Milestone Scientific Inc (MLSS) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Milestone's December 2007 year-end conference call.

During today's presentation, all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (OPERATOR INSTRUCTIONS).

This conference is being recorded Tuesday, April 1st, 2008. I would now like to turn the conference over to Dodi Handy. Please go ahead.

Thank you, Eric, and good morning. It is my pleasure to welcome you to today's conference call. We are going to be discussing Milestone Scientific's financial and operational results for the fiscal year ended December 31st, 2007.

I am Dodi Handy, President and CEO of Elite Financial Communications Group. Elite has the privilege of managing Milestone's investor and media relations.

Following my reading of the Safe Harbor statement, Joe Martin, Milestone's Chief Executive Officer, and Joseph D'Agostino, the Company's new Chief Financial Officer, will be sharing their prepared comments with you. Immediately thereafter, we will open the floor and invite you all to ask management your questions.

Allow me to remind you that during this conference call we may make forward-looking statements regarding the timing and financial impact of Milestone's ability to implement its business plan; expected revenues; and future success. These statements involve a number of risks and uncertainties and are based on assumptions involving judgments with respect to future economic, competitive and market conditions, as well as future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond Milestone's control.

Some of the important factors that could cause actual results to differ materially from those indicated by the forward-looking statements are general economic conditions; failure to achieve expected revenue growth; changes in Milestone's operating expenses; adverse patent rulings; FDA or legal developments; competitive pressures; changes in customer and market requirements and standards; and the risk factors detailed from time to time in Milestone's periodic filings with the Securities and Exchange Commission including, without limitation, Milestone's annual report on Form 10-K [FD] for the year ended December 31st, 2007.

The forward-looking statements made during this call are based upon management reasonable belief as of today's date, April 1st, 2008. Milestone undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

With that, we will now begin the discussion of the results. So, ladies and gentlemen, it is now my pleasure to introduce Mr. Joe Martin, Chief Executive Officer of Milestone Scientific. Good morning, Joe.

Good morning, Dodi, and good morning to all of you who have joined our call today.

We will begin by first having Joseph D'Agostino, our acting Chief Financial Officer, summarize the financial results.

However, before I turn the floor over to him I want to say how pleased I am to have Joe on the Milestone leadership team. Joe has had a very positive impact on our operations in a very short period of time. He has been able to immediately take control of the year end audit process and the preparation and production of our annual report on 10-K, all of which he has handled skillfully.

So with that, thank you, Joe, and the floor is yours.

Thank you, Joe. I will start by confirming that we filed our Form 10-K SB for 2007 fiscal year with the SEC yesterday. Milestone's SEC filings, including the 10-Qs and the 10-Ks, include a detailed analysis of our financial condition and operations and, generally, our informative documents. So I encourage you to thoroughly review them.

As we reported in the press release yesterday, total revenues for 2007 increased approximately 9% to $6.39 million compared to $5.84 million in the prior fiscal year ended December 31, '06. Drilling into the revenue performance with greater detail, product sales grew $6.3 million which was up from $5.6 million in the prior year while royalty income relating to our consumer tooth-whitening business was down, declining 54% to approximately $128,000 from $278,000 reported in the prior year.

Now looking at our geographic breakdown of our 2007 revenue performance, on the domestic front, revenues climbed roughly 11% to $4.59 million compared to $4.15 million in the previous year. This increase can be attributable to the market introduction of our new STA system which began shipping in March of 2007 and resulted in sales of $1.15 million during the year.

The domestic revenue increase was negatively impacted by declining sales on our first generation CCLAD system, CompuDent, whereby we saw domestic sales of the unit fall from 969,000 in 2006 to approximately 440,000 in '07. Sales of our disposable hand pieces which are used by our dental customers in conjunction with both the CompuDent and the STA CCLAD systems stayed relatively flat at $2.97 million compared to $2.99 million in the prior year.

Now look at our international sales activity for 2007, overall revenues were up rising to $1.67 million from $1.42 million reported for 2006. New STA system sales to our international distributors totaled $165,000 in 2007 compared to 0 revenues in the previous year while CompuDent sales fell 44% to $278,000 from $493,000 respectively.

Total hand piece sales were up 47%, coming in at approximately $1.2 million which compared to $817,000 in the prior year. Domestic sales represented 73.4% of our total sales in 2007, which was slightly down from 74.5% in the prior year while international sales represented 26.6% of our total sales, which was slightly up from last year's 25.5%.

