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, 2010
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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 |
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(I.R.S. Employer |
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Identification No.) |
220 South Orange Avenue, 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 whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such
files).
o 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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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, 2010, 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 $10,065,563. This amount is based on the closing price of $1.20 per share of the
Company’s common stock as of such date, based on the Nasdaq Over-the-Counter Bulletin Board.
As of March 30, 2011 the registrant has a total of 15,030,458 shares of Common Stock, $0.001
par value outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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
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Description of Business |
All references in this report to “Milestone,” “us,” “the Company”, or “Milestone Scientific”
refer to Milestone Scientific Inc., and its former subsidiary, Spintech, Inc. (“Spintech”), unless
the context otherwise indicates. Milestone has rights to the following trademarks:
CompuDent®, CompuMed®, CompuFlo®, The Wand®, The Wand
Plus®, The SafetyWand®, Cool Blue Wand®, Cool Blue Tooth Whitening
Instrument™, Dynamic Pressure Sensing Technology®, STA Single
Tooth Anesthesia™, (STA Instrument, instruments and handpieces), Ionic White®
(light emitting diode), and Ionic White™ (whitening toothpaste). Milestone was
incorporated in the State of Delaware in 1989.
BUSINESS
Background
Milestone since its inception has engaged in pioneering proprietary, innovative,
computer-controlled injection technologies and solutions for the medical and dental markets. The
company has focused its energy and resources on redefining the worldwide standard of care for
injection techniques by making the experience more comfortable for the patient and by reducing the
anxiety and stress of administering injections for the healthcare provider.
Milestone and its technology is widely recognized by key opinion leaders, industry experts and
medical and dental practitioners as the noted leader in the emerging, high growth,
computer-controlled injection industry; and remains intent on expanding the use and application of
its proprietary, patented technologies to achieve greater operational efficiencies, enhanced
patient safety and therapeutic adherence, and improved quality of care within a broad range of
medical disciplines.
In 1997, Milestone first introduced The Wand® (CompuDent® instrument)
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 (C-CLAD) instrument handpiece does not look or 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 instruments 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 instrument, 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 C-CLAD 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 instrument 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 the over 150-year-old hypodermic syringe technology and the tactile senses
and delivery expertise of the administrator.
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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 Instrument with
Exit Pressure.” Proprietary software, working with an innovative technology, allows the instrument
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 Instrument with Profiles” and “Pressure/Force Computer Controlled Drug Delivery with
Automated Charging”.
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 single-tooth dental injections, self-administered drug
delivery, osteoarthritis joint pain management and epidurals.
Given the Company’s experience and established brand awareness within the dental industry, it
elected to focus its initial product development efforts on the integration of CompuFlo into its
legacy computer-controlled dental injection instrument. As a result, Milestone developed the
industry’s first solution for painlessly administering a single-tooth injection as the only
injection necessary for achieving anesthesia, foregoing the need to administer a traditional nerve
branch block. This new instrument, which also provides for use of a disposable handpiece, was
trademarked the “STA Single Tooth Anesthesia Instrument™,” now more commonly known as
the STA Instrument.
After receiving FDA 510(k) Pre-market Notification acceptance for the marketing and sale of
the STA Instrument, Milestone introduced the instrument to market in February 2007 at the Chicago
Dental Society’s 143rd Midwinter Meeting. The patented STA Instrument 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 tooth within one or two minutes, versus up to 15-18 minutes for a
block injection to take effect. Utilizing the STA Instrument single tooth injection, the patient
will suffer neither pain nor collateral anesthesia in the cheek, lips or tongue at any time. The
STA Instrument is 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 Instrument achieves these injections predictably and
reliably.
Initial market response to the STA Instrument 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 Instrument 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 Instrument. The insight gained from
this study led management to redefine and implement a new messaging platform, created to emphasize
key benefits that Milestone discovered are of most value to dental professionals. This new product
messaging was launched in January 2008 and has remained in constant review.
During the second quarter of 2008, Milestone elected not to renew 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 Instrument and related
disposable handpieces to dental professionals in the U.S. and Canada. In June 2008, Milestone
expanded its 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 Instrument, thereby diversifying and significantly
expanding Milestone’s domestic distribution network.
Despite being granted CE Mark approval of the STA Instrument in June 2007 by European
regulatory authorities, Milestone elected to initiate its international launch in the first quarter
of 2008. Following implementation of the STA Instrument’s new messaging strategy 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.
In 2009, the Company sought to further expand its independent distribution network — both
domestically and in key international markets. Consequently, Milestone granted non-exclusive
distribution and marketing rights in the U.S. to Cedar Dental, Dental Health Products, Iowa Dental,
Nashville Dental, Newark Dental and Parkway Dental. To expand and enhance its reach to the dental
community in Canada, the Company also signed non-exclusive distribution and marketing agreements
with Dental 2000, Mediclub and Specialty Dental
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In the spring of 2009, Milestone signed an Exclusive Distribution and Marketing Agreement with
China National Medicines Corporation, dba Sinopharm, which is China’s largest domestic
manufacturer, distributor and marketer of pharmaceuticals and importer of medical devices and the
country’s largest domestic distributor of dental anesthetic carpules to the Chinese dental
industry. Prior to the end of 2009, China National Medicines issued Milestone a blanket purchase
order for 12,000 STA instruments and related handpieces to be delivered over 36 months, thereby
marking the Company’s initial penetration into China’s emerging dental market.
As of March 30, 2011, China National Medicine has not received the appropriate registration
approval from the regulatory body in China, therefore, shipment of STA instruments and handpieces
have been suspended pending the approval to sell and distribute these products in China. It is
expected that the approval by the appropriate Chinese regulatory body will be received in 2011.
According to a report published by the U.S. Department of Commerce, titled “China’s Emerging
Markets: Opportunities in the Dental and Dental Lab Industry,” China’s dental market lags behind
other healthcare services and has largely been neglected in the past. In fact, CS Market Research
reports that “of China’s 1.3 billion plus population, 50% of the adults and 70% of the children are
estimated to have decayed tooth problems, and over 90% have periodontal disease.” However, with
increasing affluence of the Chinese population, as well as increasing attention towards personal
care, demand for dental services has been growing. Market research firm Freedonia agrees, noting
that demand for dental products in China is expected to climb to 21.5 billion RMB (US$3.15 billion)
by 2012, due primarily to escalating personal income levels and government programs promoting
awareness of the benefits of good oral care.
Shortly before the end of the second quarter of 2009, Milestone elected to refine its
international marketing strategy to gain greater access to and penetration of the international
dental markets. The new sales strategy provides for increasing hands-on oversight and support of
its existing international distribution network, while also attracting new distributors throughout
Europe, Asia and South America.
Beginning in the second and third quarter 2010, Milestone expanded its international and
domestic sales force by hiring a Director of International Sales and Director of Domestic Sales.
These additions have proven to be a valuable addition to our dental market business, as we expand
our distribution in both markets.
CompuFlo® Advanced Injection Technology — Core Technology
The CompuFlo technology is patented and embedded in the STA Instrument that is being sold
worldwide in the dental market. 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 Instrument in
their practices.
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
instruments 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 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.
In the absence of curative procedures, arthritis patients are obliged to endure multiple
painful test procedure 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.
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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.
On December 3, 2009, Milestone announced that it signed an Agreement of Intent with China
National Medicines Corporation, Ltd. and Yichang Humanwell Pharmaceutical Co. Ltd., both
incorporated in the People’s Republic of China (PRC), to develop orthopedic and epidural drug
delivery instruments utilizing CompuFlo. Milestone and its two PRC joint venture partners planned
to establish a new joint venture entity for this purpose in the first quarter of 2010. The
required initial funding for the new entity, estimated by the parties at $1.4 million, will be
provided by the two PRC companies, although Milestone will determine the proposed uses of their
contribution. The Company believes that this new joint venture represents a significant step
forward in Milestone’s efforts to have its innovative computer-controlled drug delivery technology
adapted for medical usage worldwide. As of March 30, 2011, the agreement has not been finalized.
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 Instrument™ (STA Instrument)
The STA Single Tooth Anesthesia Instrument™ (STA Instrument) is a patented,
computer-controlled local anesthesia delivery instrument 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 in one minute and a multiple root tooth in two minutes, without first
administering a general blocking injection and waiting up to 18 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 instrument, such a device provides a compelling value in the
marketplace. The STA Instrument will generate recurring revenues from per-patient disposable
handpieces.
Since its market introduction in the spring of 2007, the STA Instrument has received rave
reviews and awards from the dental industry. In July 2007, noted industry publication Dentistry
Today featured the STA Instrument 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 Instrument 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 Instrument
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 Instrument was also named as a Dental Products Report “Top 100
2008 Product of Distinction.” Additionally, the STA Instrument was named one of Dentistry Today’s
“Top 100 Products” for the third consecutive year in 2010.
CompuDent®
CompuDent (also known as the Wand Plus® internationally) is Milestone’s
proprietary, patented Computer-Controlled Local Anesthetic Delivery (C-CLAD) instrument and
predecessor of the STA Instrument. 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 are 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 instrument 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 handpiece is used in conjunction with the STA, CompuDent and CompuMed instruments.
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 and OSHA has not begun, in a
meaningful way, to enforce existing regulations requiring the use of these devices. OSHA is
empowered to levy substantial fines for failure to use safety engineered devices.
Competition
Milestone’s proprietary, patented Computer-Controlled Local Anesthesia Delivery (C-CLAD)
instruments 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 instruments 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
instruments 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
Instrument, can be used for all dental injections that can be performed with a traditional dental
syringe. Moreover, the STA Instrument 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 and
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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U.S. PATENT |
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DATE OF |
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NUMBER |
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ISSUE |
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Computer Controlled Drug Delivery Systems |
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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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Cartridge Holder for Injection Device |
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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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9/14/2004 |
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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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Computer Controlled Drug Delivery Systems with Pressure Sensing |
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7,618,409 |
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11/17/2009 |
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Hand Piece for Fluid Administration |
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7,625,354 |
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12/1/2009 |
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Self-Administration Injection System |
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7,740,612 |
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6/22/2010 |
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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 |
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6/14/2005 |
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Handpiece for Injection Device with a Retractable and Rotating Needle |
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6,966,899 |
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11/22/2005 |
|
During the 2010 and 2009 fiscal years, Milestone expensed $270,494 and $241,318, respectively,
on research and development activities. The higher costs incurred in 2010 were primarily associated
with the continued development of the Single Tooth Anesthetic (STA) delivery instrument and
continuing efforts on developing medical products utilizing the CompuFlo technology.
8
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. 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.
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 instrument and its disposable handpieces for marketing in the
U.S. for dental applications in July 1996; the CompuMed instrument 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 Instrument 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 Instrument
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.
9
Though the STA Instrument, 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 Instrument 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, 2010, Milestone had a total of 16 employees, consisting of two executive
officers, a director of International and Professional Relations, a director of engineering, a
domestic sales manager, an international sales manager, five sales representatives (field and
internal), two customer service representatives, a staff accountant, a bookkeeper 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:
10
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, 2010 and 2009, revenues were approximately $9.7 million and
$8.5 million, respectively. In addition, Milestone has had losses for each year since the
commencement of operations, including net losses of approximately $615,000 and $1.5 million for
2010 and 2009, respectively. At December 31, 2010, Milestone had an accumulated deficit of
approximately $59.4 million. At December 31, 2010, the Company had cash and cash equivalents
$627,082 and a negative working capital of $6,685. The working capital decrease is due to the
Company’s ramp up of purchasing of parts in anticipation of significant sales to our distributor in
China. Such sales have been delayed. The significant working capital decrease of $1,632,758
in 2010 (negative working capital of $6,685) as compared to 2009 (positive working capital of
$1,626,073) is due to the delay in obtaining regulatory approval to sell our instruments and
handpieces in China. Obtaining such regulatory approval was not a condition of the purchase order
and sale with the distributor in China. As a result of this delay, the advance to the contract
manufacturer has been allocated between current and long term. Additionally, the accounts payable
due to suppliers has also been allocated between long term and short term. And finally, the
accounts receivable for the China distributor has been allocated between current and long term,
with a reserve of $636,000 provided against the accounts receivable. Additionally, in 2009, the
Company converted the $1.3 million Line of Credit into 822,785 shares of common stock at a
conversion price of $1.58 per share. 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.
As of December 31, 2010, the Company believes that it does not have sufficient cash reserves
to meet all of its anticipated obligations for the next twelve months. 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 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 Instrument, 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 33,000 instruments of the STA Instrument and its predecessors have been sold
worldwide since 1998. Since being introduced to market in February 2007, more than 6,300
instruments of the STA Instrument 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 its
computer-controlled injection products successfully. In the U.S., Milestone hired in July 2010 a
Domestic Sales Director to spur our growth trend in the USA and Canada. The US and Canadian market
rely on several independent dental distributors, and a team of clinical product specialists
comprised of independent dental hygienists who help to educate, train and sell our products to
dental practitioners and group dental practices in key U.S. markets. Abroad, Milestone lacked
appropriate distribution in many markets. In April 2010, the company hired an International Sales
Director to improve sales effort outside the USA.To be successful, the Company will need to engage
additional distributors, provide for their proper training and ensure adequate customer support. In
the spring of 2009, the Company signed an Exclusive Distribution and Marketing Agreement with China
National Medicines Corporation, dba Sinopharm, which is China’s largest domestic manufacturer,
distributor and marketer of pharmaceuticals and importer of medical devices and the country’s
largest domestic distributor of dental anesthetic carpules to the Chinese dental industry. Prior
to the end of 2009, China National Medicines issued Milestone a blanket purchase order for 12,000
STA units and related handpieces to be delivered over 36 months, thereby marking the Company’s
initial penetration into China’s emerging dental market. 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.
