Milestone Scientific Inc. — Q2 2023 Form 10-Q
Business context and period: Milestone Scientific develops computer-controlled injection devices for dental and medical use. This unaudited report covers the quarter and six months ended June 30, 2023, compared with the same 2022 periods. Its dental segment is the principal source of revenue; medical-device commercialization remains at an early stage.
Key financial metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Net sales | 2023: $2.91 million; 2022: $1.65 million | 2023: $5.51 million; 2022: $4.35 million |
| Gross profit and margin | 2023: $1.89 million (about 65%); 2022: $0.68 million (about 41%) | 2023: $3.78 million (about 69%); 2022: $2.36 million (about 54%) |
| Operating loss | 2023: $2.28 million; 2022: $2.88 million | 2023: $3.62 million; 2022: $4.80 million |
| Net loss attributable to Milestone | 2023: $2.22 million; 2022: $2.86 million | 2023: $3.52 million; 2022: $4.76 million |
| Loss per share, basic and diluted | 2023: $0.03; 2022: $0.04 | 2023: $0.05; 2022: $0.07 |
- Six-month operating cash outflow was $3.03 million, versus $3.80 million in 2022. Cash and cash equivalents fell to $3.70 million from $8.72 million at year-end; the company also held $1.98 million in U.S. Treasury securities.
- At June 30, total current assets were $10.50 million and current liabilities $3.11 million; management reported working capital of approximately $7.4 million. Total liabilities were $3.45 million, including approximately $0.45 million of lease liabilities. The filing reports no conventional borrowings.
- Total assets were $11.15 million and stockholders’ equity $7.70 million. The accumulated deficit was $119.93 million.
Material changes versus the prior comparable period
- Q2 sales increased $1.26 million year over year; first-half sales increased $1.16 million. Dental sales accounted for virtually all revenue: $2.91 million in Q2 and $5.50 million in the first half of 2023.
- The company launched U.S. e-commerce sales in January 2023 after ending its Henry Schein distributor relationship at year-end 2022. E-commerce generated approximately $1.2 million of Q2 sales and $2.2 million for the first half; Henry Schein sales were nil in those 2023 periods, compared with approximately $0.81 million and $1.7 million, respectively, in 2022.
- Higher-margin e-commerce and increased dental sales contributed to gross-profit growth. SG&A rose by $0.65 million in Q2 and $0.61 million for the first half, while R&D declined by about $0.05 million and $0.38 million, respectively. The company attributed the R&D reduction to progress on the next-generation STA system.
- Medical sales remained minimal: a $2,200 negative amount in Q2 and $4,000 in the first half. The medical segment continued to report operating losses, although those losses narrowed year over year.
Outlook, risks and unusual items
- Outlook: No numerical revenue, earnings or cash-flow guidance is provided. Management forecasts sufficient liquidity for at least 12 months from the filing date, based on expected cash flows, dental-business support and planned spending, including epidural-device commercialization and product development. Management also says additional capital may be needed until profitability, if achieved.
- Going concern: Despite cumulative losses since inception of approximately $120 million and continuing operating losses, management concluded there was no substantial doubt about the company’s ability to continue as a going concern over the next 12 months.
- Concentration and supply risks: The company relies on third-party manufacturers and suppliers, including a related-party handpiece manufacturer, without long-term manufacturing contracts or minimum purchase commitments. A single vendor represented 45% of accounts payable and related-party accounts payable at quarter-end. E-commerce accounted for 43% of Q2 net sales; one distributor accounted for another 11%.
- Commitments and inventory: A purchase commitment for 3,000 STA instruments was approximately $2.9 million, of which approximately $1.2 million had been paid and recorded as advances. Medical finished goods carried an approximately $1.1 million slow-moving inventory allowance; the company also recorded about $91,000 for obsolete or expired inventory during the first half.
- International exposure: Management reported lower sales to Ukraine and halted sales to Russia amid the Ukraine conflict. The filing also cites exposure to international operations, supply disruption, competition and product adoption risks.
- Other items: The company reported a $270,000 China instrument sale in Q2. It reversed a previously recorded approximately $179,000 allowance for Henry Schein returns after no returns were presented. A new 510(k) clearance expanded CompuFlo use to the thoracic region, and a temporary CPT tracking code became effective January 1, 2023; the filing provides no quantified revenue impact from either development.
Important facts for investors to verify
- Whether e-commerce can sustain sales growth and gross margins after replacing the former major U.S. distributor.
- Whether dental revenue and cash balances can support ongoing losses and planned medical-device commercialization without additional financing.
- Progress in U.S. adoption and reimbursement for CompuFlo, including the commercial impact of expanded FDA clearance and the temporary CPT code.
- Manufacturing continuity, the related-party supplier relationship, and the company’s ability to meet the $2.9 million instrument commitment.
- Inventory realizability, customer and distributor concentration, and exposure to international market disruptions.
- Potential shareholder dilution: the filing reports 70.1 million common shares issued at June 30 and 71.4 million shares outstanding as of August 14, 2023; it also discloses outstanding options, deferred shares and other share awards.