Milestone Scientific Inc.: Form 10-Q for the period ended Sep 30, 2023

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, 2022, which was filed with the Securities and Exchange Commission, or SEC on March 30, 2023. 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 company that patents, designs, develops and commercializes innovative diagnostic and therapeutic injection technologies and devices for medical and dental 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.

We have developed a proprietary, revolutionary, computer-controlled anesthetic delivery device, our DPS Dynamic Pressure Sensing Technology® System, to meet the needs of various subcutaneous drug delivery injections and fluid aspiration – enabling healthcare practitioners to achieve multiple unique benefits that cannot currently be accomplished with the 160-year-old manual syringe. 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 epidural space identification in regional anesthesia procedures.

Our device, using The Wand®, a single use disposable handpiece, 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. The dental devices currently are sold in the United States, Canada and in over 41 other countries. Milestone Scientific also has 510(k) marketing clearance from the U.S. Food and Drug Administration (FDA) on the CompuFlo® Epidural Computer Controlled Anesthesia System in the lumbar, thoracic and cervical thoracic junction of the spine region. In addition, Milestone Scientific has obtained CE mark approval and can be marketed and sold in most European countries.

Our recent receipt of chronology-Specific CPT Code for the Company's technology by the American Medical Association marks an important milestone, that could increase the potential number of anesthesia pain management clinics adopting the CompuFlo instrument. A CPT code expands the potential for reimbursement of epidural procedures in pain management utilizing the CompuFlo Epidural System., which should help accelerate the commercial roll-out of CompuFlo in the U.S

Milestone Scientific and its subsidiaries currently hold over 245 U.S. and foreign patents, and many patents pending and patent applications. The Company’s patents and patent applications relate to drug delivery methodologies, Peripheral Nerve Block, drug flow rate measurement, pressure/force computer-controlled drug delivery with exit pressure, dynamic pressure sensing, automated rate control, automated charging, drug profiles, audible and visual pressure/force feedback, tissue identification, identification of a target region drug delivery injection unit, drug drive unit for anesthetic, handpiece, and injection device.

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 targeted field sales force and partnering with distribution companies worldwide.

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 STA Single Tooth Anesthesia System.

Building on the success of our proprietary, core technology platform for dental injections, and desiring to pursue other growth opportunities, we have 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.

We intend to continue to expand the uses and applications of our DPS Dynamic Pressure Sensing technology. We believe that we and our technology solutions are 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.

The Single Tooth Anesthesia System (Dental)

Since its market introduction in early 2007, the STA Single Tooth Anesthesia System and prior C-CLAD devices have been used to deliver over 90 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.

Medical Market Product

In June 2017, we received FDA regulatory clearance to sell the CompuFlo Epidural Computer Controlled Anesthesia System in the United States for epidural injections.

In May, 2022, the Company received a chronology-specific CPT Code for the Company's technology by the American Medical Association, which marks an important milestone that could increase the potential number of anesthesia pain management clinics adopting the CompuFlo instrument. Effective January 1, 2023, this temporary tracking code allows clinicians to submit claims to healthcare insurance providers using the Company’s technology for Epidural Sterile Injections in the lumbar, thoracic, cervical thoracic junction of the spinal region for reimbursement. A CPT code expands the potential for reimbursement of epidural procedures in pain management utilizing the CompuFlo Epidural System, which should help accelerate the commercial roll-out of CompuFlo in the United States.

On February 27, 2023, the Company announced that its CompuFlo® Epidural System has received 510(k) FDA clearance for use in the thoracic region of the spine, including the cervical thoracic junction. This approval expands upon the Company’s prior approval of CompuFlo for use within the lumbar region of the spine, where the focus has been epidural analgesia during labor and delivery procedures.

Our recent receipt of chronology-Specific CPT Code for the Company's technology by the American Medical Association marks an important milestone, that could increase the potential number of anesthesia pain management clinics adopting the CompuFlo instrument. A CPT code expands the potential for reimbursement of epidural procedures in pain management utilizing the CompuFlo Epidural System, which should help accelerate the commercial roll-out of CompuFlo in the U.S.

