Milestone Scientific Inc (MLSS) 2008 Q3 法說會逐字稿

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Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Milestone third-quarter 2008 results 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). As a reminder, this conference is being recorded today, Monday, November 17, 2008.

I would now like to turn the conference over to Dodi Handy. Please go ahead, ma'am.

Thank you, [Lou Ray], and good afternoon, everyone. I too would like to welcome you to today's conference call where we're going to be discussing Milestone's financial and operational results for the three and nine months ended September 30, 2008. As our operator mentioned, my name is Dodi Handy. I am President and CEO of Elite Financial Communications Group. For the past two years, Elite has had the privilege of serving as investor and public relations counsel to Milestone Scientific.

Please note that a replay of today's call will be available for 90 days. Shortly after the conclusion of today's call, you will be able to access the replay by dialing 1-800-405-2236 and entering the pass code 11122141#.

Following my reading of the Safe Harbor statement, I'm going to be joined by Joe Martin, the Chief Executive Officer of Milestone, and Joseph D'Agostino, the Company's Chief Financial Officer, who's going to be sharing their prepared comments with you. Immediately thereafter, we will be opening the floor for some 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, its 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 and 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 the Company'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 SEC, including without limitation Milestone's annual report on Form 10-K for the year ended December 31, 2007.

The forward-looking statements made during this call are based upon management's reasonable belief as of today's date, November 17, 2008. Milestone undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

So with that, we will begin the discussion of the results. Ladies and gentlemen, it is now my pleasure to first introduce Mr. Joe Martin, Chief Executive Officer of Milestone. Welcome, Joe, and allow me to be the first to congratulate you on a very, very strong quarter.

Thank you, Dodi. Good afternoon to all of you who have joined us today.

Similar to the format we've used in the past, Joe D'Agostino will begin with the summary of the comparative financial results. When Joseph concludes his remarks, I will then resume the floor and share some added perspective on certain operational initiatives that we are starting to drive notable sales growth and milestones. After that, we will take some questions.

So let's get started. Joseph, I will turn the floor over to you.

Thank you, Joe. I'd like to start by confirming that we filed our 10-Q for the third quarter and year-to-date results this past Friday, November 14. Milestone's SEC filings, including the 10-Qs and 10-Ks, include a detailed analysis of our financial condition and operations and generally are informative documents, so we encourage you to thoroughly review them.

I am pleased to confirm that, for the three months ended September 30, 2008, total revenues rose 57% to $1.82 million, up from $1.16 million in the prior year's third-quarter period. When comparing our sequential quarter-over-quarter results, third-quarter revenues of $1.82 million also climbed, rising 18% over the $1.54 million posted for the second quarter of this year. In both cases, the increase in total revenues is attributable to the increase in the number of independent distributors that we are now actively marketing the STA to the dental industry.

Coupled with the STA's new messaging platform we launched earlier this year, our decision to forego aligning Milestone with only one distributor under an exclusive arrangement in favor of granting nonexclusive marketing and distribution rights to many of the industry's leading distributors, particularly in our domestic channel, is proving to be very effective.

More specifically, for the three months ended September 30, 2008, we saw domestic sales nearly double, rising 94% to $1.3 million from $670,000 reported for the same three months in 2007. We also saw international sales improvement.

Moving down the income statement, Milestone's gross profit margins improved, increasing to 59% for the current three-month period compared to 46% in the third quarter of the prior year. This yielded a marked improvement in gross profits, which rose to $1.08 million from $534,000.

I'm also pleased to report that we have continued to see total operating expenses decline, due largely to our ongoing adherence to strict expense discipline across all key areas of our operation. Milestone's total operating expenses, on a comparable quarter-over-quarter basis, dropped another 18% to approximately $1.24 million from $1.51 million.

It is important to note that a $257,000 decrease in general expenses was mainly due to the 2007 one-time write-off of $233,000 relating to [molds] and tooling that did not recur in 2008. R&D

expenses decreased 23% to $35,000 from $46,000. Consequently, when comparing the three months ended September of this year with the same three months in the previous year, Milestone experienced a sharp improvement in its loss from operations to $157,000 from $978,000. Moreover, our 2008 third-quarter net losses, after factoring interest expense and income, totaled $187,000 or $0.02 loss per basic and diluted share, reflecting an 81% improvement in losses of $982,000 or $0.08 loss per basic and diluted shares in 2007.