As of March 30, 2011, China National Medicine has not received the appropriate registration
approval from the regulatory body in China, therefore, shipment of STA instruments and handpieces
have been suspended pending the approval to sell and distribute these products in China. It is
expected that the approval by the appropriate Chinese regulatory body will be received in 2011.
11
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 Instrument, CompuDent and
CompuMed instruments and with one of the principal manufacturers of the handpieces, for those
items, respectively. Pursuant to the informal arrangements, they manufacture these products under
specific purchase orders without minimum purchase commitment. However, in November 2009, the
Company issued a purchase order to Tricor Corporation to manufacture 12,000 STA Instruments, over
the next three years. In 2010, 1,000 STA Instrument were purchased and shipped against this
purchase order. 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
Instrument, 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 Chief Executive Officer and Director of Clinical
Affairs.
Milestone depends on the personal efforts and abilities of the 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 Chief Executive Officer. However, the loss of his services or
Director of Clinical Affairs, on whom Milestone maintains no insurance, could have a materially
adverse effect on the business.
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 $.25 and $1.85. 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
28.8% 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, 2010, Milestone had outstanding options and warrants to purchase
1,538,502 shares of common stock at prices ranging from $0.32 to $5.00 per share with a weighted
average exercise price of $1.40. 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 the first and second quarters of 2009, 2,227,946 warrants to issue the equivalent number of
shares of the Company’s common stock at an exercise price of $4.89 expired.
12
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, 2010. 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. In 2005, Milestone hired an outside consultant to
assist with the development and implementation of the necessary internal controls and reporting
procedures. In 2010 and 2009, the Company utilized the outside consultant on a quarterly basis to
review compliance with the internal controls over financial reporting. This expense amounted to
$15,200 and $37,773 in 2010 and 2009, respectively and the cost is expected to continue in 2011.
|
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| Item 1B. |
|
Unresolved Staff Comments |
None
|
|
|
| Item 2. |
|
Description of Property |
The headquarters for the Company is located at 220 South Orange Ave, Livingston, New Jersey.
The Company leases approximately 6,300 square feet of office space at 220 South Orange Avenue in
Livingston, New Jersey. The lease term expires June 30, 2014 at a monthly cost of $6,942 which
Milestone believes to be competitive. Additionally, Milestone leases a corporate apartment in
Maplewood, NJ. This lease expired in November 2010, but the company continues to lease the
corporate apartment on a month to month basis. The leased offices 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.
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 |
At the present time, the Company is not involved in any significant litigation.
|
|
|
| Item 4. |
|
(Removed and Reserved) |
13
PART II
|
|
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| Item 5. |
|
Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities |
Market Information
Milestone’s Common Stock was traded on the OTC Bulletin Board (“OTCBB”) under the symbol
“MLSS” until Feb 2011. In mid February 2011, Milestone’s Common Stock began trading on the OTC Pink
Board (OTCQB), 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
| |
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HIGH |
|
|
LOW |
|
2010 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
1.85 |
|
|
$ |
1.45 |
|
Second Quarter |
|
$ |
1.70 |
|
|
$ |
1.12 |
|
Third Quarter |
|
$ |
1.25 |
|
|
$ |
0.95 |
|
Fourth Quarter |
|
$ |
1.12 |
|
|
$ |
0.80 |
|
2009 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
0.75 |
|
|
$ |
0.37 |
|
Second Quarter |
|
$ |
0.70 |
|
|
$ |
0.25 |
|
Third Quarter |
|
$ |
1.30 |
|
|
$ |
0.45 |
|
Fourth Quarter |
|
$ |
1.85 |
|
|
$ |
0.83 |
|
Holders
According to the records of the transfer agent, there were approximately 71 and 67
shareholders of record of the common stock as of December 31,
2010 and 2009, respectively. However, the Company
believes that there are approximately 2,000 and 2,500 beneficial owners of the Company’s common
stock at December 31, 2010 and 2009, 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 J — STOCKHOLDERS’ EQUITY, to the financial statements for the issuance of
unregistered securities.
|
|
|
| ITEM 6. |
|
Selected Financial Data |
Milestone is a “smaller reporting company” as defined by Regulations S-K and as such, is 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.
14
OVERVIEW
Milestone remains focused on advancing efforts to achieve our two primary objectives; those
being:
| |
• |
|
Optimizing our tactical approach to product sales and marketing in
order to materially increase penetration of the global dental and
medical markets with our proprietary, patented Computer-Controlled
Local Anesthesia Delivery (C-CLAD) solution, the STA Single Tooth
Anesthesia Instrument (STA Instrument); and |
| |
| |
• |
|
Identifying and pursing strategic collaborations with third parties to
jointly develop new products utilizing our patented CompuFlo pressure
force technology for novel new medical applications. |
STA Instrument Awards — Industry Recognition
Since its market introduction in the spring of 2007, the STA Instrument has received favorable
reviews and awards from the dental industry. In July 2007, noted industry publication Dentistry
Today featured the STA Instrument as one of the “Top 100 Products in 2007,” helping to promote much
broader recognition of the instrument and validating the STA Instrument’s value proposition for
dentists and patients alike. In April 2008, Medical Device & Diagnostic Industry magazine
distinguished the STA Instrument 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 Instrument was one of only two winning products that serve dental practitioners.
In December 2008, the STA Instrument 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 Instrument”. This marked the second consecutive year that Milestone won a
“Townie Choice Award”; in 2007, we won the same award for our CompuDent/The Wand. Also in December
2008, our STA Instrument 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 staff for their “perceived impact on driving
innovation or helping to establish a new, higher standard of care for patients.” The STA Instrument
was recognized as a “New Classic” in the Technology category.
In July 2010, the STA Instrument was recognized as one of “Dentistry Today’s”, Top 100
Products, for the third consecutive year. This honor is significant because it is unprecedented in
Milestone’s history and serves to support our objective of establishing our instrument as the new
global standard of care for painless dental injections.
Second Annual Symposium on C-CLAD
On May 1 through 3, 2009, we hosted the Second International Annual Symposium on C-CLAD in
Amelia Island, Florida. Stanley Malamed, DDS, Professor of Anesthesia & Medicine at the University
of Southern California, School of Dentistry, again served as Chairman of the invitational event.
With attendance triple that of 2008, the Second Symposium covered a broad range of C-CLAD related
topics including:
| |
• |
|
The History of C-CLAD |
| |
| |
• |
|
Treating with Connection |
| |
| |
• |
|
Heart Rate Study |
| |
| |
• |
|
STA Compassionate Care in the 21st Century |
| |
| |
• |
|
Injection Advances and Challenges |
| |
| |
• |
|
Physiologic and Clinical Characteristics of PDL Anesthesia Delivered
by a High Pressure Hand piece and a Computerized Device |
| |
| |
• |
|
The STA for Tots and Teens |
| |
| |
• |
|
Computerized Local Anesthesia in Dentistry: A Review |
| |
| |
• |
|
Today’s Technology |
| |
| |
• |
|
Managing a Successful Dental Practice: Why People Keep Coming Back |
| |
| |
• |
|
STA — The Dental School’s Perspective |
| |
| |
• |
|
Futuristic Vistas: The Dentist/Hygienist Partnership |
15
In 2010, the company published and broadly distributed more than 100,000 copies of a
comprehensive monograph reflecting the topics discussed at the Symposium and a consensus on the
attendees’ attitudes, ideas and suggestions relating to promoting global industry adoption of
C-CLAD technologies as the new standard of care for administering dental injections.
STA Instrument Growth
Since its market introduction in early 2007, the STA Instrument and a prior computerized
controlled local anesthesia delivery product, have been used to deliver over 44 million of safe,
effective and comfortable injections. The instrument has also been favorably evaluated in numerous
peer-reviewed, published clinical studies and associated articles. Moreover, there appears to be a
growing consensus among users that the STA Instrument is proving to be a valuable and beneficial
instrument that is positively impacting the practice of dentistry worldwide. The utility and value
of the STA Instrument is perhaps best summarized by Dr. Joe Blaes, who wrote in the December 2008
edition of Dental Economics, “I tried the STA Instrument and my patients absolutely love it. This
is a no brainer — go get one ASAP!”
Global Distribution Network
North America Market
The STA Instrument and related hand pieces are marketed to the dental industry in the United
States and Canada by many of the nation’s leading dental supply companies, including Henry Schein,
Inc., Patterson Dental Supply, Atlanta Dental, Benco Dental, Burkhart Dental, Cedar Dental, Darby
Dental Supply, Dental Health Products, Goetze Dental, Iowa Dental, Nashville Dental, Newark Dental
and Parkway Dental. In Canada, our independent distributors include Dental 2000, Mediclub, and
Specialty Dental.
Collectively, our domestic network has more than 4,000 independent sales representatives
trained to sell the STA Instrument and related handpieces to dentists throughout North America.
In the third quarter of 2010, the company added a Domestic Sales Director to refocus our
attention on the USA and Canadian markets. The mission of the Domestic Sales Director is to grow
our business through marketing our STA Instrument to Dental Group Practices, as well as individual
dental practitioners. Through direct marketing to the Dental Group Practices and utilizing a group
of independent hygienists, the instrument and handpiece sales should increase substantially in the
future. The Company closed its’ first Group Dental Practice in January 2011, Towncare Dental.
International Market
On the global front, we also have granted exclusive marketing and distribution rights for the
STA Instrument to select dental suppliers in various international regions in Asia, Africa, South
America and Europe. They include Istrodent in South Africa and Unident in the Scandinavian
countries of Denmark, Sweden, Norway and Iceland.
In April 2009, we signed an Exclusive Distribution and Marketing Agreement with China National
Medicines Corporation, d/b/a Sinopharm, which is China’s largest domestic manufacturer, distributor
and marketer of pharmaceuticals and importer of medical devices and the country’s largest domestic
distributor of dental anesthetic carpules to the Chinese dental industry. Prior to the end of
2009, China National Medicines issued Milestone a blanket purchase order for 12,000 STA instruments
to be delivered over 36 months, thereby marking the Company’s initial penetration into China’s
emerging dental market.
As of March 30, 2011, China National Medicine has not received the appropriate registration
approval from the regulatory body in China, therefore, shipment of STA instruments and handpieces
have been suspended pending the approval to sell and distribute these products in China. It is
expected that the approval by the appropriate Chinese regulatory body will be received in 2011.
According to a report published by the U.S. Department of Commerce, titled “China’s Emerging
Markets: Opportunities in the Dental and Dental Lab Industry,” China’s dental market lags behind
other healthcare services and has largely been neglected in the past. In fact, CS Market Research
reports that “of China’s 1.3 billion plus population, 50% of the adults and 70% of the children are
estimated to have decayed tooth problems, and over 90% have periodontal disease.” However, with
increasing affluence of the Chinese population, as well as increasing attention towards personal
care, demand for dental services has been growing. Market research firm Freedonia agrees, noting
that demand for dental products in China is expected to climb to 21.5 billion RMB (US$3.15 billion)
by 2012, due primarily to escalating personal income levels and government programs promoting
awareness of the benefits of good oral care.
Shortly before the end of the second quarter 2009, we announced that we were refining our
international marketing strategy to gain greater access to and penetration of the international
dental markets for the STA Instrument, CompuDent and related disposable
hand pieces. The new sales strategy provides for increasing hands-on oversight and support of
our existing international distribution network, while also attracting new distributors throughout
Europe, Asia and South America. To assist in this endeavor, Milestone added in the spring of 2010
an International Sales Director to focus on growth of our products outside the USA and Canada. The
new addition to the company’s staff has proven to be a positive improvement to our sales and
marketing effort outside the USA and Canada.
16
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, |
|
| |
|
2010 |
|
|
2009 |
|
DOMESTIC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instruments |
|
$ |
1,236,517 |
|
|
|
27.3 |
% |
|
$ |
1,786,435 |
|
|
|
33.2 |
% |
Handpieces |
|
|
3,216,000 |
|
|
|
71.0 |
% |
|
|
3,507,410 |
|
|
|
65.2 |
% |
Other |
|
|
76,903 |
|
|
|
1.7 |
% |
|
|
84,577 |
|
|
|
1.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Domestic |
|
$ |
4,529,420 |
|
|
|
100.0 |
% |
|
$ |
5,378,422 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTERNATIONAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instruments |
|
$ |
2,453,939 |
|
|
|
47.0 |
% |
|
$ |
1,390,317 |
|
|
|
43.8 |
% |
Handpieces |
|
|
2,746,965 |
|
|
|
52.6 |
% |
|
|
1,769,682 |
|
|
|
55.8 |
% |
Other |
|
|
19,644 |
|
|
|
0.4 |
% |
|
|
10,639 |
|
|
|
0.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International |
|
$ |
5,220,548 |
|
|
|
100.0 |
% |
|
$ |
3,170,638 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DOMESTIC/INTERNATIONAL ANALYSIS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
4,529,420 |
|
|
|
46.5 |
% |
|
$ |
5,378,422 |
|
|
|
62.9 |
% |
International |
|
|
5,220,548 |
|
|
|
53.5 |
% |
|
|
3,170,638 |
|
|
|
37.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Product Sales |
|
$ |
9,749,968 |
|
|
|
100.0 |
% |
|
$ |
8,549,060 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company earned gross profits of 64% and 60% in the years ended December 31, 2010 and
2009, 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 2011, 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, except for 2009. The Company at
December 31, 2010 believes that it does not have sufficient cash reserves to meet all of its
anticipated obligations for the next twelve months. 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. There is no assurance that the company will be able to achieve
positive operating cash flows or that additional capital raised on 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 for
existing dental products or adopt other cost saving measures, any of which might negatively affect
the Company’s operating results.