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

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

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 and nine months ended September 30, 2023 and 2022, respectively. The trends suggested by this table may not be indicative of future operating results:

Three months ended September 30, 2023 compared three months ended September 30, 2022

Net sales for 2023 and 2022 were as follows:

Consolidated revenue for the three months ended September 30, 2023 and 2022 was approximately $2.1 million and $2.2 million, respectively, a decrease of approximately $156,000. As of January 3, 2023, the Company launched an E-Commerce platform, to replace its previous U.S. distribution arrangement with Henry Schein by selling and shipping the STA Single Tooth Anesthesia System® (STA) and handpieces directly to end users, including dental offices and dental groups, within the U.S. E-commerce revenue for the three months ended September 30, 2023 was approximately $1.2 million. The Company recorded no revenue from Henry Schein for the three months ended September 30, 2023 compared to approximately $715,000 recorded for the three months ended September 30, 2022. Revenue from other U.S. distributors was approximately $48,000 for the three months ended September 30, 2023, a decrease of $105,000 compared to September 30, 2022. For the three months ended September 30, 2023, international revenue was approximately $800,000 a decrease of $538,000, compared to September 30, 2022.

Gross Profit for 2023 and 2022 were as follows:

Consolidated gross profit for the three months ended September 30, 2023 was approximately $1.5 million, an increase of approximately $50,000, compared to approximately $1.4 million for the same period in 2022. The increase was due to higher margin sales associated with the launch of the E-Commerce platform.

Selling, general and administrative expenses for 2023 and 2022 were as follows:

Consolidated selling, general and administrative expenses for the three months ended September 30, 2023, and 2022 were approximately $2.8 million and $3.3 million, respectively. The decrease of approximately $460,000 is due to factors in several areas. Employee salaries and benefits expenses decreased approximately $169,000 for the three months ended September 30, 2023 compared to the same period in 2022. The Company decreased quality control, regulatory, professional fees, travel and royalties expenses approximately by $389,000. With the launch of the E-Commerce platform marketing and warehousing expense increased for the three months ended September 30, 2023, by approximately $73,000 compared to the same period in 2022. The Company recorded an increase in other selling, general and administrative expenses of approximately $25,000 for the three months ended September 30, 2023 compared to the same period in 2022.

Research and Development for 2023 and 2022 were as follows:

Consolidated research and development expenses for the three months ended September 30, 2023 and 2022 were approximately $170,000 and $166,000, respectively. The increase of approximately $4,300 is related to the Company's progress in developing the next generation STA Single Tooth Anesthesia System, offset by an decrease in medical cost for the epidural consumables.

Profit (Loss) from Operations for 2023 and 2022 were as follows:

The loss from operations was approximately $1.5 million and $2.0 million for the three months ended September 30, 2023 and 2022, respectively, a increase of approximately $0.5 million. As stated above, the increase in the loss from operations is driven, in part by higher dental sales, and the lowers the higher selling, general and administrative expenses during such period.

Nine months ended September 30, 2023 compared nine months ended September 30, 2022

Net sales for 2023 and 2022 were as follows:

Consolidated revenue for the nine months ended September 30, 2023 and 2022 was approximately $7.6 million and $6.6 million, respectively, an increase of approximately $1.0 million. As of January 3, 2023, the Company launched an E-Commerce platform, selling and shipping the STA Single Tooth Anesthesia System® (STA) and handpieces directly to end users, including dental offices and dental groups, within the U.S. E-commerce revenue for the nine months ended September 30, 2023 was approximately $3.5 million. The Company terminated its major United States distributor, Henry Schein, as of December 31, 2022. The distributor had return rights through March 31, 2023 under the distribution contract, for which the Company recorded at December 31, 2022 an allowance of approximately $179,000 for such returns. This allowance was reversed as of March 31, 2023.

