What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-14 compared with 2020-11-16 · 53 added, 129 removed, 94 unchanged (66% of the section changed)

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We are in the process of meeting with medical facilities and 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.

Through March 31, 2021 to date there have been twelve medical devices sold in the United States and limited amounts sold internationally.

Certain of our medical instruments have obtained European CE mark approval and can be marketed and sold in most European countries.

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In June 2016, that agreement was replaced with an exclusive distribution arrangement for our dental products for the United States and Canada with Henry Schein.

Under this arrangement we have a semi-dedicated independent sales force visiting dentists.

The Company’s exclusive agreement is subject to annual purchase requirements and other requirements, as defined in the agreement.`

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.

Henry Schein increased the number of exclusive product specialist in 2019 and trained an additional customer service representative to support dentists across North America through its exclusive product sales customer call center.

During the Covid-19 Pandemic, Henry Schein has lost one of its exclusive product specialist.

Henry Schein is in the process of recruiting additional specialist in the fourth quarter of 2020.

In December 2020, the exclusive distribution arrangement with Henry Schein was replaced with a non-exclusive distribution arrangement.

Under the non-exclusive arrangement, Henry Schein will purchase dental instruments and handpieces in the United States and Canada.

Beginning in January 2021, the Company began a process of signing non-exclusive dental distribution arrangements with dental distributors in specific geographical locations in the United States and Canada.

To date there are eight new non-exclusive dental distributors engaged in the USA and Canada.

The goal is to add an additional non-exclusive distributor in three main cities in the USA.

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

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 in Asia, Africa, South America, and Europe.

They include FM Produkty Dla Stomatologii in Poland and Unident AB in the Scandinavian countries of Denmark, Sweden, Norway, and Iceland.

In October 2012, the State Food and Drug Administration (CFDA) of the People’s Republic of China approved our Wand/STA Single Tooth Anesthesia System (STA System).

In May 2014, the CFDA also approved the Wand STA handpieces for sale in China.

They include FM Produkty Dla Stomatologii in Poland and Unident AB in the countries of Denmark, Sweden, Norway, and Iceland.

Additionally, the Company is in the process of evaluating current international distributors and adding new distributors, globally as required based on the economics of the region.

Medical Market

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In December 2016, we received notification from the FDA that based upon the 510(k)-application submitted for intra- articular injections, we did not adequately document that the device met the equivalency standard required for 510(k) clearances.

Following consultation with the FDA Office of Device Evaluation, we filed a new 510(k) application for the device in June 2018.

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 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.

Published-Ahead-of-Print in Anesthesia & Analgesia (the official Journal 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.

In February 2019, the Company announced a new 120-patient clinical study published in Anesthesiology 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.

In February 2019, the Company announced Ospedale “Pugliese Ciaccio” di Catanzaro is the first hospital in Italy 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 with American 3B Scientific, a leading supplier of didactic material for medical education.

In June 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.

In October 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 the U.S., one in Chile, and two from Italy.

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 in Orlando, Florida, entitled, "International Multicenter Study of Accidental Dural Puncture Rate;

Comparison of the CompuFlo with Traditional Method''.

ANESTHESIOLOGY 2019, hosted by the American Society of Anesthesiologists (ASA), unites more than 14,000 clinicians, thought leaders and professionals from around the world.

In November 2019, the Company and 3B 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 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.

Following consultation with the FDA Office of Device Evaluation, we intended to file a new 510(k) application for the device in 2019, however, due to financing constraints, a new 510(k) application was not filed in 2019.

As of March 31, 2021, the Company has decided not to proceed with securing the FDA approval for the intra-articular instrument at this time.

Milestone Medical’s immediate focus is on marketing its epidural device throughout the United States and Europe.

On April 21, 2020, Milestone Scientific, announced that it has validated and integrated the new CathCheck™ feature into the CompuFlo® Epidural System.

Using CathCheck™, physicians and nurses can monitor the placement of a catheter to determine the presence or absence of a pulsatile waveform (heartbeat) providing new information that can be used to determine if the catheter is in place or has become dislodged from the epidural space.

Using CathCheck™.

Physicians and nurses can now monitor the placement of a catheter to determine the presence or absence of a pulsatile waveform (heartbeat) providing new information that can be used to determine if the catheter is in place or has become dislodged from the epidural space.

This can be performed within seconds by measuring the pulsatile waveform within the epidural space.

On October 13, 2020, Milestone Scientific announced a Group Purchasing Agreement with Premier a leading healthcare improvement company, utilizing an alliance of approximately 4,100 U.S.

hospitals and 200,000 other providers to transform healthcare.

