Milestone Scientific Inc.: Form 10-Q for the period ended Jun 30, 2024

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, 2023, which was filed with the Securities and Exchange Commission, or SEC on March 29, 2024. 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 has been listed on the NYSE American since June 1, 2015, and trades under the symbol “MLSS”.

We focus 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 the flow rate and monitors the 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 the 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 over 92 million injections worldwide. Each of our devices has a related single use disposable handpiece, leading to a continuing revenue stream following the 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 92 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, and 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.

On June 18, 2024, the Company announced that it has received regulatory approval from Brazil's National Health Surveillance Agency (ANVISA) to market and sell its CompuFlo® Epidural System in Brazil. The approval includes the lumbar, thoracic, and cervical-thoracic junction of the spine.

On July 10, 2024, the Company announced that First Coast Service Options Inc. (FCSO), a Jurisdictional Medicare Administrative Contractor (“JMAC”), has granted favorable Medicare Part B physician price assignment across Florida for use of the Company’s CompuFlo® Epidural System under the American Medical Association’s (AMA) technology-specific Category III CPT® code CPT0777T (real-time pressure-sensing epidural guidance system when used in conjunction with a primary ESI procedure).

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 six months ended June 30, 2024 and 2023, respectively. The trends suggested by this table may not be indicative of future operating results:

Three months ended June 30, 2024 compared three months ended June 30, 2023

Net sales for 2024 and 2023 were as follows:

Consolidated revenue for the three months ended June 30, 2024 and 2023 was approximately $1.9 million and $2.9 million, respectively, a decrease of approximately $1.1 million. On 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 and dental service revenue for the three months ended June 30, 2024 was approximately $1.3 million compared $1.2 million for the three months ended June 30, 2023. The Company terminated its remaining U.S. distributor in September, 2023. The Company recorded no revenue from other U.S. distributors for the three months ended June 30, 2024 compared to approximately $214,000 for the three months ended June 30, 2023. For the three months ended June 30, 2024, international revenue was approximately $490,000 a decrease of $710,000, compared to June 30, 2023. International sales decreased due to issues with freight forwarder carrier during the quarter. The Company recorded no revenue from China for the three months ended June 30, 2024 compared to approximately $270,000 for the three months ended June 30, 2023.

Gross Profit for 2024 and 2023 were as follows:

Consolidated gross profit for the three months ended June 30, 2024 was approximately $1.4 million, a decrease of approximately $479,000, compared to approximately $1.9 million for the same period in 2023. The decrease was due to higher margins in sales associated with the launch of E-Commerce platform offset by an decrease in International sales. The decrease is also associated with the Company recording an allowance for medical inventory due slow commercialization and the sales commencing during the six months ended June 30, 2024.

Selling, general and administrative expenses for 2024 and 2023 were as follows:

Consolidated selling, general and administrative expenses for the three months ended June 30, 2024 and 2023 were approximately $2.9 million and $3.9 million, respectively. The decrease of approximately $1.1 million is due to factors in several areas. Employee salaries and benefits expenses decreased approximately $597,000 for the three months ended June 30, 2024 compared to the same period in 2023. The decrease is due to a lower head count, and stock compensation expense. The Company decreased marketing, and royalties expenses professional fees, quality control, regulatory, other selling, general and administrative expenses by approximately $490,000. The Company recorded an decrease in travel, and warehousing of approximately $8,000 for the three months ended June 30, 2024 compared to the same period in 2023.

Research and Development for 2024 and 2023 were as follows:

Consolidated research and development expenses for the three months ended June 30, 2024 and 2023 were approximately $315,000 and $214,000, respectively. The increase of approximately $101,000 is related to the Company's entering into the final stage of the development of the next generation STA Single Tooth Anesthesia System.

Profit (Loss) from Operations for 2024 and 2023 were as follows:

The loss from operations was approximately $1.8 million and $2.3 million for the three months ended June 30, 2024 and 2023, respectively, a decrease of approximately $497,000.

Six months ended June 30, 2024 compared three months ended June 30, 2023

Net sales for 2024 and 2023 were as follows:

Consolidated revenue for the six months ended June 30, 2024 and 2023 was approximately $4.1 million and $5.5 million, respectively, a decrease of approximately $1.4 million. On 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 and dental service revenue for the six months ended June 30, 2024 was approximately $2.7 million compared $2.2 million at June 30, 2023. The Company terminated its remaining U.S. distributor in September 2023. The Company recorded no revenue from other U.S. distributors for the six months ended June 30, 2024 compared to approximately $432,000 for the six months ended June 30, 2023. For the six months ended June 30, 2024, international revenue was approximately $1.4 million, a decrease of $1.0 million, compared to June 30, 2023. International sales decreased due to issues with freight forwarders carrier during the quarter. The Company recorded no revenue from China for the six months ended June 30, 2024 compared to approximately $270,000 for the six months ended June 30, 2023.

