Milestone Scientific Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited condensed consolidated financial statements; comparative period is Q1 2021.
Business context
Milestone Scientific develops and sells computer-controlled injection devices and disposable handpieces for dental and medical applications. Dental products generated nearly all Q1 revenue; medical commercialization includes the CompuFlo Epidural System and CathCheck. The company sells through distributors and relies on third parties to manufacture its products.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Net sales | $2.70 million | $2.92 million; down $224,000 (about 7.7%) |
| Gross profit | $1.68 million | $1.80 million; gross margin about 62% in both periods |
| Operating expenses | $3.60 million | $2.79 million |
| Operating loss | $1.91 million | $984,000 |
| Net loss attributable to Milestone | $1.90 million; $0.03 per share | $973,000; $0.01 per share |
| Cash used in operating activities | $1.51 million | $968,000 |
- Dental sales were $2.69 million, down about $160,000 year over year. Medical sales were $7,550, down about $64,000.
- SG&A rose $366,000 to $3.12 million, mainly reflecting higher staffing and related commercialization costs and increased travel. R&D increased $448,000 to $464,000, primarily for potential STA product-line enhancements.
- At March 31, cash and cash equivalents were $13.25 million, total assets $19.07 million, and working capital approximately $14.4 million, versus $15.8 million at year-end 2021. Cash declined $1.51 million during the quarter.
- Total liabilities were $4.30 million, including lease obligations; the filing reports no material borrowing debt. Current liabilities were $3.83 million.
Changes, outlook and risks
- Management attributed lower sales partly to COVID-related restrictions that limited access to hospital labor-and-delivery departments and sales demonstrations. It also cited additional freight costs associated with importing delays from China.
- Management said cash on hand should fund anticipated obligations for 12 months from the filing date, while acknowledging a history of operating losses and ongoing cash use. The company is pursuing higher dental sales and medical-device adoption; no quantified revenue or earnings guidance was provided.
- The company disclosed that Milestone China’s 28.4% interest in Anhui was transferred without Milestone Scientific’s approval. Milestone has no current ownership in Anhui, has recorded no gain or receivable, and is investigating whether sale consideration was paid. Management is not currently pursuing legal action to recover the interest.
- Related-party manufacturer United Systems supplied handpieces; purchases were about $1.2 million in Q1 2022, versus $385,000 in Q1 2021. Approximately $1.1 million was owed to that manufacturer at quarter-end. The company’s manufacturing arrangements are generally purchase-order based, without long-term contracts or minimum purchase commitments.
- After quarter-end, the company expanded a voluntary withdrawal of two Epidural Disposable Kit lots and initiated a separate withdrawal of a lot of Wand STA handpieces. Management reported no identified patient or user risk; final disposition of affected inventory was undetermined.
- Management stated disclosure controls were not effective at quarter-end because of a previously reported material weakness in internal control over financial reporting; remediation was in process.
- Other cited risks include COVID-related demand and operating disruption, distributor and supplier concentration, international exposure and the Russia-Ukraine conflict, product-quality issues, and dependence on third-party manufacturers. The company reported reduced sales from Ukraine and halted sales to Russia.
Key facts for investors to verify
- Whether medical-device sales and demonstrations recover, and whether the company can limit operating losses and quarterly cash burn.
- Progress and cost implications of the Epidural kit and handpiece withdrawals, including final inventory disposition.
- Updates on the Anhui transfer investigation, any recoverable consideration, and China distributor sales and receivables.
- Manufacturing continuity, related-party balances, and the company’s ability to obtain products from alternative suppliers if needed.
- Remediation of the internal-control material weakness and the status of management’s 12-month liquidity assessment.
- Potential dilution: the filing reports 7.54 million potentially dilutive options, restricted awards and warrants excluded from diluted loss per share because their effect would be anti-dilutive.