |
|
| |
|
outstanding options and warrants |
|
|
options and warrants |
|
|
equity compensation plan |
|
Equity compensation plan approved by
stockholders (1) |
|
|
|
|
|
|
|
|
|
|
|
|
Grants under our 1997 Stock Option Plan |
|
|
84,000 |
|
|
$ |
3.74 |
|
|
|
177,999 |
|
Grants under our 2004 Stock Option Plan |
|
|
486,832 |
|
|
|
1.01 |
|
|
|
428,000 |
|
Equity compensation plan not approved by
stockholders (2) |
|
|
|
|
|
|
|
|
|
Not applicable |
|
Aggregate individual option and warrants grants |
|
|
3,030,413 |
|
|
|
4.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,601,245 |
|
|
|
3.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Consisting of the 1997 stock option plan covering a total of 333,333 common shares underlying
options issuable to officers and other key employees and excluding 2,333 options, which were
exercised in October 2003, 16,667 options, which were exercised in December 2003, 333 options
which were exercised in April 2005 and 26,666 shares exercised in 2007. The plan has a term of
10 years and is administered by a committee appointed by the board of directors. The
committee, in its sole discretion, determines who is eligible to receive these incentive stock
options, how many options they will receive, the term of the options, the exercise price and
other conditions relating to the exercise of the options. Stock options granted under the plan
must be exercised within a maximum of 10 years from the date of grant at an exercise price
that is not less than the fair market value of the common shares on
the date of the grant. Options granted to shareholders owning more than 10% of the outstanding
common shares must be exercised within five years from the date of grant and the exercise price
must be at least 110% of the fair market value of the common shares on the date of the grant. No
options were exercised in 2008 and options exercised in 2007 were 6,667. |
28
| |
|
|
| |
|
In July 2004 the Board of Directors approved the adoption of the 2004 Stock Option Plan. The 2004
Stock Option Plan provides for the grant of options to purchase up to 500,000 shares of
Milestone’s common stock. Options may be granted to employees, officers, directors and
consultants of Milestone for the purchase of common stock of Milestone at a price not less than
the fair market value of the common stock on the date of the grant. In general, options become
exercisable over a three-year period from the grant date and expire five years after the date of
grant. No options were exercised in 2008 and options exercised in 2007 were 60,000. |
| |
| |
|
In March 2008, the Board of Directors authorized an additional 250,000 options to this plan. |
| |
| (2) |
|
The aggregate individual option grants outside the Stock Option Plans referred to in the
table above include options issued as payment for services rendered to us by outside
consultants and providers of certain services. The aggregate individual warrant grants
referred to in the table above include warrants granted to investors in Milestone as part of
private placements and credit line arrangements. |
Stock Plan
In 2006 Milestone adopted an equity compensation plan for the issuance of up to 300,000 shares
of the common stock in lieu of cash compensation for services performed by employees, officers,
directors and consultants (the “2006 Stock Plan”). The purpose of the 2006 Stock Plan is to
conserve cash while allowing the Company to adequately compensate existing employees, officers,
directors and consultants, or new employees, officers, directors and consultants, whose performance
will contribute to the long-term success and growth. Milestone believe that the availability of
these shares will also strengthen the ability to attract and retain employees, officers, directors
and consultants of high competence, increase the identity of interests of such people with those of
the stockholders and help maintain loyalty to us through recognition and the opportunity for stock
ownership. All shares granted under this plan will be at fair market value, or at a premium to that
value, on the date of grant.
During 2008, no shares were issued under this plan.
During 2007, 28,269 shares of common stock valued at $62,196 were granted under the 2006 Stock
Plan as part of annual compensation and 84,270 shares of common stock valued at $150,000 in
settlement of officers deferred compensation.
Additionally, in satisfaction of payables owed in connection with warehousing and fulfillment
services and exhibition facilities, Milestone issued 44,068 shares valued at $46,000 to two of the
vendors (the “Vendor Shares”).
As of December 31, 2008 and 2007, shares available to be issued under this plan were 45,304.
In December 2007, the Board of Directors authorized the Company to issue up to $2 million of
its Company stock to vendors or employees, and to grant them piggy back registration rights in the
usual form, at a value of not less than 90% of the market value on the date of the agreement for
the vendor or employee to accept said shares. Such future shares are not included in the above
noted shares reserved for future issuance.
In 2008, the Company issued the following shares under this Plan; 156,448 shares valued at of
$262,746 for Vendor Services, 356,063 shares valued at $316,099 for Consulting Services, 135,602
shares valued at $98,419 for Employee Compensation, 83,333 shares valued at $100,000 for Officer’s
Deferred Compensation and 260,000 shares valued at $93,600 for Settlement of the Hodosh Lawsuit.
At December 31, 2008, there was $1,129,136 available to be issued under this plan.
The Vendor Shares were issued in reliance upon the exemption from the registration
requirements of the Act, as provided in Section 4(6) and thereof, as a transaction by an issuer not
involving a public offering. Milestone reasonably believed that each vendor had such knowledge and
experience in financial and business matters to be capable of evaluating the merits and risks of
the investment, each vendor represented an intention to acquire the securities for investment only
and not with a view to distribution thereof and appropriate legends were affixed to the stock
certificates. No commissions were paid in connection with such issuances.
29
Item 13. Certain Relationships and Related Transactions and Director Independence
On June 28, 2007 the Company secured a $1 million line of credit from a stockholder. This
borrowing was amended to $1,300,000 as of September 30, 2008 under the same terms and conditions as
the original. Borrowings bear interest at 6% per annum, with one year’s interest at 1% payable in
advance on each draw. Monies may be drawn by Milestone under the line in multiples of
$100,000 upon 5 days written notice to the stockholder from either Milestone’s Chief Executive
Officer or Chief Financial Officer. Monies under the line in excess of $1,000,000 may be drawn in
multiples of $25,000. Borrowings may be prepaid at any time in multiples of $100,000, without
penalty. All borrowings and interest thereon must be repaid by June 30, 2010, and after the
expiration date of the line, may be repaid by Milestone in cash or, at its option, in shares of
common stock valued at the lower of $2.00 per share or 80% of the average closing price of its
shares during the 20 trading days ending with December 31, 2008. At December 31, 2008, the
conversion price at 80% of the average closing price of the Company’s stock was $0.26 per share.
After December 31, 2008, and before June 30, 2010, the lender may convert all or any part of the
then outstanding balance and interest thereon into shares of Common Stock at $4.00 per share. Three
year warrants exercisable at $5.00 per share, in an amount determined by dividing 50% of the amount
borrowed by $5.00 will be issued on each drawdown. There is no facility fee on the line. The
warrants have been valued as of each draw down using the Black-Scholes model and are reflected as a
discount against the debt incurred under this line of credit. At December 31, 2008 the remaining
balance of debt discount was $52,530. The full amount of the line of credit and amendment, $1.3
million, has been drawn at September 30, 2008. This borrowing was amended to $1,300,000 as of
September 30, 2008 under the same terms and conditions as the original borrowing. The Company
borrowed an additional $450,000 from the same shareholder in 2008. The borrowing was originally on
short term loan with a maturity date of January 19, 2009. In December 2008, this borrowing was
refinanced with the shareholder with a due date of June 30, 2012. The borrowing includes a twelve
percent interest rate, interest compound quarterly, with interest and principle due at the
maturity. Further, the note provides for the issuance of warrants to the stockholder that is
exercisable for five years at the price of $0.32 per share for 45,000 shares of stock. The warrants
were valued using the Black-Scholes model and are reflected as a discount against the debt. The
Company did not have any other related party transactions pursuant to Item 404 of Regulation S-K of
the Exchange Act. Milestone have adopted a policy that, in the future, the Audit Committee must
review all transactions with any officer, director or 5% stockholder.
Director Independence
The Board has determined that Leonard M. Schiller, Jeffrey Fuller, Leslie Bernhard and Pablo Felipe
Serna Cardenas (the “Independent Directors”) are independent as that term is defined in the listing
standards of the NYSE Alternext. As disclosed above, Leonard M. Schiller, Jeffrey Fuller and Leslie
Bernhard are the sole members of the Audit Committee and are independent for such purposes, and
Leonard M. Schiller, Leslie Bernhard and Pablo Felipe Serna Cardenas are the sole members of the
Compensation Committee and are independent for such purposes.
In determining director independence, the Board considered the option awards to the Independent
Directors for the year ended December 31, 2008, disclosed in “Item 10 — Executive Compensation —
Director Compensation” above, and determined that such awards were compensation for services
rendered to the Board and therefore did not impact their ability to continue to serve as
Independent Directors.
Item 14. Principal Accounting Fees and Services
Audit Fees
Milestone incurred audit and financial statement review fees totaling $137,975 and $84,338,
respectively from Holtz Rubenstein Reminick LLP, the principal accountant for 2008 and 2007.
Audit Related Fees
There were no audit related fees to the principal accountant Holtz Rubenstein Reminick LLP in
2008 and 2007.
Tax Fees
There were no fees for services related to tax compliance, tax advice and tax planning billed
by the principal accountant in 2008 and 2007.
All Other Fees
There were no other fees billed during 2008 and 2007 by Milestone’s principal accountants.
Audit Committee Administration of the Engagement
The engagement with Holtz Rubenstein Reminick LLP, the principal accountants, was approved in
advance by the Board of Directors and the Audit Committee. No non-audit or non-audit related
services were approved by the audit committee in 2008.
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee charter provides that the Audit Committee will pre-approve audit services
and non-audit services to be provided by the independent auditors before the accountant is engaged
to render these services. The Audit Committee may consult with management in the decision-making
process, but may not delegate this authority to management. The Audit Committee may delegate its
authority to preapprove services to one or more committee members, provided that the designees
present the pre-approvals to the full committee at the next committee meeting. All audit and
non-audit services performed by the independent accountants have been pre-approved by the Audit
Committee to assure that such services do not impair the auditors’ independence from us.
