What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-16 compared with 2020-08-14 · 209 added, 155 removed, 520 unchanged (41% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2020

September 30, 2020

December 31, 2019

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authorized 75,000,000 shares;

63,236,164 shares issued and 63,202,831 shares outstanding as of June 30, 2020;

63,605,119 shares issued and 63,571,786 shares outstanding as of September 30, 2020;

49,410,176 shares issued and 49,376,843 shares outstanding as of December 31, 2019;

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended June 30,

Six months ended June 30,

For the three months ended September 30, 2020

For the three months ended September 30, 2019

For the Nine months ended September 30, 2020

For the Nine months ended September 30, 2019

Product sales, net

4 unchanged sentences

Loss from operations

Interest income fees

Interest expense

Change in fair value of derivative liability

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR SIX MONTHS ENDED JUNE 30, 2020 AND 2019

FOR NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

Preferred Stock Shares

Preferred Stock

Common Stock Share

Common Stock Amount

Additional Paid in Capital

Accumulated Deficit

Noncontrolling Interest

Treasury Stock

Balance, January 1, 2020

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Balance, June 30, 2020

Stock based compensation

Common stock issued to employee for compensation

Common stock issued for payment of consulting services

Common stock issued to board of directors for services

Common stock issued to employees for bonuses

Common stock issued for warrants

Balance, September 30, 2020

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

Preferred Stock Shares

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Common stock to be issued for payment of consulting services

Common stock to be issued to board of directors for services

Common stock issued to employee for compensation

Common stock to be issued to employee for compensation

Common stock to be issued to board of directors for services rendered

Common stock issued in public offering

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Stock based compensation

Common stock to be issued for payment of consulting services

Common stock issued to employee for compensation

Common stock to be issued to board of directors for services

Common stock issued for payment of consulting services

Common stock to be issued to employee for compensation

Common stock to be issued to board of directors for services rendered

Conversion of Preferred Shares to Common Stock (Mandatory)

1 unchanged sentence

Balance, June 30, 2019

Stock based compensation

Common stock to issued for payment of consulting services

Common stock to be issued to employees for bonuses

Common stock to be issued to employee for compensation

Common stock to be issued to board of directors for services rendered

Common stock issued for warrants exercised

Shares issued previously classified as derivative liability (Note 9)

Reclassification of warrants and Shares to be issued to derivative liability (Note 9)

Balance, September 30, 2019

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended June 30

For the Nine months ended September 30, 2020

For the Nine months ended September 30, 2019

Cash flows from operating activities:

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Amortization of patents

Inventory reserve

Stock compensation

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(Increase) decrease in advances on contracts

Decrease in prepaid expenses and other current assets

Decrease (Increase) in prepaid expenses and other current assets

(Decrease) in accounts payable

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Decrease in deferred cost, related party

Increase in accrued expenses

Increase (decrease) in accrued expenses

(Decrease) increase in accrued expenses, related party

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Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

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Shares issued to consultants in lieu of cash payments

Shares issued to employee for bonuses

Credit from United Systems for defective handpieces

Initial recognition of operating lease-right of use assets

Initial recognition of operating lease right to used liabilities

Derivative liability

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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Milestone Scientific ®;

the Milestone logo ®;

CathCheck ™, the Milestone logo ®;

Safety Wand ®;

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To date there have been eleven medical devices sold in the United States and limited amounts sold internationally, although certain medical devices have obtained CE mark approval and can be marketed and sold in most European countries.

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 intend to file a new 510(k) application for the device in 2020.

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

In December 2016, the Company 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.

The Company provided an additional data submission to the FDA in April 2017, in support of a resubmission 510(k) application for the device.

The 510(k) original application filed with FDA lapsed in January 2019.

Following consultation with the FDA Office of Device Evaluation, we intended to file a new 510(k) application for the device during 2020.

As of September 30, 2020, the Company has suspended the pursuit of an intra-articular 510(k) application due to the COVID-19 Pandemic.

The company will revisit this project in 2021.

On April 21, 2020, Milestone Scientific announced that it had 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.

On October 13, 2020, Milestone Medical 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.

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

The Agreement expires on February 28, 2022.

NOTE 2- LIQUIDITY AND UNCERTAINTIES

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In April and June of 2020, the Company completed Common Stock Offerings generating net proceeds of approximately $4.6 million and $13.4 million, respectively (see Note 9).

As of June 30, 2020 cash on hand was approximately $16.6 million, an increase of $15.1 million from December 31, 2019.

As of September 30, 2020, cash on hand was approximately $14.4 million, an increase of $13 million from December 31, 2019.

With the combination of these two Common Stock Offerings, the Company has sufficient liquidity to support operations beyond a year after the condensed consolidated financial statements issue date.

The coronavirus (COVID-19) that was reported to have surfaced in Wuhan, China in December 2019 and that has now spread to other countries throughout the world has and is expected to adversely impact our operations and those of our third-party partners.

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 third quarter, and possibly the fourth quarter, will be adversely affected.

In the quarter ending June 30, 2020, the Company has experienced a significant negative impact in dental related revenues.

At this point in time, we can identify a slow pick up in dental instrument and disposable sales through beginning in the third quarter.

However, it is still too early to determine an estimate of what those impacts will be, or the continuing effect COVID-19 may have on our third and 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 during 2020.

The extent to which the coronavirus impacts our operations or those of our third-party partners also depend on future developments which are still highly uncertain and cannot be predicted with confidence at this time.