Now, turning to the year-to-date results, for the nine months ended September 30, 2008 -- in brief, total revenues were $4.77 million, a 9.6% decrease from $5.28 million reported for the first nine months in 2007. Gross profits rose to 62% from 54%. It increased to $2.97 million in the year-to-date 2000 a period, compared to $2.86 million in the 2007 nine-month period. Total operating expenses this year through September 30 equaled $4.6 million, a 24% decrease from the total operating expenses of $5.46 million posted for the first nine months of 2007.

More specifically, selling, general and administrative expenses for the nine months ended September 30 dropped 21% to $4.04 million from $5.11 million in the prior year. Overall, general expenses decreased $920,000. These cost improvements were offset by a $54,000 increase in sales expense and $134,000 increase in salaries due to addition of new staff positions that did not exist last year.

Research and development expenses also saw a marked decline, falling to $120,000 from $346,000 on a comparable year-over-year basis. As a result, our loss from operations improved 54% to $1.19 million from $2.59 million. After factoring in interest income and expenses, our net loss improved 51% to $1.28 million or $0.10 loss per basic and diluted share, compared to $2.59 million or $0.21 loss per basic and diluted share.

Now, moving to our balance sheet, as of September 30, 2008, Milestone had approximately $1.03 million in cash and receivables, $1.34 million in working capital, and $1.14 million in total stockholders equity.

It is noteworthy to mention that the first nine months of the year we had succeeded at reducing our product inventories 50% from $1.64 million as of December 31, 2007 to $845,000 as of the end of September. During the same period, we also decreased our accounts payable, which dropped 55% to $828,000 from $1.86 million.

However, we have also increased our debt. Milestone amended borrowings under our original $1 million line of credit available to us by a long-standing shareholder of the Company increased to $1.3 million. Pursuant to a separate note in July of this year, we borrowed an additional $200,000 from the same stockholder. We paid a 1% fee on the date of the loan closing. The loan paid 6% interest per annum. This note is due in January 2009 and is reflected as a current liability in our third-quarter financial statements.

Last month, we borrowed an additional $250,000 from this shareholder. This note is subject to the same terms and conditions as the July transaction and will be reflected as a current liability in our fourth-quarter financial statements, which are not scheduled for filing until the end of March 2009.

In review of our cash flow analysis, we have seen that net cash used in our operating activities was down 51%, decreasing to $693,000 for the first nine months of this year, which compared to $1.4 million net cash used in our operating activities last year.

Now, that completes my review of the results. Should anyone have any questions related to financial or accounting matters, I would be pleased to attempt to address them during the question-and-answer period later on this call.

So with that, I would like to return the call back to Joe Martin. Joe?

Thank you, Joseph.

Let me begin my comments by saying that Joe D'Agostino and Bob Presuetti, the Vice President of Sales and Marketing, have been great additions to the Milestone senior leadership team. I am very proud of the energy and focus that the leadership team has devoted to improving the efficiency of our operations. We have reduced operating expenses by 24% so far this year, which has contributed to our significant reduction in operating losses year-over-year. Additionally, we have reduced product inventory by 50% and accounts payable by 55%, as Joe noted. These operational improvements have allowed us the freedom to focus on growing our business.

As reflected by our results, sales of our STA system and related disposable handpieces continue to increase at an accelerating growth rate. Frankly, this is what we expected from the significant efforts that we put into the promotional and marketing programs for the last nine months. The sales growth is also a function of the recent expansion in our domestic and international distribution network.

As I mentioned on our last call, shortly after the beginning of the third quarter, Milestone further strengthened our domestic distribution network, which is anchored by industry giants Patterson Dental and Henry Schein, with the addition of three of the country's most respected independent dental supply companies -- Benco Dental, one of the nation's fastest-growing dental distributors, Burkhart Dental, a 120-year-old supplier serving the western region of the United States, and Goetze Dental, a supplier serving the US Midwest that has been owned and operated by the Goetze family for over five generations. In August, we welcomed Atlanta Dental Supply, a 140-year-old employee-owned dental supply and services company serving dental professionals in the US Southeast.