30
PART IV
Item 15. Exhibits
(a) Exhibits
Certain of the following exhibits were filed as Exhibits to previous filings filed by
Milestone under the Securities Act of 1933, as amended, or reports filed under the Securities and
Exchange Act of 1934, as amended, and are hereby incorporated by reference.
| |
|
|
|
|
| EXHIBIT |
|
|
| NO. |
|
DESCRIPTION |
| |
| |
3.1 |
|
|
Certificate of Incorporation of Milestone (1) |
| |
3.2 |
|
|
Certificate of Amendment filed July 13, 1995 (2) |
| |
3.3 |
|
|
Certificate of Amendment filed December 6, 1996 (3) |
| |
3.4 |
|
|
Certificate of Amendment filed December 17, 1997 (4) |
| |
3.5 |
|
|
Certificate of Amendment filed July 23, 2003 (6) |
| |
3.6 |
|
|
Certificate of Amendment filed January 8, 2004. (6) |
| |
3.7 |
|
|
Certificate of Designation filed January 15, 2004 (6) |
| |
3.8 |
|
|
By-laws of Milestone (1) |
| |
4.1 |
|
|
Specimen stock certificate (2) |
| |
4.3 |
|
|
Form of warrant agreement, including form of warrant (8) |
| |
10.1 |
|
|
Lease dated November 25, 1996 between Livingston Corporate Park Associates, L.L.C. and Milestone (3) |
| |
10.2 |
|
|
Agreement with DaVinci Systems dated July 30, 2003 (6) |
| |
10.3 |
|
|
Agreement with Strider dated September 3, 2003 (6) |
| |
10.4 |
|
|
Agreement with Len Osser and K. Tucker Andersen, dated October 9, 2003 (6) |
| |
10.5 |
|
|
Agreement with Morse, Zelnick, Rose & Lander dated December 22, 2003 (6) |
| |
10.6 |
** |
|
Employment Agreement with Leonard Osser dated December 20, 2003 (6) |
| |
10.7 |
|
|
Agreement with United Systems dated October 20, 2004 (9) |
| |
10.8 |
|
|
Agreement with Mark Hochman dated as of January 1, 2005 (9) |
| |
10.9 |
|
|
Lease amendment dated April 28, 2004 between Livingston Corporate Park Associates, L.L.C. and Milestone (9) |
| |
10.10 |
|
|
Agreement with DaVinci regarding exclusive license over patented products dated June 1, 2004 (10) |
| |
10.11 |
** |
|
Employment Agreement with Leonard Osser dated January 1, 2008* (11) |
| |
10.12 |
** |
|
Employment Agreement with Joe W. Martin dated May 2, 2007* (11) |
| |
14 |
|
|
Code of Ethics (7) |
| |
23.1 |
|
|
Consent of Holtz Rubenstein Reminick LLP* |
| |
31.1 |
|
|
Rule 13a-14(a) Certifications — Chief Executive Officer* |
| |
31.2 |
|
|
Rule 13a-14(a) Certifications — Chief Financial Officer* |
| |
32.1 |
|
|
Section 1350 Certifications- Chief Executive Officer* |
| |
32.2 |
|
|
Section 1350 Certifications- Chief Financial Officer* |
| |
|
|
| * |
|
Filed herewith. |
| |
| ** |
|
Indicates management contract or compensatory plan or arrangement |
31
| |
|
|
| (1) |
|
Incorporated by reference to Milestone’s Registration Statement on Form SB-2 No. 33-92324. |
| |
| (2) |
|
Incorporated by reference to Amendment No. 1 to Milestone’s Registration Statement on Form
SB-2 No. 333-92324. |
| |
| (3) |
|
Incorporated by reference to Milestone’s Form 10-KSB for the year ended December 31, 1996. |
| |
| (4) |
|
Incorporated by reference to Milestone’s Form 10-KSB for the year ended December 31, 1999. |
| |
| (5) |
|
Incorporated by reference to Milestone’s Registration Statement on Form S-2 No. 333-110376,
Amendment No. 1. |
| |
| (6) |
|
Incorporated by reference to Milestone’s Registration Statement on Form S-2 No. 333-110376,
Amendment No. 3. |
| |
| (7) |
|
Incorporated by reference to Milestone’s Form 10-KSB for the year ended December 31, 2003. |
| |
| (8) |
|
Incorporated by reference to Milestone’s Registration Statement on Form S-2 No. 333-110367,
Amendment No. 5. |
| |
| (9) |
|
Incorporated by reference to Milestone’s Form 10-KSB for the year ended December 31, 2004. |
| |
| (10) |
|
Incorporated by reference to Milestone’s Form 10-KSB for the year ended December 31, 2005. |
| |
| (11) |
|
Incorporated by reference to Milestone’s Form 10-KSB for the year ended December 31, 2007. |
32
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
|
|
|
|
| |
Milestone Scientific Inc.
|
|
| |
By: |
/s/ Joe W. Martin
|
|
| |
|
Chief Executive Officer |
|
Date: March 16, 2009
In accordance with the Exchange Act, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
| |
|
|
|
|
| Signature |
|
Date |
|
Title |
|
|
|
|
|
| /s/ Joe W. Martin
|
|
March 16, 2009
|
|
Chief Executive Officer |
| |
|
|
|
|
| Joe W. Martin |
|
|
|
|
| |
|
|
|
|
| /s/ Joseph D’Agostino
|
|
March 16, 2009
|
|
Chief Financial Officer |
| |
|
|
|
|
| Joseph D’Agostino |
|
|
|
|
| |
|
|
|
|
| /s/ Leonard Osser
|
|
March 16, 2009 |
|
Director |
| |
|
|
|
|
| Leonard Osser
|
|
|
|
|
| |
|
|
|
|
| /s/ Leonard Schiller
|
|
March 16, 2009
|
|
Director |
| |
|
|
|
|
| Leonard Schiller |
|
|
|
|
| |
|
|
|
|
| /s/ Jeffery Fuller
|
|
March 16, 2009
|
|
Director |
| |
|
|
|
|
| Jeffrey Fuller |
|
|
|
|
| |
|
|
|
|
| /s/ Leslie Bernard
|
|
March 16, 2009
|
|
Director |
| |
|
|
|
|
| Leslie Bernhard |
|
|
|
|
| |
|
|
|
|
| /s/ Pablo Felipe Serna Cardenas |
|
March 16, 2009
|
|
Director |
| |
|
|
|
|
| Pablo Felipe Serna Cardenas |
|
|
|
|
33
INDEX TO FINANCIAL STATEMENTS
| |
|
|
|
|
| |
|
Page |
|
|
|
|
F-2 |
|
|
|
|
|
|
|
|
|
F-3 |
|
|
|
|
|
|
|
|
|
F-4 |
|
|
|
|
|
|
|
|
|
F-5 |
|
|
|
|
|
|
|
|
|
F-6 |
|
|
|
|
|
|
|
|
|
F-7 |
|
|
|
|
|
|
F-1
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Milestone Scientific Inc.
We have audited the accompanying balance sheet of Milestone Scientific Inc. as of December 31, 2008
and 2007 and the related statements of operations, stockholders’ equity, and cash flow for the two
years then ended. These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Milestone Scientific Inc. as of December 31, 2008 and 2007 and
the results of its operations and its cash flows for the two years then ended in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as
a going concern. As discussed in Note A to the financial statements, the Company has suffered
recurring losses from operations and has a net capital deficiency, which raises substantial doubt
about its ability to continue as a going concern. Management’s plans in regard to these matters are
described in Note A. The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Holtz
Rubenstein Reminick LLP
Melville, New York
March 9, 2009
F-2
]
MILESTONE SCIENTIFIC INC.
BALANCE SHEETS
December 31, 2008 and 2007
| |
|
|
|
|
|
|
|
|
| |
|
December 31, 2008 |
|
|
December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
743,665 |
|
|
$ |
745,003 |
|
Accounts receivable, net of allowance for doubtful accounts of $5,000 in 2008 and 2007 |
|
|
925,742 |
|
|
|
346,347 |
|
Royalty receivable |
|
|
— |
|
|
|
15,358 |
|
Inventories |
|
|
719,902 |
|
|
|
1,636,744 |
|
Advances to contract manufacturer |
|
|
250,110 |
|
|
|
651,854 |
|
Prepaid expenses and other current assets |
|
|
218,296 |
|
|
|
169,727 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
2,857,715 |
|
|
|
3,565,033 |
|
Advances to contract manufacturer |
|
|
415,780 |
|
|
|
540,730 |
|
Investment in distributor, at cost |
|
|
76,319 |
|
|
|
76,319 |
|
Furniture,
Fixtures & Equipment net of accumulated depreciation of
$345,377 as of |
|
|
|
|
|
|
|
|
December 31 ,2008 and $284,144 as of December 31, 2007 |
|
|
152,574 |
|
|
|
220,808 |
|
Patents, net of accumulated amortization of $135,406 as of December 31, 2008
and $79,498 as of December 31, 2007 |
|
|
901,045 |
|
|
|
559,378 |
|
Other assets |
|
|
7,317 |
|
|
|
27,297 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,410,750 |
|
|
$ |
4,989,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
829,130 |
|
|
$ |
1,855,835 |
|
Accrued expenses and other payable |
|
|
495,897 |
|
|
|
216,936 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,325,027 |
|
|
|
2,072,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable-long term |
|
|
— |
|
|
|
443,847 |
|
Line of credit-net of discount of $52,530 and $65,371, respectively |
|
|
1,247,470 |
|
|
|
934,629 |
|
Notes Payable-net of discount of $11,927 |
|
|
438,073 |
|
|
|
— |
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
1,685,543 |
|
|
|
1,378,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
Common stock, par value $.001; authorized 50,000,000 shares; 12,695,685 shares issued
504,639 shares to be issued and 12,662,352 shares outstanding as of December 31,
2008;
11,787,572 shares issued, 421,306 shares to be issued, and 11,754,239 shares
outstanding
as of December 31, 2007 |
|
|
13,200 |
|
|
|
12,210 |
|
Additional paid-in capital |
|
|
59,531,865 |
|
|
|
58,483,539 |
|
Accumulated deficit |
|
|
(57,233,369 |
) |
|
|
(56,045,915 |
) |
Treasury stock, at cost, 33,333 shares |
|
|
(911,516 |
) |
|
|
(911,516 |
) |
|
|
|
|
|
|
|
Total stockholders’ equity |
|
|
1,400,180 |
|
|
|
1,538,318 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
4,410,750 |
|
|
$ |
4,989,565 |
|
|
|
|
|
|
|
|
See Notes to Financial Statements
F-3
MILESTONE SCIENTIFIC INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2008 AND 2007
| |
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
Product sales, net |
|
$ |
6,595,525 |
|
|
$ |
6,262,608 |
|
Royalty income |
|
|
28,282 |
|
|
|
128,105 |
|
|
|
|
|
|
|
|
Total revenue |
|
|
6,623,807 |
|
|
|
6,390,713 |
|
|
|
|
|
|
|
|
Cost of products sold |
|
|
2,681,116 |
|
|
|
2,898,048 |
|
|
|
|
|
|
|
|
Gross profit |
|
|
3,942,691 |
|
|
|
3,492,665 |
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
5,502,762 |
|
|
|
6,577,086 |
|
Research and development expenses |
|
|
168,516 |
|
|
|
397,354 |
|
|
|
|
|
|
|
|
|
|
|
5,671,278 |
|
|
|
6,974,440 |
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(1,728,587 |
) |
|
|
(3,481,775 |
) |
Other income & (expense) |
|
|
|
|
|
|
|
|
Other income |
|
|
675,930 |
|
|
|
552,005 |
|
Interest income |
|
|
9,023 |
|
|
|
17,440 |
|
Interest expense |
|
|
(116,374 |
) |
|
|
(19,752 |
) |
Amortized debt issuance |
|
|
(27,446 |
) |
|
|
(6,614 |
) |
|
|
|
|
|
|
|
Total other income |
|
|
541,133 |
|
|
|
543,079 |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1,187,454 |
) |
|
$ |
(2,938,696 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders |
|
$ |
(1,187,454 |
) |
|
$ |
(2,938,696 |
) |
|
|
|
|
|
|
|
Loss per share applicable to common stockholders —
basic and diluted |
|
$ |
(0.09 |
) |
|
$ |
(0.24 |
) |
|
|
|
|
|
|
|
Weighted average shares outstanding and to be issued —
basic and diluted |
|
|
12,666,979 |
|
|
|
12,141,525 |
|
|
|
|
|
|
|
|
See Notes to Financial Statements
F-4
MILESTONE SCIENTIFIC INC.