Moving down our income statement, selling, general and administrative expenses in 2007 totaled $6.34 million, a 19% increase over the 2006 SG&A expenses which totaled $5.33 million. Research and development expenses fell to $387,000 in 2007, down 60% from approximately $1 million in the prior year. This decrease was primarily due to the fact that, in 2006, Milestone was engaged in completing the development of the new STA system and continuing research and development on projects [dissociated] with our CompuFlo technology.

The loss from operations for the year ended December 31, 2007, totaled $3.24 million, representing an 8% decrease from the loss of operations of $3.52 million reported for the prior year.

After factoring interest income, interest expense and a loss on disposable assets relating to our [vacating] professional tooth whitening business and after giving consideration to other income, we realized from the sale of tax credits pursuant to the New Jersey Technology Business Tax Certificate Program Milestone's net loss for the year was $2.94 million or $0.24 loss per basic and diluted share compared to a net loss in the prior year of $3.15 million or $0.27 loss for basic and diluted share.

Now looking at our balance sheet, cash and cash equivalents as of December 31st, 2007 was $745,000; accounts receivable stood at $346,000; and working capital was approximately $2 million.

Now that completes my formal financial review of the results. However should anyone have any additional questions, I will be glad to field them during the Q&A session that will follow Joe Martin's comments.

With that, I'll hand things back to Joe Martin. Thank you.

Thank you, Joseph, and once again, thanks for the great effort you put into the Company since you have joined us.

Let me now take a few minutes and provide you with my summary of Milestone's operational performance in 2007. It is important to first recognize that Milestone had two mission-critical objectives last year. The first objective was to optimize our tactical approach to product sales and marketing in order to increase penetration of the dental and medical markets with our patented computer-controlled local anesthetic device solution which really centered on the market introduction of our new award-winning STA system.

Our second objective was to identify and pursue strategic collaborations with select health care companies to jointly develop new products utilizing our patented CompuFlo pressure-force technology for novel, new medical applications.

With these objectives in mind, let's look at what we accomplished. The launch and associated marketing efforts behind the STA system was an area of concentrated focus for our Company in 2007. As we believe and have long maintained, the STA system has the potential to become the new standard of care for dental injections. Remember, the prevailing technology that the STA system is largely competing with is that 150-year-old dental syringe.

When you consider that more than 200 million dental injections are administered in a given year in the U.S. alone, most of which involve the use of the traditional syringe, it you will understand and appreciate why we believe our patented STA system could prove to be a major contributor to growth for Milestone. But in order to optimize this potential we recognize that it is first essential that we succeed in reaching every practicing dentist and educate them on why the STA system can and should be their injection instrument of choice.

To support this assumption, I will refer to a story published in Contemporary Aesthetic and Restorative Practice magazine which reported that, and I quote, "comparative research has demonstrated that pain perception with the STA system is significantly lower than a traditional syringe. One study found that fear and anxiety levels associated with dental injections were dramatically reduced up to 88% just after one injection with the STA system."

The story goes on to discuss other similar studies and their findings, each supporting with statistical data why the STA system is indeed a superior technology to the traditional syringe. This is just one of dozens of articles published in the media over the past year that have positively reported on the STA system.

What's more, support and validation of the STA system has not been limited to press coverage. Through my travels during 2007, I was overwhelmed by the enthusiasm expressed for Milestone's STA system by dental school professors, academic advisers, and practicing dentists, particularly those at [endodotic] and pediatric dentistry.

What I failed to understand what the disconnect I saw between the fervent industry support for our products and our less than stellar sales performance. Clearly, we were missing something.

Led by Bob Presuetti, our Vice President of Sales and Marketing who joined the Company in September last year, Milestone went looking for an explanation initiating a comprehensive effort to evaluate our product positioning and messaging. With the aid of in-depth customers surveying and discussions with numerous customers and key opinion leaders within the dental industry, we gained some vital insight into the practical use and perceived value of our products.

When we first launched the product in early 2007, Milestone's original marketing strategy was to position the STA as an instrument uniquely capable of painlessly administering Single Tooth Anesthesia into the periodontal into ligamentary space or the PDL, as it's sometimes called -- something never before possible using conventional injection techniques.

What we learned from our market research is that we have not properly communicated to the dental community that the STA system can be used for all injections, not only the PDL injection. As a result, the instrument's value proposition has not been optimized up until now. Our research also confirmed that when giving injections to patients, many if not most dentists experienced a similar level of fear, stress, and discomfort as the patient undergoing the actual treatment.

So it was not surprising to hear Dr. Maury Jablow, a dentist in Woodbridge, New Jersey, say to me that the STA system allows him to begin every injection technique with significantly less stress for both him and his patient.

