Milestone Scientific Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. The company develops and sells computer-controlled injection systems and related disposable products, primarily for dental use, while seeking to commercialize medical devices. Figures below are unaudited.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $2.22 million | $2.11 million | $6.56 million | $7.46 million |
| Gross profit | $1.45 million | $1.36 million | $3.82 million | $4.53 million |
| Gross margin | 65.6% | 64.5% | 58.1% | 60.8% |
| Operating loss | $(2.01) million | $(1.98) million | $(6.81) million | $(5.84) million |
| Net loss attributable to Milestone | $(1.97) million | $(2.04) million | $(6.73) million | $(5.70) million |
| Loss per share, basic and diluted | $(0.03) | $(0.03) | $(0.10) | $(0.08) |
- Q3 sales rose about 5% year over year, reflecting higher dental sales; medical sales were only $9,200. Nine-month sales fell about 12%, with dental revenue down $825,000 and medical revenue down $69,000.
- China sales were zero in Q3 2022 versus about $361,000 a year earlier. For the first nine months, China sales fell about $1.03 million to $360,000, primarily due to the distributor’s cash-flow difficulties.
- Nine-month gross profit declined about 16%. The company cites lower shipments to China, higher parts and freight costs, and a roughly $430,000 reserve against slow-moving medical inventory.
- Q3 SG&A increased $315,000 to $3.28 million, including higher quality-related and professional costs and a $100,000 reserve against a related-party receivable. Nine-month R&D rose $309,000 to $897,000; Q3 R&D fell after planned dental-system enhancements were delayed.
Cash, liquidity and capital
- Cash and cash equivalents were $9.81 million at September 30, 2022, down from $14.76 million at year-end 2021. Working capital was approximately $10.8 million, down from $15.8 million.
- Cash used in operating activities was $4.94 million for the nine months, compared with $3.63 million in 2021. Investing cash use was $3,827; financing cash use was $6,486. Cash declined by $4.95 million over the period.
- Total liabilities were $4.10 million, including $497,931 of lease liabilities. The filing reports no material borrowings; current liabilities were $3.68 million. The current ratio was approximately 3.9.
- Management says cash reserves should cover anticipated obligations for at least 12 months from the filing date, while noting continued operations depend on revenue growth, expense reductions and potentially obtaining additional capital. No specific financing or revenue guidance is provided.
Material developments, outlook and risks
- Management reports a cost restructuring that included reducing the direct medical sales organization by half. It estimates Q3 cash burn at approximately $1.1 million, lower than the preceding 2022 quarters.
- Medical commercialization remains early-stage. The company reported sales of CompuFlo disposables to a medical center and a veterinary/academic institution, and said a newly received CPT code may support adoption and reimbursement. These developments do not yet translate into material medical revenue.
- Two voluntary market withdrawals were initiated in 2022: specified Epidural Disposable Kit lots and a dental handpiece lot. The company’s evaluations found no patient or user health risk; the identified lots were valued at approximately $32,000 and $25,000, respectively.
- The company disclosed that its indirect interest in Anhui was transferred without its approval in 2021; it has received no consideration and is not pursuing legal action at this time. Its investment in Milestone China is recorded at zero. Management also suspended further investigation to preserve cash.
- Risks include ongoing operating losses and cash burn, uncertain access to future capital, COVID-related market and supply disruption, reliance on third-party manufacturers and distributors, product-quality and regulatory matters, and international exposure. The company halted sales to Russia and reported reduced sales to Ukraine.
- Henry Schein’s non-exclusive U.S. and Canada distribution arrangement was scheduled to terminate December 31, 2022; the company was building a broader non-exclusive distributor network. Management cautions that the transition may disrupt marketing or sales.
- Management reported disclosure controls were effective at quarter-end and no material change in internal control over financial reporting. The filing reports no material litigation.
Investor verification priorities
- Track quarterly cash burn, available cash and whether the stated 12-month liquidity expectation remains supportable; assess the timing and terms of any capital raise.
- Verify whether dental sales recover and whether new distributors offset lower China sales, including the concentration of sales and receivables among distributors.
- Monitor medical-device adoption, recurring disposable sales, reimbursement progress and any additional regulatory or quality actions.
- Review inventory valuation and the related-party receivable reserve, including whether slow-moving medical inventory requires further write-downs.
- Follow developments in the Anhui/Milestone China dispute and assess the effect of the company’s decision not to pursue recovery currently.
- Assess potential dilution: 69.8 million common shares were outstanding as of November 11, 2022; the filing also reports outstanding options, warrants and shares to be issued.