MILESTONE SCIENTIFIC INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

0
80
MILESTONE SCIENTIFIC INC. Management's Discussion and Analysis of Financial Condition and Results
of Operations (form 10-Q)


The following discussions of the financial condition and results of operations
should be read in conjunction with the financial statements and the notes to
those statements contained in this report and in connection with management's
discussion and analysis and the audited consolidated financial statements and
notes thereto included in our Annual Report on Form 10-K for the year ended
December 31, 2021, which was filed with the Securities and Exchange Commission,
or SEC on March 31, 2022. Certain statements in this discussion and elsewhere in
this report constitute forward-looking statements, within the meaning of section
21E of the Exchange Act, that involve risks and uncertainties. The actual
results may differ materially from those anticipated in these forward-looking
statements.



OVERVIEW



Milestone Scientific is a biomedical technology research and development company
that patents, designs, develops and commercializes innovative diagnostic and
therapeutic injection technologies and devices for medical, dental and cosmetic
use. Since our inception, we have engaged in pioneering proprietary, innovative,
computer-controlled injection technologies, and solutions for the medical and
dental markets. We believe our technologies are proven and well established. Our
common stock was initially listed on the NYSE American on June 1, 2015 and
trades under the symbol "MLSS".



We have focused our resources on redefining the worldwide standard of care for
injection techniques by making the experience more comfortable for the patient
by reducing the anxiety and stress of receiving injections from the healthcare
provider. Our computer-controlled injection devices make injections precise,
efficient, and virtually painless.



Milestone Scientific has developed a proprietary, computer-controlled anesthetic
delivery device, using The Wand®, a single use disposable handpiece. The device
is marketed in dentistry under the trademark CompuDent®, and STA Single Tooth
Anesthesia System® and is suitable for all dental procedures that require local
anesthetic. Our proprietary DPS Dynamic Pressure Sensing technology® is our
technology platform that advances the development of next-generation devices. It
regulates flow rate and monitoring pressure from the tip of the needle, through
platform extensions for local anesthesia for subcutaneous drug delivery, used in
various dental and medical injections. It has specific medical applications for
cosmetic botulinum toxin injections, epidural space identification in regional
anesthesia procedures and intra-articular joint injections.



Milestone Scientific remains focused on advancing efforts to achieve the
following three primary objectives:

? Establishing Milestone’s DPS Dynamic Pressure Sensing technology platform as

the standard-of-care in painless and precise drug delivery, providing for the

first time, objective visual and audible in-tissue pressure feedback, and

continuing to expand platform applications;

? Following obtaining successful FDA clearance of our first medical device,

Milestone Scientific is transitioning from a research and development

organization to a commercially focused medical device company; and

? Expanding our global footprint of our CompuFlo Epidural and CathCheck System by

utilizing a direct field sales force and partnering with distribution companies

  worldwide.




Because of combining the ability to regulate the flow rate and monitor pressure
at the tip of the needle, Milestone Scientific developed the industry's first
solution for painlessly administering an intra-ligamentary injection, i.e.,
"single-tooth anesthesia" which could be used as the only injection necessary
for achieving dental anesthesia, foregoing the need to administer traditional
injections such as a nerve branch block. In addition to single-tooth anesthesia,
the STA System can effectively perform all the traditional injections that
dentists routinely give but can provide them virtually pain free and with
numerous clinical advantages. This device, which also utilizes a disposable
handpiece, is currently marketed by Milestone Scientific as the Wand STA®
System.



Milestone Scientific believes its dental devices have set a new standard of care
for dental injections. Our dental devices have been used to administer tens of
millions of injections worldwide. Each of our devices has a related single use
disposable handpiece, leading to a continuing revenue stream following sale of
the device. At present, we sell disposable handpieces unique to our legacy
product (the Wand and CompuDent) to users who have not upgraded to our current
dental product, the Wand STA System.



Building on the success of our proprietary, core technology platform for dental
injections, and desiring to pursue other growth opportunities, we have recently
begun to expand the uses and applications of our proprietary, patented
technologies to achieve greater operational efficiencies, enhanced patient
safety and therapeutic adherence, patient satisfaction, and improved quality of
care across a broad range of medical specialties. In June 2017, we received FDA
regulatory clearance to sell the CompuFlo Epidural Computer Controlled
Anesthesia System in the United States for certain medical applications. We
intend to continue to expand the uses and applications of our DPS Dynamic
Pressure Sensing technology.



