Milestone Scientific Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are with FY2022. Milestone Scientific develops and sells computer-controlled injection systems for dental and medical use, built around its Dynamic Pressure Sensing technology. The filing reports annual results, not standalone fourth-quarter results.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net sales | $9.83 million | $8.81 million |
| Gross profit | $6.79 million (69.1% margin) | $4.90 million (55.6% margin) |
| Operating expenses | $13.90 million | $13.73 million |
| Loss from operations | $7.11 million | $8.83 million |
| Net loss | $6.98 million; $6.93 million attributable to Milestone | $8.77 million; $8.71 million attributable to Milestone |
| Operating cash flow | $(5.33) million | $(6.03) million |
- Dental sales were $9.76 million, up $1.01 million; medical sales were $66,000, up $13,000. Dental operations recorded $2.13 million operating income, while medical operations recorded a $3.71 million operating loss.
- At year-end, cash and cash equivalents were $2.98 million and U.S. Treasury marketable securities were $2.98 million. Working capital was approximately $7.7 million; total assets were $11.37 million and total liabilities $3.36 million.
- The filing reports no conventional borrowings on the balance sheet. Lease liabilities totaled approximately $396,000, including operating and finance leases.
- Financing cash flow included approximately $2.57 million net proceeds from a December 2023 public offering. Shares outstanding were 75.85 million at year-end; the company reported 76.60 million as of March 29, 2024.
Material changes and business developments
- Revenue grew 11.6%, while gross profit rose about 39% as direct e-commerce sales carried higher margins. The U.S. e-commerce channel launched in January 2023 and generated approximately $4.8 million, about 48% of product sales.
- The company’s Henry Schein U.S. distributor agreement ended December 31, 2022; no Henry Schein revenue was recorded in 2023 versus approximately $2.6 million in 2022. The company also terminated its remaining U.S. non-exclusive distributor agreements in September 2023.
- International revenue declined approximately $724,000 to about $4.1 million. China revenue declined approximately $356,000 to $270,000.
- SG&A increased $621,000 to $13.14 million, including higher e-commerce marketing and warehousing costs. R&D declined $449,000 to $701,000, largely because development of the next-generation STA system was nearing completion.
- In February 2023, the CompuFlo Epidural System received FDA 510(k) clearance for thoracic use, including the cervicothoracic junction. A temporary tracking CPT code became effective in January 2023 for specified epidural procedures; reimbursement and adoption remain uncertain.
Outlook, risks and unusual items
- Outlook: The filing provides no quantified revenue or earnings guidance. Management forecasts indicate available liquidity can fund operations for at least 12 months from issuance, based on revenue and expense assumptions. Management also says continued operations will depend on capital access until profitability, if achieved.
- The company has a history of losses, reported $123.3 million of accumulated losses since inception, and expects operating losses to continue. FY2023 operating cash use was $5.33 million. Management expects to pursue revenue growth, expense reductions and potential proceeds from New Jersey’s program for transferring net operating loss tax certificates.
- Key risks include limited product adoption and reimbursement, competition, potential dilution or difficulty raising capital, and dependence on third-party manufacturers. Dental handpieces are sourced from a sole manufacturer in China; manufacturing arrangements generally lack minimum purchase commitments. Year-end purchase obligations were $2.38 million, partly offset by advances on contracts of $1.37 million.
- International sales represented approximately 45% of sales. The company reported reduced sales to Ukraine and halted sales to Russia amid European conflict-related sanctions and disruption.
- Medical inventory provisions were approximately $258,000 in 2023 versus $582,000 in 2022. The company’s December 2023 public offering issued 4.765 million shares at $0.63 per share. Subsequent to year-end, the underwriter exercised part of its over-allotment option for 372,110 shares, and warrants were exercised for 103,500 shares.
- Related-party matters include approximately $2.3 million of 2023 purchases from United Systems, a significant stockholder’s affiliated supplier, and ongoing compensation and royalty arrangements with company insiders or related parties. The filing reports no material litigation. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not audit internal control effectiveness.
Important facts for investors to verify
- Whether e-commerce sales and higher gross margins can be sustained following the U.S. distributor transition.
- Whether CompuFlo gains physician adoption and reimbursed usage, and whether medical sales can grow from their very low 2023 base.
- Actual cash burn, the realization and timing of New Jersey tax-certificate proceeds, and the company’s financing needs relative to its 12-month forecast.
- Supply continuity, pricing and fulfillment under the company’s manufacturing and purchase-order arrangements, including dependence on its China handpiece supplier.
- The full dilution impact of outstanding options, restricted stock, warrants, shares deferred for issuance, and subsequent equity transactions.