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2008 AND 2007
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
| |
|
Common Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
Treasury |
|
|
|
|
| |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Stock |
|
|
Total |
|
Balance, December 31, 2006 |
|
|
12,029,672 |
|
|
|
12,031 |
|
|
|
57,720,129 |
|
|
|
(53,107,219 |
) |
|
|
(911,516 |
) |
|
|
3,713,425 |
|
Options issued for payment of consulting
services |
|
|
— |
|
|
|
— |
|
|
|
285,282 |
|
|
|
|
|
|
|
|
|
|
|
285,282 |
|
Common stock issued from exercise of options |
|
|
66,667 |
|
|
|
67 |
|
|
|
71,134 |
|
|
|
|
|
|
|
|
|
|
|
71,201 |
|
Common stock and options issued for payment
of employee compensation |
|
|
28,269 |
|
|
|
28 |
|
|
|
185,093 |
|
|
|
|
|
|
|
|
|
|
|
185,121 |
|
Common Shares to be issued in settlement of
deferred compensation |
|
|
84,270 |
|
|
|
84 |
|
|
|
149,916 |
|
|
|
|
|
|
|
|
|
|
|
150,000 |
|
Warrants issued in connection with Line of
Credit |
|
|
— |
|
|
|
— |
|
|
|
71,985 |
|
|
|
|
|
|
|
|
|
|
|
71,985 |
|
Net Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,938,696 |
) |
|
|
|
|
|
|
(2,938,696 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007 |
|
|
12,208,878 |
|
|
|
12,210 |
|
|
|
58,483,539 |
|
|
|
(56,045,915 |
) |
|
|
(911,516 |
) |
|
|
1,538,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options issued to employees and consultants |
|
|
— |
|
|
|
— |
|
|
|
151,920 |
|
|
|
|
|
|
|
|
|
|
|
151,920 |
|
Common stock issued for payment of
services to settle accounts payable |
|
|
156,448 |
|
|
|
156 |
|
|
|
262,590 |
|
|
|
|
|
|
|
|
|
|
|
262,746 |
|
Common stock issued for
payment of consulting services
to settle accounts payable |
|
|
356,063 |
|
|
|
356 |
|
|
|
315,743 |
|
|
|
|
|
|
|
|
|
|
|
316,099 |
|
Common stock issued for
payment of employee compensation |
|
|
135,602 |
|
|
|
135 |
|
|
|
98,284 |
|
|
|
|
|
|
|
|
|
|
|
98,419 |
|
Common shares to be issued in
settlement of deferred compensation |
|
|
83,333 |
|
|
|
83 |
|
|
|
99,917 |
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
Common stock issued for patents in settlement
of lawsuit |
|
|
260,000 |
|
|
|
260 |
|
|
|
93,340 |
|
|
|
|
|
|
|
|
|
|
|
93,600 |
|
Warrants issued in connection with
amendment to Line of Credit |
|
|
|
|
|
|
|
|
|
|
12,579 |
|
|
|
|
|
|
|
|
|
|
|
12,579 |
|
Warrants issued in connection with
refinancing of Notes Payable |
|
|
|
|
|
|
|
|
|
|
13,953 |
|
|
|
|
|
|
|
|
|
|
|
13,953 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,187,454 |
) |
|
|
|
|
|
|
(1,187,454 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
|
13,200,324 |
|
|
$ |
13,200 |
|
|
$ |
59,531,865 |
|
|
$ |
(57,233,369 |
) |
|
$ |
(911,516 |
) |
|
$ |
1,400,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements
F-5
MILESTONE SCIENTIFIC INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2008 AND 2007
| |
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1,187,454 |
) |
|
$ |
(2,938,696 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation expense |
|
|
71,336 |
|
|
|
104,740 |
|
Amortization of patents |
|
|
55,908 |
|
|
|
37,560 |
|
Amortization of debt discount |
|
|
27,446 |
|
|
|
6,614 |
|
Common stock and options issued for compensation, consulting,
and vendor services |
|
|
350,339 |
|
|
|
620,403 |
|
Bad debt expense |
|
|
— |
|
|
|
69,378 |
|
Loss on sale/disposal of equipment |
|
|
2,255 |
|
|
|
241,530 |
|
Loss on write-off of patent rights |
|
|
— |
|
|
|
157,640 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
(Increase) in accounts receivable |
|
|
(579,395 |
) |
|
|
(69,106 |
) |
Decrease in royalty receivable |
|
|
15,358 |
|
|
|
44,749 |
|
Decrease (Increase) in inventories |
|
|
916,842 |
|
|
|
(313,406 |
) |
Decrease (Increase) to advances to contract manufacturer |
|
|
526,694 |
|
|
|
(114,713 |
) |
(Increase) to prepaid expenses and other current assets |
|
|
(48,569 |
) |
|
|
(72,654 |
) |
Decrease (Increase) in other assets |
|
|
19,980 |
|
|
|
(13,144 |
) |
(Decrease) Increase in accounts payable |
|
|
(891,707 |
) |
|
|
1,103,575 |
|
Increase (Decrease) in accrued expenses |
|
|
282,294 |
|
|
|
(30,973 |
) |
(Decrease) in deferred compensation |
|
|
(3,333 |
) |
|
|
15,833 |
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(442,006 |
) |
|
|
(1,150,670 |
) |
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(13,106 |
) |
|
|
(107,819 |
) |
Proceeds on sale of equipment |
|
|
7,749 |
|
|
|
— |
|
Payment for patent rights |
|
|
(303,975 |
) |
|
|
(227,825 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(309,332 |
) |
|
|
(335,644 |
) |
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options |
|
|
— |
|
|
|
71,201 |
|
Proceeds from Long term borrowing-other |
|
|
300,000 |
|
|
|
1,000,000 |
|
Proceeds
from Notes Payable |
|
|
450,000 |
|
|
|
— |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
750,000 |
|
|
|
1,071,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS |
|
|
(1,338 |
) |
|
|
(415,113 |
) |
Cash and cash equivalents at beginning of year |
|
|
745,003 |
|
|
|
1,160,116 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
743,665 |
|
|
$ |
745,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Interest expense paid in cash |
|
$ |
7,500 |
|
|
$ |
10,000 |
|
|
|
|
|
|
|
|
Income tax paid |
|
$ |
4,720 |
|
|
$ |
1,925 |
|
|
|
|
|
|
|
|
Supplemental
disclosure of non cash flow activities: |
|
|
|
|
|
|
|
|
Warrants issued in connection with Line of Credit |
|
$ |
12,579 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
Warrants issued in connection with refinancing notes payble |
|
$ |
13,953 |
|
|
$ |
24,557 |
|
|
|
|
|
|
|
|
Shares issued to employees in lieu of cash compensation |
|
$ |
98,419 |
|
|
$ |
44,693 |
|
|
|
|
|
|
|
|
Shares issued for patents in settlement of litigation |
|
$ |
93,600 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
Shares issued to settle accounts payable |
|
$ |
578,845 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
See Notes to Financial Statements
F-6
MILESTONE SCIENTIFIC INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A — ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION
Milestone Scientific Inc. (“Milestone”) was incorporated in the State of Delaware in August 1989.
Milestone has developed a proprietary, computer-controlled anesthetic delivery system, through the
use of The Wand, a single use disposable handpiece. The system is marketed in dentistry under the
trademark CompuDent, Wand Plus and STA (Single Tooth Anesthesia) and in medicine under the
trademark CompuMed. CompuDent is suitable for all dental procedures that require local anesthetic.
CompuMed and Wand Plus are suitable for many medical procedures regularly performed in Plastic
Surgery, Hair Restoration Surgery, Podiatry, Colorectal Surgery, Dermatology, Orthopedics and a
number of other disciplines. The systems are sold in the United States and in over 25 countries
abroad. Milestone’s products are manufactured by a third-party contract manufacturer.