                                       24
--------------------------------------------------------------------------------


We believe that we and our technology solutions are widely recognized by key
opinion leaders (i.e., academics, anesthesiologists and practicing dentists
whose opinions are widely respected), industry experts and medical and dental
practitioners as a leader in the emerging, computer-controlled injection
industry.



Wand STA Dental Market


Since its market introduction in early 2007, the Wand STA System and prior
C-CLAD devices have been used to deliver over 80 million safe, effective, and
comfortable injections. The instrument has also been favorably evaluated in
numerous peer-reviewed, published clinical studies and associated articles.
Moreover, there appears to be a growing consensus among users that the STA
Instrument is proving to be a valuable and beneficial instrument that is
positively impacting the practice of dentistry worldwide.



Beginning January 1, 2016, Milestone Scientific entered into a non-exclusive
distribution agreement with Henry Schein, Inc. ("Henry Schein"). In June 2016,
that agreement was replaced with an exclusive distribution arrangement for our
dental products for the United States and Canada with Henry Schein. In December
2020, the exclusive distribution arrangement with Henry Schein was replaced with
a non-exclusive distribution arrangement, for distribution in the United States
and Canada.



In January 2021, the Company began a process of signing non-exclusive dental
distribution arrangements with dental distributors in specific geographical
locations in the United States and Canada. To date there are twelve new
non-exclusive dental distributors engaged in the United States and Canada. The
goal is to add not only additional non-exclusive distributors in the United
States, but as well as exploring  other co-operation opportunities with Dental
Service Organization, education institutions, dental schools and entities in
specific dental market segments. To date there are two of such channel partners
in the United States.



The goal of changing our marketing plan from a sole exclusive distributor in the
USA and Canada, to a large number of non-exclusive distributors is to increase
placement of our Wand STA  System and thus the expansion of our dental
disposables.



On the global front, we have granted exclusive marketing and distribution rights
for the Wand STA System  to select dental suppliers in various international
regions in Asia, Africa, South America, and Europe. They include FM Produkty Dla
Stomatologii in Poland and Unident AB in the countries of Denmark, Sweden,
Norway, and Iceland. Additionally, the Company is in the process of evaluating
current international distributors and adding new distributors, globally as
required based on the economics of the region.



The Ukrainian-Russian conflict, sanctions imposed by the United States and other
western democracies, and any expansion is likely to have unpredictable and
wide-ranging effects on the domestic and global economy and financial markets,
which could have an adverse effect on our business and results of operations.
Already the conflict has caused market volatility, a sharp increase in certain
commodity prices, such as wheat and oil, and an increasing number and frequency
of cybersecurity threats. So far, we have experienced a decrease in
international sales from Ukraine and halted all sales to Russia, a direct impact
from the conflict. We will continue to monitor the situation carefully and, if
necessary, take action to protect our business, operations and financial
condition.



Medical Market



During 2016, Milestone Scientific filed for 510(k) marketing clearance with the
U.S. Food and Drug Administration (FDA) for both intra-articular and epidural
injections with the CompuFlo Epidural System.  In June 2017, the FDA approved
the CompuFlo Epidural System for epidural injections. During the end of the
second quarter 2021, Milestone Scientific invested in sales force expansion,
thus building up a stronger direct sales force aiming at increasing the adoption
and penetration of its technology. At the beginning of the year Milestone
Scientific had three sales managers  and by July 31, 2021 had established a
direct sales force consisting of eleven full time employees covering the US
North and Southeast regions along with California. Milestone Scientific
continues to partner with distributors for the international markets



In December 2016, we received notification from the FDA that based upon the
510(k)-application submitted for intra-articular injections, we did not
adequately document that the device met the equivalency standard required for
510(k) clearances. Following consultation with the FDA Office of Device
Evaluation, we intended to file a new 510(k) application for the device in 2019.
However, due to financing constraints, a new 510(k) application was not filed in
2019. The Company has decided not to proceed with securing FDA approval for the
intra-articular instrument at the present time.