To date, Milestone and our sales training partners at Core Strength, have completed STA training programs with approximately 50% of the Patterson team, or roughly 700 sales reps, and the majority of the sales forces at Benco Dental, Burkhart Dental and Goetze. We've only recently initiated training programs at Atlanta Dental Supply, but I expect that they will begin to contribute to our sales growth later on this quarter.

With the addition of Atlanta Dental's 100 sales professionals, our domestic distribution network now exceeds 2400 reps, which are out there on the street every single day actively selling the robust functionality and unique capabilities of our award-winning STA system to dental practitioners in every state in the Union and across Canada.

The dental community is responding. Our growing customer base has proven to be very generous with their praise for the STA system and have been freely sharing with us and their peers their thoughts on the impact of our technology and what it's having on their respective dental practices.

Dr. Jeff Smith, a dental practitioner in Melrose, Florida, wrote to us saying, and I quote "The STA system has permitted me to deliver anesthesia to a lower tooth and begin working immediately. This time-saving method has all but eliminated the nonproductive 10 to 15 minutes per patient delay I previously experienced awaiting profound anesthesia from the mandibular block."

Then there is Dr. [Robert Wade], a dentist specializing in treating children in Clive, Iowa. He said, "Most of my patients and their parents trust me to provide the best care available, and when I use the STA system, they definitely appreciate it. It even helps the diminished fear of return operative visits."

One of my favorite testimonials comes from Dr. [Steven Negelo], a cosmetic dentist in Atlanta, Georgia who admitted, "I have no idea where my old dental syringe is, and I don't care."

As these leading dental professionals can attest, Milestone's refined messaging platform is working. With the expansion of our distribution network, we are reaching a much broader audience of prospective customers who, once they become aware of the STA and spend a few moments to understand how to use and benefit from the technology, quickly become committed believers in this unique injection solution.

In September, Unident AB, our distributors serving the Scandinavian countries of Denmark, Sweden, Norway and Iceland, formally launched sales of the STA in that region at the FDI Annual World Dental Congress held in Sweden. The annual FDI congress is an internationally recognized event that attracts thousands of dental professionals from around the world to discuss the latest scientific topics affecting the practice of dentistry and provides a forum for showcasing the latest technological advancements in the oral health industry. I attended this Congress, and it was indeed a very impressive event.

According to all the people from Unident, the STA launch was a huge success, achieving a very favorable response from show attendees. Consequently, we expect Unident to play an important role in helping us to achieve meaningful market penetration in northern Europe as we move forward.

Similar to Unident, Instrodent, our South African distributor, continues to be an important member of our international sales and marketing team. In the third quarter alone, Instrodent was responsible for generating sales of $335,000 or 18% of our total revenues for the three-month period.

For the balance of this year, we will persist in our effort to expand Milestone's worldwide sales and marketing resources to accelerate our revenue growth. Particular emphasis will be placed on strengthening our distribution channels in Canada, South America and Germany. Of course, we will continue to reinforce and support the existing network of independent sales representatives through comprehensive training initiatives, Milestone-sponsored advertising and marketing campaigns, global trade show participation, and creative sales incentive programs.

Now, before we invite all questions, I'd also like to comment briefly on Milestone's effort to identify and pursue the formation of strategic collaborations to exploit our CompuFlo technology, the same technology that powers our STA system in new medical applications. As many of you are aware, a year ago, Milestone entered into a collaborative agreement with an unnamed, globally diversified healthcare company to conduct a feasibility study related to the use of our CompuFlo technology for injecting certain [medicments] produced by that company. Unfortunately, we are still in a relative holding pattern with that company. We have successfully completed the study and hope to leverage its positive findings to progress the strategic partnering and product development opportunities with them.

Nonetheless, I assure you that we are currently engaged in active dialogue with other potential development partners in the areas of self-administered drug delivery, arthritic joint pain management, and the administration of epidurals.

Let me also add that we are very encouraged by the talks we are having. Everyone acknowledges that the potential commercial opportunities for CompuFlo technology are significant and obvious. We will continue to pursue these and other opportunities for developing partnerships to deliver new medical applications.

In conclusion, I would like to acknowledge the hard work and dedication of the entire Milestone team. It is primarily through their enthusiasm, continued sacrifices and commitment to success that our company will achieve our ambitious growth objectives.

So with that said, Dodi, those are my comments. Perhaps now we should take some questions.