The Company has incurred operating losses and negative cash flows from operating activities since
its inception, including $442,006 and $1,150,670 for the years ended December 31, 2008 and 2007,
respectively. At December 31, 2008, the Company had cash and cash equivalents and working capital
of $743,665 and $1,532,688, respectively. Additionally, as discussed in Note H, on June 28, 2007,
the Company secured a revolving line of credit in the aggregate amount of $1,000,000 from a
stockholder which line was fully borrowed at December 31, 2007. The borrowing was amended to
$1,300,000 as of September 30, 2008 under the same terms and conditions as the original borrowing.
Additionally, the company borrowed an additional $450,000 in 2008 from the same shareholder, with a
due date of January 2009. This additional borrowing was refinanced at December 31, 2008 and the due
date was extended to June 30, 2012. The Company is actively pursuing the generation of positive
cash flows from operating activities through an increase in revenue based upon management’s
assessment of present contracts and current negotiations and reductions in operating expenses. As
of December 31, 2008, the Company expects to have sufficient cash reserves to meet all of its
anticipated obligations for the next twelve months. The Company may require the need for a higher
level of marketing and sales efforts that at present it cannot fund. If the Company is unable to
generate positive cash flows from its operating activities it will need to raise additional
capital. There is no assurance that the Company will be able to achieve positive operating cash
flows or that traditional capital can be raised on terms and conditions satisfactory to the
Company, if at all. If positive cash flow cannot be achieved or if additional capital is required
and it cannot be raised, then the Company would be forced to curtail its development activities,
reduce marketing expenses for existing dental products or adopt other cost saving measures, any of
which might negatively affect the Company’s operating results.
The Company’s recurring losses and negative operating cash flows raises substantial doubt about its
ability to continue as a going concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Cash and Cash Equivalents
Milestone considers all highly liquid investments purchased with a maturity of three months or less
to be cash equivalents.
2. Accounts Receivable
The realization of Accounts Receivable will have a significant impact on the Company. Consequently,
Milestone estimates losses resulting from the inability of its customers to make payments for
amounts billed. The collectability of outstanding amounts is continually assessed.
3. Royalty Receivable
Royalty Receivable represents the royalty due from the licensee of Milestone’s proprietary consumer
dental whitening product, which is sold under Milestone’s distributor’s trademark of Ionic White.
The royalties are received on a quarterly basis. As of December 31, 2008, the licensee has not been
able to sell any additional dental whiting product. Therefore, there is no Royalty Receivable as of
December 31, 2008. — See Note N (6) Subsequent Events.
F-7
4. Product Return and Warranty
Milestone does not accept non-defective returns from its customers on a routine basis. Product
returns under warranty are accepted, evaluated and repaired or replaced in accordance with the
Warranty Policy. Returns not within the Warranty Policy are charged to the
customer. Warranty expense was $20,590 and $25,501 for 2008 and 2007, respectively. Non Warranty
repairs are collected from the customers. Non Warranty repair income was $61,198 and $55,048 for
2008 and 2007, respectively.
5. Inventories
Inventories principally consist of finished goods and component parts stated at the lower of cost
(first-in, first-out method) or market.
6. Equipment
Equipment is recorded at cost, less accumulated depreciation. Depreciation expense is computed
using the straight-line method over the estimated useful lives of the assets, which range from five
to seven years. The costs of maintenance and repairs are charged to operations as incurred.
7. Investments
Investments in less than twenty percent owned entities are accounted for under the cost basis and
are reviewed for impairment periodically.
8. Patents
Patents are recorded at actual cost to prepare and file the applicable documents with the United
States Patent Office, or internationally with the applicable governmental office in the respective
country. Although certain patents have not yet been approved, the costs related to these patents
are being amortized using the straight-line method over the estimated useful life of the patent. If
the applicable patent application is ultimately rejected, the remaining unamortized balance will be
expensed in the period in which the Company receives a notice of such rejection. Patent
applications filed and patents obtained in foreign countries are subject to the laws and procedures
that differ from those in the United States. Patent protection in foreign countries may be
different from patent protection under United States laws and may not be favorable to the Company.
The Company also attempts to protect the proprietary information through the use of confidentiality
agreements and by limiting access to the facilities. There can be no assurance that the program of
patents, confidentiality agreements and restricted access to the facilities will be sufficient to
protect the proprietary technology.
9. Impairment of Long-Lived Assets
Milestone reviews patents and equipment for impairment whenever events or circumstances indicate
that the carrying amounts may not be recoverable. The carrying value of the assets is evaluated in
relation to the operating performance and future undiscounted cash flows of the underlying assets.
Milestone adjusts the net book value of an underlying asset if its fair value is determined to be
less than its book value. In 2007, the Company charged to expense $158,000 of patent costs
previously capitalized for products that are no longer being sold.
10. Revenue Recognition
Revenue from product sales is recognized net of discounts and allowances to the domestic
distributor on the date of arrival of the goods at the customer’s location as shipments are FOB
destination. Shipments to the international distributors are FOB the warehouse and revenue is
therefore recognized on shipment. In both cases, the price to the buyer is fixed and the
collectability is reasonably assured. Further, Milestone has no obligation on these sales for any
post sale installation, set-up or maintenance, these being the responsibility of the buyer.
Customer acceptance is considered made at delivery. The only obligation after sale is the normal
commercial warranty against manufacturing defects if the alleged defective unit is returned within
the warranty period.
Royalty income is recognized as earned based on reports received from the licensee and related
royalty expense is accrued during the same period.
11. Shipping and Handling Costs
The Company includes shipping and handling costs in cost of goods sold. These costs are billed to
customers at the time of shipment for domestic shipments. International shipments are FOB the
warehouse, therefore no costs are incurred by the Company.
12. Research and Development
Research and development costs, which consist principally of new product development costs incurred
to third parties, are expensed as incurred.
F-8
13. Advertising Expenses
Milestone expenses advertising costs as they are incurred. For the years ended December 31, 2008
and 2007, Milestone recorded advertising expenses of $268,009 and $57,796, respectively.
14. Income Taxes
Milestone accounts for income taxes pursuant to the asset and liability method which requires
deferred income tax assets and liabilities to be computed for temporary differences between the
financial statement and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be realized. The income tax
provision or credit is the tax payable or refundable for the period plus or minus the change during
the period in deferred tax assets and liabilities.
15. Basic and diluted net loss per common share
Milestone presents “basic” earnings (loss) per common share applicable to common stockholders and,
if applicable, “diluted” earnings (loss) per common share applicable to common stockholders
pursuant to the provisions of Statement of Financial Accounting Standards No. 128, “Earnings per
Share” (SFAS 128). Basic earnings (loss) per common share is calculated by dividing net income or
loss applicable to common stockholders by the weighted average number of common shares outstanding
and to be issued 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 preferred stock were issued during the period.
Since Milestone had net losses for 2008 and 2007, the assumed effects of the exercise of
outstanding stock options and warrants, as well convertible debt were not included in the
calculation as their effect would have been anti-dilutive. Such outstanding options and warrants
totaled 3,601,245 at December 31, 2008 and 3,358,413 at December 31, 2007.
16. Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions in
determining the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of revenues and expenses
during the reporting period. The most significant estimates relate to the allowance for doubtful
accounts, inventory valuation, and cash flow assumptions regarding evaluations for impairment of
long-lived assets and valuation allowances on deferred tax assets. Actual results could differ from
those estimates.
17. Fair Value of Financial Instruments
The carrying amounts reported in the consolidated balance sheet for cash, accounts receivable,
advances to contract manufacturer, accounts payable and accrued expenses approximate fair value
based on the maturity of these instruments.
18. Stock-Based Compensation
Milestone accounts for stock-based compensation under SFAS No. 123R, “Share-Based Payment, an
Amendment of FASB Statement No. 123” (SFAS No. 123R). SFAS No. 123R requires all share-based
payments to employees, including grants of employee stock options, to be recognized in the
statements of operations over the service period, as an operating expense, based on the grant-date
fair values. As a result of adopting SFAS No. 123R, Milestone recognizes as compensation expense in
its financial statements the unvested portion of existing options granted prior to and the cost of
stock options granted to employees after January 1, 2006 based on the fair value of the stock
options at grant date.
The weighted-average fair value of the individual options granted during 2008 and 2007 was
estimated as $0.84 and $1.11, respectively, on the date of grant. The fair value for 2008 and 2007
was determined using the Black-Scholes option-pricing model with the following weighted average
assumptions:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
Volatility |
|
|
372 |
% |
|
|
96 |
% |
Risk-free interest rate |
|
|
2.86 |
% |
|
|
4.97 |
% |
Expected life |
|
3 years |
|
|
3 years |
|
Dividend yield |
|
|
0 |
% |
|
|
0 |
% |
F-9
In accordance with the provisions of SFAS No.123R, all other issuances of common stock, stock
options or other equity instruments to non-employees as consideration for goods or services
received by Milestone are accounted for based on the fair value of the equity instruments issued
(unless the fair value of the consideration received can be more reliably measured). The fair value
of any options or similar equity instruments issued is estimated based on the Black-Scholes
option-pricing model, which meets the criteria set forth in SFAS No. 123, and the assumption that
all of the options or other equity instruments will ultimately vest. Such fair value is measured as
of an appropriate date pursuant to the guidance in the consensus of the Emerging Issues Task Force
(“EITF”) for EITF Issue No. 96-18 (generally, the earlier of the date the other party becomes
committed to provide goods or services or the date performance by the other party is complete) and
capitalized or expensed as if Milestone had paid cash for the goods or services.
Expected volatilities are based on historical volatility of Milestone’s common stock over a period
commensurate with expected term. Milestone uses historical data to estimate option exercise and
employee termination within the valuation model.
19. Concentration of Credit Risk
Milestone’s financial instruments that are exposed to concentrations of credit risk consist
primarily of cash and trade accounts receivable, and advances to contract manufacturer. Milestone
places its cash and cash equivalents with large financial institutions. At times, such investments
may be in excess of the Federal Deposit Insurance Corporation insurance limit. Milestone has not
experienced any losses in such accounts and believes it is not exposed to any significant credit
risks. Financial instruments which potentially subject Milestone to credit risk consist principally
of trade accounts receivable, as Milestone does not require collateral or other security to support
customer receivables, and advances to contract manufacturer. Milestone entered into a purchase
agreement with a vendor to supply Milestone with 5,000 instruments of CompuDent. As part of this
agreement, Milestone has advanced approximately $650,000 and $1.2 million to the vendor for
purchase of materials at December 31, 2008 and 2007, respectively. The advance will be credited to
Milestone as the goods are delivered. Milestone does not believe that significant credit risk
exists with respect to this advance to the contract manufacturer at December 31, 2008 and 2007.