In April 2020, Milestone Scientific, announced that it has validated and
integrated the new CathCheck™ feature into the CompuFlo® Epidural System. Using
CathCheck, physicians and nurses can now monitor the placement of a catheter to
determine the presence or absence of a pulsatile waveform (heartbeat), providing
new information that can be used to determine if the catheter is in place or has
become dislodged from the epidural space. This can be performed within seconds
by measuring the pulsatile waveform within the epidural space.



In March 2022, the Company was notified by a territory manager, that Epidural
Disposable Kit, Part # 6100-01, lot HC 51 potentially had an issue. The Company
opened an investigation and decided to initiate a voluntary market withdrawal
for the Epidural Disposable Kit, Part # 6100-01, lot HC 51. Management has
determined that there are no potential impacts to patients or users.



                                       25
--------------------------------------------------------------------------------

The following table shows a breakdown of Milestone Scientific’s product sales
(net), domestically and internationally, by business segment product category:


                                      March 31, 2022                                  March 31, 2021

Domestic: US Dental Medical Grand Total Dental Medical Grand Total
Instruments

             $   122,968     $        -     $    122,968     $   176,016     $       -     $    176,016
Handpieces                  795,859          7,550          803,409         794,984         8,150          803,134
Accessories                  24,860              -           24,860          17,908                         17,908
Grand Total             $   943,687     $    7,550     $    951,237     $   

988,908 $ 8,150 $ 997,058

International: Rest

      of World
Instruments             $   453,560     $        -     $    453,560     $   383,255     $  42,500     $    425,755
Handpieces                  923,952              -          923,952         954,534        20,400          974,934
Accessories                  12,189              -           12,189          20,560                         20,560
Grand Total             $ 1,389,701     $        -     $  1,389,701     $ 1,358,349     $  62,900     $  1,421,249
International: China
Instruments             $         -     $        -     $          -     $   150,000     $       -     $    150,000
Handpieces                  359,964              -          359,964         356,400             -          356,400
Accessories                       -              -                -               -             -                -
Grand Total             $   359,964     $        -     $    359,964     $   506,400     $       -     $    506,400

Total Product Sales $ 2,693,352 $ 7,550 $ 2,700,902 $ 2,853,657 $ 71,050 $ 2,924,707




Current Product Platform



See Note 1, “Organization and Business”.


Results of Operations



The following table sets forth the consolidated results of operations for the
three months ended March 31, 2022 and 2021, respectively. The trends suggested
by this table may not be indicative of future operating results:




                                                            March 31, 2022       March 31, 2021
Operating results:
Product sales, net                                         $      2,700,902     $      2,924,707
Cost of products sold                                             1,018,476            1,122,413
Gross profit                                                      1,682,426            1,802,294

Operating expenses:
Selling, general and administrative expenses                      3,115,629            2,749,299
Research and development expenses                                   464,466               16,444
Depreciation and amortization expense                                16,814               20,924
Total operating expenses                                          3,596,909            2,786,667
Loss from operations                                             (1,914,483 )           (984,373 )
Other income, and interest expense net                               (4,742 )             (1,484 )
Net loss                                                         (1,919,225 )           (985,857 )
Net loss attributable to noncontrolling interests                   (17,502 )            (12,988 )
Net loss attributable to Milestone Scientific Inc.               (1,901,723 )           (972,869 )




                                       26
--------------------------------------------------------------------------------


Cash flow:                                                  March 31, 2022       March 31, 2021
Net cash used in operating activities                      $     (1,507,508 )   $       (967,814 )
Net cash used in investing activities                                     -               (5,916 )
Net cash (used in) provided by financing activities                  (2,063 )          3,700,523



Three months ended March 31, 2022 compared three months ended March 31, 2021

Net sales for 2022 and 2021 were as follows:


                      2022            2021           Change
Dental             $ 2,693,352     $ 2,853,657     $ (160,305 )
Medical                  7,550          71,050     $  (63,500 )
Total sales, net   $ 2,700,902     $ 2,924,707     $ (223,805 )




Consolidated revenue for the three months ended, March 31, 2022, and 2021 were
approximately $2.7 million and $2.9 million, respectively. Dental revenue
decreased approximately $160,000 for the three months ending March 31, 2022 as
compared to the three months ended March 31, 2021. Medical revenue decreased
approximately $63,000 for the three months ending March 31, 2022 as compared to
the three months ending March 31, 2021. The pandemic had a significant impact on
the labor and delivery departments within hospitals, much more so than other
departments. This was due to the fact that many pregnant women have opted out of
the vaccine, resulting in stricter restrictions than other departments.  As a
result, our sales team was unable to enter the operatories, which limited our
ability to demo and trial the instruments and thus influenced the obtained sales
results of the three months ending March 2022.



