What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-14 compared with 2020-05-15 · 101 added, 72 removed, 106 unchanged (62% of the section changed)

11 unchanged sentences

In June 2017, the FDA approved our 510(k) applications for marketing clearance in the United States of our CompuFlo Epidural Computer Controlled Anesthesia System.

We are in the process of introductory meetings with medical device distributors within the United States and Europe.

We are in the process of meeting with medical device distributors within the United States and Europe.

There have been five medical instruments sold in the 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.

On January 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 by May 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.

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

Milestone Scientific remains focused on advancing efforts to achieve the following four 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;

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In August 2018, the FDA provided Milestone Scientific with a list of questions on the intra-articular 510(k) application filed in June 2018.

Due to the delay in responding to FDA questions Milestone Scientific will be required file a new 510(K) application.

Due to the delay in responding to the FDA questions Milestone Scientific will be required file a new 510(K) application.

In January 2019, the Company announced the results of a four hundred patient clinical trial by researchers from the University of Miami, University of Texas, and Northwestern University, and two prominent California-based pain clinics.

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The expanded agreement allows 3B Scientific to capitalize on momentum from strong interest in the CompuFlo Trainer at its unveiling at Euroanesthesia 2019 and the Association 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.

Covid-19 Pandemic

While the COVID-19 pandemic did not materially adversely affect the Company’s financial results and business operations in the Company’s first fiscal quarter ended March 31, 2020, economic and health conditions in the United States and across most of the globe have changed rapidly since the end of the first quarter.

In the short-term, demand for the Company’s products has decreased, notably in our dental and medical divisions.

Such decrease demand may or may not continue and/or demand may or may not increase from historical levels depending on the duration and severity of the COVID-19 pandemic, the length of time it takes for normal economic and operating conditions to resume, additional governmental actions that may be taken and/or extensions of time for restrictions that have been imposed to date, and numerous other uncertainties.

Such events may result in business and manufacturing disruption, inventory shortages, delivery delays, and reduced sales and operations, any of which could materially affect our business, financial condition, and results of operations.

The Company’s employees are being affected by the COVID-19 pandemic.

The majority of our office and management personnel are working remotely.

The health of the Company’s workforce is of primary concern and the Company may need to enact further precautionary measures to help minimize the risk of our employees being exposed to the coronavirus.

Further, our management team is focused on mitigating the adverse effects of the COVID-19 pandemic, which has required and will continue to require a large investment of time and resources across the entire Company, thereby diverting their attention from other priorities that existed prior to the outbreak of the pandemic.

If these conditions worsen, or last for an extended period of time, the Company’s ability to manage its business may be impaired, and operational risks, cybersecurity risks and other risks facing the Company even prior to the pandemic may be elevated.

The COVID-19 pandemic is affecting the Company’s customers, suppliers, vendors, and other business partners, but the Company is not able to assess the full extent of the current impact nor predict the ultimate consequences that will result therefrom.

The COVID-19 pandemic is affecting the Company’s operations in the second quarter and may continue to do so indefinitely thereafter.

All of these factors may have far reaching impacts on the Company’s business, operations, and financial results and conditions, directly and indirectly, including without limitation impacts on the health of the Company’s management and employees, manufacturing, distribution, marketing and sales operations, customer and consumer behaviors, and on the overall economy.

The scope and nature of these impacts, most of which are beyond the Company’s control, continue to evolve and the outcomes are uncertain.

Due to the above circumstances and as described generally in this Form 10-Q, the Company’s results of operations for the three and six month period ended June 30, 2020 are not necessarily indicative of the results to be expected for the full fiscal year.

Management cannot predict the full impact of the COVID-19 pandemic on the Company’s sales channels, supply chain, manufacturing, and distribution nor to economic conditions generally, including the effects on consumer spending.

The ultimate extent of the effects of the COVID-19 pandemic on the Company is highly uncertain and will depend on future developments, and such effects could exist for an extended period of time even after the pandemic might end.

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

March 31, 2020

Domestic-US & Canada

Total Domestic US & Canada

International ROW

Total International-ROW

International-China

Total International

Total Product Sales

March 31, 2019

Domestic-US & Canada

Total Domestic US & Canada

Three months ended June 30,

Six months ended June 30,

Total Domestic US

International ROW

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Results of Operations

The following table sets forth the consolidated results of operations for the three months ended March 31, 2020 compared to 2019.

The following table sets forth the consolidated results of operations for the three months ended June 30, 2020 and 2019, respectively.