In 2011, the Company plans to further support increased sales and marketing activity through
trade show appearances, utilization of independent hygienists’ making sales calls and training
individual practitioners and group practices domestically, refined and directed advertising to
dental professionals, and support and broaden our global distribution network.
In January 2011, the Company signed an agreement with its first group dental practice Towncare
Dental Partnership for deployment of our STA Instrument. The STA Instrument will replace the
syringe in this practice.
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 Instrument™ (STA Instrument) — In February of
2007, Milestone introduced to market the STA Instrument, a patented C-CLAD instrument 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
Instrument 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 Instrument 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. |
17
| |
|
|
The STA Instrument 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 Instrument has received
positive reviews and awards from the dental industry. In July 2007, noted industry
publication Dentistry Today featured the STA Instrument 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 Instrument 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 2009, the STA Instrument 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 Instrument”.
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 Instrument 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 Instrument 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 instrument 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
Instrument. |
| |
• |
|
CompuMed® — CompuMed is a patented computer-controlled injection instrument
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
instruments, 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. |
In December 2009, Milestone announced that it signed an Agreement of Intent with China
National Medicines Corporation, Ltd. and Yichang Humanwell Pharmaceutical Co. Ltd., both
incorporated in the People’s Republic of China (PRC), to develop intra-articular and
epidural drug delivery instruments utilizing Milestone’s patented CompuFlo technology. Milestone
and its two PRC joint venture partners will establish a new joint venture entity for this purpose
in 2010. The required initial funding for the new entity, estimated by the parties at $1.4
million, will be provided by the two PRC companies, although Milestone will determine the proposed
uses of their contribution. The Company believes that this new joint venture represents a
significant step forward in Milestone’s efforts to have its innovative computer-controlled drug
delivery technology adapted for medical usage worldwide. As of March 30, 2011, the agreement has
not been finalized.
18
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.
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 current and long-term 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 shipment for essentially all shipments, since the shipment terms are FOB
warehouse. The company will recognize revenue on date of arrival of the goods at the customer’s
location where 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.
19
Results of Operations
The following table sets forth for the consolidated results of operations for the year ended
December 31, 2010 compared to 2009 as a percentage of revenues. The trends suggested by this table
may not be indicative of future operating results:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Twelve Months Ended |
|
| |
|
December 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
9,749,968 |
|
|
|
100 |
% |
|
$ |
8,549,060 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold |
|
|
3,531,452 |
|
|
|
36 |
% |
|
|
3,458,279 |
|
|
|
40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
6,218,516 |
|
|
|
64 |
% |
|
|
5,090,781 |
|
|
|
60 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
6,648,859 |
|
|
|
68 |
% |
|
|
6,952,976 |
|
|
|
81 |
% |
Research and development expenses |
|
|
270,494 |
|
|
|
3 |
% |
|
|
241,318 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
6,919,353 |
|
|
|
71 |
% |
|
|
7,194,294 |
|
|
|
84 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(700,837 |
) |
|
|
-7 |
% |
|
|
(2,103,513 |
) |
|
|
-25 |
% |
Other income |
|
|
86,329 |
|
|
|
1 |
% |
|
|
573,428 |
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(614,508 |
) |
|
|
-6 |
% |
|
$ |
(1,530,085 |
) |
|
|
-18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2010 compared to year ended December 31, 2009
Total revenues for the twelve months ended December 31, 2010 and 2009 were $9,749,968 and
$8,549,060, respectively. The total increase in product sales of $1,200,908, or 14%, is a direct
result of our shipment of STA Instruments and handpieces to a Chinese distributor in June 2010. The
decrease in sales volume of domestic instruments by $549,918, or 31% in 2010 over 2009, was
directly related to the reduction in both advertising expenditures and a reduced sales force in
2010 as compared to 2009, as management implemented a new sales and training strategy focused on
concentrated geographical sales efforts and support (deploying independent hygienist) for all
customers. In the domestic market, the STA handpiece sales decrease was minimal. CompuDent
handpiece sales decreased by $291,968 or 10%. The CompuDent handpiece sales decrease in the
domestic market is not specifically attributable to any marketing or sales deemphasizing of the
product category. Rather it maybe attributable to our customers purchasing handpieces on a just in
time basis, due the general economic conditions. On the international scene, instrument sales
increased in 2010 over 2009 by $1,063,622, or 77%, principally due to the increase in STA
instruments $1,007,820 while CompuDent units also measured an increase of $55,802. STA instrument
sales to China represented $1,290,000 of the international sales increase. The increase in
handpiece sales internationally was $977,283 or 55% due to an increase in sales of STA handpieces
of $615,907 ($557,568 for sale to China) and an increase in sales of CompuDent handpieces $361,376.
Cost of products sold for the years ended December 31, 2010 and 2009 were $3,531,452 and
$3,458,279, respectively. The $73,173 minimal increase in product cost of 2%, even with higher
sales volume, is due to a decrease in our production cost in 2010 for the STA Instrument. Slow
moving and overstocked inventories totaling approximately $36,000 were charged off to cost of
products sold during the year ended December 31, 2009.
For the year ended December 31, 2010, Milestone’s gross profit dollars increased by 4% over
the prior year ended December 31, 2009, due to significant increased sales volume and a reduction
in product cost for the STA instrument. Milestone generated a gross profit of $6,218,516, or 64% in
2010 as compared to a gross profit of $5,090,781, or 60% in 2009. The total dollar increase in
gross profit was $1,127,735 in 2010 over 2009.
Selling, general and administrative expenses for the years ended December 31, 2010 and 2009
were $6,648,859 and $6,952,976, respectively. The $304,117, or 4.4%, net decrease was focused into
a several expense categories. Sales and Marketing expense decrease in 2010 by $649,382. This
decrease was primarily in the areas of media placement $226,561, marketing key opinion leaders and
also promotions at trade shows (national and regional), reduction in marketing consulting by
$302,429 and reduction in third party sales representative commissions of $106,219. Payroll
expenses decreased by $616,921, principally due to a reversal of a 2009 Achievement Bonus for the
Chief Executive Officer of approximately $300,000 and a reversal in stock based compensation of
approximately $198,000. Legal and patent expenses decrease by $44,613 in the aggregate due to
reduced general litigation expenses and customary patent annuity payments. General and
administrative expenses increased by $1,006,801 due to payment of an international commission of
$401,361 (effective July 1, 2009), increased royalties of $67,272 as a result of increased sales
volume, an international travel expense increase of $59,641, directly related to our current and
future sales growth, offset by a reduction in business consulting of $125,188 and success fees for
domestic and international business of $64,800. Bad debt expense increased by $640,558, of which
$636,000 is based on the estimated net realizability of the current and long term accounts
receivable, for the STA instruments shipped to a distributor in China in June 2010. In addition,
the Company realized expense reductions in the areas of professional accounting and audit fees of
$96,943 and reduced insurance costs of $5,511.
20
Research and development expenses for the years ended December 31, 2010 and 2009 were $270,494
and $241,318, respectively. The increase of $29,176 was attributable to research on the development
of a C-CLAD device(s) for the medical field and clinical studies on the STA Instrument.
The loss from operations for the years ended December 31, 2010 and 2009 was $700,837 and
$2,103,513, respectively. The $1,402,676, or decrease in loss from operations is explained above.
Interest expense for the years ended December 31, 2010 and 2009 was $95,135 and $154,027,
respectively and amortization of debt issuance for the same years was $2,796 and $53,300,
respectively. The interest expense is related to the Line of Credit and Long Term Note. See Note I
to the Financial Statements.
Other Income includes $183,673 and $777,609 in 2010 and 2009, respectively, and represents the
sale of tax credits under the New Jersey Technology Business Tax Certificate Program, for the
respective periods. The company has sold all of its applicable NJ tax losses through December 31,
2009.
For the reasons explained above, net loss for the year ended December 31, 2010 was $614,508 as
compared to a net loss of $1,530,085 for the year ended December 31, 2009. The $915,577, or 60%,
decrease in net loss is primarily a result of a significant increase in Gross Margin dollars
($1,127,735) a decrease in Selling General and Administrative expenses of $304,117 offset by a
reduction in other income of $487,099.
Liquidity and Capital Resources
As of December 31, 2010, the Company had cash and cash equivalents of $627,082 and a negative
working capital of $6,685. The significant decrease in working capital of $1,632,758 in 2010 was
caused by a delay in obtaining regulatory approval to sell our instruments and handpieces in China.
Based on the initial purchase order from our distributor in China in 2009, the Company ramped up
purchasing of parts in anticipation of significant sales in 2010 and future years. As a result of
the delay in shipping, the advances to contract manufacturer has increased significantly, (current
and long term), in 2010 as compared to 2009. Additionally, the accounts payable due to suppliers
has also increased and is classified as current and long term. And finally, the accounts receivable
from the China distributor has been classified between current and long term net of a reserve of
doubtful accounts of $636,000.
As a result of this delay on shipments to China, the decrease in working capital at December
31, 2010, of $1,632,758, consists of a net current asset decrease of $84,003. Accounts receivable
decreased by $267,521, advances to contract manufacturer increased by $578,496. Cash decreased by
$402,047, utilized in operations and to pay for parts required for the China production. Current
liabilities increased by $1,716,555, principally due to an increase in current accounts payable for
the purchase of materials to produce instruments and handpieces of $1,729,574.
The Company has also incurred increases in non current advances to contract manufacturer of
$1,402,564 and an increase in non current accounts payable of $440,376 as a result of the delay in
shipping instruments and handpieces to our distributor in China. The Company continues to take
positive steps to maintain adequate inventory levels and advances to contract manufacturers to
maintain available inventory to meet our domestic and international sales requirements. Milestone
incurred net losses of $614,508 and $1,530,085 for the years ended 2010 and 2009, respectively.
Cash flows from operating activities for the year ended December 31, 2010 was a negative $293,777
and for the year ended December 31, 2009 was a positive $402,951.
For the year ended December 31, 2010, net cash used in operating activities was $293,777. This
was attributable primarily to a net loss of $614,508 adjusted for noncash items of $1,070,000 and
changes in operating assets and liabilities of $749,269. The decrease in noncash items in 2010 of
$636,763 as compared to 2009 is principally due to the increase in shares issued for compensation
of $773,741 in 2009.
For the year ended December 31, 2010, Milestone used $108,270 in investing activities,
primarily attributable to legal fees related to payment for patent rights.
In December 2009, the Company converted the $1.3 million Line of Credit into 822,785 shares of
Common Stock at a price of $1.58 per share. There were no additional expenses related to the
conversion of the Line of Credit. 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 $450,000 Note is classified as a Long Term Note Payable on the Balance
Sheet at December 31, 2009. See Note I — Line of Credit to the Financial Statements.
21
The Company has incurred operating losses and negative cash flows from operating activities
since its inception, except for 2009. The Company did not achieve positive cash flow in 2010. 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. As
of December 31, 2010, the Company believes that it does not have 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 continue
generating 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 continue 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.
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, 2010, expected on the liquidity and
cash flows in future periods, is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due by Period |
|
| |
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
| |
|
Total |
|
|
1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
Long-term debt obligations |
|
$ |
450,000 |
|
|
$ |
— |
|
|
$ |
450,000 |
|
|
$ |
— |
|
Operating lease obligations |
|
|
298,355 |
|
|
|
89,570 |
|
|
|
167,133 |
|
|
|
41,653 |
|
Purchase obligations (1) |
|
|
5,583,078 |
|
|
|
1,812,236 |
|
|
|
3,770,842 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,331,434 |
|
|
$ |
1,901,807 |
|
|
$ |
4,387,975 |
|
|
$ |
41,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Purchase obligations include agreements for the purchase of instruments and
handpieces. |
| |
| |
|
The agreements are referred as purchase orders. |
Recent Accounting Pronouncements
See “Note B — 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 |
Milestone is a “smaller reporting company” as defined by Regulation S-K and as such, is not
required to provide the information required by this item.
|
|
|
| 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.
22
|
|
|
| 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, 2010 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, as appropriate to
allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
Milestone management is responsible for establishing and maintaining an adequate instrument 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
instruments, no matter how well designed, have inherent limitations. Therefore, even those
instruments 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 instrument of internal control over
financial reporting as of December 31, 2010. 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 maintained effective internal control over
financial reporting as of December 31, 2010.
There have been no 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
ended December 31, 2010 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.