On October 13, 2020, Milestone Scientific announced a Group Purchasing Agreement with Premier [1] , a leading healthcare improvement company.

The Agreement, which became effective November 1, 2020, allows Premier members, at their discretion, to take advantage of special pricing and terms pre-negotiated by Premier for the CompuFlo® Epidural System and CathCheck™.

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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 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.

The COVID-19 pandemic materially adversely affected the Company’s financial results and business operations.

Demand for the Company’s products decreased, notably in our dental division, during the last fiscal year and only began to increase during the first quarter of 2021.

However, such increased 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 effectiveness of the on-going vaccination process, 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 Company’s employees have been and are being affected by the COVID-19 pandemic.

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

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The COVID-19 pandemic is affecting the Company’s customers, suppliers, vendors, and other business partners, but the Company is not able to predict the ultimate consequences that will result therefrom.

The COVID-19 pandemic did affect the Company’s operations in the second and third quarters 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.

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, 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 nine month period ended September 30, 2020 are not necessarily indicative of the results to be expected for the full fiscal year.

Due to the above circumstances and as described generally in this Form 10-Q, the Company’s results of operations for the three- month period ended March 31, 2021 are not necessarily indicative of the results to be expected for the full fiscal year.

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

Three months ended September 30,

Nine months ended September 30

Three months ended March 31, 2021

Three months ended March 31, 2020

Total Domestic US

International ROW

Total International-ROW

International-China

International:

Rest of World

Total International

International:

Total International

Total Product Sales

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Results of Operations

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

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

Three months ended September 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 interests

Net loss attributable to Milestone Scientific Inc.

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

The following table sets forth the consolidated results of operations for the three months ended March 31, 2021 and 2020 , respectively.

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

Nine months ended September 30,

Three Months Ended March 31,

Operating results:

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Research and development expenses

Depreciation and amortization expense

Loss from operations

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Net loss attributable to Milestone Scientific Inc.

September 30, 2020

September 30, 2019

March 31, 2021

March 31, 2020

Net cash used in operating activities

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Net cash provided by financing activities

Three months ended September 30, 2020 compared three months ended September 30, 2020

Net sales for 2020 and 2019 were as follows:

Increase Decrease

Total sales, net

Consolidated revenue for the three months ended, September 30, 2020 and 2019 were approximately $1.2 million and $1.9 million, respectively.

Dental revenue for the three months ended September 30, 2020 and 2019 were approximately $1.2 and $1.9 million, respectively.

Dental revenues decreased by approximately $644,000 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 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.

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 third quarter was materially and adversely affected.

At this point in time, it is too early to determine an estimate of what the 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 for the remainder of 2020, and the first quarter of 2021.

Gross Profit for 2020 and 2019 were as follows:

Increase Decrease

Total gross profit

Consolidated gross profit for the three months ended September 30, 2020 and 2019 approximately 67% and 72%, 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 September 30, 2020 and 2019, were approximately $2.2 million and $2.3 million, respectively.

The decrease of approximately $16,000 is categorized in several areas.

Employee salaries, and benefits expenses increased approximately $154,000 during the three months ended September 30, 2020, as the Company hired additional employees to work on the commercialization of the CompuFl o® Epidural System.

During the three months ended September 30, 2020 D&O insurance increased approximately $54,000 due to the increase of premiums.

Due to Covid-19 Pandemic, the Company's travel expenses, trade shows, professional fees, quality control, and general expenses decreased approximately $275,000 while marketing and consulting expense increased approximately $43,000 for three months ended September 30 ,2020.

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, 2020 and 2019, were approximately $21,000 and $7,900, respectively.

The increase is associated with the Company developing software upgrades and enhancement for the CompuFlo ® Epidural System and handpieces.

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

Increase Decrease

Total loss from operations

The loss from operations was approximately $1.5 million and $1 million for the three months ending September 30, 2020 and 2019, respectively.

The increase is the result of decreased dental revenue, due to 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 fourth quarter, and possibly the first quarter of 2021, will be materially and adversely affected.

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019

Three months ended March 31, 2021 compared three months ended March 31, 2020

Net sales for 2021 and 2020 were as follows:

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Total sales, net

Consolidated revenue for the nine months ended September 30, 2020 and 2019 were approximately $3.2 million and $6.1 million, respectively.

Dental revenue for the nine months ended September 30, 2020 and 2019 were approximately $3.2 million and $6.0 million, respectively.

Dental revenues decreased by approximately $2.8 million, which is mostly 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.

At this point in time, it is too early to determine an estimate of what the fourth quarter impact will be, or the effect COVID-19 may have on our first quarter of 2021.

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 the fourth quarter of 2020 and the first quarter 2021.