The trends suggested by this table may not be indicative of future operating results:

For three months ended March 31,

Three months Ended June 30,

Operating results:

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Net loss attributable to Milestone Scientific Inc.

March 31, 2020

March 31, 2019

The following table sets forth the consolidated results of operations for the six months ended June 30, 2020 and 2019, respectively.

The trends suggested by this table may not be indicative of future operating results

Six months ended June 30,

Operating results:

Product sales, net

Cost of products sold

Operating expenses:

Selling, general and administrative expenses

Research and development expenses

Loss from operations

Other income, and loss on earning net

Net loss attributable to noncontrolling interests24,476

Net loss attributable to Milestone Scientific Inc.

June 30, 2019

Net cash used in operating activities

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Net cash provided by financing activities

T hree months ended March 31, 2020 compared to Three months ended March 31, 2019

Three months ended June 30, 2020 compared three months ended June 30, 2019

Net sales for 2020 and 2019 were as follows:

Increase Decrease

Total sales, net

Consolidated revenue for the three months ended March 31, 2020 and 2019 were approximately $1.8 million and $1.9 million, respectively.

Dental revenue for the three months ended March 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 in the United States and Canada 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 ended March 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 the China dental market.

Medical revenue for the three months ended March 31, 2020 and 2019, were approximately $7,800 and $400, respectively.

In June 2017, the Company announced that the CompuFlo Epidural System received 510(k) marketing clearances from the U.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 within the United States and European markets.

The Company is focusing the marketing its Epidural devices principally in the United States.

In 2020, the Company began to build an internal sales force to market Epidural devices to hospitals and medical center throughout the 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

Consolidated revenue for the three months ended, June 30, 2020 and 2019 were approximately $167,000 and $2.2 million, respectively.

Dental revenue for the three months ended, June 30, 2020 and 2019 were approximately $166,000 and $2.2 million, respectively.

Dental revenues decreased by approximately $2.1 million, which is related to COVID-19 pandemic affecting the Company’s customers, suppliers, vendors, and other business partners.

In the short-term, demand for the Company’s products has decreased, notably in our dental divisions.

Such decreased demand may or may not continue and/or demand may or may not increase from historical levels depending on the duration and severity of the COVID-19 pandemic, the length of time it takes for normal economic and operating conditions to resume, additional governmental actions that may be taken and/or extensions of time for restrictions that have been imposed to date, and numerous other uncertainties.

The majority of our office and management personnel are working remotely.

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, our revenue for the second quarter was, 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 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 CompuFlo Epidural system as a medical device in 2020

Gross Profit for 2020 and 2019 were as follows:

Increase Decrease

Total gross profit

Consolidated gross profit for the three months ended March 31, 2020 and 2019 approximately 71% and 68%, respectively.

Consolidated gross profit for the three months ended June 30, 2020 and 2019 approximately 67% and 68%, respectively.

Selling, general and administrative expenses for 2020 and 2019 were as follows:

Increase Decrease

Total selling, general and administrative expenses

Consolidated selling, general and administrative expenses for the three months ended March 31, 2020 and 2019, were approximately $2.8 million and $2.1 million, respectively.

Consolidated selling, general and administrative expenses for the three months ended June 30, 2020 and 2019, were approximately $3.1 million and $2.5 million, respectively.

The increase of approximately $658,000 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.

Employee salaries, and benefits expenses increased approximately $256,000 during the three months ended June 30, 2020, the Company hired additional employees to work on the commercialization of the CompuFl o® Epidural System.

The company incurred an expense of approximately $370,000 related to a settlement with United Systems, see Note 6.

Research and Development for 2020 and 2019 were as follows:

Increase Decrease

Total research and development

Consolidated research and development expenses for the three months ended March 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.

Consolidated research and development expenses for the three months ended, 2020 and 2019, were approximately $108,000 and $96,000, respectively.

The increase is due to upgrades and enhancement of the CompuFlo ® Epidural System and handpieces.

Profit (Loss) from Operations for 2020 and 2019 were as follows:

Total loss from operations

The loss from operations was approximately $3.1 million and $1.1 million for the three months ending June 30, 2020 and 2019, respectively.

The increase loss is the result decreased in dental revenue, of the reduced hours and closings of dental and medical 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 third quarter, and possibly the fourth quarter, will be materially and adversely affected.

Six months ended June 30, 2020 compared to Six months ended June 30, 2019

Net sales for 2020 and 2019 were as follows:

Total sales, net

Consolidated revenue for the six months ended June 30, 2020 and 2019 were approximately $1.9 million and $4.1 million, respectively.