23
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 30, 2011 are as follows:
| |
|
|
|
|
|
|
| NAME |
|
AGE |
|
POSITION |
|
DIRECTOR SINCE |
Leslie Bernhard (2) |
|
67 |
|
Chairman of the Board and Director |
|
2003 |
Leonard A. Osser |
|
63 |
|
Chief Executive Officer and Director |
|
1991 |
Joseph D’Agostino |
|
59 |
|
Chief Financial Officer |
|
|
Pablo Felipe Serna Cardenas (1) |
|
35 |
|
Director |
|
2006 |
Leonard M. Schiller(1)(2) |
|
69 |
|
Director |
|
1997 |
| |
|
|
| (1) |
|
Member of the Audit Committee |
| |
| (2) |
|
Member of the Compensation Committee |
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 30, 2011:
| |
|
|
|
|
|
|
| NAME |
|
|
AGE |
|
|
POSITION |
Eugene Casagrande, D.D.S.
|
|
|
67 |
|
|
Director of Professional Relations |
Mark Hochman, D.D.S.
|
|
|
53 |
|
|
Director of Clinical Affairs |
Leslie Bernhard, Chairman of the Board
In October 2009, Leslie Bernhard assumed the position of Chairman of the Board, filing a
position left vacant by Mr. Osser who assumed the position of Chief Executive Officer. Leslie
Bernhard has served as an Independent Director of Milestone since May 2003 and was named Chairman
of the Board in September of 2009. She co-founded AdStar, Inc. and since 1986 has served as its
President, Chief Executive Officer and Executive Director. AdStar is an application service
provider for the newspaper classified advertising industry. She served on the Board of Directors of
Universal Power Group (AMEX:UPG) of Dallas, Texas and have done so since 2006. Ms. Bernhard’s
professional experience and background with AdStar and with us, as one of our directors since 2003,
have given her the expertise needed to serve as Chairman of the Board.
Leonard Osser, Chief Executive Officer
In March of 2009, Mr. Osser assumed the position of Milestone’s Acting Chief Executive
Officer. Mr. Osser in September 2009 resigned as Chairman of the Company and assumed the position
of Chief Executive Officer. He served as the Company’s Chairman from 1991 until September of 2009,
and from 1991 and 2007, was Chief Executive Officer of the Company. From 1980 until the
consummation of Milestone’s public offering in November 1995, Mr. Osser 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.
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.
24
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
Instruments, Dr. Hochman has published numerous articles in this area, and shares in the
responsibility for inventing much of the technology currently available from Milestone.
Dr. Eugene Casagrande, Director of International & Professional Relations
Since 1998, Dr. Casagrande has served as Director of International and 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, Director
Mr. 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. Mr. Schiller became a Director of the Gravitas Cayman Corporation in February
2010. Gravitas Cayman Corporation is an Investment Fund. Mr. Schiller’s professional experience and
background as an attorney and a partner of a law firm and with us, as one of our directors since
1997, have given him the expertise needed to serve as one of our directors.
Pablo Felipe Serna Cardenas, Director
Mr. 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. He has been a director of
Pairstech Fund, a UK hedge Fund since 2008. Mr. Cardenas’ professional experience and background as
an entrepreneur and as a financial consultant and with us, as one of our directors since 2006, have
given him the expertise needed to serve as one of directors.
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 Audit Committee meets with management and Milestone’s independent auditors to determine the
adequacy of internal controls and other financial reporting matters; all of the members are
independent directors. The Board of Directors has determined that Pablo Felipe Serna Cardenas
qualifies as an Audit Committee Financial Expert pursuant to Item 407 (d)(5) of Regulation S-K. Mr.
Cardenas is independent, as that term is defined in the listing standards of the NYSE AMEX.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and
person who own more than ten percent of a registered class of our equity securities, to file
reports of ownership and changes in ownership with the SEC. Officers, directors and greater than
ten-percent stockholders are required by SEC regulation to furnish us with copies of all Section
16(a) forms they file. Based solely on review of the copies of such forms furnish to us, or written
representations that no Forms 5 were required, we believe that all Section 16(a) filing
requirements applicable to our officers and director were complied with during the fiscal year
ended December 31, 2010 except that Joseph D’Agostino did not timely file one Form 4 to report the
receipt of an option grant.
25
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
|
|
|
| Item 11. |
|
Executive Compensation. |
The following Summary Compensation Table sets forth all compensation earned, in all
capacities, during the fiscal years ended December 31, 2010 and 2009 by (i) Milestone’s CEO and
(ii) the most highly compensated executive officers, other than the CEO who were serving as
executive officers at the end of the 2010 fiscal year and whose salary as determined by Regulation
S-K, 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
Chief Executive Officer-
effective 9-1-2009 |
|
|
2010 |
|
|
$ |
300,000 |
|
|
$ |
100,000 |
(1) |
|
$ |
50,880 |
(1) |
|
$ |
— |
|
|
$ |
450,880 |
|
Chairman of the Board |
|
|
2009 |
|
|
$ |
300,000 |
(1) |
|
$ |
100,000 |
(1) |
|
$ |
46,280 |
(1) |
|
$ |
49,788 |
(1) |
|
$ |
496,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph D’Agostino |
|
|
2010 |
|
|
$ |
171,600 |
|
|
$ |
50,000 |
(3) |
|
$ |
9,000 |
(3) |
|
$ |
168,000 |
|
|
$ |
398,600 |
|
Chief Financial Officer |
|
|
2009 |
|
|
$ |
171,600 |
|
|
$ |
25,000 |
(3) |
|
$ |
2,737 |
|
|
$ |
135,975 |
|
|
$ |
335,312 |
|
| |
|
|
| (1) |
|
Includes $100,000 bonus in 2010. Other compensation represents payments made for personal
use of corporate apartment, health insurance coverage and car allowance. 2009 excludes a
Performance Bonus, not achieved of $300,000 and stock based compensation of $248,946 that was
reversed in 2010. |
| |
| (2) |
|
The amounts in this column reflect the fair value of the options at date of grant. 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, 2010 and 2009, 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. See the table below entitled “Outstanding
Equity Awards at December 31, 2010. |
| |
| (3) |
|
Includes $50,000 and $25,000 in deferred compensation in 2010 and 2009 respectively, is
accordance with agreement to be paid in common stock and not paid until the termination of his
employment with the Company. Other compensation in 2010 includes a car allowance. |
Employment Contracts
In March 2009, the Chairman assumed the position of Milestone’s Acting Chief Executive
Officer. In September 2009 The Chairman stepped down as Chairman to fill the position of Chief
Executive Officer. The Chief Executive Officer entered into a new employment agreement with the
Company effective September 1, 2009. This new agreement suspends the previous agreement scheduled
to terminate on December 31, 2012. The new agreement is for five years ending on August 31, 2014.
The contract shall be extended for successive one-year periods, unless prior to August 1 of any
year, either party notifies the other that he or it chooses not to extend the New Employment Term.
As part of this agreement the Chairman relinquished the title and position of Chairman. Under the
new agreement, the Chief Executive Officer will receive a base compensation of $300,000 per 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 achieving targets set for each year by the
Compensation Committee of the Board of Directors of the Company.
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.
26
In accordance with the employment contract 571,190 shares of common stock are to be paid out
at the end of the contract in settlement of $758,333 at December 31, 2010 and 676,190 shares of
common stock to be paid out at the end of the contract in
settlement of $925,000 at December 31, 2009 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 Chairman effective October 1, 2009. The term of
the contract was for a nine month period ending on June 30, 2010. Under this agreement the Chairman
received a base compensation of $190,000 per year, payable $5,000 per month in cash starting in
January 2010 and the remainder in stock issued at the closing price on September 1, 2009. 84,783
shares were issued in September 2009.
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 chief executive 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, 2010
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
2010.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2010 Options Awards |
|
|
2010 Options Awards |
|
|
|
|
|
|
|
| |
|
Number of Securities |
|
|
Number of Securities |
|
|
|
|
|
|
|
| |
|
Underlying Unexercised |
|
|
Underlying Unexercised |
|
|
Option Exercise |
|
|
Option Expiration |
|
| Name |
|
Options Exercisable |
|
|
Options Unexercisable |
|
|
Price ($) |
|
|
Date |
|
Joseph D’Agostino |
|
|
— |
|
|
|
100,000 |
|
|
$ |
1.00 |
|
|
|
12/20/2015 |
|
|
|
|
33,333 |
|
|
|
66,667 |
|
|
$ |
1.00 |
|
|
|
12/20/2015 |
|
27
Compensation of Directors
Milestone paid company shares as compensation to its independent directors in 2010 as stated
below in the compensation table. On May 26, 2010 Milestone approved annual compensation to its
directors in the amount of $30,000, one half payable in common stock shares and one half in cash.
As of December 31, 2010, $15,000 of common shares were issued to each independent director.
The following table provides compensation information for the year ended December 31, 2010 for
each of the independent directors. Directors are reimbursed for the costs relating to attending
board and committee meetings.
Director Compensation
| |
|
|
|
|
| |
|
2010 |
|
| Name |
|
Stock Awards (1) |
|
Leonard M. Schiller |
|
$ |
15,000 |
|
Leslie Bernhard |
|
$ |
15,000 |
|
Pablo Felipe Serna Cardenas |
|
$ |
15,000 |
|
| |
|
|
| (1) |
|
Shares valued at $1.30 per share as of May 26, 2010, 11,538 shares per independent
director. |
|
|
|
| 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 30, 2011, 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 30, 2011 |
|
| |
|
Shares of Common Stock |
|
|
Percentage |
|
| Names of Beneficial Owner (1) |
|
Beneficially Owned (2) |
|
|
of Ownership |
|
Executive Officers and Directors |
|
|
|
|
|
|
|
|
Leonard Osser |
|
|
1,924,604 |
(3) |
|
|
12.80 |
% |
Joseph D’Agostino |
|
|
242,650 |
(4) |
|
|
1.61 |
% |
Leonard Schiller |
|
|
109,766 |
(5) |
|
|
* |
|
Pablo Felipe Serna Cardenas |
|
|
86,538 |
(6) |
|
|
* |
|
Leslie Bernhard |
|
|
76,538 |
(7) |
|
|
* |
|
All directors & executive officers as group (5 persons) |
|
|
2,440,096 |
|
|
|
16.23 |
% |
K. Tucker Andersen |
|
|
2,411,230 |
(8) |
|
|
16.04 |
% |
Tom Cheng |
|
|
752,852 |
(9) |
|
|
5.01 |
% |
| |
|
|
| * |
|
Less than 1% |
| |
| (1) |
|
The addresses of the persons named in this table are as follows: Leonard Osser and Joseph
D’Agostino are at 220 South Orange Avenue in, New Jersey 07039; Leonard M. Schiller, c/o
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; Leslie Bernhard,
c/o AdStar, Inc., 4553 Glencoe Avenue, Suite 325, Marina del Rey, California 90292; K. Tucker
Andersen, 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 30, 2011, 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 15,030,458 outstanding shares on March 30,
2011, plus those shares underlying options exercisable within 60 days from the filing of this
report held by the named individual or the group. |
28
| |
|
|
| (3) |
|
March 30, 2011 includes 571,190 Shares to Be Issued at the termination of his employment
agreement. |
| |
| (4) |
|
March 30, 2011 includes 65,823 Shares to Be Issued at the termination of employment.
Includes 29,231 shares held by Mr. D’Agostino at March 30, 2011. Additionally, this includes
147,596 shares subject to options; 60,000 shares at $0.40; 33,166 shares at $1.15; and 21,097
shares at $1.58, and 33,333 shares at $1.00. |
| |
| (5) |
|
March 30, 2011, includes 85,000 stock options; 25,000 shares at $0.55 issued in June 2009;
20,000 shares at $0.83 per share and 20,000 shares at $1.68 and 20,000 shares at $0.74. Also
included is 24,766 shares held by Mr. Schiller of which 11,538 shares was issued in 2010. |
| |
| (6) |
|
March 30, 2011 includes 75,000 stock options; 25,000 shares at $0.55 issued in June 2009,
10,000 shares at $0.83 per share, 20,000 shares at $1.68 and 20,000 shares at $0.74 also
includes 11,538 shares issued in 2010. |
| |
| (7) |
|
March 30, 2011, 65,000 stock options; 20,000 shares at $1.68 and 20,000 shares at $0.74 and
25,000 shares at $0.55. Also included is 11,538 shares issued in 2010. |
| |
| (8) |
|
March 30, 2011 includes shares owned by Mr. Andersen |
| |
| (9) |
|
March 30, 2011 includes shares owned Mr. Cheng. |
Securities Authorized for Issuance Under Equity Compensation Plans
Equity Compensation Plan Information
The following table summarizes the (i) options granted under the Milestone 2004 Stock Option
Plans, and (ii) options and warrants granted outside the Milestone 2004 Stock Option Plan, as of
December 31, 2010. 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 2004 Stock Option Plan |
|
|
322,000 |
|
|
|
1.50 |
|
|
|
428,000 |
|
Equity compensation plan not approved by
stockholders (2) |
|
|
|
|
|
|
|
|
|
Not applicable |
|
Aggregate individual option and
warrants grants |
|
|
1,216,502 |
|
|
|
1.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,538,502 |
|
|
|
1.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
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 2010. |
| |
| |
|
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. |
29
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.
As of December 31, 2010 there are no shares remaining under this plan.
