Milestone Scientific Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; filed November 14, 2023. The company develops computer-controlled injection devices and related disposables for dental and medical use. Its dental business sells instruments and handpieces; its medical business includes the CompuFlo epidural system.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $2.06 million | $2.22 million | $7.57 million | $6.56 million |
| Gross profit | $1.50 million | $1.45 million | $5.28 million | $3.82 million |
| Gross margin | 73.0% | 65.6% | 69.8% | 58.1% |
| Operating loss | $1.51 million | $2.01 million | $5.13 million | $6.81 million |
| Net loss attributable to Milestone | $1.47 million | $1.97 million | $4.99 million | $6.73 million |
| Net loss per share, basic and diluted | $0.02 | $0.03 | $0.07 | $0.10 |
- Revenue mix: Dental sales were $2.05 million in Q3 and $7.56 million year to date; medical sales were only $6,000 and $10,000, respectively. Dental represented nearly all revenue.
- Cash flow: Operating activities used $4.08 million in the first nine months, versus $4.94 million in the prior-year period. Investing activities used $2.46 million, including net purchases of marketable securities; financing activities used $6,486 for finance lease payments.
- Liquidity: September 30 cash and cash equivalents were $2.17 million, with $2.45 million of marketable securities, primarily U.S. Treasury bills. Current assets were $9.97 million and current liabilities $3.28 million. Cash and securities together were approximately $4.62 million.
- Liabilities and equity: Total liabilities were $3.59 million, primarily payables, accruals, and operating and finance lease liabilities. The filing reports no conventional borrowings. Total stockholders’ equity was $6.99 million. Shares issued and outstanding at September 30 were approximately 70.86 million; 71.05 million shares were reported outstanding as of November 14.
Changes versus comparable periods
- Q3 revenue fell about 7% year over year, despite higher U.S. dental e-commerce sales. E-commerce generated approximately $1.2 million in Q3, while the terminated Henry Schein distributor generated no revenue versus approximately $715,000 in Q3 2022. International revenue declined approximately $538,000.
- Nine-month revenue rose approximately 15%, primarily reflecting U.S. e-commerce sales of about $3.5 million. This more than offset the loss of Henry Schein revenue, which was approximately $2.4 million in the prior-year period, and modestly lower international sales.
- Gross margin improved in both periods. Management attributed the improvement to higher-margin sales through the new e-commerce channel. Nine-month gross profit increased approximately 40%.
- Operating losses narrowed year over year, by about $507,000 in Q3 and $1.69 million for the first nine months. Nine-month SG&A increased modestly, while R&D expense declined by approximately $373,000.
Outlook, risks, and unusual items
- Management forecasts sufficient resources for one year after issuance of the financial statements and concluded there was no substantial doubt about the company’s ability to continue as a going concern. It cites slower spending on new technology, R&D and inventory, termination of certain consulting agreements, and expected proceeds from New Jersey’s NOL tax-credit transfer program. No quantified revenue or earnings guidance is provided.
- The company has incurred approximately $121 million of cumulative losses and says continued operations will depend on revenue growth, expense reduction, and potentially raising additional capital. It warns that capital may not be available when needed.
- Commercial adoption of the CompuFlo medical system remains limited: medical revenue was $10,000 year to date. Management says a temporary, chronology-specific CPT tracking code effective January 1, 2023 may support reimbursement; FDA clearance for thoracic-spine use was announced in February 2023.
- Sales and supply-chain concentration are notable. E-commerce accounted for 60% of Q3 sales and 46% of nine-month sales. The company relies on third-party manufacturers, including related-party supplier United Systems, and disclosed no long-term manufacturing contracts or minimum purchase commitments. Disruptions, component shortages, or termination of a manufacturing relationship could affect supply.
- Inventory was $2.48 million, including a $1.0 million allowance on slow-moving medical finished goods and approximately $90,000 recorded for obsolete epidural parts and materials during the nine-month period. A $2.7 million purchase commitment for 2,800 STA instruments was disclosed, with approximately $1.7 million paid in advances; another advance balance description in the filing is unclear and merits reconciliation.
- The company reversed an approximately $179,000 sales-return allowance after no returns were presented by September 30 under the former distributor arrangement. It also disclosed substantial share-based compensation and shares issuable to employees and service providers, which may dilute shareholders.
- Management reported effective disclosure controls as of September 30 and no material change to internal control over financial reporting. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether e-commerce can sustain sales and margins sufficient to replace the former Henry Schein channel, and how customer and distributor concentration evolves.
- Actual adoption, reimbursement, and revenue generation for CompuFlo, including the practical effect of its CPT tracking code.
- Cash burn, forecast assumptions, and the timing and amount of any proceeds from the New Jersey NOL program; management’s liquidity conclusion depends partly on these assumptions and expense controls.
- The remaining cash obligations and delivery schedule under the STA purchase commitment, given the filing’s differing descriptions of contract advances.
- Inventory recoverability, medical-product adoption, and the effect of the disclosed obsolescence reserves.
- Related-party manufacturing arrangements, supplier alternatives, and potential dilution from outstanding options, warrants, deferred shares, and equity awards.