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 endedDecember 31, 2019 , which was filed with theSecurities and Exchange Commission , orSEC onMarch 30, 2020 . 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 Our common stock was listed on the NYSE American onJune 1, 2015 and trades under the symbol "MLSS". We have developed a proprietary, computer-controlled anesthetic delivery instrument, using The Wand, a single use disposable handpiece. The instrument is marketed in dental sector under the trademark CompuDent®, and STA Single Tooth Anesthesia System and in medical sector under the trademark CompuMed. CompuDent is suitable for all dental procedures that require local anesthetic. CompuMed is suitable for many medical procedures regularly performed in plastic surgery, hair restoration surgery, podiatry, colorectal surgery, dermatology, orthopedics and several other disciplines. The dental instruments are sold inthe United States ,U.S. territories,Canada , and in over 58 other countries abroad. InJune 2017 , the FDA approved our 510(k) applications for marketing clearance inthe United States of our CompuFlo Epidural Computer Controlled Anesthesia System. We are in the process of introductory meetings with medical device distributors withinthe United States andEurope . There have been five medical instruments sold inthe United States in 2018 and limited amounts sold internationally as of the reporting date. Certain of our medical instruments have obtained European CE mark approval and can be marketed and sold in most European countries. OnJanuary 24, 2019 , the Company received a letter from the NYSE- American Exchange (Exchange) stating that the Company's Plan has been accepted by the Exchange. The Company is still not in compliance with Section(s) 1003(a)(i), (ii) and (iii) of the Company Guide and its listing on the Exchange is being continued pursuant to an extension granted by the Exchange. If the Company is not in compliance with the continued listing standards byMay 20, 2020 , or if the Company does not make progress consistent with the Plan, the Exchange will initiate delisting procedures as appropriate. The Company may appeal a staff delisting determination in accordance with Section 10 and Part 12 of the Exchange's guide.
? 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 devices,
Milestone Scientific is transitioning from a research and development organization to a commercially focused medical device company;
? Expanding our global footprint of our CompuFlo Epidural System by partnering
with distribution companies worldwide; and
? Continuing the development of our proprietary cosmetic injection device for
delivery of botulinum toxin (such as Botox® and Dysport®) Wand STA Dental Market Since its market introduction in early 2007, the Wand/STA Instrument and prior C-CLAD products have been used to deliver over 66 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. BeginningJanuary 1, 2016 ,Milestone Scientific entered into a non-exclusive distribution agreement with Henry Schein, Inc. ("Henry Schein"). InJune 2016 , that agreement was replaced with an exclusive distribution arrangement for our dental products forthe United States andCanada with Henry Schein. Under this arrangement we have a semi-dedicated independent sales force visiting dentists. To date, Henry Schein has endeavored to accomplish the goals set forth in the exclusive distribution agreement for The Wand STA instrument and handpieces, including training of its exclusive products sale's specialists. Specifically, up to 25 exclusive product sales specialists have now been fully trained as experts in the features, advantages and benefits of The Wand/STA instrument and handpieces and all are currently in the field selling the instrument. 25 -------------------------------------------------------------------------------- Henry Schein increased the number of exclusive product specialist in 2019 and trained an additional customer service representative to support dentists acrossNorth America through its exclusive product sales customer call center, as business volume increases. On the global front, we have granted exclusive marketing and distribution rights for the Wand/STA Instrument to select dental suppliers in various international regions inAsia ,Africa ,South America andEurope . They include FM Produkty Dla Stomatologii inPoland andUnident AB in the Scandinavian countries ofDenmark ,Sweden ,Norway andIceland . InOctober 2012 , theState Food and Drug Administration (CFDA) ofthe People's Republic of China approved our Wand/STA Single Tooth Anesthesia System (STA System). InMay 2014 , the CFDA also approved the Wand STA handpieces for sale inChina . Medical Market InSeptember 2014 , Milestone Medical received CE clearance to distribute their epidural and intra-articular instruments in the European Community (EU). Milestone Medical signed a distribution agreement inMarch 2015 with a medical distributor inPoland for the distribution of the epidural instrument. This distribution agreement was terminated in late 2016 due to the distributor's inadequate performance under the distribution agreement. Milestone Medical is continuing to pursue distributors for the instrument in the EU community. During 2016,Milestone Scientific filed for 510(k) marketing clearance with theU.S. Food and Drug Administration (FDA) for both intra-articular and epidural injections with the CompuFlo Epidural System. InJune 2017 , the FDA approved the