Okay, Joe. Lou Ray, at this time, would you please provide our listeners with instructions on how they may ask Joe or Joseph some questions?

Thank you, ma'am. Ladies and gentlemen, we will now begin to question-and-answer session. (Operator Instructions). Roger Bensen, Number One Corporation.

I'm pleased to see the progress on the sales improvement and the expense control, the balance sheet and certainly we are very happy to have this friend of the company who is making money available at a time when money is difficult to come by and I hope he stays with us. January is not very far away and you should be encouraged by the progress you are making and stay with us.

How are things going in the fourth quarter? We are halfway through it already.

Thank you for your comments, and we are doing quite well. We continue to be on target in November. We are having another good month with just a few days left in the month. So we are on target, I think, for November and December to make our numbers and have it started into the new year on track with our budget.

Well, of course we don't know what that budget is. You do and we don't know. You're getting closer to breakeven. Is it possible to get there this quarter?

No, I don't think so. We really plan to expand and grow our business significantly in 2009. Our target right now is to be at a breakeven profitability by midyear.

Midyear?

By midyear, yes sir.

We lost less than $200,000 last quarter. The sales are growing, and you've got recurring income from hand pieces.

Yes, and as our business grows, what we're trying to do -- we've said all along we are trying to grow the business, invest in the right things, and spend our money efficiently. We will continue to do that in 2009. We need to accelerate some of our promotional activities and some of our things to grow this business. It's the right thing to do, Roger, and by midyear, we should be at a nice positive area for you.

You've got 2400 salespeople here, plus the overseas people who are already contributing on short notice. I mean, what if one out of ten sells one unit a month, we are profitable.

I wish every sales rep would sell one unit per month, that would be great.

Only one out of ten! Not every one, everyone sells a one month, we would need to set up a new bank to put the money in.

I appreciate that, Roger. I can assure you that we are doing everything that we can to drive this business, to grow this business. We are trying to spend it -- trying to grow the business and spend just the money that we need to grow the business. I know you're happy with where we've got to so far and I think you will be happy with where we get to.

Well, you know, there's some money and it's of the essence here (inaudible). Do we have any more shows or conferences to do in this quarter, or do they wait until after the beginning of the first of the year?

Sure, we have the Greater New York at the end of November, and then we will have in the end of February we will have the greater Chicago big show.

Okay. Well, obviously the medical thing would be the big answer here. I know you are pushing as hard as you can to get there.

We certainly are. That is the one that's the next area for us. That's a super home run. As I said to you, we get very, very positive feedback from the people that we're talking to about the technology and its opportunity. We still have some work to do to validate and verify those partnerships, and I'm doing everything I can, Roger.

Are they asking for more data? I thought the study was done and it was a great success.

Well, with that current -- with the one diversified company that we worked with last year, that study is done. Everybody has different opportunities, different applications. We are still looking in the area of other companies for epidurals and self administration, and there's a lot to talk about. There's financial models to work through. As you can imagine, everybody is a little nervous right now about the economy and spending their money. So, we have to continue to work with them and show them how these technologies will benefit them.

Right. One last thing -- some of us were able to get a hold of the 10-Q that was filed last Friday; we get that electronically, but not everybody can do that. Normally, companies send out an e-mail with a release about their quarterly numbers, and that apparently did not happen here.

No, this is Joe D'Agostino speaking. We provided it obviously through the SEC and through EDGAR, and we did not provide a release. We can consider doing that.

Yes, Roger, for the last three quarters, they have elected not to put out a press release.

Well, okay. Most companies do it. Thank you for your time.

(Operator Instructions). [Kevin Shbar], [Shbar] Financial Services.

Good afternoon, gentlemen. My question is, with I guess the economic downturn that we are experiencing, what type of concern do you have about exposure to the credit of any of your distributors? I'm not necessarily talking about Patterson or Schein, but maybe some of the smaller ones.

Let me just -- Kevin, good afternoon. It's Joe Martin here. Let me just say that -- and you guys probably know more about this than I do, but typically the economic downturns don't have significant impacts on a lot of the medical industry. People still get sick; they still go see their doctor. Similarly, in the dental business, it's our belief that people are still going to go to the dentist. The only thing they are going to give up is some of their elective cosmetic businesses or business to the dentist which don't impact us very much.

