MILESTONE SCIENTIFIC INC. 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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, 2020 , which was filed with the Securities and Exchange Commission, or SEC on March 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 on June 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 in the United States, U.S. territories, Canada, and in over 58 other countries abroad. 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 meeting with medical facilities and device distributors within the United States and Europe. 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. 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; ● 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 and CathCheck System by utilizing a Direct Field Sales Force and 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 devices have been used to deliver over 80 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. Beginning January 1, 2016, Milestone Scientific entered into a non-exclusive distribution agreement with Henry Schein, Inc. (“Henry Schein”). 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. 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. 27 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 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 During 2016, Milestone Scientific filed for 510(k) marketing clearance with the U.S. Food and Drug Administration (FDA) for both intra-articular and epidural injections with the CompuFlo Epidural System. In June 2017, the FDA approved the CompuFlo Epidural System for epidural injections. Milestone Scientific is in the process of meeting with medical device distributors within the United States and foreign markets. Milestone Scientific’s immediate focus is on marketing its epidural device throughout the United States and Europe. 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 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 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 [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™. This agreement expires on February 28, 2022. Covid-19 Pandemic 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 have been and 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 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 predict the ultimate consequences that will result therefrom. 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. 28 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, 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- 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 March 31, 2021 Three months ended March 31, 2020 Dental Medical Total Dental Medical Total Domestic: US/Canada Instruments $ 176,016 $ - $ 176,016 $ 525 $ - $ 525 Handpieces 794,984 8,150 803,134 697,360 - 697,360 Accessories 17,908 17,908 22,506 - 22,506 Total Domestic US $ 988,908 $ 8,150 $ 997,058 $ 720,391 $ - $ 720,391 International: Rest of World Instruments $ 383,255 $ 42,500 $ 425,755 $ 242,504 $ 7,600 $ 250,104 Handpieces 954,534 20,400 974,934 830,208 200 830,408 Accessories 20,560 - 20,560 10,483 - 10,483 Total International $ 1,358,349 $ 62,900 $ 1,421,249 $ 1,083,195 $ 7,800 $ 1,090,995 International: China Instruments $ 150,000 $ - $ 150,000 $ - $ - $ - Handpieces 356,400 - 356,400 - - - Other - - - - Total International $ 506,400 $ - $ 506,400 $ - $ - $ - Total Product Sales $ 2,853,658 $ 71,050 $ 2,924,707 $ 1,803,586 $ 7,800 $ 1,811,386 Current Product Platform See Note 1, “Organization and Business”. 29 Results of Operations 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: Three Months Ended March 31, 2021 2020 Operating results: Product sales, net $ 2,924,707 $ 1,811,386 Cost of products sold 1,122,413 527,250 Gross profit 1,802,294 1,284,136 Operating expenses: Selling, general and administrative expenses 2,749,299 2,748,043 Research and development expenses 16,444 107,480 Depreciation and amortization expense 20,924 37,219 Loss from operations (984,373 ) (1,608,606 ) Other income, and loss on earning net (1,484 ) (4,347 ) Net loss (985,857 ) (1,612,953 ) Net loss attributable to noncontrolling interests (12,988 ) (12,738 ) Net loss attributable to Milestone Scientific Inc. $ (972,869 ) $ (1,600,215 ) Cash flow: March 31, 2021 March 31, 2020 Net cash used in operating activities $ (967,814 ) $ (972,079 ) Net cash used in investing activities $ (5,916 ) $ (7,138 ) Net cash provided by financing activities $ 3,700,523 $ 228,920 Three months ended March 31, 2021 compared three months ended March 31, 2020 Net sales for 2021 and 2020 were as follows: 2021 2020 Increase (Decrease) % Dental $ 2,853,657 $ 1,803,586 $ 1,050,071 58.22 % Medical 71,050 7,800 63,250 810.90 % Total sales, net $ 2,924,707 $ 1,811,386 $ 1,113,321 61.46 % 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: 2021 2020 Increase (Decrease) % Dental $ 1,759,682 $ 1,279,845 $ 479,837 37.49 % Medical 42,612 4,291 38,321 893.06 % Total gross profit $ 1,802,294 $ 1,284,136 $ 518,158 40.35 % 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. 30 Selling, general and administrative expenses 2021 and 2020 were as follows: 2021 2020 Increase (Decrease) % Dental $ 631,882 $ 697,760 $ (65,878 ) (9.44 %) Medical 918,098 562,913 $ 355,186 63.10 % Corporate 1,199,319 1,487,370 $ (288,051 ) (19.37 %) Total selling, general and administrative expenses $ 2,749,299 $ 2,748,043 $ 1,257 0.05 % 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: 2021 2020 Increase (Decrease) % Dental $ - $ - $ - 0.00 % Medical 16,444 107,480 (91,036 ) (84.70 %) Corporate - - - 0.00 % Total research and development $ 16,444 $ 107,480 $ (91,036 ) (84.70 %) 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: 2021 2020 Increase Decrease % Dental $ 1,126,069 $ 576,386 $ 549,683 95.37 % Medical (895,781 ) (669,814 ) (225,968 ) 33.74 % Corporate (1,214,661 ) (1,515,178 ) 300,517 (19.83 %) Total loss from operations $ (984,373 ) $ (1,608,606 ) $ 624,232 (38.81 %) 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. 31 Liquidity and Capital Resources 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. 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 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 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. 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. Item 3. Quantitative and Qualitative Disclosures about Market Risk 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.