CompuFlo Epidural System for epidural injections.Milestone Scientific is in the process of meeting with medical device distributors withinthe United States and foreign markets.Milestone Scientific's immediate focus is on marketing its epidural device throughoutthe United States andEurope . InDecember 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 theFDA Office of Device Evaluation , we filed a new 510(k) application for the device inJune 2018 . InAugust 2018 , the FDA providedMilestone Scientific with a list of questions on the intra-articular 510(k) application filed inJune 2018 . Due to the delay in responding to FDA questionsMilestone Scientific will be required file a new 510(K) application. InJanuary 2019 , the Company announced the results of a four hundred patient clinical trial by researchers from theUniversity of Miami ,University of Texas andNorthwestern University , and two prominentCalifornia -based pain clinics. Published-Ahead-of-Print in Anesthesia & Analgesia (the officialJournal of the International Anesthesia Research Society ), the randomized, controlled study compared the effectiveness of the CompuFlo Epidural System in labor and delivery and chronic pain management, where loss of resistance and fluoroscopy are the current standards of care. The CompuFlo Epidural System was found to be ninety-nine percent successful in objectively identifying the epidural space even in challenging patients with a higher body mass index. InFebruary 2019 , the Company announced a new 120-patient clinical study published inAnesthesiology Research & Practice that verifies the CompuFlo Epidural System consistently differentiates false loss of resistance from true loss of resistance during epidural placement. In all cases where the CompuFlo Epidural System's pressure measurements were used to objectively identify the epidural space, the block was performed successfully with no complications. InFebruary 2019 , the Company announced Ospedale"Pugliese Ciaccio" di Catanzaro is the first hospital inItaly to use the CompuFlo Epidural System for all epidurals in labor and delivery. For a local hospital performing a limited number of epidurals, the CompuFlo Epidural System offers a real-time, objective tool for accurate epidural space identification to help reduce failure rates and accidental dural punctures that can require further treatment and interventions. In April, 2019 the Company entered the medical education market with the introduction of the CompuFlo® Epidural Trainer (CompuFlo Trainer), an instructional instrument that uses pressure sensing technology to improve epidural placement success. The Company has signed an agreement to distribute the CompuFlo Trainer withAmerican 3B Scientific , a leading supplier of didactic material for medical education. InJune 2019 the Company announced the results of two research abstracts featuring the CompuFlo Epidural device at Euroanesthesia 2019,Europe's largest annual event showcasing the latest knowledge in the field of anesthesia. The abstracts were presented during scientific poster sessions highlighting how CompuFlo's objective detection of tissue pressure makes challenging procedures with difficult patients more efficient and accelerates clinical competency for trainee. 26
-------------------------------------------------------------------------------- InOctober 2019 , the Company announced the first international multicenter study to compare the incidence of accidental dural puncture using the CompuFlo Epidural System versus the continuous loss of resistance (LOR) technique. The study collected records between 2015 and 2019 of epidural administration on labor and delivery patients using the CompuFlo Epidural System from four institutions, one in theU.S. , one inChile , and two fromItaly . Among the four sites, there were 812 patients who received epidural analgesia with CompuFlo and none had accidental dural puncture regardless of the composition of the epidural performer types. The Company also announced that Professor Rovnat Babazade, MD,University of Texas Medical Branch at Galveston ,Department of Anesthesiology , presented a poster at the ANESTHESIOLOGY® 2019 Annual Meeting inOrlando, Florida , entitled, "International Multicenter Study of Accidental Dural Puncture Rate; Comparison of the CompuFlo with Traditional Method''. ANESTHESIOLOGY 2019, hosted by theAmerican Society of Anesthesiologists (ASA), unites more than 14,000 clinicians, thought leaders and professionals from around the world. InNovember 2019 , the Company and3B Scientific , the world's leading supplier of didactic material for medical education, signed a global agreement expanding distribution of the CompuFlo Trainer. The expanded agreement allows3B Scientific to capitalize on momentum from strong interest in the CompuFlo Trainer at its unveiling at Euroanesthesia 2019 and theAssociation of Women's Health , Obstetric and Neonatal Nurses meeting, and gives more anesthesia instructors the ultimate solution to accelerate the epidural procedure's learning curve and trainee success. The following table shows a breakdown ofMilestone Scientific's product sales (net), domestically and internationally, by business segment product category: March 31, 2020 Dental Medical Total Domestic-US &Canada Devices$ 525 $ -$ 525 Handpieces 697,360 - 697,360 Other 22,506 - 22,506 Total Domestic US & Canada$ 720,391 $ -$ 720,391 International ROW Devices$ 242,504 $ 7,600 $ 250,104 Handpieces 830,208 200 830,408 Other 10,483 - 10,483 Total International-ROW$ 1,083,195 $ 7,800 $ 1,090,995 International-China Devices $ - $ - Handpieces - - - Other - - -Total International $ - $ - $ - Total Product Sales$ 1,803,586 $ 7,800 $ 1,811,386 March 31, 2019 Dental Medical Total Domestic-US &Canada Devices$ 123,994 $ -$ 123,994 Handpieces 789,153 400 789,553 Other 16,817 - 16,817 Total Domestic US & Canada$ 929,964 $ 400 $ 930,364 International ROW Devices$ 285,345 $ -$ 285,345 Handpieces 631,311 - 631,311 Other 18,889 - 18,889 Total International-ROW$ 935,545 $ -$ 935,545 International-China Devices $ - $ - $ - Handpieces 50,000 - 50,000 Other - - -Total International $ 50,000 $ -$ 50,000 Total Product Sales 1,915,509 400 1,915,909 27