Milestone closely monitors the extension of credit to its customers while maintaining allowances,
if necessary, for potential credit losses. On a periodic basis, Milestone evaluates its accounts
receivable and establishes an allowance for doubtful accounts, based on a history of past
write-offs and collections and current credit conditions. Management does not believe that
significant credit risk exists with respect to accounts receivable at December 31, 2008 and 2007.
20. Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This new standard
defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles and expands further disclosures about fair value measurements. This statement
does not require any new fair value measurements but provides guidance in determining fair value
measurements presently used in the preparation of financial statements. This new standard is
effective for financial statements issued for fiscal years beginning after November 15, 2007. This
Standard was adopted as of January 1, 2008 and did not have a significant impact on Milestone’s
results of operations or financial position.
In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.159, “The Fair
Value Option for Financial Assets and Financial Liabilities -Including an amendment of FASB
Statement No. 115”. SFAS No.159 permits entities to choose to measure many financial instruments
and certain other items at fair value. The objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge accounting
provisions. SFAS No.159 is effective as of the first fiscal year that begins after November 15,
2007. This Standard was adopted as of January 1, 2008, and
Milestone did not elect the fair value option for
eligible items.
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.141 (revised),
“Summary No. 141 (revised 2007)”. SFAS No.141 (revised) provides for improving the relevance,
representational faithfulness, and comparability of the information that an entity provides in its
financial reports about a business combination and its effects. SFAS No.141 (revised) applies
prospectively to business combinations for which the acquisition date is on or after December 15,
2008. Milestone is considering the impact of this Statement on its financial statements.
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.160,
“Non-controlling Interest in Consolidated Financial Statements- and amendment of ARB No. 51”.
SFAS No.160 establishes accounting and reporting standards for non-controlling interests, sometimes
called minority interests, the portion of equity in a subsidiary not attributable, directly or
indirectly, to a parent. SFAS No.160 is effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2008. Milestone is considering the impact of this
Statement on its financial statements.
F-10
In March 2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 161, “Disclosure
about Derivative Instruments and Hedging Activities — an amendment of FASB No. 133”. This Statement
requires enhanced disclosure about an entity’s derivative and hedging activities. The effective
date for this Statement is for financial statements issued for fiscal year and interim periods
beginning after November 15, 2008. This Statement does not currently impact the financial
statements of Milestone Scientific.
In March 2008, the FASB, affirmed the consensus of FASB Staff Position (FSP) Accounting Principles
Board Opinion No. 14-1 (APB 14-1), Accounting for Convertible Debt Instruments That May Be Settled
in Cash upon Conversion (Including Partial Cash Settlement), which applies to all convertible debt
instruments that have a net settlement feature; which means that such convertible debt instruments,
by their terms, may be settled either wholly or partially in cash upon conversion. FSP APB 14-1
requires issuers of convertible debt instruments that may be settled wholly or partially in cash
upon conversion to separately account for the liability and equity components in a manner
reflective of the issuer’s nonconvertible debt borrowing rate. Previous guidance provided for
accounting for this type of convertible debt instrument entirely as debt. FSP APB 14-1 is effective
for financial statements issued for fiscal years beginning after December 15, 2008 and interim
periods within those fiscal years. Milestone is considering the impact of this Statement on
its financial statements.
In May 2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 163, “Accounting for
Financial Guarantee Insurance Contracts — an interpretation of FASB N0.60. The Statement requires
that an insurance enterprise recognize a claim liability prior to an event of default, when the
evidence that credit deterioration has occurred in an insured financial obligation. This Statement
is effective for fiscal years beginning after December 15, 2008, and interim periods within the
fiscal year. This Statement would not currently impact the financial statements of Milestone
Scientific.
NOTE C — INVENTORIES
| |
|
|
|
|
|
|
|
|
| |
|
December 31 |
|
| |
|
2008 |
|
|
2007 |
|
Inventories consist of the following: |
|
|
|
|
|
|
|
|
| |
Finished Goods |
|
$ |
609,279 |
|
|
|
1,421,050 |
|
Component parts and other materials |
|
|
110,623 |
|
|
|
215,694 |
|
|
|
|
|
|
|
|
|
|
$ |
719,902 |
|
|
|
1,636,744 |
|
|
|
|
|
|
|
|
Slow moving and overstocked inventories totaling approximately $82,000 and $62,000 were charged off
to cost of products sold during the year ended December 31, 2008 and 2007, respectively.
NOTE D — ADVANCES TO CONTRACT MANUFACTURER
The net advances to contract manufacturer represent funding of future STA, CompuDent and Wand Plus
inventory purchases. The balance of the net advances as of December 31, 2008 and 2007 totaled
$665,890 and $1,192,584, respectively. The portion of this advance expected to be utilized in 2009
is classified as current asset, with the remainder classified as non-current asset.
NOTE E —EQUIPMENT
| |
|
|
|
|
|
|
|
|
| |
|
December 31 |
|
| |
|
2008 |
|
|
2007 |
|
Equipment consist of the following: |
|
|
|
|
|
|
|
|
Leasehold improvements |
|
$ |
22,317 |
|
|
$ |
22,317 |
|
Artwork |
|
|
76,918 |
|
|
|
85,550 |
|
Office furniture and equipment |
|
|
88,848 |
|
|
|
99,839 |
|
Trade show displays |
|
|
57,463 |
|
|
|
57,463 |
|
Computers and software |
|
|
176,276 |
|
|
|
163,653 |
|
Tooling equipment-STA |
|
|
12,377 |
|
|
|
12,377 |
|
STA Trials Units |
|
|
63,752 |
|
|
|
63,753 |
|
|
|
|
|
|
|
|
Total |
|
|
497,952 |
|
|
|
504,952 |
|
Less accumulated depreciation |
|
|
(345,377 |
) |
|
|
(284,144 |
) |
|
|
|
|
|
|
|
|
|
$ |
152,574 |
|
|
$ |
220,808 |
|
|
|
|
|
|
|
|
Depreciation expense was $71,336 and $104,740 for the years ended December 31, 2008 and 2007,
respectively.
F-11
NOTE F — PATENTS
Patents are being amortized by the straight-line method over estimated useful lives ranging from 10
to 20 years, with a weighted average amortization period of 16 years. Amortization expense amounted
to $55,908 in 2008 and $37,560 in 2007. Estimated amortization expense of existing patents for each
of the next five fiscal years amounts to $72,739 per year.
NOTE G — INVESTMENT IN DISTRIBUTOR
In December 2004, Milestone purchased a 19.9% equity interest in a German distribution company
which is an affiliate of Milestone’s principal international distributor.
NOTE H— LINE OF CREDIT and NOTES PAYABLE
On June 28, 2007 the Company secured a $1 million line of credit from a stockholder. This borrowing
was amended to $1,300,000 as of September 30, 2008 under the same terms and conditions as the
original. Borrowings bear interest at 6% per annum, with one year’s interest at 1% payable in
advance on each draw. Monies may be drawn by Milestone under the line in multiples of $100,000 upon
5 days written notice to you from either Milestone’s Chief Executive Officer or Chief Financial
Officer. Monies under the line in excess of $1,000,000 may be drawn in multiples of $25,000.
Borrowings may be prepaid at any time in multiples of $100,000, without penalty. All borrowings and
interest thereon must be repaid by June 30, 2010, and after the expiration date of the line, may be
repaid by Milestone in cash or, at its option, in shares of common stock valued at the lower of
$2.00 per share or 80% of the average closing price of its shares during the 20 trading days ending
with December 31, 2008. At December 31, 2008, the conversion price at 80% of the average closing
price of the Company’s stock was $0.26 per share. After December 31, 2008, and before June 30,
2010, the lender may convert all or any part of the then outstanding balance and interest thereon
into shares of Common Stock at $4.00 per share. Three year warrants exercisable at $5.00 per share,
in an amount determined by dividing 50% of the amount borrowed by $5.00 will be issued on each
drawdown. There is no facility fee on the line. The warrants have been valued as of each draw down
using the Black-Scholes model and are reflected as a discount against the debt incurred under this
line of credit. At December 31, 2008 the remaining balance of Debt Discount was $52,530. The full
amount of the line of credit and amendment, $1.3 million, has been drawn at December 31, 2008. The
Company borrowed an additional $450,000 from the same shareholder in 2008. The borrowing was
originally on short term loan with a maturity date of January 19, 2009. In December 2008, this
borrowing was refinanced with the shareholder with a due date of June 30, 2012. The borrowing
includes a twelve percent interest rate, interest compound quarterly, with interest and principle
due at the maturity. Further, the note has warrants exercisable for five years at the price of
$0.32 per share for 45,000 shares of stock. The warrants were valued using the Black-Scholes model
and are reflected as a discount against the debt. At December 31, 2008, the discount was $11,927.
Interest expense on this Line of Credit for the year ended December 31, 2008 and 2007 is $116,374
and $19,752, respectively. Accrued interest related to this line of credit was $98,437 and $12,445
at December 31, 2008 and December 31, 2007, respectively. The charge for amortization of Debt
Discount related to this Line of Credit is $27,446 and $6,614 for the year ended December 31, 2008
and December 31, 2007, respectively.
NOTE I— STOCKHOLDERS’ EQUITY
ISSUANCES OF COMMON STOCK
During 2008, Milestone issued 281,972 shares valued at $443,847 for the payment of vendor services
to settle accounts payable.
During 2008, Milestone issued 230,539 shares valued at $134,998 for payment of consulting services.
During 2008, Milestone issued 135,602 shares valued at $98,419 for payment of employee
compensation.
During 2008, Milestone issued 83,333 shares valued at $100,000 to several in settlement of
officer’s deferred compensation.
During 2008, Milestone issued 260,000 shares valued at $93,600 in settlement of a lawsuit for
patents.
During 2007, Milestone issued 66,667 shares valued at $71,201 for the exercise of stock options.