So we don't think that it will impact our business dramatically. Certainly, Schein and Patterson have talked about their sales continue to increase and are doing quite well, and in fact in our business where our instrument only sells for a list price, a retail price, of $2000, most of our sales organizations out there right now are saying to dentists, "Well, we know you're not going to spend $75,000 for an x-ray machine, but you know it's only $2000 to get a new injection system, so why don't you postpone that x-ray machine but get your dental systems now?"

So we see this downturn actually as probably something that will be a positive for us, in terms that we are probably going to get some of the money that would have gone to some of the big instruments as well. So we are feeling pretty good about the fact that this will not have an impact on us.

Can I expand on that? This is Joseph D'Agostino. We have not seen -- and we measure pretty closely our outstanding receivables and payment performance. So far to date, there has not been any slowdown. Terms are relatively tight, and our people in the field, our actual sales people, keep on top of that, too, to make sure that, if they see any indication of a slowdown, that they will get back to us. But so far, we haven't seen it. Second of all, I don't foresee that we're going to see that. We've got quality distributors. They could have problems, but I don't think so.

Okay, all right. And it's interesting you believe this could actually be countercyclical in that people are going to cut back on big-ticket items. I certainly can tell you that, from anecdotal evidence, that there's been a slowdown in terms of the cosmetic procedures that are being done, but perhaps that's not having any effect on a product that has the price points of yours.

That certainly is our impression, and it certainly is one of the first indicators that we've gotten back. You're right. The cosmetic industry will suffer a little bit, but people who need to get their teeth cleaned and who have cavities and those types of things, that work is going to continue on, and that's the bulk of our business.

You didn't have I guess all of the salespeople on for the entire quarter, is that correct?

That's correct. We are still slow -- adding people on month by month.

Currently, you said you have how many salespeople?

Well, the total number would be 2400 when we get to the end. We have about half of the Patterson sales organization, which is about 1000. We have about half of those guys trained.

Okay, so you currently, of the would you say 2400 -- is that Patterson or all of the salespeople?

Tied together.

So you have about half of those?

Yes.

Half of the Patterson. You said most of the new, smaller independents are all trained, correct, Joe?

That's correct.

So I guess I'm trying to get an idea of what kind of revenue I guess on average are you generating per salesperson who is actually trained and out there selling your product?

Well, I mean, it's relatively simple math. We don't really track it by sales rep, on average sales rep. We track it by territory.

Well, let me just rephrase the question then. Based on the number of salespeople that you will have once they are all trained, what would you extrapolate the sales would be?

We don't give projections on future sales.

I'm not asking you to do that, that's why I asked you what the average person who is trained and selling is currently selling.

But if I give you that, you get the same number, Kevin. Unfortunately, we are just not in a position to (technical difficulty).

Can you just give us what percent of -- I'm just trying to be able to create a model (multiple speakers) once the people that are potentially out there sell a product are out there, what you should be doing. I'm not asking for any guidance. I guess I can ask the same question half a dozen different ways, but that's why I ask you, as far as per trained salesperson, what do you think you're seeing?

Yes, and we don't give that kind of information out, Kevin. Sorry.

Joe, why don't you talk about the -- I think it will provide some additional clarity for Kevin -- why don't you talk about kind of like the potential just for the STA as it relates to market penetration?

Well, if we look at the total marketplace -- and that's a very different question and it's probably a good response -- with 130,000 dentists in the marketplace, it's pretty easy to build some models in terms of what the business will look like.

We look at market penetration, and in market penetration of around 10%, we have roughly 13,000 instruments out there, it's probably a $12 million marketplace for us if you do a conservative number of tests per dentist. You can do that model up pretty quickly. At about 20% penetration and 20% of the dentists are buying an instrument and are doing a 720 injections a year, a relatively small number, only about a third of their overall projections, (inaudible) it's a $25 million business.

If you ever get to 20% market share -- penetration I should say, 20% penetration, you then have the money and the wherewithal and the momentum to do a direct advertising book, and they'll probably get somewhere in the 40% or 50% market penetration, which now makes the sales look a little more like somewhere between $50 million and $70 million. So, it's a relatively quick way to look at the business in terms of penetration of a number of dentists that you had out there.

Well, it certainly gives you an idea of what the potential opportunity is once you guys penetrate it. I was trying to figure out some kind of matrix as to, based on the progression that you're making, what it would look like I guess in the nearer term. It's hard to say how quickly you're going to gain market penetration.