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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 endedMarch 31, 2020 compared to 2019. The trends suggested by this table may not be indicative of future operating results: For three months ended March 31, 2020 2019 Operating results: Product sales, net$ 1,811,386 $ 1,915,909 Cost of products sold 527,250 618,694 Gross profit 1,284,136 1,297,215 Operating expenses: Selling, general and administrative expenses 2,785,262 2,109,050 Research and development expenses 107,480 6,346 Loss from operations (1,608,606 ) (818,181 ) Other income, and loss on earning net (4,347 ) 24,986 Net loss (1,612,953 ) (793,195 ) Net loss attributable to noncontrolling interests (12,738 ) (10,443 )
Net loss attributable to
$ (782,752 ) Cash flow: March 31, 2020 March 31, 2019
Net cash used in operating activities
(7,138 ) (8,104 ) Net cash provided by financing activities 228,920 2,224,546
Three months ended
Net sales for 2020 and 2019 were as follows:
2020 2019 Increase Decrease % Dental$ 1,803,586 $ 1,915,509 $ (111,923 ) -6 % Medical 7,800 400 7,400 1850 % Total sales, net$ 1,811,386 $ 1,915,909 $ (104,523 ) -5 % Consolidated revenue for the three months endedMarch 31, 2020 and 2019 were approximately$1.8 million and$1.9 million , respectively. Dental revenue for the three months endedMarch 31, 2020 and 2019 were approximately$1.8 million and$1.9 million , respectively. Dental revenues decreased by approximately$112,000 , which was related to a decrease in devices and handpiece sales inthe United States andCanada by approximately$272,000 , primarily due to a slower demand for the STA instruments, and decrease in Milestone China revenue recognition of approximately$50,000 , offset by an increase in international sales by approximately$219,000 , in the three months endedMarch 31, 2020 compared to 2019. The reduction in shipments to Milestone China is due to Milestone China's continuing cash flow issues and the modification to their business strategy to better serve theChina dental market. Medical revenue for the three months endedMarch 31, 2020 and 2019, were approximately$7,800 and$400 , respectively. InJune 2017 , the Company announced that the CompuFlo Epidural System received 510(k) marketing clearances from theU.S. Food and Drug Administration (FDA). Milestone is in the process of attending medical device trade shows and attending introductory meetings with medical device distributors withinthe United States and European markets. The Company is focusing the marketing its Epidural devices principally inthe United States . In 2020, the Company began to build an internal sales force to market Epidural devices to hospitals and medical center throughoutthe United States . As a result of the reduced hours and closings of dental offices throughout the country and the rest of the world due to the continuing spread of COVID-19, we anticipate that our revenue for the second quarter, and possibly the third quarter, will be materially and adversely affected. At this point in time, it is too early to determine an estimate of what the second or third quarter impact will be or the effect COVID-19 may have on our fourth quarter revenue. In addition, it is too early to determine what the effect will be on the anticipated commercialization of our CompuFlow Epidural system as a medical device in 2020 28 --------------------------------------------------------------------------------
Gross Profit for 2020 and 2019 were as follows:
2020 2019 Increase Decrease % Dental$ 1,279,845 $ 1,296,842 $ (16,997 ) -1 % Medical 4,291 373 3,918 1050 % Total gross profit$ 1,284,136 $ 1,297,215 $ (13,079 ) -1 %
Consolidated gross profit for the three months ended
Selling, general and administrative expenses for 2020 and 2019 were as follows: Increase 2020 2019 Decrease % Dental$ 703,459 $ 804,180 $ (100,721 ) -13 % Medical 566,625 486,406 80,219 16 % Corporate 1,515,178 818,464 696,714 85 % Total selling, general and administrative expenses$ 2,785,262 $ 2,109,050 $ 676,212 32 % Consolidated selling, general and administrative expenses for the three months endedMarch 31, 2020 and 2019, were approximately$2.8 million and$2.1 million , respectively. The increase of approximately$676,000 is categorized in several areas. Professional Fees increased by approximately$487,000 due to the Company seeking business alternatives in addition to possible capital funding. Office expense increased approximately$143,000 for the relocation of the company office and other related costs. As a result of the reduced hours and closings of dental offices throughout the country and the rest of the world due to the continuing spread of COVID-19, salaries, and marketing expenses decreased approximately$46,000 compared to 2019.