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 2010, the Company issued the following shares under this Plan; 50,000 shares valued at of
$50,000 for Officer Compensation, 76,661 shares valued at $104,000 for consulting services, 23,388
shares valued at $33,354 for employee compensation, 34,614 shares valued at $45,000 issued to
Directors as compensation.
At December 31, 2010 and 2009 there was $11,316 and $143,610, respectively, 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.
|
|
|
| Item 13. |
|
Certain Relationships and Related Transactions and Director Independence. |
On June 28, 2007 the Company secured a $1 million line of credit from K. Tucker Andersen, a
stockholder, beneficially owning approximately 18% of the company’s outstanding stock. This
borrowing was amended to $1,300,000 as of September 30, 2008 under the same terms and conditions as
the original. Borrowings under this line 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 this 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 this 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. At September 30, 2008 this line of Credit amount was completely drawn down. In December
2009, the Company converted the $1.3 million principal amount of the borrowing under the line of
Credit into 822,785 shares of Common Stock at a price of $1.58 per share. Additionally, the
interest due on the principal is payable over a two year period (quarterly payments of $23,000).
The Company borrowed an additional $450,000 from the same stockholder 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 has adopted a policy that, in the future, the Audit
Committee must review all transactions with any officer, director or 5% stockholder. The amount
outstanding to the stockholder was $450,000 for both years ending December 31, 2010 and 2009.
Interest expense accrued on this debt was $95,135 and $154,027 for the years ended December 31,
2010 and 2009, respectively.
Director Independence
The Board has determined that Leonard M. Schiller and Pablo Felipe Serna Cardenas (the
“Independent Directors”) are independent as that term is defined in the listing standards of the
NYSE Amex. As disclosed above, Pablo Felipe Serna Cardenas and Leonard M. Schiller members of the
Audit Committee and are independent for such purposes, and Leonard M. Schiller and Leslie Bernhard
are members of the Compensation Committee and Leonard Schiller is independent for such purposes.
30
In determining director independence, the Board considered the option awards to the
Independent Directors for the year ended December 31, 2010, disclosed in “Item 11 — 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 $110,738 and $148,119,
respectively from Holtz Rubenstein Reminick LLP, the principal accountant for 2010 and 2009.
Audit Related Fees
There were no audit related fees to the principal accountant Holtz Rubenstein Reminick LLP in
2010 and 2009.
Tax Fees
There were no fees for services related to tax compliance, tax advice and tax planning billed
by the principal accountant in 2010 and 2009.
All Other Fees
There were no other fees billed during 2010 and 2009 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 2010.
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.
31
PART IV
|
|
|
| Item 15. |
|
Exhibits and Financial Statement Schedules |
(a) The following documents are filed as part of this Report:
| |
1. |
|
Financial Statements. The following financial statements and the reports of
Milestone’s independent auditor thereon, are filed herewith. |
| |
• |
|
Report of Independent Registered Public Accounting Firm (Holtz Rubenstein LLP
-2010 and 2009) |
| |
| |
• |
|
Balance Sheets at December 31, 2010 and 2009 |
| |
| |
• |
|
Statements of Operations for the years ended December 31, 2010 and 2009 |
| |
| |
• |
|
Statements of Changes in Stockholder’s Equity for the years ended December 31,
2010 and 2009 |
| |
| |
• |
|
Statements of Cash Flows for the years ended December 31, 2010 and 2009 |
| |
| |
• |
|
Notes to Financial Statements |
| |
2. |
|
Financial Statement Schedule |
| |
| |
|
|
Schedules are omitted because the information required is not applicable or the required
information is shown in the consolidated financial statements or notes thereto |
32
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 (5) |
| |
3.6 |
|
|
Certificate of Amendment filed January 8, 2004. (5) |
| |
3.7 |
|
|
Certificate of Designation filed January 15, 2004 (5) |
| |
3.8 |
|
|
By-laws of Milestone (1) |
| |
4.1 |
|
|
Specimen stock certificate (2) |
| |
4.3 |
|
|
Form of warrant agreement, including form of warrant (6) |
| |
10.1 |
|
|
Lease dated November 25, 1996 between Livingston Corporate Park Associates, L.L.C. and Milestone (3) |
| |
10.2 |
|
|
Agreement with DaVinci Instruments dated July 30, 2003 (5) |
| |
10.3 |
|
|
Agreement with Strider dated September 3, 2003 (5) |
| |
10.4 |
|
|
Agreement with Len Osser and K. Tucker Andersen, dated October 9, 2003 (5) |
| |
10.5 |
|
|
Agreement with Morse, Zelnick, Rose & Lander dated December 22, 2003 (5) |
| |
10.6 |
** |
|
Employment Agreement with Leonard Osser dated December 20, 2003 (5) |
| |
10.7 |
|
|
Agreement with United Instruments dated October 20, 2004 (7) |
| |
10.8 |
|
|
Agreement with Mark Hochman dated as of January 1, 2005 (7) |
| |
10.9 |
|
|
Lease amendment dated April 28, 2004 between Livingston Corporate Park Associates, L.L.C. and Milestone (7) |
| |
10.10 |
|
|
Agreement with DaVinci regarding exclusive license over patented products dated June 1, 2004 (8) |
| |
10.11 |
** |
|
Employment Agreement with Leonard Osser dated September 1, 2009. (9) |
| |
10.12 |
* |
|
Loan agreement of $1 million from K. Tucker Andersen* |
| |
10.13 |
* |
|
Loan agreement of $1.3 million from K. Tucker Andersen* |
| |
10.14 |
* |
|
Loan agreement of $450,000 from K. Tucker Andersen* |
| |
14 |
|
|
Code of Ethics (6) |
| |
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. 3. |
| |
| (6) |
|
Incorporated by reference to Milestone’s Form 10-KSB for the year ended December 31, 2003. |
| |
| (7) |
|
Incorporated by reference to Milestone’s Registration Statement on Form S-2 No. 333-110367, Amendment No. 5. |
| |
| (8) |
|
Incorporated by reference to Milestone’s Form 10-KSB for the year ended December 31, 2004. |
| |
| (9) |
|
Incorporated by reference to Milestone’s Form 10-K for the year ended December 31, 2009. |
33
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/ Leonard Osser
|
|
| |
|
Chief Executive Officer |
|
| |
|
|
|
| |
Date: March 30, 2011
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/ Leonard Osser
Leonard Osser
|
|
March 30, 2011
|
|
Chief Executive Officer and Director |
|
|
|
|
|
/s/ Joseph D’Agostino
Joseph D’Agostino
|
|
March 30, 2011
|
|
Chief Financial Officer |
|
|
|
|
|
/s/ Leonard Schiller
Leonard Schiller
|
|
March 30, 2011
|
|
Director |
|
|
|
|
|
/s/ Leslie Bernard
Leslie Bernhard
|
|
March 30, 2011
|
|
Chairman and Director |
|
|
|
|
|
/s/ Pablo Felipe Serna Cardenas
Pablo Felipe Serna Cardenas
|
|
March 30, 2011
|
|
Director |
34
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 sheets of Milestone Scientific Inc. (the “Company”) as of December 31,
2010 and 2009 and the related statements of operations, stockholders’ equity, and cash flows 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
audits.
We conducted our audits 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 audits 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 audits
provide 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, 2010 and 2009 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 since inception, 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
New York, New York
March 30, 2011
F-2
MILESTONE SCIENTIFIC INC.
BALANCE SHEETS
December 31, 2010 and 2009
| |
|
|
|
|
|
|
|
|
| |
|
December 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
627,082 |
|
|
$ |
1,029,129 |
|
Accounts receivable, net of allowance for doubtful accounts of $202,160 in 2010 and $5,000
in 2009 |
|
|
796,221 |
|
|
|
1,063,742 |
|
Inventories |
|
|
986,947 |
|
|
|
804,736 |
|
Advances to contract manufacturer |
|
|
730,491 |
|
|
|
151,995 |
|
Prepaid expenses and other current assets |
|
|
247,465 |
|
|
|
254,501 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
3,388,206 |
|
|
|
3,304,103 |
|
Accounts receivable-long term, net of allowance for doubtful accounts of $438,840 in 2010 |
|
|
361,160 |
|
|
|
— |
|
Advances to contract manufacturer |
|
|
1,713,794 |
|
|
|
311,230 |
|
Investment in distributor, at cost |
|
|
76,319 |
|
|
|
76,319 |
|
Furniture, Fixtures & Equipment net of accumulated depreciation of $426,482
as of December 31, 2010 and $395,630 as of December 31, 2009 |
|
|
66,936 |
|
|
|
77,353 |
|
Patents, net of accumulated amortization of $294,934 as of December 31, 2010
and $211,539 as of December 31, 2009 |
|
|
944,858 |
|
|
|
947,315 |
|
Other assets |
|
|
57,750 |
|
|
|
133,674 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
6,609,023 |
|
|
$ |
4,849,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable — short term |
|
$ |
2,883,587 |
|
|
$ |
1,154,013 |
|
Accrued expenses and other payable |
|
|
511,304 |
|
|
|
524,017 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
3,394,891 |
|
|
|
1,678,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable — long term |
|
|
440,376 |
|
|
|
— |
|
Accrued Interest - 6% note |
|
|
— |
|
|
|
92,000 |
|
Notes Payable-net of discount of $8,361 and $11,157, respectively |
|
|
441,639 |
|
|
|
438,843 |
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
882,015 |
|
|
|
530,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
Common stock, par value $.001; authorized 50,000,000 shares; 14,915,959 shares issued
637,013 shares to be issued and 14,882,626 shares outstanding as of December 31, 2010;
14,781,295 shares issued, 692,498 shares to be issued, and 14,747,962 shares outstanding
as of December 31, 2009 |
|
|
15,552 |
|
|
|
15,472 |
|
Additional paid-in capital |
|
|
62,606,043 |
|
|
|
62,300,619 |
|
Accumulated deficit |
|
|
(59,377,962 |
) |
|
|
(58,763,454 |
) |
Treasury stock, at cost, 33,333 shares |
|
|
(911,516 |
) |
|
|
(911,516 |
) |
|
|
|
|
|
|
|
Total stockholders’ equity |
|
|
2,332,117 |
|
|
|
2,641,121 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
6,609,023 |
|
|
$ |
4,849,994 |
|
|
|
|
|
|
|
|
F-3
MILESTONE SCIENTIFIC INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2010 AND 2009
| |
|
|
|
|
|
|
|
|
| |
|
2010 |
|
|
2009 |
|
Product sales, net |
|
$ |
9,749,968 |
|
|
$ |
8,549,060 |
|
|
|
|
|
|
|
|
Cost of products sold |
|
|
3,531,452 |
|
|
|
3,458,279 |
|
|
|
|
|
|
|
|
Gross profit |
|
|
6,218,516 |
|
|
|
5,090,781 |
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
6,648,859 |
|
|
|
6,952,976 |
|
Research and development expenses |
|
|
270,494 |
|
|
|
241,318 |
|
|
|
|
|
|
|
|
|
|
|
6,919,353 |
|
|
|
7,194,294 |
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(700,837 |
) |
|
|
(2,103,513 |
) |
Other income (expense) |
|
|
|
|
|
|
|
|
Other income |
|
|
183,673 |
|
|
|
777,609 |
|
Interest income |
|
|
587 |
|
|
|
3,146 |
|
Interest expense |
|
|
(95,135 |
) |
|
|
(154,027 |
) |
Amortized debt issuance |
|
|
(2,796 |
) |
|
|
(53,300 |
) |
|
|
|
|
|
|
|
Total other income |
|
|
86,329 |
|
|
|
573,428 |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(614,508 |
) |
|
$ |
(1,530,085 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders |
|
$ |
(614,508 |
) |
|
$ |
(1,530,085 |
) |
|
|
|
|
|
|
|
Loss per share applicable to common stockholders -
basic and diluted |
|
$ |
(0.04 |
) |
|
$ |
(0.11 |
) |
|
|
|
|
|
|
|
Weighted average shares outstanding and to be issued -
basic and diluted |
|
|
14,824,802 |
|
|
|
13,389,872 |
|
|
|
|
|
|
|
|
See Notes to Financial Statements
F-4
MILESTONE SCIENTIFIC INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2010 AND 2009
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
| |
|
Common Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
Treasury |
|
|
|
|
| |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Stock |
|
|
Total |
|
Balance, December 31, 2008 |
|
|
13,200,324 |
|
|
$ |
13,200 |
|
|
$ |
59,531,865 |
|
|
$ |
(57,233,369 |
) |
|
$ |
(911,516 |
) |
|
$ |
1,400,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options issued to employees and consultants |
|
|
|
|
|
|
|
|
|
|
285,835 |
|
|
|
|
|
|
|
|
|
|
|
285,835 |
|
Common stock issued for payment of consulting
services to settle accounts payable |
|
|
518,367 |
|
|
|
518 |
|
|
|
499,982 |
|
|
|
|
|
|
|
|
|
|
|
500,500 |
|
Common stock issued for payment of employee
compensation |
|
|
323,009 |
|
|
|
323 |
|
|
|
160,002 |
|
|
|
|
|
|
|
|
|
|
|
160,325 |
|
Common stock issued in advance of services-Chairman |
|
|
84,783 |
|
|
|
85 |
|
|
|
97,415 |
|
|
|
|
|
|
|
|
|
|
|
97,500 |
|
Common stock to be issued for settlement of
deferred compensation |
|
|
45,455 |
|
|
|
45 |
|
|
|
24,955 |
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
Common stock to be issued for bonus |
|
|
142,405 |
|
|
|
142 |
|
|
|
224,858 |
|
|
|
|
|
|
|
|
|
|
|
225,000 |
|
Sale of common stock |
|
|
333,333 |
|
|
|
333 |
|
|
|
149,667 |
|
|
|
|
|
|
|
|
|
|
|
150,000 |
|
Proceeds from exercising stock options |
|
|
3,333 |
|
|
|
3 |
|
|
|
1,863 |
|
|
|
|
|
|
|
|
|
|
|
1,866 |
|
Conversion of Line of Credit |
|
|
822,785 |
|
|
|
823 |
|
|
|
1,299,177 |
|
|
|
|
|
|
|
|
|
|
|
1,300,000 |
|
Proceeds on the sale of stock option agreement |
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,530,085 |
) |
|
|
|
|
|
|
(1,530,085 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
|
15,473,794 |
|
|
$ |
15,472 |
|
|
$ |
62,300,619 |
|
|
$ |
(58,763,454 |
) |
|
$ |
(911,516 |
) |
|
$ |
2,641,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options issued to employees and consultants |
|
|
— |
|
|
|
— |
|
|
|
239,817 |
|
|
|
|
|
|
|
|
|
|
|
239,817 |
|
Common stock issued for director’s compensation |
|
|
34,614 |
|
|
|
35 |
|
|
|
44,965 |
|
|
|
|
|
|
|
|
|
|
|
45,000 |
|
Common stock issued for payment of consulting
