Milestone Scientific Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Unaudited results are compared with Q1 2020. Milestone develops computer-controlled anesthetic delivery systems and related disposable handpieces, with dental and medical business segments.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $2.925 million | $1.811 million | Up 61.5% |
| Gross profit | $1.802 million | $1.284 million | Up 40.4% |
| Gross margin | About 61.6% | About 70.9% | Down about 9.3 percentage points |
| Operating loss | $984,373 | $1.609 million | Loss narrowed $624,232 |
| Net loss attributable to Milestone | $972,869 | $1.600 million | Loss narrowed |
| Basic and diluted loss per share | $0.01 | $0.03 | Improved |
| Cash used in operating activities | $967,814 | $972,079 | Nearly unchanged |
Dental sales were $2.854 million, up 58.2%; medical sales were $71,050, up from $7,800. Dental generated $1.126 million in operating income, while medical reported an $895,781 operating loss. Management attributed the sales recovery largely to reopened dental offices. Gross margin fell mainly because of lower-margin sales to China.
Financial position and liquidity
- Cash and cash equivalents were $16.951 million at March 31, versus $14.224 million at year-end 2020. Working capital was approximately $18.6 million, up from $15.7 million.
- Current assets were $21.659 million and current liabilities $3.039 million. Total liabilities were $3.604 million; these included a $276,180 PPP note and operating and finance lease liabilities.
- Operating cash use was offset by $3.701 million of financing cash inflows, chiefly $3.012 million from warrant exercises and $690,190 from employee option exercises. Cash increased $2.727 million during the quarter.
- Management said available liquidity should support operations for more than one year after issuance of the statements. The company nevertheless reported an accumulated deficit of approximately $101.9 million and ongoing operating losses.
Changes, outlook and risks
- Sales recovery improved operating results, but the company remained loss-making and operating cash flow remained negative. Selling, general and administrative expenses were essentially flat at $2.749 million; research and development fell to $16,444 from $107,480 after completion of epidural-device upgrades.
- The company is moving U.S. and Canadian dental distribution from an exclusive Henry Schein arrangement to non-exclusive distribution; it reported eight new distributors engaged. Management is also pursuing commercialization of the CompuFlo Epidural System and CathCheck. No quantified revenue, earnings or cash-flow guidance is provided.
- COVID-19 effects remain uncertain and could affect demand, employees, suppliers, manufacturing, distribution and sales. The company relies on third-party manufacturers under informal arrangements without long-term contracts or minimum purchase commitments.
- Customer and related-party concentration warrants attention: one domestic distributor represented approximately 29% of Q1 sales, and Milestone China represented approximately 18%. China accounts receivable was about 21% of gross receivables at quarter-end; the China distributor had previously defaulted on a payment arrangement.
- The company reported only 12 U.S. sales of its medical epidural devices to date and limited international sales. It decided not to pursue FDA clearance for its intra-articular instrument at this time.
- Subsequent to quarter-end, the company was notified that approximately $201,000 of its $276,000 PPP loan was forgiven; forgiveness of the remaining $75,000 application was pending. Leonard Osser planned to step down as interim CEO on May 19, 2021, with Arjan Haverhals becoming CEO. Haverhals’s new compensation includes a $350,000 salary and annual bonuses of up to $400,000, partly payable in stock, plus related options. Scott Kahn was appointed CFO effective May 24, 2021.
Key facts for investors to verify
- Whether dental sales recovery and the lower gross margin—particularly on China sales—persist in subsequent quarters.
- Cash burn and available liquidity relative to commercialization spending, and the status of the remaining PPP forgiveness application.
- Medical-device adoption, including actual placements and sales of CompuFlo and CathCheck, and progress with U.S. and European distribution.
- Manufacturing continuity, distributor concentration, China receivable collection and the status of the planned China restructuring.
- Potential dilution from warrant and option exercises, shares to be issued, and executive compensation arrangements.