The Company recorded no revenue from Henry Schein for the nine months ended September 30, 2023, compared to approximately $2.4 million recorded for the nine months ended September 30, 2022. Revenue from other U.S. distributors was approximately $480,000 for the nine months ended September 30, 2023, an increase of $55,000 compared to September 30, 2022. For the nine months ended September 30, 2023, international revenue was approximately $3.2 million, a decrease of $135,000 compared to September 30, 2022. For the nine months ended September 30, 2023, the Company reported approximately $270,000 revenue from China, a decrease of approximately $90,000.

Gross Profit for 2023 and 2022 were as follows:

Consolidated gross profit for the nine months ended September 30, 2023 increased by approximately $1.5 million, or 40%, compared to the same period in 2022. The increase was due to higher margins sales associated with the launch of E-Commerce platform. The Company recorded approximately $91,000 for inventory that was obsolete and or expired.

Selling, general and administrative expenses for 2023 and 2022 were as follows:

Consolidated selling, general and administrative expenses for the nine months ended September 30, 2023, and 2022 were approximately $9.8 million and $9.7 million, respectively. The increase of approximately $153,000 is due to several factors. Employee salaries and benefits expenses decreased approximately $190,000 for the nine months ended September 30, 2023 compared to the same period in 2022. The Company decreased quality control, regulatory, and travel expenses approximately by $290,000 compared to the same period in 2022. The Company increase professional fees, and royalties expenses approximately by $191,000 compared to the same period in 2022.With the launch of the E-Commerce platform marketing and warehousing expense increased for the nine months ended September 30, 2023, by approximately $290,000 compared to the same period in 2022. The Company recorded an increase in other selling, general and administrative expenses of approximately $153,000 for the nine months ended September 30, 2023 compared to the same period in 2022.

Research and Development for 2023 and 2022 were as follows:

Consolidated research and development expenses for the nine months ended September 30, 2023 and 2022 were approximately $524,000 and $897,000, respectively. The decrease of approximately $373,000 is related to the Company's progress in developing the next generation STA Single Tooth Anesthesia System, offset by an increase in medical cost for the epidural consumables.

Profit (Loss) from Operations for 2023 and 2022 were as follows:

The loss from operations was approximately $5.1 million and $6.8 million for the nine months ended September 30, 2023 and 2022, respectively, a increase of approximately $1.7 million. As stated above, the increase in the loss from operations is driven by higher dental sales, which offset the higher selling, general and administrative expenses during period.

Liquidity and Capital Resources

The Company has evaluated whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued. Total losses since inception have been $121 million. The operating losses were $1.5 million and $5.1 million for three and nine months ended September 30, 2023, respectively. Management has prepared cash flow forecasts covering a period of 12 months from the date of issuance of these financial statements. As a result of the forecast, management believes that the Company has sufficient cash, as a result of slowing down production on new technology, research, and development, terminating certain consulting agreements, and managing inventory purchases from our manufacturers. Additionally, the Company was approved on September 12, 2023 to sell Net Operating Losses through the New Jersey Technology Business Tax Certificate Transfer Program (“NJ NOL Program”), a program established by NJ Law and administered by the New Jersey Economic Development Authority (“NJEDA”). Management believes this will generate positive cash flow in the near future. Management has concluded that there is no substantial doubt about the Company’s ability to continue as a going concern for the period of one year from the issuance of these financial statements.

Milestone Scientific is a “smaller reporting company” as defined by Regulation S-K and, as such, is not required to provide the information required by this item.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Principal Accounting Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, our Chief Executive Officer, and Principal Accounting Officer, concluded that, as of September 30, 2023, our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

We routinely review our internal control over financial reporting and from time to time make changes intended to enhance the effectiveness of our internal control over financial reporting. During the nine month ended September 30, 2023, we made no changes to our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that we believe materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A, of our 2022 Annual Report.

Item1B. Unresolved Staff Comments

None.