Consolidated revenue for the three months ended, March 31, 2021 and 2020 were approximately $2.9 million and $1.8 million, respectively.

Dental revenue increased approximately $1 million for the three months ending March 31, 2021 as compared to the three months ended March 31, 2020, due to re-opening of dental offices throughout the country, the rest of the world, and China.

Medical revenue increased approximately $63,000 for the three months ending March 31, 2021 as compared to the three months ending March 31, 2020 due to the Company attending introductory meetings with medical device distributors within the United States and European markets.

Gross Profit for 2021 and 2020 were as follows:

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Total gross profit

Consolidated gross profit for the nine months ended September 30, 2020 and 2019 approximately 68% and 69%, respectively.

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

Consolidated gross profit for the three months ended March 31, 2021 and 2020 approximately 62% and 71%, respectively.

The decrease in the gross profit is due to the lower margin in sales to China.

Selling, general and administrative expenses 2021 and 2020 were as follows:

Increase (Decrease)

Total selling, general and administrative expenses

Consolidated selling, general and administrative expenses for the nine months ended September 30, 2020 and 2019, were approximately $8.2 million and 6.9 million, respectively.

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

Employee salaries, and benefits expenses increased approximately $1 million during the nine months ended September 30, 2020, the Company hired additional employees to work on the commercialization of the CompuFl o® Epidural System and recorded additional bonuses in 2020.

During the nine months ended September 30, 2020 D&O insurance increase approximately $117,000 due to the increase of premiums.

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

Due to Covid-19 Pandemic, the Company's travel expenses, trade shows and general expenses decreased approximately $424,000.

Office expense increased approximately $143,000 associated with the relocation of the Company 's office and other related costs.

Consolidated selling, general and administrative expenses for the three months ended March 31, 2021 and 2020, were approximately $2.75 million, respectively.

The increase of approximately $1,257 is categorized in several areas.

Employee salaries, and benefits expenses increased approximately $616,000 during the three months ended March 31, 2021, as the Company hired additional employees to work on the commercialization of the CompuFl o® Epidural System.

During the three months ended March 31, 2021, employee travel and related expenses increased approximately $41,000 due to the re-opening of dental, and medical offices throughout the country, and the rest of the world.

The Company's trade shows, professional fees, quality control, and general expenses decreased approximately $747,000 while marketing and consulting expense increased approximately $53,000 for three months ended March 31, 2021.

Research and Development for 2021 and 2020 were as follows:

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Total research and development

Consolidated research and development expenses for the nine months ended, September 30, 2020 and 2019, were approximately $237,000 and $109,000, respectively.

The increase is associated with the Company developing software upgrades and enhancement for the CompuFlo® Epidural System and disposables.

Consolidated research and development expenses for the three months ended, March 31, 2021 and 2020, were approximately $16,000 and $107,000, respectively.

The decrease is related to the company completed the upgrades to epidural devises in 2020.

Profit (Loss) from Operations for 2021 and 2020 were as follows:

1 unchanged sentence

Total loss from operations

The loss from operations was approximately $6.3 million and $2.9 million for the nine months ending September 30, 2020 and 2019, respectively an increase of approximately $3.4 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 fourth quarter, and possibly the first quarter of 2021, will be materially and adversely affected.

The loss from operations was approximately $1 million and $1.6 million for the three months ending March 31, 2021 and 2020, respectively.

The decrease is the result of increased in dental revenue, due to re-opening of dental offices throughout the country, the rest of the world, and China, as discussed above.

Liquidity and Capital Resources

On September 30, 2020, Milestone Scientific had cash and cash equivalents of approximately $14.4 million and working capital of approximately $15.4 million versus working capital of $1.2 million on December 31, 2019.

For the nine months ended September 30, 2020, we had negative cash flows from operating activities of approximately $6.3 million compared to $1.3 million for the nine months ended September 30, 2019.

On March 31, 2021, Milestone Scientific had cash and cash equivalents of approximately $17.0 million and working capital of approximately $18.6 million versus working capital of $15.7 million on December 31, 2020.

For the three months ended March 31, 2021 and 2020, we had cash flows used in operating activities of approximately $1.0 million.

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

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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 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.

The warrants are exercisable at a of $2.60 and expire three years from the issue date (see Note 9).

With the combination of these two Common Stock Offerings, the Company has sufficient liquidity to support operations for at least a year after the date the unaudited condensed consolidated financial statements are issued.

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 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 2020, but the selling costs are expected to continue to increase.

The FDA clearance has provided the Company with the opportunity to establish distribution in the U.S.

The Company intends to restart the 510K application process for the intra-articular device , subject to available allocated internal resources.

Quantitative and Qualitative Disclosures about Market Risk

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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