During 2007, Milestone issued 28,269 shares valued at $185,121 to several employees as part of
annual compensation.
During 2007, Milestone issued 84,270 shares valued at $150,000 in settlement of officers deferred
compensation.
F-12
OUTSTANDING WARRANTS
In 2008, Milestone issued 30,000 warrants exercisable at $5.00 per share as part of an amendment to
the existing Line of Credit, expiring in several dates in 2011. Additionally, Milestone issued
45,000 warrants as part of a Long Term Note, exercisable at $0.32 per share, expiring in June 2012.
In 2007, as part of a Line of Credit issued to the Company, Milestone issued 100,000 warrants
exercisable at $5.00 per share, expiring on June 28, 2010.
At December 31, 2008 there were 2,402,946 warrants exercisable at prices ranging from $ 0.32 to
$5.00 per share, expiring at various dates from February 2009 through 2012.
At December 31, 2007 there were 2,327,946 warrants exercisable at prices ranging from $4.89 to
$5.00 per share expiring at various dates between February 2009 and October 2010.
In February 2009, 2,147,946 warrants at $4.89, to issue the equivalent number of shares of the
Company’s common stock expired.
SHARES RESERVED FOR FUTURE ISSUANCE
At December 31, 2008 and 2007 there were 4,853,216 and 4,527,051 shares reserved for future
issuance including 747,332 shares in 2008 and 2007 underlying stock options available under the
Stock Option Plans, respectively; 3,601,245 and 3,358,413 shares underlying other stock options and
warrants that were outstanding at December 31, 2008 and 2007, respectively, and 504,639 shares in
2008 and 421,306 shares in 2007 to be issued in settlement of deferred compensation.
In December 2007, the Board of Directors authorized the Company to issue up to $2 million of its
Company stock to vendors or employees, and to grant them piggy back registration rights in the
usual form, at a value of not less than 90% of the market value on the date of the agreement for
the vendor or employee to accept said shares. Such future shares are not included in the above
noted shares reserved for future issuance.
NOTE J — STOCK OPTION PLANS
In 1997, the Board of Directors approved the adoption of the 1997 Stock Option Plan. The 1997 Stock
Option Plan provides for the grant of options to purchase up to 166,667 shares of Milestone’s
common stock. In 1999, the Plan was amended, providing for the grant of options to purchase up to
333,333 shares of Milestone’s common stock. Options may be granted to employees, officers, and
directors of Milestone for the purchase of common stock of Milestone at a price not less than the
fair market value of the common stock on the date of the grant. In general, options become
exercisable over a three-year period from the grant date and expire five years after the date of
grant.
In July 2004, the Board of Directors approved the adoption of the 2004 Stock Option Plan. The 2004
Stock Option Plan provides for the grant of options to purchase up to 500,000 shares of Milestone’s
common stock. Options may be granted to employees, officers, directors and consultants of Milestone
for the purchase of common stock of Milestone at a price not less than the fair market value of the
common stock on the date of the grant. In general, options become exercisable over a three-year
period from the grant date and expire five years after the date of grant.
F-13
A summary of option activity for employees under the plans as of December 31, 2007 and 2008, and
changes during the year then ended is presented below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
| |
|
|
|
|
|
Weighted |
|
|
Average |
|
|
Aggregate |
|
| |
|
Number |
|
|
Averaged |
|
|
Remaining |
|
|
Intrinsic |
|
| |
|
of |
|
|
Exercise |
|
|
Contractual |
|
|
Options |
|
| |
|
Options |
|
|
Price |
|
|
Life (Years) |
|
|
Value |
|
Outstanding, January 1, 2007 |
|
|
427,834 |
|
|
$ |
1.85 |
|
|
$ |
3.34 |
|
|
$ |
— |
|
Granted |
|
|
80,000 |
|
|
|
1.68 |
|
|
|
4.50 |
|
|
|
— |
|
Exercised |
|
|
(66,667 |
) |
|
|
1.07 |
|
|
|
— |
|
|
|
— |
|
Forfeited or expired |
|
|
(49,833 |
) |
|
|
2.54 |
|
|
|
— |
|
|
|
— |
|
Outstanding, December 31, 2007 |
|
|
391,334 |
|
|
|
1.86 |
|
|
|
2.85 |
|
|
|
108,800 |
|
Exercisable, December 31, 2007 |
|
|
314,334 |
|
|
|
1.94 |
|
|
|
2.54 |
|
|
|
98,350 |
|
Granted |
|
|
230,832 |
|
|
|
0.85 |
|
|
|
4.20 |
|
|
|
75 |
|
Exercised during 2008 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Forfeited or expired |
|
|
(51,334 |
) |
|
|
1.19 |
|
|
|
— |
|
|
|
— |
|
Outstanding, December 31, 2008 |
|
|
570,832 |
|
|
|
1.51 |
|
|
|
3.01 |
|
|
|
75 |
|
Exercisable, December 31, 2008 |
|
|
366,442 |
|
|
|
1.83 |
|
|
|
2.43 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted |
|
|
Weighted |
|
| |
|
Number |
|
|
Averaged |
|
|
Average |
|
| |
|
of |
|
|
Exercise |
|
|
Grant Date |
|
| |
|
Options |
|
|
Price |
|
|
Fair Value |
|
VESTED OPTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, January 1, 2007 |
|
|
277,167 |
|
|
$ |
2.05 |
|
|
$ |
— |
|
Exercised during 2007 |
|
|
(66,667 |
) |
|
|
1.07 |
|
|
|
— |
|
Vested Options during 2007 |
|
|
121,445 |
|
|
|
1.59 |
|
|
|
— |
|
Forfeited during 2007 |
|
|
(17,611 |
) |
|
|
2.54 |
|
|
|
— |
|
Outstanding, December 31, 2007 |
|
|
314,334 |
|
|
|
1.94 |
|
|
|
— |
|
Vested Options during 2008 |
|
|
103,442 |
|
|
|
— |
|
|
|
— |
|
Forfeited during 2008 |
|
|
(51,334 |
) |
|
|
1.19 |
|
|
|
— |
|
Outstanding, December 31, 2008 |
|
|
366,442 |
|
|
|
1.83 |
|
|
|
— |
|
NONVESTED OPTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested, January 1, 2007 |
|
|
150,667 |
|
|
|
1.49 |
|
|
|
0.78 |
|
Granted during 2007 |
|
|
80,000 |
|
|
|
1.68 |
|
|
|
1.11 |
|
Vested during 2007 |
|
|
(121,445 |
) |
|
|
1.59 |
|
|
|
1.08 |
|
Forfeited during 2007 |
|
|
(32,222 |
) |
|
|
1.74 |
|
|
|
0.89 |
|
Nonvested, December 31, 2007 |
|
|
77,000 |
|
|
|
1.56 |
|
|
|
1.00 |
|
Granted Options during 2008 |
|
|
230,832 |
|
|
|
0.85 |
|
|
|
0.84 |
|
Vested during 2008 |
|
|
(103,442 |
) |
|
|
1.19 |
|
|
|
0.89 |
|
Forfeited during 2008 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Nonvested, December 31, 2008 |
|
|
204,390 |
|
|
|
0.94 |
|
|
|
0.87 |
|
Milestone recognizes compensation expense on a straight line basis over the requisite service
period. During the years ended December 31, 2008 and 2007 Milestone recognized $100,968 and
$122,929 of total compensation cost related to options that vested each year, respectively. As of
December 31, 2008 and 2007, there was $111,189 and $30,669 of total unrecognized compensation cost
related to non-vested options which Milestone expects to recognize over a weighted average period
of two years as of December 31, 2008 and one and a quarter years for December 31, 2007.
F-14
A summary of option activity for non-employees under the plans as of December 31, 2007 and 2008,
and changes during the year ended is presented below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
| |
|
Number |
|
|
Averaged |
|
|
Average |
|
|
Intrinsic |
|
| |
|
of |
|
|
Exercise |
|
|
Grant Date |
|
|
Options |
|
| |
|
Options |
|
|
Price |
|
|
Fair Value |
|
|
Value |
|
Outstanding, January 1, 2007 |
|
|
522,466 |
|
|
$ |
3.51 |
|
|
$ |
— |
|
|
$ |
— |
|
Granted during 2007 |
|
|
125,000 |
|
|
|
1.77 |
|
|
|
— |
|
|
|
— |
|
Exercised during 2007 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Forfeited or expired during 2007 |
|
|
(8,333 |
) |
|
|
4.92 |
|
|
|
— |
|
|
|
— |
|
Outstanding, December 31, 2007 |
|
|
639,133 |
|
|
|
3.15 |
|
|
|
2.56 |
|
|
|
20,667 |
|
Exercisable, December 31, 2007 |
|
|
514,133 |
|
|
|
3.49 |
|
|
|
2.19 |
|
|
|
1,667 |
|
Granted during 2008 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Forfeited during 2008 |
|
|
(11,666 |
) |
|
|
3.75 |
|
|
|
— |
|
|
|
— |
|
Outstanding, December 31, 2008 |
|
|
627,467 |
|
|
|
3.14 |
|
|
|
1.61 |
|
|
|
— |
|
Exercisable, December 31, 2008 |
|
|
564,967 |
|
|
|
3.29 |
|
|
|
1.44 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted |
|
| |
|
Number |
|
|
Averaged |
|
| |
|
of |
|
|
Exercise |
|
| |
|
Options |
|
|
Price |
|
VESTED OPTIONS |
|
|
|
|
|
|
|
|
Outstanding, January 1, 2007 |
|
|
310,910 |
|
|
$ |
3.43 |
|
Exercised during 2007 |
|
|
— |
|
|
|
— |
|
Vested Options during 2007 |
|
|
203,223 |
|
|
|
3.61 |
|
Expired during 2007 |
|
|
— |
|
|
|
— |
|
Outstanding, December 31, 2007 |
|
|
514,133 |
|
|
|
3.49 |
|
Exercised during 2008 |
|
|
— |
|
|
|
— |
|
Vested during 2008 |
|
|
62,500 |
|
|
|
1.77 |
|
Forfeited during 2008 |
|
|
(11,666 |
) |
|
|
3.75 |
|
Outstanding, December 31, 2008 |
|
|
564,967 |
|
|
|
3.29 |
|
NONVESTED OPTIONS |
|
|
|
|
|
|
|
|
Nonvested, January 1, 2007 |
|
|
211,556 |
|
|
|
3.63 |
|
Granted during 2007 |
|
|
125,000 |
|
|
|
1.77 |
|
Vested during 2007 |
|
|
(208,778 |
) |
|
|
3.61 |
|
Forfeited during 2007 |
|
|
(2,778 |
) |
|
|
4.92 |
|
Nonvested, December 31, 2007 |
|
|
125,000 |
|
|
|
1.77 |
|
Granted Options during 2008 |
|
|
— |
|
|
|
— |
|
Vested during 2008 |
|
|
(62,500 |
) |
|
|
1.77 |
|
Forfeited or expired during 2008 |
|
|
— |
|
|
|
— |
|
Nonvested, December 31, 2008 |
|
|
62,500 |
|
|
|
1.77 |
|
There
were no options granted to non-employees during 2008. The weighted average grant date fair
value of options granted to non-employees during the year ended December 31, 2007 was $1.08. The
fair value of the options was estimated on the date of grant using the Black Scholes option-pricing
model. For the year ended December 31, 2007, the following weighted average assumptions were used
in calculating fair value; excepted life of 3 years; volatility of 123% and risk-free interest rate
of 4.58%. During the year ended December 31, 2008 and 2007 Milestone recognized $50,952 and
$251,949 of expense related to non-employee options that vested, respectively. The total
unrecognized compensation cost related to nonvested options was $59,484 and $113,688 as of December
31, 2008 and 2007.
