Milestone Scientific Inc. — Q1 2023 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2023, compared with Q1 2022. Milestone develops and sells computer-controlled injection systems and related disposable products for dental and medical markets. Dental products generated nearly all quarterly revenue; medical-product commercialization remains an investment area.
Financial performance and liquidity
- Revenue: $2.60 million, down 3.8% from $2.70 million. Dental revenue was $2.59 million; medical revenue was $6,200.
- Gross profit and margin: $1.89 million and 72.7%, compared with $1.68 million and 62.3%. Management attributed the improvement primarily to higher-margin e-commerce sales.
- Operating expenses and loss: Operating expenses were $3.23 million, down from $3.60 million. Operating loss narrowed to $1.34 million from $1.91 million. Net loss was $1.32 million, or $0.02 per share, versus $1.92 million, or $0.03 per share.
- Cash flow: Operating activities used $2.00 million, versus $1.51 million in Q1 2022. Cash and cash equivalents declined by $6.44 million to $2.28 million; the decline included $4.43 million used to purchase marketable securities. Ending cash plus marketable securities was approximately $6.71 million.
- Liquidity and obligations: Working capital was approximately $8.9 million. Total liabilities were $3.02 million, including approximately $473,000 of finance and operating lease liabilities. The filing reports no borrowings.
- Balance sheet: Total assets were $12.27 million, down from $13.70 million at December 31, 2022. Inventory was $2.04 million, including an approximately $1.0 million allowance against slow-moving medical finished goods.
Material changes and management commentary
- The company launched a U.S. e-commerce platform on January 3, 2023. It generated approximately $989,000, or 40% of net product sales. The company terminated its major U.S. distributor, Henry Schein, effective December 31, 2022; it recorded no Q1 2023 revenue from that distributor, compared with approximately $840,000 a year earlier. A $179,000 returns allowance related to the termination was reversed after no returns were presented through March 31.
- International revenue was approximately $1.2 million, down approximately $186,000. China revenue was zero, compared with approximately $360,000 in Q1 2022. The company also reported lower international sales to Ukraine and halted sales to Russia.
- Research and development expense fell to $140,000 from $464,000, primarily because development of the next-generation STA dental system was delayed. SG&A was nearly flat at $3.07 million; increased marketing and warehousing costs partly offset lower salaries and other expenses.
- Dental segment operating income increased to $642,000 from $354,000. Medical segment operating loss narrowed to $822,000 from $1.24 million; corporate operating loss increased to $1.16 million from $1.03 million.
- On February 27, 2023, the company announced FDA 510(k) clearance for CompuFlo use in the thoracic spine, expanding beyond its prior lumbar-region clearance.
Outlook, risks and other items
- Management concluded there was no substantial doubt about the company’s ability to continue as a going concern and said available liquidity and dental-business cash flow should fund operations, epidural commercialization, and planned product development for at least 12 months from the filing date. The company nevertheless has a history of operating losses and negative operating cash flow and stated that longer-term operations may depend on raising additional capital until it achieves profitability, if ever.
- Key risks include limited adoption of the medical products, dependence on third-party manufacturers and suppliers, potential supply interruptions, distributor and international-market risks, and the need for additional financing. The company relies on informal manufacturing arrangements, including a related-party supplier. A purchase commitment for 1,700 STA instruments was approximately $1.4 million at March 31, 2023, with approximately $1.1 million already advanced.
- Management noted that sanctions and the Ukraine conflict have affected international sales and may contribute to economic, commodity-price, and cybersecurity uncertainty. No specific revenue or earnings guidance was provided.
- Stock-based compensation was $389,000. The company issued shares to directors and consultants and reported additional shares to be issued under compensation arrangements. Disclosure controls were assessed as effective; management reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether e-commerce can sustain its contribution and offset the loss of Henry Schein distribution revenue, and how customer concentration evolves.
- Actual cash burn, sales and adoption of CompuFlo following the thoracic clearance, and the assumptions supporting management’s 12-month liquidity assessment.
- Progress on the delayed next-generation STA product and the adequacy and recoverability of medical inventory and manufacturing advances.
- Potential dilution from options, warrants, restricted awards, and shares to be issued; the filing reports 72.1 million weighted-average shares for Q1 versus 69.8 million issued at quarter-end.
- Related-party manufacturing and service arrangements, supplier concentration, and the approximately $1.4 million instrument purchase commitment.