Gross Profit for 2024 and 2023 were as follows:

Consolidated gross profit for the three months ended June 30, 2024 was approximately $3.1 million, a decrease of approximately $691,000, compared to approximately $3.8 million for the same period in 2023. The decrease was due to higher margins in sales associated with the launch of E-Commerce platform offset by an decrease in International sales. The decrease is also associated with the Company recording an allowance for medical inventory due slow commercialization and the sales commencing during the six months ended June 30, 2024.

Selling, general and administrative expenses for 2024 and 2023 were as follows:

Consolidated selling, general and administrative expenses for the six months ended June 30, 2024 and 2023 were approximately $6.0 million and $7.0 million, respectively. The decrease of approximately $1.1 million is due to factors in several areas. Employee salaries and benefits expenses decreased approximately $871,000 for the six months ended June 30, 2024 compared to the same period in 2023. The Company decreased marketing, other selling, general and administrative expenses, travel, warehousing quality control, regulatory, and royalties expenses by approximately by $327,000 The Company recorded an increase in professional fees of approximately $80,000 for the six months ended June 30, 2024 compared to the same period in 2023.

Research and Development for 2024 and 2023 were as follows:

27

Consolidated research and development expenses for the six months ended June 30, 2024 and 2023 were approximately $409,000 and $354,000, respectively. The increase of approximately $55,000 is related to the Company's entering into the final stage of the development of the next generation STA Single Tooth Anesthesia System.

Profit (Loss) from Operations for 2024 and 2023 were as follows:

The loss from operations was approximately $3.2 million and $3.6 million for the six months ended June 30, 2024 and 2023, respectively, a decrease of approximately $375,000.

Liquidity and Capital Resources

Cash Flows

The following table summarizes our sources and uses of cash for six months ended:

Operating Activities

Cash flows used in operating activities decreased of $2.6 million for the six months ended June 30, 2024 compared to June 30, 2023. The decrease was primarily driven by the Company’s receipt of approximately $2.0 million, net of expenses, from the sale of New Jersey net operating losses ‘(NOL”), that were eligible for sale under the State of New Jersey’s Economic Development Authority’s New Jersey Technology Business Tax Certificate Transfer program (“NJEDA Program”).

Investing Activities

Cash flows provided by investing activities increased $5.0 million for the six months ended June 30, 2024 compared to June 30, 2023. The increase in cash provided in investing activities was driven by the Company’s purchase of $2.0 million of marketable securities during the six months ended June 30, 2023. The Company sold $3.0 million of marketable securities during the six months ended June 30, 2024 which increased cash and equivalents $3.0 million.

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2024 compared to June 30, 2023 increased by approximately $243,000 primarily due to the issuance of additional shares of the Company’s common stock due to a Public Placement Offering.

Consideration of Company’s ability to continue as a going concern.

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 consolidated financial statements are issued. The Company has incurred total losses since inception of $124.6 million. The operating losses were $1.8 million and $3.2 million, for three and six months ended June 30, 2024. On June 30, 2024, Milestone Scientific had cash and cash equivalents of approximately $5.8 million and working capital of approximately $7.7 million. For the six months ended June 30, 2024, and 2023, we had cash flows used in operating activities of approximately $0.4 million and $3.0 million respectively.

In April 2024, we received approximately $2.0 million, net of expenses, from the sale of New Jersey net operating losses (“NOL”), that were eligible for sale under the State of New Jersey’s Economic Development Authority’s New Jersey Technology Business Tax Certificate Transfer program (“NJEDA Program”).

Management has prepared financial forecasts covering a period of 12 months from the date of issuance of these financial statements. These forecasts include several revenue and operating expense assumptions which indicate that the Company’s current cash and liquidity is sufficient to finance the operating requirements for at least the next 12 months from the filing date. 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, and a reduction in operating expenses. However, the Company’s continued operations will depend on its ability to raise additional capital through various potential sources until it achieves profitability, if ever.

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, both positions being held by the same person, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2024. 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 June 30, 2024, 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 three months ended June 30, 2024, 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 2023 Annual Report.

Item1B. Unresolved Staff Comments

None.