NOTE K — EMPLOYMENT CONTRACT AND DEFERRED COMPENSATION
Milestone entered into a new employment agreement with the Chairman effective January 1, 2008. This
new agreement terminates the previous agreement scheduled to terminate on January 1, 2009. The new
agreement is for four years ending on December 31, 2012. As part of this agreement the Chairman
will relinquish the title and position of CEO and will be concentrating his activities on assisting
the new CEO of the Company in (i) management and oversight of vendors in China and other key
vendors, (ii) arranging for and consummating financing transactions and (iii) conducting investor
relations. Under the new agreement, the Chairman will receive a
base compensation of $200,000 per year payable, one half in cash and one half in common stock
valued at the closing price of the common stock on January 31, of each year, with respect to the
then current year. While the number of shares to be issued will be determined each year, the stock
will not be issuable until the end of the term of the new agreement.
F-15
In accordance with the employment contract, as of December 31, 2008 and 2007, 504,639 shares and
421,306 shares of common stock are to be paid out at the end of the contract in settlement of
$700,000 as December 31, 2008 and $600,000 as of December 31, 2007 of accrued deferred compensation
and, accordingly, such shares have been classified in stockholders’ equity with the common shares
classified as to be issued.
Milestone entered into an agreement with a new CEO effective May 2, 2007. The term of the contract
is for a five year period ending on December 31, 2012. Under this agreement the CEO will receive
base cash compensation of $300,000 per year, payable at the option of the CEO, of up to $150,000
per year by written notice to take stock for periods subsequent to such notice. The stock would be
valued at the average closing price of the common stock, during the first 15 trading days of the
last full month of each year. In addition, the CEO, may earn annual bonuses up to an aggregate of
$400,000, payable one half in cash and one half in common stock, contingent upon Milestone
achieving predetermined annual cash flow, revenue, unit sales and earnings as defined in the
employment agreement.
In addition, if in any year of the term of the agreement the CEO earns a bonus, he shall also be
granted five-year stock options to purchase twice the number of shares earned. Each such option is
to be exercisable at a price per share equal to the fair market value of a share on the date of
grant (110%) of the fair market value if the CEO is a 10% or greater stockholder on the date of
grant). The options shall vest and become exercisable to the extent of one-third of the shares
covered at the end of each of the first three years following the date of grant, but shall only be
exercisable while the CEO is employed by Milestone or within 30 days after the termination of his
employment.
NOTE L — INCOME TAXES
The Company’s expected federal income tax benefit computed at the statutory rate (34%) on the
pre-tax loss amounted to $400,000, in 2008 and $1,000,000 in 2007. Such benefit was not recognized
in the accompanying financial statements due to Milestone’s history of past operating losses, which
required full valuation allowances for all of Milestone’s deferred tax assets at December 31, 2008
and 2007.
Deferred tax attributes resulting from differences between financial accounting amounts and tax
bases of assets and liabilities at December 31, 2008 and 2007 are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
Current Assets |
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
2,000 |
|
|
$ |
2,000 |
|
Inventory allowance |
|
|
70,000 |
|
|
|
40,000 |
|
Inventory written off but not disposed of |
|
|
— |
|
|
|
206,000 |
|
Warranty reserve |
|
|
10,000 |
|
|
|
10,000 |
|
Deferred officers compensation |
|
|
40,000 |
|
|
|
— |
|
|
|
|
|
|
|
|
Subtotal |
|
|
122,000 |
|
|
|
258,000 |
|
|
|
|
|
|
|
|
Valuation allowance |
|
|
(122,000 |
) |
|
|
(258,000 |
) |
|
|
|
|
|
|
|
Current deferred tax asset |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
|
|
Net operating loss carryforward |
|
$ |
16,500,000 |
|
|
$ |
16,400,000 |
|
Valuation allowance |
|
$ |
(16,500,000 |
) |
|
$ |
(16,400,000 |
) |
|
|
|
|
|
|
|
Non-current deferred tax asset |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
The allowance decreased by $36,000 and $678,000 for the years ended December 31, 2008 and
2007, respectively.
F-16
As of December 31, 2008 and 2007, Milestone has federal net operating loss carryforwards of
approximately $46,861,000 and $45,222,000, respectively that will be available to offset future
taxable income, if any, through December 2028. Milestone has state
net operating losses of $9,800,000 and $16,500,000 in 2008 and 2007, respectively, expiring through
December 2014. The utilization of Milestone’s net operating losses may be subject to a substantial
limitation due to the “change of ownership provisions” under Section 382 of the Internal Revenue
Code and similar state provisions. Such limitation may result in the expiration of the net
operating loss carry forwards before their utilization. Milestone has established a 100% valuation
allowance for all of its deferred tax assets due to uncertainty as to
their future realization.
A reconciliation of the statutory tax rates for the years ended December 31, is as follows:
| |
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
Statutory rate |
|
|
(34 |
)% |
|
|
(34 |
)% |
State income tax — all states |
|
|
(06 |
)% |
|
|
(06 |
)% |
|
|
|
|
|
|
|
|
|
|
(40 |
)% |
|
|
(40 |
)% |
Current year valuation allowance |
|
|
40 |
% |
|
|
40 |
% |
|
|
|
|
|
|
|
Benefit for income taxes |
|
|
0 |
% |
|
|
0 |
% |
|
|
|
|
|
|
|
As a matter of course, the Company can be audited by federal and state authorities. At this time,
there are no audits identified or in process from any taxing authority.
In 2008 and 2007, Milestone received $675,930 and $552,005, respectively, for sale of tax credits
under the New Jersey Technology Business Tax Certificate Transfer Program. These amounts reduced
the State of New Jersey net operating loss carryforward to approximately $9,800,000 and $16,500,000
for 2008 and 2007, respectively
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (FIN
No.48). FIN No.48 clarifies the accounting for uncertainties in income taxes recognized in a
company’s financial statements in accordance with Statement 109 and prescribes a recognition
threshold and measurement attributes for financial disclosure of tax positions taken or expected to
be taken on a tax return. Additionally, FIN No.48 provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods, and disclosure and
transition. Milestone adopted the provisions of FIN No.48 as of January 1, 2007. The adoption of
FIN No.48 did not impact the financial position, results of operations or cash flows for the year
ended December 31, 2007. The Company did not incur any interest or penalty charges related to state
or federal income taxes in 2007.
NOTE M — PRODUCT SALES AND SIGNIFICANT CUSTOMERS AND VENDORS
Milestone’s sales by product and by geographical region are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
Year End December 31, |
|
| |
|
2008 |
|
|
2007 |
|
Units |
|
$ |
1,609,944 |
|
|
$ |
1,997,514 |
|
Handpieces |
|
|
4,924,151 |
|
|
|
4,161,580 |
|
Other |
|
|
61,430 |
|
|
|
103,514 |
|
|
|
|
|
|
|
|
|
|
$ |
6,595,525 |
|
|
$ |
6,262,608 |
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
4,341,688 |
|
|
$ |
4,593,656 |
|
Canada |
|
|
513,651 |
|
|
|
309,450 |
|
Other foreign |
|
|
1,740,186 |
|
|
|
1,359,502 |
|
|
|
|
|
|
|
|
|
|
$ |
6,595,525 |
|
|
$ |
6,262,608 |
|
|
|
|
|
|
|
|
In January 2007, Milestone finalized an Exclusive Distribution and Supply Agreement with Henry
Schein, Inc. Henry Schein, Inc. will be the exclusive distributor of STA and CompuDent systems (and
ancillary products) in both North America and Canada, for a one year period. The exclusive period
may be extended upon the distributor achieving specific inventory purchases from Milestone
during that one year period. The Distributor was also granted the right of first refusal on
distribution rights of the same products in the international marketplace excluding Poland, Norway,
Sweden, Denmark and South Africa, where Milestone has in place other sales and distribution
partners.
F-17
The Company has informal arrangements with the manufacturer of the STA, CompuDent and CompuMed
instruments, one of the principal manufacturers of the handpieces and for those instruments
pursuant to which they manufacture these products under specific purchase orders but without any
long-term contract or minimum purchase commitment. Purchases from this supplier were $182,975
(14.5%) and $1,545,000 (42.7%) in 2008 and 2007, respectively. The Company has a manufacturing
agreement with one of the principal manufacturers of the handpieces pursuant to which they
manufacture products under specific purchase orders but without minimum purchase commitments.
Purchases from this supplier for handpieces were $156,698 (12.4%) and $991,626 (27.3%) in 2008 and
2007, respectively. The Company has established an alternate source of supply for the handpieces in
China and other alternate sources of supply exist. Purchases of handpieces from China represent one
supplier. Purchases from this supplier were $920,267 (73.0%) and $1,032,313 (28.4%) in 2008 and
2007, respectively. All other purchases from other suppliers were not significant in either 2008 or
2007.