Yes, but certainly we would hope to. With our current sales right now, we are probably running at about 3% penetration. I certainly think we ought to be able to hopefully double that within the next couple years and approach 9% or 10% in a relatively reasonable period of time.

[John Corub], Private Investor.

My question is for Joe Martin. A couple of questions -- first of all, do you see any need for and have any plans for follow-up training for any of these reps?

Certainly, there is the need for, and we certainly have a plan for it, John. The training program for these people is very intensive over a short period of time, but yet, through our Core Strength sales organizations and our internal sales organizations, we field travel with the salespeople, we attend their district and regional and national sales meetings, we provide them with training via online variety of tools online. Constant tests and skills and training we to provide them.

It probably takes anywhere from 6 to 12 months for a sales rep over an extended period of time to really become proficient. They do that by getting ongoing training in a variety of different modes. We all know that the secret to learning is repetition, and we provide them that repetition in a variety of different models and venues over an extended period of time.

Okay, well that would certainly explain why there's a more protracted time element here than just give it to them. They are out on the street and it's like instant sales. It takes some time to develop this, evidently.

Yes sir, it does. These sales reps are also selling other products as well. (multiple speakers) takes a little time.

Along the lines of trying to gain market penetration, could you comment on the CCLAD summit you hosted in New Orleans last February? Is that the first of an annual event? How many people were actually there, and what was the purpose of this? Was this to get your product into dental schools? That would be a great way to get it out on the street. Is this product in any dental schools or being considered for use in dental schools?

Okay, a lot of good questions in there, John. Let me start with the CCLAD. It was the first annual international symposium led by Dr. Stanley Melamed, who is the author of the anesthesiology guidelines for all dentists in the United States.

There were several purposes of that symposium. The first one was to gather the key minds and the key clinical and educational people around the anesthesiology and have them share their learnings and thoughts on the [plot], the CCLAD and its opportunity for use in the routine, day-to-day practice of dentistry. Additionally, it was to identify areas where we could grow the business in terms of meeting clinical and professional data. It will be held every year. There were about 20 people there last year. The next one is scheduled in May, and there will be about 50 people there, and we expect it will continue to grow every year.

The system is currently used in a number of dental schools -- Ohio State University, New York University. Off the top of my head, I can't think but there's probably a dozen university dental schools that currently use the technology in their training. We're working diligently to add more.

It seems to me that would be the key. I mean do you feel the same way, or I mean dentists can be very reluctant to change the way they've always done things. If you get this into the idea of new dentists, that's something like the Internet for kids. That's all they ever knew, and this is the way they do things. Do you have any active programs to expand the use in other dental schools? Are these reps calling on dental schools?

Absolutely they are -- very primary targets for all of our sales organizations to try to expand our business into these dental schools. You're absolutely right, John, and your thinking is exactly the same as ours.

Okay. So we are in the right direction on the sales growth at an accelerating rate; it's just going to be a longer timeframe than the antsy shareholder might like. Is that -- (LAUGHTER)?

It certainly is not growing as fast as any of us want it to grow, that's for sure.

Okay. The other last question I have is I am a little bit -- I guess I'm sure you are too -- disappointed by the lack of progress in other uses. I mean, I got really excited when that study was done about the 700 possible uses, and the main focus seems to be dentistry. I mean, if there's 700 uses, and it's being accepted and gaining accolades in the dental industry, I would think there would have been some progress by now for other uses. Instead, it's this one company that seems to be putting it on a shelf. Could you comment on that? I mean, are you vastly excited about the other uses, or not so much, or how does that stand?

I am extremely excited about the opportunities for the technology. As I said in my prepared comments, John, everyone that I talk to -- these companies that I'm talking to -- also share my enthusiasm for this technology and for its potential. They all, however, are slow to analyze; they are slow to look at it. It's a significant investment on their part.

This one particular company that we made progress, a lot of progress in a short period of time, I can't speak to why -- I don't know what's all going on inside the company, but they are very slow in their deliberations, slow in their consideration, much slower than I had ever anticipated. But the answer to your question is there is significant opportunity in not only these three but other areas, and we just have to find a partner who is willing to move quickly.

