Milestone Scientific Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. The unaudited filing covers a medical-technology company selling computer-controlled anesthetic delivery products, primarily dental instruments and handpieces; its medical-device business remains at an early commercialization stage.
Financial results
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Net sales | $1.811 million | $1.916 million | Down about 5% |
| Gross profit / margin | $1.284 million / 70.9% | $1.297 million / 67.7% | Profit down 1.0%; margin improved |
| Operating expenses | $2.893 million | $2.115 million | Up $777,000 |
| Operating loss | $(1.609) million | $(818,000) | Loss increased 97% |
| Net loss attributable to Milestone | $(1.600) million | $(783,000) | Loss more than doubled |
| Net loss per share, basic and diluted | $(0.03) | $(0.02) | |
| Cash used in operations | $(972,000) | $(220,000) | Cash burn increased |
Dental sales were $1.804 million, down 6%; medical sales were $7,800, versus $400. The dental segment remained the principal source of revenue and gross profit. The company attributed the higher operating loss mainly to increased SG&A, including approximately $487,000 in professional fees related to business alternatives and potential financing, and approximately $143,000 in office relocation costs. R&D rose to $107,000, primarily for epidural-device development and software upgrades.
Balance sheet and liquidity
- Cash was $766,000 at March 31, down from $1.516 million at year-end 2019. Working capital was approximately $21,000, compared with $1.2 million at December 31.
- Current assets were $5.261 million and current liabilities $5.240 million. Total assets were $6.375 million; total liabilities $5.887 million; stockholders’ equity $488,000.
- The filing reports lease obligations of approximately $0.72 million. No other funded borrowing is listed on the presented balance sheet.
- Management concluded that available cash and liquidity were insufficient for at least the next 12 months, creating substantial doubt about the company’s ability to continue as a going concern.
Material changes, outlook and risks
- COVID-19: Dental-office closures and reduced operating hours were expected to materially adversely affect Q2 revenue and possibly Q3 revenue. Management said the impact on Q4 and 2020 commercialization of the CompuFlo Epidural System could not yet be estimated. Medical institutions had curtailed introducing new instruments and procedures.
- Financing after quarter-end: The company completed an April 2020 underwritten stock-and-warrant offering. The filing describes approximately $4.3 million of net proceeds from the offering and reports an additional $415,244 from an over-allotment closing on April 17; elsewhere it cites approximately $4.7 million in net proceeds. It also received approximately $276,000 under the Paycheck Protection Program, subject to potential forgiveness.
- Listing compliance: NYSE American had accepted a compliance plan, but the company said it did not expect to meet the May 20, 2020 deadline for continued-listing standards. Delisting procedures were a stated risk.
- Commercialization and funding: The company planned to expand dental sales and market its FDA-cleared epidural device, but said additional financing might be needed. Without funding, it could delay, reduce or eliminate commercialization or development plans. A new intra-articular 510(k) application was planned for 2020, subject to sufficient funds.
- Other operating risks: Manufacturing relies on third parties under informal arrangements, and disruption or termination could delay supply. Sales and receivables were concentrated among distributors. China distributor liquidity issues had halted shipments; a proposed China joint-venture restructuring was delayed by COVID-19-related regulatory closures.
- Unusual items and dilution: Q1 included $230,000 in proceeds from warrant exercises. The April offering included warrants and additional shares, increasing potential dilution. The filing also describes proposed related-party transactions with United Systems and Milestone China, pending customary closing conditions.
- Management reported disclosure controls were effective as of March 31, 2020 and no material change in internal control over financial reporting during the quarter. The company reported no material litigation.
Important facts for investors to verify
- Reconcile the April offering’s stated net proceeds, including the over-allotment, and confirm the resulting shares and warrants outstanding.
- Track post-offering cash, cash burn and whether financing is sufficient to address the going-concern uncertainty.
- Verify NYSE American listing status and the outcome of the May 20 compliance deadline.
- Assess actual COVID-19 effects on dental sales, Q2–Q3 revenue and epidural-device commercialization.
- Monitor medical-device adoption, regulatory progress on the intra-articular application, and the status and terms of the proposed China and United Systems transactions.