Milestone Scientific Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Unaudited results compare with the same 2020 periods. The company develops computer-controlled anesthetic delivery devices for dental and medical markets.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $2.43 million | $0.17 million | $5.35 million | $1.98 million |
| Gross profit | $1.37 million | $0.11 million | $3.17 million | $1.36 million |
| Gross margin, calculated from reported figures | 56.5% | 66.8% | 59.3% | 68.9% |
| Operating loss | $2.87 million | $3.17 million | $3.86 million | $4.78 million |
| Net loss | $2.70 million | $3.18 million | $3.68 million | $4.79 million |
| Net loss attributable to Milestone | $2.68 million | $3.17 million | $3.65 million | $4.77 million |
| Basic and diluted loss per share | $(0.04) | $(0.06) | $(0.05) | $(0.09) |
Q2 revenue growth was primarily dental, which generated $2.40 million; medical revenue was $21,000. For the first half, dental revenue was $5.26 million and medical revenue $92,050. Management attributed the rebound mainly to dental-office reopenings, including in China. The filing reports lower gross margins year over year, citing lower-margin China sales for the first half.
Cash and equivalents were $15.98 million at June 30, 2021, versus $14.22 million at year-end 2020. Working capital was approximately $17.2 million, compared with $15.7 million. First-half operating cash use was $2.07 million; investing cash use was $13,075; financing cash provided was $3.84 million, mainly from warrant and employee-option exercises. Cash increased $1.75 million during the period.
Total liabilities were $3.49 million, including $32,595 of finance lease liabilities and $594,416 of operating lease liabilities. The $276,180 PPP loan was forgiven in Q2 and recorded as a gain; no note payable remained at June 30. Accumulated deficit was $104.54 million. Management said available liquidity was sufficient to support operations for more than one year after issuance of the statements.
Changes and business developments
- Compared with the pandemic-affected 2020 base, first-half sales rose $3.37 million and operating loss narrowed by about $0.92 million, though the company remained loss-making. Q2 SG&A increased $856,000 year over year; management cited staffing for CompuFlo commercialization, board costs, royalties, travel and marketing.
- The company shifted U.S. and Canadian dental distribution from an exclusive Henry Schein arrangement to non-exclusive distribution and reported engaging eight new distributors.
- United Systems, a related party and sole handpiece manufacturer, entered a ten-year manufacturing agreement with the company in June 2021. Other device manufacturing arrangements remain purchase-order-based without long-term contracts or minimum commitments.
- China sales were $525,336 in Q2 and $1.03 million for the first half, versus none in the comparable 2020 periods. The company recorded a $270,864 allowance against related-party receivables and revenue, citing U.S.-China geopolitical conditions. A proposed China affiliate merger remained incomplete, with regulatory documentation on hold.
- The company decided not to pursue FDA clearance for its intra-articular instrument at this time. It continues to focus medical commercialization on the CompuFlo Epidural and CathCheck system; medical sales remained small.
- At June 30, 67.06 million shares had been issued and 67.02 million were outstanding. The company reported 4.36 million warrants outstanding and 3.64 million employee and non-employee options outstanding. As of August 13, 67,166,428 common shares were outstanding.
Outlook, risks and unusual items
No specific revenue, earnings or margin guidance is provided. Management cautioned that pandemic-related demand recovery may not continue and that 2021 interim results are not necessarily indicative of full-year results. The filing says operating losses are expected to continue during the ongoing COVID-19 pandemic.
- Key risks include COVID-19 effects on demand, employees, suppliers and distribution; reliance on third parties for manufacturing; potential supply interruptions and delays; dependence on distributor acceptance; and international-market and competitive risks.
- China distributor collections are a concern: the distributor previously defaulted on a payment arrangement, and the company has recorded a current-period allowance. The proposed China restructuring remains uncertain.
- The company reported a $337,145 deferred related-party profit balance and a $95,857 Q2 loss from its China joint venture/equity investment.
- On July 2, 2021, newly appointed CFO Scott Kahn and the company mutually decided to part ways. The filing disclosed no material litigation and stated that disclosure controls were effective.
- Some expense labels and amounts differ between the primary statements and MD&A (including research and development and depreciation/amortization); the filing text does not present these values consistently.
Important facts for investors to verify
- Whether the dental sales rebound is sustained after pandemic-related reopening effects, and whether sales translate into improved margins and lower cash burn.
- Collectability of China-related receivables and the basis and adequacy of the $270,864 allowance; status and final terms of the proposed China affiliate merger.
- Execution, capacity and terms of the United Systems ten-year agreement, and manufacturing continuity for products sourced from other third parties.
- Medical commercialization progress, including CompuFlo and CathCheck placements, and the company’s plans after suspending the intra-articular FDA effort.
- Potential dilution from options, warrants and other shares issuable, as well as the impact of stock-based compensation and board-related share awards.
- Reconcile expense classifications and gross-margin comparisons between the financial statements and MD&A, and review the full filing for purchase commitments and related-party obligations.