Research and Development for 2020 and 2019 were as follows:
2020 2019 Increase Decrease % Dental $ -$ 696 $ (696 ) 100 % Medical 107,480 5,650 101,830 1802 % Corporate -
- 0 %
Total research and development
Consolidated research and development expenses for the three months endedMarch 31, 2020 and 2019, were approximately$107,000 and$6,000 , respectively. The increase is due to additional development costs and software upgrades associated with the Epidural devices.
Profit (Loss) from Operations for 2020 and 2019 were as follows:
2020 2019 Increase Decrease % Dental$ 576,386 $ 491,966 $ 84,420 17 % Medical (669,814 ) (491,683 ) (178,131 ) 36 % Corporate (1,515,178 ) (818,464 ) (696,714 ) 85 % Total loss from operations$ (1,608,606 ) $ (818,181 ) $ (790,425 ) 97 % The loss from operations was approximately$1.6 million and$818,000 for the first quarter endingMarch 31, 2020 and 2019 respectively. The increase in the loss quarter over quarter is due to an increase in selling, general and administration expenses of approximately$676,000 and an increase of approximately$101,000 in research and development as noted in the previous section of this report. The dental segments are still the primary revenue and gross profit generator for the Company. The dental segment has consistent revenue inthe United States and Rest of the World and manage expenses during the process. Costs in the medical segment are beginning to increase as personnel are expanded in theU.S. to focus on our domestic Epidural device business. 29
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Liquidity and Capital Resources
AtMarch 31, 2020 ,Milestone Scientific had cash and cash equivalents of approximately$766,000 and working capital of approximately$21,000 versus working capital of$1.2 million atDecember 31, 2019 . For the three months endedMarch 31, 2020 , we had negative cash flows from operating activities of approximately$972,000 compared to$220,000 for the three months endedMarch 31, 2019 . Based on current and expected cash to be used in operating activities substantial doubt exists about the Company's ability to continue as a going concern for at least the next twelve months from the financial reporting 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 inthe United States and worldwide, as well as considering other strategic plans or transactions. However, the COVID-19 pandemic is expected to have an adverse effect on the Company's operations and cash flows for at least in the next two quarters and possibly longer depending on the length and severity in of the pandemic in important dental markets. Management is also actively pursuing additional financing and/or other strategic plans and transactions but can provide no assurances that such financing or other strategic plans will be available on acceptable terms, or at all. Further, the extreme volatility in the financial markets due to COVID-19, as well as the expected non-compliance with the NYSEMay 20th, 2020 requirement may make it more difficult to raise sufficient capital when needed or execute other strategic plans or transactions. Without additional funding a delay, scale back or elimination of some or all of the Company's medical commercial strategy or development programs could be required, all of which could have a material adverse impact on the Company. The capital raised inApril 2020 (see Note 14 - Subsequent Events) providesMilestone Scientific with working capital to continue marketing of the CompuFlo Epidural device and to market its dental devices. Now that the CompuFlo Epidural System has obtained FDA clearance inthe United States (June 2017 ), the development costs were reduced in 2019 but the selling costs are expected to continue to increase. The FDA clearance has provided the Company with the opportunity to establish distribution in theU.S. At the same time, the Company is looking to establish additional financing to support the Epidural device commercialization process. The intra-articular device will restart the 510K application process later this year, subject to sufficient funding. OnApril 14, 2020 , the Company closed its previously announced underwritten offering of 4,750,000 shares of its common stock and warrants to purchase up to an aggregate of 2,375,000 shares of the its common stock. Each share of common stock was sold together with a warrant to purchase 0.50 of one share of common stock at a combined price to the public of$0.95 . Gross proceeds before underwriting discounts commissions and estimated offering expenses, were approximately$4.5 million . In addition,Milestone Scientific granted toMaxim Group LLC a 45-day option to purchase up to an additional 712,500 shares of common stock and/or warrants to purchase up to 356,250 shares of common stock for the purposes of covering any over-allotments, at the public offering price less discounts and commissions, of whichMaxim Group LLC partially exercised its option to purchase 200,000 shares of common stock and warrants to purchase up to 330,000 shares of common stock. The partial over-allotment exercise transaction also closed onApril 14, 2020 , bringing the total net proceeds of the offering, after underwriting discounts and commissions and estimated offering expenses, to approximately$4.3 million . The warrants are immediately exercisable at a price of$1.20 per share of common stock and expire three years from the date of issuance. The shares of common stock and the accompanying warrants were purchased together in the offering but were issued separately and were immediately separable upon issuance. In connection with capital raise onApril 14, 2020 , Maxim exercised its over-allotment option under the Underwriting Agreement, and purchased 470,000 shares of common stock, less the Underwriter's discount and commissions and offering expenses, of$415,244 . This over-allotment exercise transaction closed onApril 17, 2020 .
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