services to settle accounts payable |
|
|
76,661 |
|
|
|
77 |
|
|
|
103,923 |
|
|
|
|
|
|
|
|
|
|
|
104,000 |
|
Common stock issued for payment of employee
compensation |
|
|
23,388 |
|
|
|
23 |
|
|
|
33,331 |
|
|
|
|
|
|
|
|
|
|
|
33,354 |
|
Common stock to be issued for settlement of
bonus compensation |
|
|
50,000 |
|
|
|
50 |
|
|
|
49,950 |
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
Reversal of common stock to be issued
for settlement of bonus compensation |
|
|
(105,485 |
) |
|
|
(105 |
) |
|
|
(166,562 |
) |
|
|
|
|
|
|
|
|
|
|
(166,667 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(614,508 |
) |
|
|
|
|
|
|
(614,508 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
|
15,552,972 |
|
|
$ |
15,552 |
|
|
$ |
62,606,043 |
|
|
$ |
(59,377,962 |
) |
|
$ |
(911,516 |
) |
|
$ |
2,332,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements
F-5
MILESTONE SCIENTIFIC INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2010 AND 2009
| |
|
|
|
|
|
|
|
|
| |
|
2010 |
|
|
2009 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(614,508 |
) |
|
$ |
(1,530,085 |
) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation expense |
|
|
45,243 |
|
|
|
50,253 |
|
Amortization of patents |
|
|
83,395 |
|
|
|
76,133 |
|
Amortization of debt discount |
|
|
2,796 |
|
|
|
53,300 |
|
Common stock and options issued for compensation, consulting,
and vendor services |
|
|
305,503 |
|
|
|
1,444,159 |
|
Bad debt expense |
|
|
640,558 |
|
|
|
— |
|
Loss on sale/disposal of equipment |
|
|
(7,494 |
) |
|
|
46,918 |
|
Increase in inventory reserve |
|
|
— |
|
|
|
36,000 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
(Increase) in accounts receivable |
|
|
(734,197 |
) |
|
|
(138,000 |
) |
(Increase) in inventories |
|
|
(182,211 |
) |
|
|
(120,834 |
) |
(Increase) Decrease to advances to contract manufacturer |
|
|
(1,981,060 |
) |
|
|
202,665 |
|
Decrease (Increase) to prepaid expenses and other current assets |
|
|
7,036 |
|
|
|
(36,205 |
) |
Decrease (Increase) in other assets |
|
|
75,924 |
|
|
|
(126,357 |
) |
Increase in accounts payable |
|
|
2,169,950 |
|
|
|
324,883 |
|
(Decrease) Increase in accrued expenses |
|
|
(104,712 |
) |
|
|
125,120 |
|
(Decrease) in deferred compensation |
|
|
— |
|
|
|
(5,000 |
) |
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
(293,777 |
) |
|
|
402,951 |
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(29,355 |
) |
|
|
(51,950 |
) |
Proceeds on sale of equipment |
|
|
2,023 |
|
|
|
30,000 |
|
Payment for patent rights |
|
|
(80,938 |
) |
|
|
(122,403 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(108,270 |
) |
|
|
(144,353 |
) |
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from the sale of stock options |
|
|
— |
|
|
|
25,000 |
|
Proceeds from the exercise of stock options |
|
|
— |
|
|
|
1,866 |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
— |
|
|
|
26,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
(402,047 |
) |
|
|
285,464 |
|
Cash and cash equivalents at beginning of year |
|
|
1,029,129 |
|
|
|
743,665 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
627,082 |
|
|
$ |
1,029,129 |
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Interest expense paid in cash |
|
$ |
92,000 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
Supplemental disclosure of non cash activities: |
|
|
|
|
|
|
|
|
Shares issued for conversion of note |
|
$ |
— |
|
|
$ |
1,300,000 |
|
|
|
|
|
|
|
|
Shares issued to directors for compensation |
|
$ |
45,000 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
Shares issued to employees in lieu of cash compensation |
|
$ |
33,354 |
|
|
$ |
160,325 |
|
|
|
|
|
|
|
|
Shares issued to officer in advance of services |
|
$ |
— |
|
|
$ |
97,500 |
|
|
|
|
|
|
|
|
Shares issued to settle accounts payable |
|
$ |
104,000 |
|
|
$ |
500,500 |
|
|
|
|
|
|
|
|
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 instrument, through
the use of The Wand, a single use disposable handpiece. The instrument 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 instruments are sold in the United States and in over 37
countries abroad. Milestone’s products are manufactured by a third-party contract manufacturer.
The Company had incurred operating
losses since its inception. The company had negative cash
flows from operating activities at December 31, 2010 of $293,777 and a positive cash flow from
operating activities at December 31, 2009 of $402,951. At December 31, 2010, the Company had cash
and cash equivalents and a negative working capital of $627,082 and $6,685 respectively. The
significant working capital decrease of $1,632,758 in 2010 (negative working capital of $6,685) as
compared to 2009 (positive working capital of $1,626,073) is due to the Company’s ramp up of
purchasing parts in anticipation of significant sales to our distributor in China. Such sales have
been delayed. As a result of this delay, the advance to contract manufacturer has been allocated
between current and long term. Additionally, the accounts payable due to suppliers has also been
allocated between long term and short term. And finally, the accounts receivable for the China
distributor has been allocated between current and long term, with a reserve of $636,000 provided
against the accounts receivable. Additionally, as discussed in Note I, 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. In December 2009,
the Company converted the $1.3 million Line of Credit into 822,785 shares of common stock at a
conversion price of $1.58 per share. 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, 2010, the Company does not
expect 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 raise 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 an original maturity of three
months or less to be cash equivalents.
2. Accounts Receivable
The realization of Accounts Receivable current and long-term 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. Product Return and Warranty
Milestone does not accept non-defective returns from its customers. 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 $43,397 and
$45,461 for 2010 and 2009, respectively. Non Warranty repairs are collected from the customers. Non
Warranty repair income was $76,172 and $81,913 for 2010 and 2009, respectively.
F-7
4. Inventories
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.
5. Furniture, Fixture and 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.
6. Investments
Investments in less than twenty percent owned entities are accounted for under the cost basis and
are reviewed for impairment periodically. The Company does not have any significant control over
the operations of this distributor.
7. 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.
8. 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 net book value. The Company has reviewed long-lived assets for impairment and
concluded no impairment exist as of December 31, 2010 and December 31, 2009, respectively.
9. Accounts Payable
Current and long term accounts payable represents amounts due to suppliers of the Company. Long
term accounts payable is based on an informal financing agreement with the supplier to assist in
the purchasing of instruments and handpieces, beyond one year from the balance sheet date.
10. Revenue Recognition
Revenue from product sales is recognized net of discounts and allowances to the domestic
distributor on the date of shipment of the goods, for essentially all shipments, since the terms
are FOB warehouse. The Company will recognize revenue on date of arrival where 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.
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.
F-8
12. Research and Development
Research and development costs, which consist principally of new product development costs incurred
to third parties, are expensed as incurred.
13. Advertising Expenses
Milestone expenses advertising costs as they are incurred. For the years ended December 31, 2010
and 2009, Milestone recorded advertising expenses of $107,011 and $333,572, 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 basis 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 ASP Topic 260. 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
debt were issued during the period.
Since Milestone had net losses for 2010 and 2009, the assumed effects of the exercise of
outstanding stock options and warrants, and the conversion of convertible debt were not included in
the calculation as their effect would have been anti-dilutive. Such outstanding options and
warrants totaled 1,538,502 at December 31, 2010 and 1,590,141 at December 31, 2009. The 1,538,502
options and warrants outstanding as of December 31, 2010 which includes a 73,333 Performance
Options issued but not vested. The remaining 593,334 Performance Options in 2010, that are not
granted until earned over the next four years, if such performance targets are achieved. See Note
K.
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
Fair Value Measurements: We follow the provisions of ASC 820, Fair Value Measurements and
Disclosures related to financial assets and liabilities that are being measured and reported on a
fair value basis. Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants in the principal market
at the measurement date (exit price). We are required to classify fair value measurements in one of
the following categories:
Level 1 inputs which are defined as quoted prices (unadjusted) in active markets for identical
assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 inputs which are defined as inputs other than quoted prices included within Level 1 that
are observable for the assets or liabilities, either directly or indirectly.
Level 3 inputs are defined as unobservable inputs for the assets or liabilities.
F-9
Financial assets and liabilities are classified based on the lowest level of input that is
significant to the fair value measurement. Our assessment of the significance of a particular input
to the fair value measurement requires judgment, and may effect the valuation of the fair value of
assets and liabilities and their placement within the fair value hierarchy levels.
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 ASC Topic 718, “Share-Based Payment. ASC
Topic 718 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.
The weighted-average fair value of the individual options granted during 2010 and 2009 was
estimated as $0.91 and $0.91, respectively, on the date of grant. The fair value for 2010 and 2009
was determined using the Black-Scholes option-pricing model with the following weighted average
assumptions:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2010 |
|
|
2009 |
|
Volatility |
|
|
122 |
% |
|
|
203 |
% |
Risk-free interest rate |
|
|
2.13 |
% |
|
|
1.83 |
% |
Expected life |
|
3 years |
|
|
3 years |
|
Dividend yield |
|
|
0 |
% |
|
|
0 |
% |
Forfeiture Rate |
|
|
6 |
% |
|
|
6 |
% |
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, 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 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. The Company has granted performance based options
to the chief executive officer. Such performance based options are earned based on specific
criteria established by the Company. The Company records these options based on the likelihood of
the officer achieving the specified performance objective and accrues these costs over the
performance period. The estimates inherent in making this assessment are reviewed periodically by
management and the resulting changes are booked through the statement of operations.
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 and 12,000 STA
Instrument. As part of these agreements, Milestone has advanced approximately $2,444,000 and
$463,000 to the vendor for purchase of materials at December 31, 2010 and 2009, 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, 2010 and 2009.
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 has provided a reserve that it
believes is sufficient record accounts receivable at net realizable value as of December 31, 2010
and 2009.
F-10
20. Recent Accounting Pronouncements
Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements. Effective for interim and annual reporting periods beginning after December 15, 2009,
except for the disclosures about purchases, sales, issuances, and settlements in the roll forward
of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal years. This
statement does not currently impact the financial statement of the company.
In the second quarter of 2010, the FASB issued Accounting Standards Updates (ASU) 2010-09, Fair
Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements (ASU
2010-06). ASU 2010-06 amends FASB ASC Topic 820, Fair Value Measurements and Disclosures, and
requires reporting entities to make new disclosures about recurring or nonrecurring fair-value
measurements. ASU 2010-06 also clarifies existing fair-value measurement disclosure guidance about
the level of disaggregation, inputs and valuation techniques. Except for the detailed Level 3
rollforward disclosures, we adopted the provisions of ASU 2010-06 in the first quarter of 2010.
This adoption did not affect our financial statements. We will adopt the provisions of ASU 2010-06
related to the new Level 3 rollforward disclosures in the first quarter of 2011. This adoption in
2011 will not affect our financial statements.
In the first quarter of 2010, the FASB issued ASU 2010-09, Subsequent Events: Amendments to Certain
Recognition and Disclosure Requirements (ASU 2010-09). ASU 2010-09 amends ASC 855, Subsequent
Events, so that SEC filers are no longer required to disclose the date through which subsequent
events have been evaluated in financial statements. We adopted the provisions of ASU 2010-09 in the
first quarter of 2010.
In December 2010, the FASB issued ASU No. 2010-28, “Intangibles-Goodwill and Other (Topic 350) When
to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative
Carrying Amounts.” This guidance clarifies application of Step 2 of the goodwill impairment test.
