Milestone Scientific Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; comparisons are with 2019. The company develops and sells computer-controlled injection devices, with dental products generating nearly all revenue. Its CompuFlo epidural system had FDA clearance but minimal commercial sales.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Net product sales | $5.44 million | $8.37 million |
| Gross profit / margin | $3.62 million / approximately 67% | $5.72 million / approximately 68% |
| Operating loss | $7.45 million | $4.00 million |
| Net loss attributable to Milestone | $7.34 million | $7.52 million |
| Net cash used in operating activities | $6.98 million | $1.78 million |
| Cash and cash equivalents at year-end | $14.22 million | $1.52 million |
| Total liabilities | $3.46 million | $4.93 million |
- Dental sales fell 35% to $5.42 million; medical sales were $15,800. International sales represented approximately 60% of total sales.
- SG&A rose 13% to $10.77 million, including higher payroll and benefits, D&O insurance, relocation costs, and a $370,260 bad-debt charge related to a settlement with United Systems. R&D increased to $308,000, primarily for epidural system software upgrades.
- The 2019 net loss included a $3.64 million noncash derivative-liability expense; no comparable expense was recorded in 2020. Thus, the smaller reported net loss in 2020 contrasts with the substantially larger operating loss.
- Current assets were $18.55 million and current liabilities $2.88 million. The company reported $276,180 of PPP note payable at year-end, bearing 1% interest and maturing in April 2022; it was applying for forgiveness. Lease liabilities were also reported.
Material changes and developments
- COVID-19-related dental office closures and reduced hours materially affected 2020 sales. Management reported improving dental sell-through beginning in the third quarter, but said the durability of recovery was uncertain.
- In April and June 2020, public offerings generated approximately $19.7 million gross proceeds in total. The offerings issued 12.19 million common shares and warrants; additional warrant exercises after year-end also generated proceeds and shares.
- In December 2020, the exclusive Henry Schein dental distribution arrangement in the United States and Canada became non-exclusive. The company reported signing eight regional distributors in early 2021.
- The company acquired Milestone China’s 50% interest in Advanced Cosmetic Systems in exchange for forgiveness of a previously fully reserved $900,000 receivable, subject to a one-year repurchase option.
Outlook, risks and unusual items
- Management stated that cash and expected resources were sufficient to fund operations for at least 12 months from the filing date. The company nevertheless has a history of operating losses, an accumulated deficit of approximately $100.9 million, and continuing operating cash outflows.
- Management planned to intensify U.S. epidural-device sales efforts as medical facilities reopened. The filing provides no quantified revenue or earnings guidance; epidural commercialization remained at an early stage.
- Key risks include continued COVID-19 effects; market acceptance and reimbursement for medical products; regulatory clearance for the intra-articular device; reliance on third-party manufacturers, including a handpiece supplier in China; and customer/distributor concentration. One U.S. distributor accounted for approximately 38% of 2020 net product sales.
- Inventory valuation is a significant judgment area: the auditor identified inventory net realizable value and demand assumptions for newer medical devices with unproven market acceptance as a critical audit matter. Medical finished-goods inventory included an approximately $450,000 slow-moving reserve.
- Purchase obligations totaled approximately $2.62 million, all reported as due within one year. No material litigation or material off-balance-sheet arrangements were reported.
Most important facts for investors to verify
- Resolve a filing inconsistency: MD&A says 27 medical instruments had been sold in the United States through December 2020, while Note A says seven. Confirm the correct unit count and sales status.
- Track quarterly sales, cash burn, and whether the stated liquidity runway remains adequate as commercialization spending continues.
- Assess whether the expanded non-exclusive dental distributor network improves instrument placements and recurring handpiece sales.
- Review inventory sell-through and reserve assumptions, the status of the PPP forgiveness application, and fulfillment/payment of purchase commitments.
- Monitor dilution from outstanding warrants, options, shares to be issued, and any further capital raising.