My impression is that the leap from the dental to the medical is the hardest leap. Once we leap into the medical and have our first medical relationship, the relationship (inaudible) will come much more quickly because someone will have stepped up and made the commitment, and the other medical companies will follow behind quickly.

Okay, so it's getting that springboard launched, and then it makes it a little easier after the first one, I see.

Yes, sir.

Okay, well, thank you for your answers and I appreciate your efforts.

Kevin Shbar, Shbar Financial Services.

Yes, as I recall, you had a convertible preferred or a preferred that has a convertible feature, or debt that has a convertible future, and you either have the right to repay that debt or at your discretion you could convert it into stock. What was the price? Is it a 20% discount to the current market, or is there a flow in that?

No, this is Joe D'Agostino. It's a 20% discount on the current market price as determined in the last 20 days of the month of December 2008 of this year.

So how much of that debt is outstanding?

$1.3 million.

So $1.3 million potentially at $0.20, that would be 6 million, 7 million shares assuming the stock was where it is right now. Is that correct?

Correct.

I obviously don't know who owns that debt and I don't know who the individual who has been putting in money and if they are the same individual and if they're not the same individual. Obviously that must be a decent concern at this point in time. Have you lined up any financing to pay off this debt holder?

At this point, we have not aligned ourselves with any investment or debt instrument to fund this transaction.

So basically, it's a 20% discount to the average for the 20 days prior to the end of the year. With the stock near its low, you can get tax loss selling and knock it down to who knows what.

That could happen as part of the arrangement, yes.

So it would seem to me that it would be a very important priority to make sure that doesn't happen.

Yes, but we are looking at other options, including other vehicles, to generate cash flow to be able to handle that. Unfortunately, at this time, in the economic conditions that exist, it becomes very difficult.

Right. So you basically have until the end of December?

At the end of December, that's when the price gets fixed, and then there's a time frame on which those conversions can take place and/or the pay-down can take place.

So -- and it's a 20% discount to whatever that average price is?

That's correct.

So the payoff has to be by when?

I believe the paydown has to be by the year 2010. We mark the price as of the last 20 days of December of 2008, and then the actual payment or conversion occurs between 2008 and 2010.

So, just to clarify again, up until what date do you have to find the $1.-whatever million so that the financing doesn't occur at a 20% discount? Is it the last trading day of December?

Before June 30, 2010.

Okay. Again, I thought it was December 2008. It's not?

That's the pricing on it, Kevin.

December 2008 sets the -- the 20 days prior to December 31, 2008 determines the pricing.

Okay. Then you still, up until 2010, could come up with the money and pay them back without having another 6 million shares come out. Is that what you're saying?

I'm saying that, after December 31, 2008 and before June 30, 2010, the lender may convert all or part of the outstanding balance and the interest into shares of common stock at $4 per share.

Okay, so the way the note reads is that between December 31 and the -- so what you're telling me then is that you have up until 2010 to raise the $1.-something million without having a whole bunch of stock come out at $0.20 or whatever the price would be?

What I will do, Kevin, is I can get back to you and I'll give you the details. It's in the 10-K.

I'm sure it is somewhere. I was just concerned that you were having an event right now that would increase your float dramatically, and I was trying to clarify how much time you had to take care of that.

Okay. I will get back to you and give you the details.

Okay, you have my number. Thank you.

(Operator Instructions). [Joe Zurrie], Wachovia Securities.

Just one question -- on the pricing of the STA system, when was the last time you made a change in that price? I kind of recall that, from my recollection, I thought it was closer to $3,000 some months back. Now you're saying it's about just under $2,000. Can you just expand upon the pricing and changes and the affect of the pricing changes that you've seen?

Sure. Right after the first -- at the midwinter Chicago meeting at the end of February, we put in a special price and took down the $3000 to $2995 to $1995. We had a significant impact on the business there. We had been selling it at discounts, trying and testing and evaluating that for a few months prior to that, and shortly thereafter we then fixed the price officially at $1995. So that was early in 2008.

Early 2008, okay. Let me just ask you, as far as sales kind of by territory I guess, or these recent -- basically I guess my question is are you finding the sales with any one distributor -- are concentrated more in one of the distributors that you have, or is it spread out more evenly among your distributors?