During the years ended December 31, 2008 and 2007, Milestone had two customers (distributors) with
each accounting for approximately 81% and 64%, respectively, of its net product sales for the year
ended December 31, 2008 and 2007, respectively. Accounts receivable from these two customers
amounted to approximately $865,000 (79%) and $391,000 (79%) of gross accounts receivable at
December 31, 2008 and 2007.
During 2008 and 2007, respectively, Milestone earned royalty income of $28,282 and $128,105 from
the licensee of Milestone’s proprietary consumer dental whitening product, which is sold under
Milestone’s distributor’s trademark, Ionic White. — See Note N (6) Subsequent Events.
NOTE N — COMMITMENTS AND OTHER
(1) Lease Commitments
Milestone leases office space under a non-cancelable operating lease with a base rental of $87,808
per annum which was amended in April 2004 to extend the lease expiration date through June 30,
2009. This lease provides for escalations of Milestone’s share of utilities and operating expenses.
Milestone also leases office and telecom equipment under operating leases with payments ranging
from $71-$522 per month.
Aggregate minimum rental commitments under noncancelable operating leases are as follows:
| |
|
|
|
|
| |
|
Year Ending December 31, |
|
| |
|
2008 |
|
|
|
|
|
|
2009 |
|
|
52,294 |
|
2010 |
|
|
7,304 |
|
2011 |
|
|
6,264 |
|
2012 |
|
|
522 |
|
|
|
|
|
|
|
|
66,384 |
|
|
|
|
|
There are no lease commitments beyond 2012.
For the years ended December 31, 2008 and 2007, respectively, rent expense amounted to
approximately $92,000 and $95,000 respectively.
(2) Contract Manufacturing Arrangement
Milestone has informal arrangements for the manufacture of its products. CompuDent and CompuMed
instruments are manufactured for Milestone by Tricor Systems, Inc. pursuant to specific purchase
orders. The Wand disposable handpiece is manufactured for Milestone in Mexico pursuant to scheduled
production requirements. The Wand Handpiece with Needle is supplied to Milestone by the licensee of
Milestone’s proprietary consumer dental whitening product, which arranges for its manufacture by
manufacturers in China.
The termination of the manufacturing relationship with any of the above manufacturers could have a
material adverse effect on Milestone’s ability to produce and sell its products. Although alternate
sources of supply exist and new manufacturing relationships could be established, Milestone would
need to recover its existing tools or have new tools produced. Establishment of new manufacturing
relationships could involve significant expense and delay. Any curtailment or interruption of the
supply, whether or not as a result of termination of such a relationship, would adversely affect
Milestone.
F-18
(3) Other Commitments
The technology underlying the SafetyWand and CompuFlo, and an improvement to the controls for
CompuDent were developed by the Director of Clinical Affairs and assigned to us. Milestone
purchased this technology pursuant to an agreement dated January 1, 2005, for 43,424 shares of
restricted common stock and $145,000 in cash, payable on April 1, 2005. In addition, the Director
will receive additional payments of 2.5% of the total sales of products using certain of these
technologies, and 5% of the total sales of products using certain other of the technologies. In
addition, he is granted, pursuant to the agreement, an option to purchase, at fair market value on
the date of the grant, 8,333 shares of the common stock upon the issuance of each additional patent
relating to these technologies. If products produced by third parties use any of these technologies
(under license from us) then he will receive the corresponding percentage of the consideration
received by Milestone for such sale or license. In 2008 and 2007 Milestone paid the Director
royalty expenses of $82,737 and $111,956, respectively. In 2008 and 2007, respectively, Milestone
paid the Director $144,000 and $144,000 and granted him 33,332 and zero options.
Milestone acquired the technology underlying the CoolBlue Professional Whitening and Ionic White
Consumer Whitening Products. Under the terms of a licensing agreement with a third party
manufacturer, Milestone will receive licensing fees resulting from the sales of the consumer
whitening product. Through December 31, 2006, Milestone paid royalties in connection with the tooth
whitening products to a purported holder of patent rights therein. Late in 2006 Milestone received
a copy of a patent office filing which appeared to show that the purported owner had relinquished
rights to the patent on which royalties had been paid. It is possible that, “never-the-less”, the
purported owner may claim continuing rights to receive royalties or that others may claim that
payments are owed in connection with Milestone’s prior sales. Milestone has continued to accrue
royalties due but has ceased making cash payments. In 2007, Milestone stopped the sale of this
product in the United States and has written off the cost of patents relating to this product.
(4) Litigation
In October 2008, Milestone announced that it acquired additional patent rights with respect to
painless anesthetic injections — specifically rights related to the flow rate or pressure used in
providing these injections — through the issuance of 260,000 shares of restricted common stock. In
connection with this acquisition, Milestone also agreed to terminate its Declaratory Judgment
action against Dr. Milton Hodosh related to claim infringements of his patent rights and Dr. Hodosh
agreed to terminate his existing infringement action against the Milestone. Each party is
responsible for their own legal fees.
(5) Subsequent Events
In January 2009, the Company abandoned its rights to a portfolio of technology covering the use of
blue light emitting diodes (LED) for a variety of dental treatments and diagnostic applications.
The net expense for the blue light emitting (LED) was not significant to the financial statements
in either 2008 or 2007. At the same time, the Company terminated its license agreement for the use
of the technology with United Systems Inc. There were no costs or expenses related to this
abandoning of rights or the termination of the licensee agreement.
NOTE O — PENSION PLAN
Milestone has a Defined Contribution Plan that allows eligible employees to contribute part of
their salary through payroll deductions. Milestone does not contribute to this plan, but does pay
the administrative costs of the plan.
F-19
EXHIBIT INDEX
| |
|
|
|
|
| EXHIBIT |
|
|
| NO. |
|
DESCRIPTION |
| |
| |
3.1 |
|
|
Certificate of Incorporation of Milestone (1) |
| |
3.2 |
|
|
Certificate of Amendment filed July 13, 1995 (2) |
| |
3.3 |
|
|
Certificate of Amendment filed December 6, 1996 (3) |
| |
3.4 |
|
|
Certificate of Amendment filed December 17, 1997 (4) |
| |
3.5 |
|
|
Certificate of Amendment filed July 23, 2003 (6) |
| |
3.6 |
|
|
Certificate of Amendment filed January 8, 2004. (6) |
| |
3.7 |
|
|
Certificate of Designation filed January 15, 2004 (6) |
| |
3.8 |
|
|
By-laws of Milestone (1) |
| |
4.1 |
|
|
Specimen stock certificate (2) |
| |
4.3 |
|
|
Form of warrant agreement, including form of warrant (8) |
| |
10.1 |
|
|
Lease dated November 25, 1996 between Livingston Corporate Park Associates, L.L.C. and Milestone (3) |
| |
10.2 |
|
|
Agreement with DaVinci Systems dated July 30, 2003 (6) |
| |
10.3 |
|
|
Agreement with Strider dated September 3, 2003 (6) |
| |
10.4 |
|
|
Agreement with Len Osser and K. Tucker Andersen, dated October 9, 2003 (6) |
| |
10.5 |
|
|
Agreement with Morse, Zelnick, Rose & Lander dated December 22, 2003 (6) |
| |
10.6 |
** |
|
Employment Agreement with Leonard Osser dated December 20, 2003 (6) |
| |
10.7 |
|
|
Agreement with United Systems dated October 20, 2004 (9) |
| |
10.8 |
|
|
Agreement with Mark Hochman dated as of January 1, 2005 (9) |
| |
10.9 |
|
|
Lease amendment dated April 28, 2004 between Livingston Corporate Park Associates, L.L.C. and Milestone (9) |
| |
10.10 |
|
|
Agreement with DaVinci regarding exclusive license over patented products dated June 1, 2004 (10) |
| |
10.11 |
** |
|
Employment Agreement with Leonard Osser dated January 1, 2008* (11) |
| |
10.12 |
** |
|
Employment Agreement with Joe W. Martin dated May 2, 2007* (11) |
| |
14 |
|
|
Code of Ethics (7) |
| |
23.1 |
|
|
Consent of Holtz Rubenstein Reminick LLP* |
| |
31.1 |
|
|
Rule 13a-14(a) Certifications — Chief Executive Officer* |
| |
31.2 |
|
|
Rule 13a-14(a) Certifications — Chief Financial Officer* |
| |
32.1 |
|
|
Section 1350 Certifications — Chief Executive Officer* |
| |
32.2 |
|
|
Section 1350 Certifications — Chief Financial Officer* |
| |
|
|
| * |
|
Filed herewith. |
| |
| ** |
|
Indicates management contract or compensatory plan or arrangement |
| |
|
|
| (1) |
|
Incorporated by reference to Milestone’s Registration Statement on Form SB-2 No. 33-92324. |
| |
| (2) |
|
Incorporated by reference to Amendment No. 1 to Milestone’s Registration Statement on Form
SB-2 No. 333-92324. |
| |
| (3) |
|
Incorporated by reference to Milestone’s Form 10-KSB for the year ended December 31, 1996. |
| |
| (4) |
|
Incorporated by reference to Milestone’s Form 10-KSB for the year ended December 31, 1999. |
| |
| (5) |
|
Incorporated by reference to Milestone’s Registration Statement on Form S-2 No. 333-110376,
Amendment No. 1. |
| |
| (6) |
|
Incorporated by reference to Milestone’s Registration Statement on Form S-2 No. 333-110376,
Amendment No. 3. |
| |
| (7) |
|
Incorporated by reference to Milestone’s Form 10-KSB for the year ended December 31, 2003. |
| |
| (8) |
|
Incorporated by reference to Milestone’s Registration Statement on Form S-2 No. 333-110367,
Amendment No. 5. |
| |
| (9) |
|
Incorporated by reference to Milestone’s Form 10-KSB for the year ended December 31, 2004. |
| |
| (10) |
|
Incorporated by reference to Milestone’s Form 10-KSB for the year ended December 31, 2005. |
| |
| (11) |
|
Incorporated by reference to Milestone’s Form 10-KSB for the year ended December 31, 2007. |