Armed with this insight gained from our market research, Milestone developed a new product messaging platform that was introduced shortly before the holidays. Further with the addition of the new Director of Marketing, Scott Mahnken, who joined Bob's sales and marketing team in February of this year, we have been implementing specific action plans to get our clarified messaging out to the market.

The management teams at Milestone and that of our distributor both recognize that we have not had the proper sales focus or the market attention necessary to drive a successful new product launch. Consequently, we are engaged in active discussions relating to alternative marketing and distribution strategies that will help us accelerate and drive STA sales momentum in 2008.

We have also recently made revisions to the pricing of the product. These revisions in pricing along with the improvements that we have implemented in our product messaging were the primary reasons that we experienced such a significant volume of traffic through our booth at the Chicago Midwinter Meeting held in late February. More importantly, 80 STA systems were sold during the three-day event, four times our original goal.

I will say that our clarified messaging and refined sales and marketing tactics are beginning to resonate with a much broader audience of dental professionals.

While we are not satisfied with our sales performance, the improvements in our distribution activities, the pricing changes and the implementation of our new product positioning and messages during the last several months certainly puts us on the right path to success.

Let me now speak a little bit about our second objective in 2007. The STA system is but one application of our patented CompuFlo technology. As we've discussed many times before there are a significant number of applications for the CompuFlo technology in the medical marketplace.

On the conference call we hosted following the end of 2007 third quarter, we announced that we had partnered with a global, diversified health care company to conduct a feasibility study, evaluating the potential application of our CompuFlo technology for injecting certain medicaments produced by this company. We have great hopes that we will automatically become an important strategic partner to this company.

I will also add that we are in active discussions with other major healthcare companies that we hope will ultimately evolve into meaningful new strategic collaborations in the coming years as well. As we continue in our efforts to identify CompuFlo-based product development projects with other medical, pharmaceutical, and healthcare companies, the opportunity to build and grow long-term shareholder value in Milestone rises exponentially.

Our key objectives for 2008 remain unchanged from the same two objectives we set out to accomplish last year -- drive aggressive sales of the STA and CompuDent systems in both the domestic and international markets and leverage CompuFlo to win collaborative product development partnerships with healthcare companies in the medical markets. As I noted earlier our management team is closely assessing our entire sales and marketing platform, with the sole objective of significantly strengthening each of our domestic and international distribution channels. This includes our marketing efforts with Henry Schein in the U.S. and Canada as well as with several key distributors in target global markets -- those currently being South Africa, Scandinavia, Germany and Japan.

Before I ask Dodi to open the floor for some questions, I would like to add that we are disappointed with our volatile stock performance over the past year and the current price of our common stock. We are fully aware that it is in this prevailing market environment Wall Street is reluctant to award anything but strong fundamental performance.

Please note that the new management team and now leading Milestone is committed to the success of our Company. We understand what performance measures must be achieved in the coming year if we are to win broad and enduring market support. We sincerely believe we are headed in the right direction and we are indeed making incremental progress every single day.

To those of you who have stood by us and to those who may be new to our story, I would like to personally thank you for your interest, your support and your encouragement. We value each of you as our partners and we will continue to work very hard to build a company that we can all be very proud of.

Now Dodi, is it possible that we can take some questions?

Eric, would you kindly provide instructions to our call participants on how they may direct a question to either Joe Martin or Joseph D'Agostino?

(OPERATOR INSTRUCTIONS). Roger Bensen with Number One Corporation.

Before we get to my questions I must say this is an absolute atrocious time to have a conference call right at the opening of the market. I meant you have these numbers out for a day already, we could have done it after the close yesterday or some other time, but to have a conference call at 9:30 AM, I'm sure everyone else on the call has got trades to make and yet we want to hear what you have to say. This is just a terrible time to put on this call.

I'm sorry about that but due to a lot of different circumstances this is the only time we have, Roger. We will try not to let it happen again. I promise.

Okay now let's go into Henry Schein here. Now, these guys are supposed to be the biggest and the best at distributing dental products. They have got 100 salespeople. I mean if one out of every five of their salespeople sold one of our unit a month we would be cash flow positive and they're doing nothing. What is their problem?

I wish I could tell you what the problem is, Roger. They just have not been able to find the momentum in the product. They have seen the same data you have seen that shows the product is working extremely well. Customers like Dr. Jablow are extremely satisfied with the product. They just cannot seem to find the right tools to get their organization motivated.

And it is for those reasons that we are currently discussing with them what our alternatives are to add salespeople to the mix that will go out there and get the job done and sell this product that seems to be doing so well in the hands of all users.