Gross Profit for 2022 and 2021 were as follows:


                        2022            2021           Change
Dental               $ 1,677,661     $ 1,759,682     $  (82,021 )
Medical                    4,765          42,612     $  (37,847 )
Total gross profit   $ 1,682,426     $ 1,802,294     $ (119,868 )



Consolidated gross profit for each of the three months ended March 31, 2022 and
2021 was approximately 62%.

Selling, general and administrative expenses 2022 and 2021 were as follows:


                                                2022             2021            Change
Dental                                      $    866,012     $    631,882     $    234,130
Medical                                        1,231,886          918,098          313,788
Corporate                                      1,017,731        1,199,319         (181,588 )
Total selling, general and administrative
expenses                                    $  3,115,629     $  2,749,299     $    366,330




Consolidated selling, general and administrative expenses for the  three months
ended March 31, 2022 and 2021, were approximately $3.1 million, and $2.7 million
respectively. The increase of approximately $366,000 is categorized in several
areas. Employee salaries, and benefits expenses increased approximately $312,000
during the three months ended March 31, 2022, as the Company hired additional
employees to work on the commercialization of the CompuFlo® Epidural System.
During the three months ended March 31, 2022, employee travel and other selling,
general and administrative expenses increased approximately $145,000 due to
the re-opening of dental, and medical offices throughout the country, and the
rest of the world. The Company's marketing, professional fees, and warehousing
expenses decreased approximately $91,000 for three months ended March 31, 2022.



Research and Development for 2022 and 2021 were as follows:


                                   2022          2021        Change
Dental                           $ 456,516     $      -     $ 456,516
Medical                              7,950       16,444        (8,494 )
Corporate                                -            -             -

Total research and development $ 464,466 $ 16,444 $ 448,022

                                       27
--------------------------------------------------------------------------------




Consolidated research and development expenses for the three months ended, March
31, 2022 and 2021, were approximately $464,000 and $16,000, respectively. The
increase of approximately $448,000 is related to the Company exploring possible
enhancements to the STA Single Tooth Anesthesia System product line .



Profit (Loss) from Operations for 2022 and 2021 were as follows:


                                 2022             2021           Change
Dental                       $    354,240     $  1,126,069     $ (771,829 )
Medical                        (1,236,091 )       (895,781 )     (340,310 )
Corporate                      (1,032,632 )     (1,214,661 )      182,029
Total loss from operations   $ (1,914,483 )   $   (984,373 )   $ (930,110 )




The loss from operations was approximately $1.9 million and $1 million for the
three months ending March 31, 2022 and 2021, respectively. The increase is
related to decrease in revenue and gross profit, the Company incurred additional
freight cost due to importing delays from China. and, an increase in selling,
general and administrative expenses as discussed above.



Liquidity and Capital Resources



On March 31, 2022, Milestone Scientific had cash and cash equivalents of
approximately $13.3 million and working capital of approximately $14.4 million
versus working capital of $15.8 million on December 31, 2021. For the three
months ended March 31, 2022 and 2021, we had cash flows used in operating
activities of approximately $1.5 million and $1 million, respectively. We
believe our current cash on hand is sufficient to fund operations through 12
months from filing the unaudited condensed consolidated financial statements.



Milestone Scientific is actively pursuing the generation of positive cash flows
from operating activities through an increase in revenue from its dental
business worldwide, the generation of revenue from its medical devices and
disposables business in the United States and worldwide, as well as considering
other strategic plans or transactions.



Now that the CompuFlo Epidural System has obtained FDA clearance in the United
States (June 2017), the development costs were reduced in 2020, but the selling
costs are expected to continue to increase. The FDA clearance has provided the
Company with the opportunity to establish distribution in the U.S.

© Edgar Online, source Glimpses



Source link