It's spread out pretty evenly [but] fortunately to the size of the sales organizations. We have seen the Patterson organization come up to speed much faster than the Schein organization did originally, but they are getting the benefit of a year's worth of -- or almost 18 months' worth of promotion and driving of the business and advertising and marketing. And we've also seen the Schein organization pickup in the last several months, which is what we anticipated when we spread out -- it had more distributors, that everyone would benefit from better coverage. But generally speaking, I would say it's pretty proportional to the size of their sales organization for the most part, Joe.

Okay. One last question, and I know it's basically a follow-on to the fellow that was just on with regard to the convertible conversion issue. I just want to be somewhat clear. I didn't read the 10-K. Just, I know you may not want to go too far into this, but just some clarification with regard to the price at which the stock -- the bonds would be convertible at. Did you say it could potentially be, if the stock remains around this level, it could be potentially at around -- whatever, $0.20 a share or something like that? I thought you followed it up with $4 a share. Can you just --?

I will give you the thumbnail. Pricing is set by the calculation of the average price in the last 20 days of this year, 2008. The final due date is no later than June 30, 2010, at which point the Company, Milestone, can repay the loan either in cash or at its option in shares with common stock valued at the low of $2 of share or 80% of the average closing price during the last 20 days following the ending of December 31, 2008. So, we have time to determine how to do that.

But that was at your option, or the bondholders' option?

Milestone's option.

Okay, so in other words, you don't necessarily -- if you can come up with the financing, you don't necessarily have to get stuck giving away that much of the stock at such a reduced price, obviously. That's correct?

Yes.

David [Davenni], [Growth Network].

I missed part of the call; an important call came in. But I guess -- and maybe you covered this, but could you just talk a little bit about the sales staff that Milestone has to contact these firms that are representing you? In other words, how many salesmen do you have, and a little bit about how you handle the dealing with these distributors?

Milestone has up four sales representatives --

Four?

-- that are Milestone employees. We also contract with Core Strength, which has 16 salespeople who are -- who have a limited number of product lines that they represent. Those 16 from Core Strength and those 4 full time, dedicated people from Milestone are in the deal. Their job is to travel with, train, support, help, coach, educate, motivate and mentor the sales representatives from the distributors. So they are actually making sales calls themselves; they are training district meetings; they are participating in exhibitions and congresses; and they are actually co-traveling with the sales reps from the distributors to drive the business. That's their job.

Now, Core Strength is not part of Milestone; that's an independent company, right?

An independent company, but it's not a distributor of sorts. They represent four or five different product lines, doing much the same thing as they do for us, where they are out there supporting our product with the distributors.

Thank you. At this time, there are no further questions in the queue. Please continue.

Thank you, Lou Ray. Okay, before we close, let's take some closing comments from management. Joseph, let's start with you.

Thank you very much, Dodi. I'd like to say that management in the Company is behind the forward movement and we've shown successfully, in the last nine months since I've been here, that we can produce and we have a direct plan that we are administering on a day-to-day basis, not only on sales but also on expense allocation and cash management. I'd like to thank the investors that have participated on this call for their questions and their support.

Nicely said, Joseph. Joe, what do you have to say?

I would just like to finish up with saying that we've had a clear, for the last 18 months, we've had a clear strategy and direction in our heads. We've worked very hard to execute that, and that was driving the sales line, improving our operating efficiencies, expanding our distribution network, growing the dental business and at the same time trying to find our way into the medical side of the business. I am very pleased with the progress we are making along that path. We will continue to commit ourselves to that strategy. I am very appreciative not only of the stockholders for their patience and their support but also certainly of the Milestone employees who have done a terrific job here over the last 18 months that I've been with the Company to help us achieve the successes that we've been able to achieve.

Thank you very much, Joe. I would like to remind everyone, if you would like to be added to a distribution list from Milestone -- that being e-mail, fax or postal -- and you're not already on one of those databases, please call the offices of Elite Financial. Our number is 407-585-1080, or of course you can reach us through e-mail at MLFS@efcg.net.

So with that, I will wish everyone a very nice evening. Thank you, Joe;. Thank you, Joseph.

Thank you.

Ladies and gentlemen, this concludes Milestone's third-quarter 2008 results conference call. If you'd like to listen to a replay of today's conference, please dial 303-590-3000 or 1-800-405-2236 and enter pass code 11122141. (Operator repeats numbers.)

ACT would like to thank you for your participation. You may now disconnect; have a pleasant day.