Dental revenue for the six months ended June 30, 2020 and 2019 were approximately $2 million and $4.2 million, respectively.

Dental revenues decreased by approximately $2.1 million, which is related to COVID-19 pandemic affecting the Company’s customers and other business partners.

In the short-term, demand for the Company’s products has decreased, notably in our dental and medical divisions.

Such decreased demand may or may not continue and/or demand may increase from historical levels depending on the duration and severity of the COVID-19 pandemic, the length of time it takes for normal economic and operating conditions to resume, additional governmental actions that may be taken and/or extensions of time for restrictions that have been imposed to date, and numerous other uncertainties.

The majority of our office and management personnel are working remotely.

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, our revenue for the second quarter was, and possibly the third and fourth quarters, will be materially and adversely affected.

At this point in time, it is too early to determine an estimate of what the third or fourth 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 CompuFlo Epidural system as a medical device in 2020.

Gross Profit for 2020 and 2019 were as follows:

Increase Decrease

Total gross profit

Consolidated gross profit for the six months ended June 30, 2020 and 2019 approximately 71% and 68%, respectively.

Selling, general and administrative expenses for 2020 and 2019 were as follows:

Total selling, general and administrative expenses

Consolidated selling, general and administrative expenses for the six months ended June 30, 2020 and 2019, were approximately $5.9 million and $4.6 million, respectively.

The increase of approximately $1.3 million is categorized in several areas.

Employee salaries, bonuses and benefits expenses increased approximately $789,000 during the six months ended June 30, 2020, the Company hired additional employees to work on the commercialization of the CompuFlo® Epidural System.

The company expense approximately $370,000 of bad debt related to a settlement with United Systems, see Note 6.

Office expense increased approximately $143,000 for the relocation of the company office and other related costs.

Research and Development for 2020 and 2019 were as follows:

Total research and development

Consolidated research and development expenses for the six months ended, June 30, 2020 and 2019, were approximately $215,000 and $102,000, respectively.

The increase is due to upgrades and enhancement of the CompuFlo® Epidural System and handpieces.

Profit (Loss) from Operations for 2020 and 2019 were as follows:

Total loss from operations

The loss from operations was approximately $1.6 million and $818,000 for the first quarter ending March 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 in the 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 the U.S.

to focus on our domestic Epidural device business.

The loss from operations was approximately $4.7 million and $1.9 million for the six months ending June 30, 2020 and 2019, respectively an increase of approximately $2.8 million.

This increase is the result of a decrease in revenues due to the reduced hours and closings of dental and medical 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 third quarter, and possibly the fourth quarter, will be materially and adversely affected.

Liquidity and Capital Resources

At March 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 at December 31, 2019.

For the three months ended March 31, 2020, we had negative cash flows from operating activities of approximately $972,000 compared to $220,000 for the three months ended March 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.

On June 30, 2020, Milestone Scientific had cash and cash equivalents of approximately $16.6 million and working capital of approximately $16.5 million versus working capital of $1.2 million on December 31, 2019.

For the six months ended June 30, 2020, we had negative cash flows from operating activities of approximately $4.2 million compared to $622,000 for the six months ended June 30, 2019.

In the second quarter of 2020 the Company completed two capital raises.

In April 2020, the Company completed a Common Stock Offering generating gross proceeds of approximately $5.1 million (5,420,000 common shares and 2,710,000 warrants).

The combined price of the shares and warrants was $0.95 per share.

The warrants are exercisable at a price of $1,20 per share and have an expiration of three (3) years from the issue date.

In June 2020, the Company completed a second Common Stock Offering generating gross proceeds of approximately $14.6 million (6,770,000 common shares and 3,749,000 warrants).

The combined price of shares and warrants of was $2.15 per share.

The warrants are exercisable at a of $2.60 and expire three (3) years from the issue date.

With the combination of these two Common Stock Offerings, the Company has sufficient liquidity to support operations for at least a year after the condensed consolidated financial statements issue 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, 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 NYSE May 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 in April 2020 (see Note 14 – Subsequent Events) provides Milestone Scientific with working capital to continue marketing of the CompuFlo Epidural device and to market its dental devices.

However, the COVID-19 pandemic is expected to have a continued 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.

Now that the CompuFlo Epidural System has obtained FDA clearance in the 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 the U.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.

On April 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 to Maxim 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 which Maxim 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 on April 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 on April 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 on April 17, 2020.

The Company plans to restart the 510K application process for the intra-articular device later this year, subject to available internal resources.

Quantitative and Qualitative Disclosures about Market Risk

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis