Milestone Scientific Inc. — Q2 2022 Form 10-Q
Business context and period. The unaudited report covers the three and six months ended June 30, 2022, compared with the same periods in 2021. Milestone develops and sells computer-controlled injection systems and related disposable handpieces for dental and medical markets. Dental products remain the primary source of revenue; the CompuFlo medical business is at an early commercialization stage.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $1.65 million | $2.43 million | $4.35 million | $5.35 million |
| Gross profit | $0.68 million | $1.37 million | $2.36 million | $3.17 million |
| Gross margin | 41.3% | 56.5% | 54.3% | 59.3% |
| Operating loss | $2.88 million | $2.87 million | $4.80 million | $3.86 million |
| Net loss attributable to Milestone | $2.86 million | $2.68 million | $4.76 million | $3.65 million |
| Basic and diluted loss per share | $0.04 | $0.04 | $0.07 | $0.05 |
At June 30, 2022, cash and cash equivalents were $10.96 million, down from $14.76 million at December 31, 2021. Working capital was approximately $12.3 million, versus $15.8 million at year-end. Operating cash use was $3.80 million for the first half, compared with $2.07 million in 2021. Total liabilities were $3.84 million, primarily payables, accruals, and lease liabilities; the filing reports no conventional borrowings outstanding. Current assets were $15.71 million and current liabilities $3.39 million. The accumulated deficit was $112.5 million.
Changes and drivers
- Q2 revenue fell 32% year over year; first-half revenue fell 19%. Dental sales declined about $795,000 in Q2 and $955,000 in the first half. China sales were zero in Q2, compared with $525,000, and were $360,000 for the first half, down from $1.03 million.
- Medical revenue remained small: $38,600 in Q2 and $46,150 for the first half. The medical segment recorded operating losses of $1.62 million in Q2 and $2.85 million in the first half.
- Gross profit fell about 50% in Q2 and 25% in the first half. Management attributed much of the decline to a roughly $430,000 reserve for slow-moving medical finished goods, as well as reduced dental revenue.
- First-half operating loss widened by approximately $942,000. Research and development expense increased by $499,000 to $731,000, mainly for potential enhancements to the STA dental system. SG&A decreased by $363,000 for the half, though spending increased in dental and medical segments.
- Q2 2021 included a $276,180 gain from forgiveness of a Paycheck Protection Program loan; there was no corresponding gain in 2022.
Outlook, risks, and unusual items
- Management said it expects available cash to cover anticipated obligations for at least 12 months from the filing date and believes cost reductions can support the company for 18 months. The company reduced its direct medical sales organization by half and identified further savings, expected to take effect in Q3 and Q4 2022. No revenue or earnings guidance was provided.
- The company reported increased first-half operating cash burn and continuing losses. Its ability to sustain commercialization and growth depends on adoption of its medical products, particularly CompuFlo, and on distribution and sales execution.
- Product supply depends on third-party manufacturers, including a related-party manufacturer, under arrangements that generally lack long-term contracts or minimum purchase commitments. At June 30, the company had approximately $2.4 million of open purchase-order commitments and $1.6 million of advances on contracts.
- In May 2022, the company initiated voluntary market withdrawals involving two Epidural Disposable Kit lots and one Wand STA handpiece lot. Management’s evaluations found no patient or user health risk; the affected lots were valued at approximately $22,000, $10,000, and $25,000, respectively. The company was working with its supplier to reproduce and replace the handpieces.
- Milestone reported that an equity transfer, made without its approval, eliminated its indirect interest in Anhui, China. The company has received no consideration, recorded no receivable or gain, and is not pursuing legal action at this time; its investment in Milestone China was recorded at zero. It continued investigating whether consideration was paid and whether any recovery is possible.
- COVID-19 disruptions, supply-chain interruptions, inflation and freight costs, geopolitical impacts from the Russia-Ukraine conflict, and customer and distributor concentration remain risks. The company reported decreased sales to Ukraine and halted sales to Russia.
- Management said disclosure controls were effective and reported remediation of a previously identified material weakness in internal control over financial reporting during the quarter. The filing reports no material litigation.
Investor verification points
- Track revenue recovery, especially dental sales and China-related shipments, and confirm whether distributor concentration changes.
- Assess whether the medical business can generate meaningful sales and whether new hospital, veterinary, and reimbursement opportunities convert into repeat revenue.
- Monitor cash burn, the timing and realized effect of restructuring savings, and management’s stated cash runway.
- Verify the inventory reserve, inventory movement, and any further product-quality actions or replacement costs.
- Follow the China equity-transfer investigation and clarify whether any consideration was paid or any recovery is pursued.
- Review the $2.4 million manufacturing commitment, supplier dependence, and related-party purchases and balances.
- Consider potential dilution: shares outstanding were 68.78 million at June 30, and options and warrants were also outstanding.