The guidance requires an entity to perform Step 2 if it is more likely than not that an impairment
exists. This accounting guidance is effective for fiscal years beginning after December 15, 2010.
This statement does not currently impact the financial statements of the Company.
In October 2009, the FASB issued ASU 2009-13, “Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangements — a consensus of the FASB Emerging Issues Task Force,”
which amends the criteria for when to evaluate individual delivered items in a multiple deliverable
arrangement and how to allocate consideration received. This ASU is effective for fiscal years
beginning on or after June 15, 2010, which is January 1, 2011 for the Corporation. The Corporation
is currently evaluating the impact of adopting the guidance. This statement does not currently
impact the financial statement of the company.
NOTE C — ACCOUNTS RECEIVABLE — CURRENT AND LONG TERM
The Company sells a significant amount of its product on credit terms to its major distributors.
The Company estimates losses from the inability of its customers to make payments on amounts
billed. A majority of credit sales are due within ninety days from invoicing. In 2010, the Company
shipped a significant order to a major international distributor. At the time of the shipment,
regulatory approval to sell the product in the respective country was in process. Obtaining such
regulatory approval was not a condition of the purchase order and sale to the distributor. The
regulatory approval has been delayed and as such the customer has not paid the full amount of the
invoiced shipment. The Company is receiving periodic payments from the international distributor.
Based on the periodic payment plan prepared by the international distributor, the Company has
recorded a long term net accounts receivable of $361,000 as of December 31, 2010. The current
portion of this net accounts receivable is approximately $163,000. The Company reserved $636,000 of
the total accounts receivable from this distributor as December 31, 2010.
NOTE D — INVENTORIES
| |
|
|
|
|
|
|
|
|
| |
|
December 31 |
|
| |
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Inventories consist of the following: |
|
|
|
|
|
|
|
|
Finished Goods |
|
$ |
766,693 |
|
|
|
747,566 |
|
Component parts and other materials |
|
|
220,254 |
|
|
|
57,170 |
|
|
|
|
|
|
|
|
|
|
$ |
986,947 |
|
|
|
804,736 |
|
|
|
|
|
|
|
|
Slow moving and overstocked inventories totaling approximately $36,000 were charged off to cost of
products sold during the year ended December 31, 2009.
NOTE E — 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, 2010 and 2009 totaled
$2,444,285 and $463,225, respectively. The portion of this advance expected to be utilized in the
next twelve months is classified as current asset, with the remainder classified as non-current
asset. The Company has an outstanding accounts payable of $1,521,000 and $193,000 at December 31,
2010 and 2009, respectively to the contract manufacture specifically related to the advances.
F-11
NOTE F —FURNITURE, FIXTURES AND EQUIPMENT
| |
|
|
|
|
|
|
|
|
| |
|
December 31 |
|
| |
|
2010 |
|
|
2009 |
|
Furniture, Fixtures and Equipment consist of the following: |
|
|
|
|
|
|
|
|
Leasehold improvements |
|
$ |
22,317 |
|
|
$ |
22,317 |
|
Office furniture and equipment |
|
|
98,268 |
|
|
|
98,268 |
|
Molds |
|
|
7,200 |
|
|
|
— |
|
Trade show displays |
|
|
89,395 |
|
|
|
86,121 |
|
Computers and software |
|
|
181,008 |
|
|
|
179,048 |
|
Tooling equipment-STA |
|
|
20,377 |
|
|
|
12,377 |
|
STA Trials Instruments |
|
|
63,752 |
|
|
|
63,752 |
|
Tooling equipment-Wand |
|
|
11,100 |
|
|
|
11,100 |
|
|
|
|
|
|
|
|
Total |
|
|
493,418 |
|
|
|
472,983 |
|
Less accumulated depreciation |
|
|
(426,482 |
) |
|
|
(395,630 |
) |
|
|
|
|
|
|
|
|
|
$ |
66,936 |
|
|
$ |
77,353 |
|
|
|
|
|
|
|
|
Depreciation expense was $45,243 and $50,253 for the years ended December 31, 2010 and 2009,
respectively.
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 — 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 12 years. Amortization expense amounted
to $83,395 in 2010 and $76,133 in 2009. Estimated amortization expense of existing patents for each
of the next five fiscal years amounts to approximately $84,912 per year.
NOTE I — 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. 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. The full amount of the
line of credit and amendment, $1.3 million, has been drawn at December 31, 2008. The $1.3 million
Line of Credit was converted into shares of Milestone’s common stock in December 2009 at a
conversion rate of $1.58 per share. A total of 822,785 shares were issued and the debt liquated at
that date. Interest on the Line of Credit of aggregated $176,655 was accrued as of December 31,
2009. This interest will be paid in equal quarterly payments of $23,000 over the next two years.
These payments will represent the initial interest accrued plus and aggregate of $7,335 of interest
on the outstanding interest debt. 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, 2010, the discount was $8,361.
Interest expense on this Line of Credit for the year ended December 31, 2010 and 2009 is $95,135
and $154,027, respectively. Accrued interest related to this line of credit was $214,825 and
$245,426 at December 31, 2010 and December 31, 2009, respectively. The charge for amortization of
Debt Discount related to this Line of Credit is $2,796 and $53,330 for the year ended December 31,
2010 and December 31, 2009, respectively.
F-12
NOTE J — STOCKHOLDERS’ EQUITY
ISSUANCES OF COMMON STOCK
During 2010, Milestone’s to be issued shares are 34,614 valued at $45,000 for the director’s
compensation.
During 2010, Milestone issued 76,666 shares valued at $104,000 for payment of consulting services.
During 2010, Milestone issued 23,388 shares valued at $33,354 for payment of employee compensation.
During 2010, Milestone’s to be issued shares are 50,000 valued at $50,000 for the officer’s
deferred compensation.
SHARES TO BE ISSUED
As of December 31, 2010 and 2009, there were 637,013 and 692,498 shares that have been deferred
from being issued, subject to employment agreements with the Chief Executive Officer and Chief
Financial Officer of the Company. Such shares will be issued to each party upon termination of
their employment.
OUTSTANDING WARRANTS
At December 31, 2010, there were 75,000 warrants outstanding. Warrants issued in connection with
the $1.3 million Line of Credit, 30,000 warrants, exercisable at $5.00 per share expiring in 2011.
Additionally, there were 45,000 warrants in connection with the Long Term note of $450,000,
exercisable at $0.32 per share, expiring in June 2012.
In first and second quarters of 2009, 2,227,946 warrants at $4.89 per share, to issue the
equivalent number of shares of the Company’s common stock expired.
There were no warrants issued in 2010 and 2009.
SHARES RESERVED FOR FUTURE ISSUANCE
At December 31, 2010 and 2009 there were 3,521,850 and 3,668,974 shares reserved for future
issuance including 679,667 shares in 2010 and underlying stock options available under the Stock
Option Plans, respectively; 1,538,503 and 1,590,141 shares underlying other stock options and
warrants that were outstanding at December 31, 2010 and 2009, respectively: 637,013 shares in 2010
and 692,498 shares in 2009 to be issued in settlement of deferred compensation to Officers of the
Company; and 593,334 shares not vested and 666,667 shares in 2010 and 2009, respectively, for
Performance Options issued to an Officer of the Company. The 73,333 options were issued but not
vested in 2010 for the Performance Options noted above.
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 K — STOCK OPTION PLANS
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.
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 November 2009, the Board of Directors authorized 666,667 options be reserved for a special
bonus to the Chief Executive Officer of the Company, for obtaining a three year purchase order for
the sale of 12,000 STA Instruments and related handpieces over a four year period. These options
were reserved and 73,333 were granted but not vested in 2010. The remaining 593,334 were reserved
until specific performance targets are achieved. The options will be issued upon achievement of the
specific target on a yearly basis. The options were valued at $1.49 per share.
F-13
A summary of option activity for employees under the plans as of December 31, 2010 and 2009, 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, 2009 |
|
|
570,832 |
|
|
|
1.51 |
|
|
|
3.01 |
|
|
|
75 |
|
Granted |
|
|
872,866 |
|
|
|
1.02 |
|
|
|
4.59 |
|
|
|
— |
|
Exercised |
|
|
(3,333 |
) |
|
|
0.56 |
|
|
|
— |
|
|
|
— |
|
Forfeited or expired |
|
|
(380,223 |
) |
|
|
0.88 |
|
|
|
— |
|
|
|
— |
|
Outstanding, December 31, 2009 |
|
|
1,060,142 |
|
|
|
1.33 |
|
|
|
3.61 |
|
|
|
632,624 |
|
Exercisable, December 31, 2009 |
|
|
559,154 |
|
|
|
1.45 |
|
|
|
2.62 |
|
|
|
94,336 |
|
Granted |
|
|
313,333 |
|
|
|
1.11 |
|
|
|
5.88 |
|
|
|
|
|
Exercised during 2010 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Forfeited or expired |
|
|
(444,971 |
) |
|
|
1.72 |
|
|
|
— |
|
|
|
|
|
Outstanding, December 31, 2010 |
|
|
928,504 |
|
|
|
1.07 |
|
|
|
3.92 |
|
|
|
115,849 |
|
Exercisable, December 31, 2010 |
|
|
471,722 |
|
|
|
0.95 |
|
|
|
2.74 |
|
|
|
110,142 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted |
|
|
Weighted |
|
| |
|
Number |
|
|
Averaged |
|
|
Average |
|
| |
|
of |
|
|
Exercise |
|
|
Grant Date |
|
| |
|
Options |
|
|
Price $ |
|
|
Fair Value $ |
|
VESTED OPTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, January 1, 2009 |
|
|
366,442 |
|
|
|
1.83 |
|
|
|
— |
|
Exercised during 2009 |
|
|
(3,333 |
) |
|
|
0.56 |
|
|
|
— |
|
Vested Options during 2009 |
|
|
232,378 |
|
|
|
1.45 |
|
|
|
— |
|
Forfeited during 2009 |
|
|
(36,333 |
) |
|
|
3.62 |
|
|
|
— |
|
Outstanding, December 31, 2009 |
|
|
559,154 |
|
|
|
1.45 |
|
|
|
— |
|
Exercised during 2010 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Vested Options during 2010 |
|
|
214,456 |
|
|
|
0.81 |
|
|
|
— |
|
Forfeited during 2010 |
|
|
(301,888 |
) |
|
|
1.72 |
|
|
|
— |
|
Outstanding, December 31, 2010 |
|
|
471,722 |
|
|
|
0.95 |
|
|
|
— |
|
NONVESTED OPTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested, January 1, 2009 |
|
|
204,390 |
|
|
|
0.94 |
|
|
|
0.81 |
|
Granted during 2009 |
|
|
872,866 |
|
|
|
1.02 |
|
|
|
0.41 |
|
Vested during 2009 |
|
|
(232,378 |
) |
|
|
1.45 |
|
|
|
0.47 |
|
Forfeited during 2009 |
|
|
(343,890 |
) |
|
|
0.59 |
|
|
|
0.59 |
|
Nonvested, December 31, 2009 |
|
|
500,988 |
|
|
|
1.20 |
|
|
|
0.45 |
|
Granted during 2010 |
|
|
313,333 |
|
|
|
1.11 |
|
|
|
0.99 |
|
Vested during 2010 |
|
|
(214,456 |
) |
|
|
0.81 |
|
|
|
— |
|
Forfeited during 2010 |
|
|
(143,083 |
) |
|
|
1.62 |
|
|
|
— |
|
Nonvested, December 31, 2010 |
|
|
456,782 |
|
|
|
1.20 |
|
|
|
— |
|
Milestone recognizes compensation expense on a straight line basis over the requisite service
period and in case of performance based options over the period of the expected performance. During
the years ended December 31, 2010 and 2009 Milestone recognized $140,226, (net of $198,248 of stock
based compensation expense reversed in 2010; upon reversal of a 2009 bonus not achieved) and
$193,600 of total compensation cost related to options that vested each year, respectively. As of
December 31, 2010 and 2009, there was $258,369 and $362,938 of total unrecognized compensation cost
related to non-vested options which Milestone expects to recognize over a weighted average period
of 2.3 years and 2.5 years for December 31, 2010 and December 31, 2009, respectively.