Well, clearly you have got to go to somebody else. I mean they've had plenty of time and they've got all these bodies out there ostensibly working. The price that the product sells has got to be one of their higher profit margin items and the dentists love it. So I mean it's impossible to believe that they can't do better.

It is difficult to believe and you are absolutely right. We are evaluating opportunities right now to see what we can do to expand that distribution.

Good because I mean you can't keep going with what you have been doing with those clowns. That's for sure.

On the medical side of the thing, I mean we did have this trial back in December as I recall. And everything went really well, the feasibility study and so on. And now it's we are starting almost four months, since then, where are they?

It is a little slow. I can tell you that I have -- the study was conducted in December. I've seen the preliminary results of the study, all of which are very encouraging. But at this point in time it really is the ball is in their court.

They are a global, diversified big organization and I can attest for my 25 years in big companies that they sometimes are very, very slow to make decisions. And unfortunately they are acting that out.

But I can assure you we are not waiting on them. We are in discussions actively pursuing with other potential partners. We hope that we will have some good news in a short period of time and find some people who will partner up with us.

Good for you. Let's get it done. I mean the medical area is bigger than the dental area. The dentists seem to be slow to lay out cash for even something that's very beneficial to their practice. So let's get on with the medical people. That's all I have to say.

Thank you, Roger.

Thank you, Roger.

Sam Rebotsky with SER Asset Management.

Good morning, gentlemen. Based on your loss for the year and your cash, what is your need for cash flow going forward and --?

We are looking very closely at our financial condition and we looked at it from three key factors. First we have very strict expense discipline and control we have in place here at the Company. We are assessing all of our available financing alternatives and our options, which include raising capital.

However, we are looking at that very closely to make sure that it's at the lowest possible cost and the best terms to protect the Company as well as the shareholders.

Finally, we are focusing all of our attention in driving the sales products which would generate additional cash flows for us. Just by selling those instruments and promoting stronger recurring revenues, our cash flow becomes very much stronger. And if you look at an example that we were looking at internally, over 200,000 dental injections are administered every year in the U.S. alone and if we look at that --.

I think that was 200 million.

Excuse me. 200 million. I'm sorry. 200 million and if we look at that at dollars of cost that's $400 million in revenues which is substantial for us.

But as far as -- I guess you have these warrants. I don't know what is the date of expiration I guess, they're totally, I guess above the market price. Is there any expectation of extending that? And how soon do you have to raise funds? What are your thoughts there?

Let me just say we have not made any decisions yet on the warrants. The operative question becomes not when do necessarily do we need the money, but making the best deal and we are still evaluating what those options are and have not yet made a decision on when and how much money we will need to raise.

Good luck.

Thank you.

Thank you very much.

Next question please.

(OPERATOR INSTRUCTIONS). At this time I am showing no additional questions in the queue.

Wow. That's unusual, but okay. I guess everyone wants to get to the market and start trading. So with that I will ask for some closing comments from management. We will start with you, Joseph.

First of all I would like to thank everyone for listening in on the call and participating with your questions. We look forward to -- myself and the management team looking forward to a focused 2008. Thank you very much.

Thank you and how about you, Joe?

Yes, thank you, Dodi. I just want to summarize by saying that we made a lot of improvements in our business in 2007. We are not anywhere close to being satisfied with our financial performance and we have a lot of work to do. But I'm very happy with the management team that we been able to put together here with Joe D'Agostino and Bob Presuetti and Scott Mahnken.

We are focused. It is a group of people who are committed to success. I have high expectations for each of them. I hold them accountable to achieve their objectives, and we think with the changes we have made in our messaging, with the adjustments we have made in the pricing of the product, the success we have had with our customers to date and the changes that are imminent that we are going to make with our distribution, expanding our distribution opportunities that our sales momentum will continue to grow in 2008.

I'm thankful for those who have been patient with us and I'm encouraged by the comments that I've received telling us that it looks like we are headed in the right direction.

Thank you very much and before we officially close, I'd like to remind everyone if you would like to receive ongoing information about milestone and you are not already on one of the Company's databases, feel free to call the offices of Elite Financial Communications Group. Our phone number is area code 407-585-1080 or you can reach us via e-mail at MLSS@EFCG.net.

And with that, I would like to wish everyone a great day. Thank you, Joe. Thank you, Joseph. Thank you, Eric.

Thank you, ladies and gentlemen. This does conclude Milestone's December 2007 year end conference call. You may now disconnect and ACT would like to thank you for your participation. Have a pleasant day.