Milestone Scientific Inc. — FY 2011 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2011, with comparison to FY 2010. Milestone develops and sells computer-controlled injection systems and disposable handpieces, primarily for dental use, and is developing medical applications using its CompuFlo technology. The filing does not provide a clear standalone fourth-quarter results breakdown.
Key financial metrics
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Revenue | $8.38 million | $9.75 million |
| Gross profit / margin | $5.36 million / 64% | $6.22 million / 64% |
| Operating loss | $1.22 million | $0.70 million |
| Net loss | $1.48 million | $0.61 million |
| Net loss per share, basic and diluted | $0.10 | $0.04 |
| Cash used in operating activities | $0.57 million | $0.29 million |
| Cash and cash equivalents at year-end | $96,324 | $627,082 |
| Working capital | Negative $1.31 million | Negative working capital; exact comparative figure not stated in the MD&A |
- Revenue mix: FY 2011 domestic sales were $4.66 million, up from $4.53 million; international sales were $3.72 million, down from $5.22 million. Handpieces accounted for $5.46 million of total sales and instruments for $2.82 million.
- Debt and obligations: The balance sheet shows a $450,000 shareholder note, net of discount, bearing 12% interest and due in 2013. Contractual obligations totaled $5.60 million, including $4.94 million of purchase obligations and $208,786 of operating leases.
- Balance sheet: Total assets were $6.99 million, current liabilities $4.61 million, and stockholders’ equity $1.94 million at December 31, 2011.
Material changes versus FY 2010
- Revenue fell 14%, primarily because the company did not repeat a 2010 shipment to its Chinese distributor: the filing attributes $1.29 million of 2010 international instrument sales to China and reports no comparable 2011 shipment while Chinese registration remained pending. Excluding that China shipment, management says sales volume increased by $468,802.
- Gross margin held at 64%, but gross profit declined by $857,064 as sales fell. Operating loss increased by $522,765, and net loss increased by $867,592.
- Other income and expense shifted from $86,329 of income to $258,498 of expense. FY 2010 included $183,673 from selling New Jersey tax credits; FY 2011 included a $121,399 share of medical joint-venture losses and higher interest and debt-discount expense.
- Operating cash use rose by $276,953. Cash fell by $530,758 during FY 2011, and current liabilities increased substantially, principally due to supplier payables associated with China-related production preparation.
Outlook, risks and unusual items
- Liquidity and going concern: Management stated that cash reserves were insufficient to meet all anticipated obligations over the following 12 months and that additional capital may be needed. Recurring losses and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern. The auditor’s opinion was unqualified but also highlighted this substantial doubt; the financial statements contain no adjustments for the outcome.
- China sales and receivables: Shipment of STA instruments and handpieces to China was suspended pending regulatory approval, which management expected in 2012 but could not assure. The company had reserved $516,000 against receivables from the distributor; net long-term receivables were $261,256. The company had also advanced $3.41 million to its contract manufacturer for future inventory.
- 2012 plans: Management described plans to increase sales and marketing activity, expand distribution and pursue domestic group-practice sales. It gave no numerical revenue or earnings guidance. A Towncare Dental rollout was expected to expand in 2012. A medical joint venture was developing epidural and intra-articular instruments; Beijing 3H had contributed $670,000 by year-end, and Milestone recorded $121,399 as its share of joint-venture losses.
- Financing after year-end: On February 1, 2012, the company completed a $150,000 offshore common-stock offering at $1.40 per share, issuing 107,142 shares.
- Concentration and related parties: Two distributors represented approximately 43% of FY 2011 sales. A shareholder was also a handpiece supplier and an investor in the joint-venture partner; purchases from that supplier were approximately $2.01 million in 2011, and year-end amounts owed were approximately $1.21 million. The filing also reports substantial shares deferred for issuance as employee compensation.
- Other material risks include dependence on a small number of manufacturers, limited distribution and market acceptance, regulatory approval requirements, product liability exposure, and potential dilution from outstanding options and warrants.
Important facts for investors to verify
- Whether Chinese regulatory approval was obtained, shipments resumed, and distributor receivables were collected after the filing date.
- The company’s cash runway, subsequent financing needs, and ability to meet near-term supplier and purchase obligations.
- Current balances and recoverability of manufacturer advances, inventory, and China-related receivables, including the adequacy of the $516,000 reserve.
- Whether domestic and international sales growth excluding the prior-period China shipment continued, and whether the planned group-practice rollout generated meaningful sales.
- The terms, funding, progress, and related-party safeguards for the medical joint venture and its supplier relationships.
- The dilution impact of deferred share issuances and outstanding options and warrants, and the status of the $450,000 shareholder note and accrued interest.