F-14
A summary of option activity for non-employees under the plans as of December 31, 2009 and 2010,
and changes during the year ended is presented below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
| |
|
|
|
|
|
Weighted |
|
|
Average |
|
|
Aggregate |
|
| |
|
Number |
|
|
Averaged |
|
|
Remaining |
|
|
Intrinsic |
|
| |
|
of |
|
|
Exercise |
|
|
Contracted |
|
|
Options |
|
| |
|
Options |
|
|
Price $ |
|
|
Life (years) |
|
|
Value $ |
|
Outstanding, January 1, 2009 |
|
|
627,467 |
|
|
|
3.14 |
|
|
|
1.61 |
|
|
|
— |
|
Exercisable, December 31, 2009 |
|
|
564,967 |
|
|
|
3.29 |
|
|
|
1.44 |
|
|
|
— |
|
Granted during 2009 |
|
|
156,616 |
|
|
|
0.41 |
|
|
|
3.08 |
|
|
|
— |
|
Forfeited during 2009 |
|
|
(369,134 |
) |
|
|
3.38 |
|
|
|
— |
|
|
|
— |
|
Outstanding, December 31, 2009 |
|
|
414,999 |
|
|
|
1.90 |
|
|
|
2.70 |
|
|
|
263,083 |
|
Exercisable, December 31, 2009 |
|
|
336,387 |
|
|
|
1.91 |
|
|
|
2.71 |
|
|
|
234,638 |
|
Granted during 2010 |
|
|
136,666 |
|
|
|
1.69 |
|
|
|
0.72 |
|
|
|
— |
|
Forfeited during 2010 |
|
|
(16,666 |
) |
|
|
1.98 |
|
|
|
— |
|
|
|
— |
|
Outstanding, December 31, 2010 |
|
|
534,999 |
|
|
|
1.85 |
|
|
|
1.51 |
|
|
|
99,617 |
|
Exercisable, December 31, 2010 |
|
|
514,998 |
|
|
|
1.87 |
|
|
|
1.41 |
|
|
|
99,311 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted |
|
| |
|
Number |
|
|
Averaged |
|
| |
|
of |
|
|
Exercise |
|
| |
|
Options |
|
|
Price $ |
|
VESTED OPTIONS |
|
|
|
|
|
|
|
|
Outstanding, January 1, 2009 |
|
|
564,967 |
|
|
|
3.29 |
|
Exercised during 2009 |
|
|
— |
|
|
|
— |
|
Vested during 2009 |
|
|
140,554 |
|
|
|
0.32 |
|
Forfeited during 2009 |
|
|
(369,134 |
) |
|
|
3.38 |
|
Outstanding, December 31, 2009 |
|
|
336,387 |
|
|
|
1.96 |
|
Exercised during 2010 |
|
|
— |
|
|
|
— |
|
Vested during 2010 |
|
|
195,277 |
|
|
|
1.72 |
|
Forfeited during 2010 |
|
|
(16,666 |
) |
|
|
1.98 |
|
Outstanding, December 31, 2010 |
|
|
514,998 |
|
|
|
1.87 |
|
|
|
|
|
|
|
|
|
|
NONVESTED OPTIONS |
|
|
|
|
|
|
|
|
Nonvested January 1, 2009 |
|
|
62,500 |
|
|
|
1.77 |
|
Exercised during 2009 |
|
|
— |
|
|
|
— |
|
Vested during 2009 |
|
|
(140,554 |
) |
|
|
0.32 |
|
Forfeited during 2009 |
|
|
— |
|
|
|
— |
|
Nonvested December 31, 2009 |
|
|
78,612 |
|
|
|
1.64 |
|
Granted during 2010 |
|
|
136,666 |
|
|
|
1.69 |
|
Exercised during 2010 |
|
|
— |
|
|
|
— |
|
Vested during 2010 |
|
|
195,277 |
|
|
|
1.72 |
|
Forfeited during 2010 |
|
|
— |
|
|
|
— |
|
Outstanding, December 31, 2010 |
|
|
20,001 |
|
|
|
1.21 |
|
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, 2010, the following weighted average
assumptions were used in calculating fair value; expected life of 3 years; volatility of 117.82 and
risk-free interest rate of 1.64%. During the year ended December 31, 2010 and 2009 Milestone
recognized $86,231 and $92,235 of expense related to non-employee options that vested,
respectively. The total unrecognized compensation cost related to nonvested options was $24,316 and
$14,305 as of December 31, 2010 and 2009.
F-15
NOTE L — EMPLOYMENT CONTRACT AND DEFERRED COMPENSATION
Employment Contracts
In March 2009, the Chairman assumed the position of Milestone’s Acting Chief Executive Officer. In
September 2009 The Chairman stepped down as Chairman to fill the position of Chief Executive
Officer. The Chief Executive Officer entered into a new employment agreement with the Company
effective September 1, 2009. This new agreement suspends the previous agreement scheduled to
terminate on December 31, 2012. The new agreement is for five years ending on August 31, 2014. The
contract shall be extended for
successive one-year periods, unless prior to August 1 of any year, either party notifies the other
that he or it chooses not to extend the New Employment Term. As part of this agreement the Chairman
relinquished the title and position of Chairman. Under the new agreement, the Chief Executive
Officer will receive a base compensation of $300,000 per year payable. 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 achieving targets set for each year by the Compensation Committee of the
Board of Directors of the Company.
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.
In accordance with the employment contract, as of December 31, 2010 and December 31, 2009, 571,190
shares of common stock are to be paid out at the end of the contract in settlement of $758,333 as
December 31, 2010 and 676,675 shares of common stock are paid out at the end of the contract in
settlement of $925,000 at December 31, 2009 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 Chairman effective October 1, 2009. The term of the
contract is for a nine month period ending on June 30, 2010. Under this agreement the Chairman will
receive a base compensation of $190,000 per year, payable $5,000 per month in cash starting in
January 2010 and the remainder in stock issued at the closing price on September 1, 2010. 84,783
shares were issued in September 2009. This agreement was not renewed at June 30, 2010.
NOTE M — INCOME TAXES
The Company’s expected federal income tax benefit computed at the statutory rate (34%) on the
pre-tax loss amounted to $201,000 in 2010 and $520,000 in 2009. 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, 2010
and 2009.
Deferred tax attributes resulting from differences between financial accounting amounts and tax
bases of assets and liabilities at December 31, 2010 and 2009 are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
2010 |
|
|
2009 |
|
Current Assets |
|
|
|
|
|
|
|
|
Allowance for doubtful accounts-short term |
|
$ |
81,000 |
|
|
$ |
2,000 |
|
Inventory allowance |
|
|
79,000 |
|
|
|
79,000 |
|
Warranty reserve |
|
|
10,000 |
|
|
|
10,000 |
|
Deferred officers compensation |
|
|
333,000 |
|
|
|
77,000 |
|
|
|
|
|
|
|
|
Subtotal |
|
|
503,000 |
|
|
|
168,000 |
|
|
|
|
|
|
|
|
Valuation allowance |
|
|
(503,000 |
) |
|
|
(168,000 |
) |
|
|
|
|
|
|
|
Current deferred tax asset |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
|
|
Allowance for doubtful accounts-long term |
|
$ |
175,000 |
|
|
|
— |
|
Net operating loss carryforward |
|
$ |
16,100,000 |
|
|
$ |
16,500,000 |
|
|
|
|
|
|
|
|
Subtotal |
|
$ |
16,275,000 |
|
|
$ |
16,500,000 |
|
|
|
|
|
|
|
|
Valuation allowance |
|
$ |
(16,275,000 |
) |
|
$ |
(16,500,000 |
) |
|
|
|
|
|
|
|
Non-current deferred tax asset |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
The current deferred asset allowance increased by $335,000 for the year ended December 31, 2010 and
increased by $46,000 for the year ended December 31, 2009, respectively. The non current deferred
allowance decreased by $225,000 for the year ended December 31, 2010.
As of December 31, 2010 and 2009, Milestone has federal net operating loss carryforwards of
approximately $47,657,000 and $48,361,000, respectively that will be available to offset future
taxable income, if any, through December 2030. Milestone has state net operating losses of $631,000
and $1,500,000 in 2010 and 2009, respectively, expiring through
December 2015. 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.
F-16
A reconciliation of the statutory tax rates for the years ended December 31, is as follows:
| |
|
|
|
|
|
|
|
|
| |
|
2010 |
|
|
2009 |
|
Statutory rate |
|
|
(34 |
)% |
|
|
(34 |
)% |
State income tax — all states |
|
|
(6 |
)% |
|
|
(6 |
)% |
|
|
|
|
|
|
|
|
|
|
(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 2010 and 2009, Milestone received $183,673 and $777,673, 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 $631,000 and $1,500,000
for 2010 and 2009, respectively. Such amounts are included in other income as of December 31, 2010
and 2009, respectively.
Accounting for Uncertain Tax Positions:
The Company follows the Income Taxes Topic of the FASB Accounting Standards Codification, which
provides clarification on accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements. The guidance prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or expected to be taken
in a tax return, and also provides guidance on derecognition, classification, interest and
penalties, disclosure and transition. At December 31, 2010, no significant income tax
uncertainties have been included in the Company’s Balance Sheets. The Company’s policy is to
recognize interest and penalties on unrecognized tax benefits in income tax expense in the
Statements of Operations. No interest and penalties are present for periods open. Tax returns for
the 2007, 2008, and 2009 years are subject to audit by federal and state jurisdictions.
NOTE N — PRODUCT SALES AND SIGNIFICANT CUSTOMERS AND VENDORS
Milestone’s sales by product and by geographical region are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
Year End December 31, |
|
| |
|
2010 |
|
|
2009 |
|
Instruments |
|
$ |
3,690,456 |
|
|
$ |
3,176,752 |
|
Handpieces |
|
|
5,962,965 |
|
|
|
5,277,092 |
|
Other |
|
|
96,547 |
|
|
|
95,216 |
|
|
|
|
|
|
|
|
|
|
$ |
9,749,968 |
|
|
$ |
8,549,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
4,529,420 |
|
|
$ |
5,378,422 |
|
Canada |
|
|
601,034 |
|
|
|
630,108 |
|
Other foreign |
|
|
4,619,514 |
|
|
|
2,540,530 |
|
|
|
|
|
|
|
|
|
|
$ |
9,749,968 |
|
|
$ |
8,549,060 |
|
|
|
|
|
|
|
|
The Company has informal arrangements with the manufacturer of the STA, CompuDent and CompuMed
instruments, one of the principal manufacturers 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 $3,541,806 (60.8%) and $1,960,480
(55.8%) in 2010 and 2009, 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 $270,517 (4.6%) and $167,752 (4.8%) in 2010 and 2009, 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 $2,016,212 (34.6%) and $1,383,788 (39.4%) in 2010 and 2009, respectively. All other
purchases from other suppliers were not significant in either 2010 or 2009.
F-17
For the year ended December 31, 2010, Milestone had three customers (distributors) that aggregated
for approximately 60% of its net product sales. Accounts receivable, current and long term, for
these three customers amounted to approximately $1,346,966 or (73%) of gross accounts receivable.
For the year ended December 31, 2009, Milestone had four customers (distributors) that aggregated
approximately 73% of its net product sales. Accounts receivable from these four customers amounted
to approximately and $533,191, or (44%) of gross accounts receivable.
NOTE O — COMMITMENTS AND OTHER
(1) Lease Commitments
The headquarters for the Company is located at 220 South Orange Ave, Livingston, New Jersey.
The Company leases approximately 6,300 square feet of office space at 220 South Orange Avenue in
Livingston, New Jersey. The lease term expires June 30, 2014 at a monthly cost of $6,942 which
Milestone believes to be competitive. Additionally, Milestone leases a corporate apartment in
Maplewood, NJ. This lease expired in November 2010 at a monthly cost of $4,000. The company
continues to lease the corporate apartment on a month to month basis. The leased offices 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. Milestone also leases office and telecom equipment
under operating leases with payments ranging from $130-$522 per month.
Aggregate minimum rental commitments under noncancelable operating leases are as follows:
| |
|
|
|
|
| |
|
Year Ending December 31, |
|
| |
|
2010 |
|
2011 |
|
|
89,570 |
|
2012 |
|
|
83,828 |
|
2013 |
|
|
83,306 |
|
2014 |
|
|
41,653 |
|
2015 |
|
|
— |
|
|
|
|
|
|
|
$ |
298,355 |
|
|
|
|
|
For the years ended December 31, 2010 and 2009, respectively, rent expense amounted to
approximately $144,954 and $116,350 respectively.
(2) Contract Manufacturing Arrangement
Milestone has informal arrangements for the manufacture of its products. STA, single tooth
anesthesia, 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 STA and The Wand Handpiece
with Needle is supplied to Milestone by a contractor in the United States, which arranges for its
manufacturer in China. These contractors provide an informal long term financing basis for the
Company.
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.
(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 2010 and 2009 Milestone expensed the Director
royalty fees of $344,786 and $277,514 in 2010 and 2009, respectively. Additionally, Milestone expensed
consulting fees to the Director $156,000 and $154,000 and granted him 16,666 and 33,332 options,
in 2010 and 2009, respectively.
F-18
In January 2010, the Company issued a purchase order to Tricor Instruments for the purchase of
12,000 STA Instruments to be delivered over the next three years. The purchase order is for
$5,261,640. The Company will be required to make periodic payments over the next eighteen months to
purchase the parts necessary to complete this production. As of December 31, 2010, the Company’s
production and sales of instruments to this commitment has been delayed. Consequently, advances to
contractor and accounts payable has been classified as current and long term at December 31, 2010.
(4) Other Events
In December 2009, Milestone announced that it signed an Agreement of Intent with China National
Medicines Corporation, Ltd. and Yichang Humanwell Pharmaceutical Co. Ltd., both incorporated in the
People’s Republic of China (PRC), to develop intra-articular and epidural drug delivery instruments
utilizing Milestone’s patented CompuFlo technology. Milestone and its two PRC joint venture
partners will establish a new joint venture entity for this purpose in 2010. The required initial
funding for the new entity, estimated by the parties at $1.4 million, will be provided by the two
PRC companies, although Milestone will determine the proposed uses of their contribution. The
Company believes that this new joint venture represents a significant step forward in Milestone’s
efforts to have its innovative computer-controlled drug delivery technology adapted for medical
usage worldwide. The Joint Venture Agreement, as of December 31, 2010, has not been finalized.
NOTE P — 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