Milestone Scientific Inc. — FY2022 Form 10-K
Reporting period: Year ended December 31, 2022; comparative figures are for FY2021. The company develops and sells computer-controlled dental and medical injection systems. Dental products accounted for nearly all FY2022 sales; medical products include the FDA-cleared CompuFlo epidural system.
Financial performance and position
| Metric | FY2022 / Dec. 31, 2022 | FY2021 / Dec. 31, 2021 |
|---|---|---|
| Net sales | $8.81 million | $10.30 million |
| Gross profit and margin | $4.90 million; 55.7% | $6.31 million; 61.2% |
| Operating loss | $8.83 million | $7.38 million |
| Net loss attributable to Milestone Scientific | $8.71 million; $0.12 per share | $6.82 million; $0.10 per share |
| Cash used in operating activities | $6.03 million | $4.03 million |
| Cash and cash equivalents | $8.72 million | $14.76 million |
| Working capital | Approximately $9.7 million | Not stated in the provided text |
- FY2022 operating expenses were $13.73 million, including $12.51 million of selling, general and administrative expense and $1.15 million of research and development.
- Current assets were $12.97 million and current liabilities $3.30 million at year-end. Total liabilities were $3.70 million. The filing shows lease liabilities of approximately $497,000; it reports no other year-end borrowings in the supplied financial statements.
- Operating cash outflow exceeded the net loss’s cash impact in part due to working-capital movements. Cash declined by $6.05 million during 2022. More than $250,000 of bank deposits was uninsured, including approximately $8.3 million at year-end.
Material changes versus FY2021
- Sales fell $1.50 million, or approximately 14.5%. Dental sales decreased $1.40 million; medical sales decreased about $99,000.
- China sales declined approximately $1.47 million, while international dental sales outside China increased about $347,000. U.S. dental sales fell approximately $278,000, including a $179,000 sales-return allowance associated with Henry Schein’s distribution arrangement ending.
- Gross profit fell $1.41 million, or 22%. Management attributed the decline principally to an approximately $550,000 allowance on slow-moving medical finished goods; the inventory note reports a $582,000 allowance for slow-moving medical goods at year-end.
- Operating loss increased $1.45 million. SG&A decreased by $224,000, but research and development increased $272,000, mainly for the next-generation STA dental system.
- Operating cash use increased approximately $2.0 million. FY2021 financing cash inflow included $3.22 million from warrant exercises and $1.38 million from employee option exercises; there were no comparable proceeds in FY2022.
Outlook, risks and unusual items
- Management says forecast cash and liquidity are sufficient to fund anticipated operating requirements for at least 12 months from the filing date. The company has incurred losses since inception and says continued operations will depend on improving cash generation and potentially raising capital until profitability, if achieved.
- No numerical revenue or earnings guidance is provided. Management’s priorities include growing dental sales, commercializing CompuFlo, and reducing expenses. A CPT code may support reimbursement for certain epidural procedures, but adoption and revenue are uncertain.
- Henry Schein’s U.S. and Canadian non-exclusive distribution arrangement ended December 31, 2022. The company had twelve new non-exclusive distributors in those markets and launched a U.S. direct e-commerce channel in January 2023.
- Key exposures include dependence on third-party manufacturers, including a China-based handpiece supplier; purchase-order-based manufacturing arrangements; supply-chain delays and increased costs; customer and distributor concentration; international-market and geopolitical risks; and competition, regulatory clearance, reimbursement, and product-acceptance uncertainty. Exports represented approximately 63% of 2022 sales.
- The company halted sales to Russia and reported lower sales to Ukraine. It recorded no value for its investment in Milestone China; management says it is not pursuing legal action at this time over the transfer of an affiliate’s equity interest in Anhui, and does not expect to recover consideration without legal action.
- Two voluntary product withdrawals followed 2022 quality investigations: epidural disposable-kit lots valued at about $32,000 and a dental handpiece lot valued at about $25,000. Management reported no patient or user risk from the identified issues.
- Auditors issued an unqualified opinion on the FY2022 financial statements and reported no critical audit matters for that year. Management concluded disclosure controls and internal control over financial reporting were effective at year-end and said the prior-year material weakness was remediated. The auditor did not express an opinion on internal control.
Important facts for investors to verify
- Whether the company can sustain dental sales and replace the distribution contribution previously provided by Henry Schein, including the performance of its new distributor and direct-sales channels.
- Whether CompuFlo adoption, reimbursement, and commercialization can produce meaningful medical revenue; FY2022 medical sales were only $52,750.
- Cash burn, cash runway, and any financing needs relative to management’s 12-month liquidity assessment; also review the exposure to uninsured bank deposits.
- Inventory recoverability and demand assumptions, particularly the medical inventory allowance, and whether the reported reserve and sales outlook reconcile.
- Manufacturing continuity, supplier concentration and related-party purchasing, customer concentration, and the status of China-related distribution and equity matters.