The coronavirus (COVID-19) that was reported to have surfaced in Wuhan, China in December 2019 and that has now spread to other countries throughout the world has adversely impact our operations and those of our third-party partners.

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, revenues for the three and the nine months ended September 30, 2020 was adversely affected.

Although there has been a slow pick up in dental instrument and disposable sell through to dentists beginning in the third quarter, it is too early to determine what the continuing effect COVID-19 may have on our fourth quarter revenue.

In addition, it is uncertain as to what the effect will be on the anticipated commercialization of our CompuFlo Epidural and CathCheck system as a medical device .

The extent to which the coronavirus impacts our operations, our third-party partners, the dental offices and hospital operations and demand depends on future developments which are still highly uncertain.

Such future developments could have a material adverse effect on our financial results and our ability to conduct business as expected.

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Reclassifications

Certain reclassification have been made to the 2019 financial statements to conform to the unaudited condensed consolidated 2020 financial statement presentation.

Certain reclassification has been made to the 2019 financial statements to conform to the unaudited condensed consolidated 2020 financial statement presentation.

These reclassifications had no effect on net loss or cash flows as previously reported.

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The Company has no obligation on product sales for any installation, set-up, or maintenance, these being the responsibility of the buyer.

Milestone Scientific's only obligation after sale is the normal commercial warranty against manufacturing defects if the alleged defective unit is returned within the warranty period.

Milestone Scientific's only obligation after transfer of control, except for specific contracts and arrangements that provide for customer right to return provisions, is the normal commercial warranty against manufacturing defects if the alleged defective unit is returned within the warranty period.

Sales Returns

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Therefore, results of our operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting.

See Note 11 for revenues by geographical market, and product category for the six months ended June 30, 2020 and 2019.

See Note 11 for revenues by geographical market, and product category for the three and nine months ended September 30, 2020 and 2019.

Variable Interest Entities

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The primary beneficiary has both the power to direct the activities that most significantly impact the entity's economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE.

If Milestone Scientific determines that it has operating power and the obligation to absorb losses or receive benefits, Milestone Scientific consolidates the VIE as the primary beneficiary.

Milestone Scientific’s involvement constitutes power that is most significant to the entity when it has unconstrained decision-making ability over key operational functions within the entity.

Because Milestone Scientific has a variable interest in Milestone China it considered the guidance in ASC 810, “Consolidation” as it relates to determining whether Milestone China is a VIE and, if so, identifying the primary beneficiary.

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Milestone Scientific considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

The Company maintains its cash and cash equivalents in bank deposit and other interest-bearing accounts, the balances of which, at times, may exceed federally insured limits.

Accounts Receivable

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There have not been any significant credit losses incurred to date.

As of June 30, 2020, and December 31, 2019, accounts receivable was recorded, net of allowance for doubtful accounts of $10,000.

As of September 30, 2020, and December 31, 2019, accounts receivable was recorded, net of allowance for doubtful accounts of $10,000.

Inventories principally consist of finished goods and component parts stated at the lower of cost (first-in, first-out method) or net realizable value.

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Investments in which Milestone Scientific can exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in the long-term assets on the Condensed Consolidated Balance Sheets.

Under this method of accounting, Milestone Scientific's share of the net earnings or losses of the investee is presented below the income tax line on the Condensed Consolidated Statements of Operations.

Under this method of accounting, Milestone Scientific's share of the net earnings or losses of the investee is presented below the income tax line on the unaudited Condensed Consolidated Statements of Operations.

Milestone Scientific evaluates its equity method investments whenever events or changes in circumstance indicate that the carrying amounts of such investments may be impaired.

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Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

On June 30, 2020 and December 31, 2019, we had no uncertain tax positions that required recognition in the condensed consolidated financial statements.

On September 30, 2020 and December 31, 2019, we had no uncertain tax positions that required recognition in the condensed consolidated financial statements.

Milestone Scientific's policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the condensed consolidated statements of operations.

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Basic and diluted net loss per common share

Basic earnings (loss) per common share is computed by dividing the net earnings (loss) for the period by the weighted average number of common shares outstanding during the period.

In periods where there is net income, we applied the two-class method to calculate basic and diluted net income (loss) per share of common stock, as our Series A Convertible Preferred Stock was a participating security.

The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders.

In periods where there is a net loss, the two-class method of computing earnings per share does not apply as our Series A Convertible Preferred Stock did not contractually participate in our losses.

Since Milestone Scientific had net losses in the six months ended June 30, 2020 and 2019, the assumed effects of the exercise of potentially dilutive outstanding stock options, and warrants, were not included in the calculation as their effect would have been anti-dilutive.

Such outstanding options, and warrants totaled 7,686,628 and 5,053,832 on June 30, 2020 and 2019, respectively.

Milestone Scientific presents “basic” earnings (loss) per common share applicable to common stockholders and, if applicable, “diluted” earnings (loss) per common share applicable to common stockholders pursuant to the provisions of ASC 260, “Earnings per Share”.

Basic earnings (loss) per common share is calculated by dividing net income or loss applicable to common stockholders by the weighted average number of common shares outstanding and to be issued during each period.

The calculation of diluted earnings per common share is like that of basic earnings per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, such as those issuable upon the exercise of stock options and warrants were issued during the period.

Since Milestone Scientific had net losses in the three and nine months ended September 30, 2020 and 2019, the assumed effects of the exercise of potentially dilutive outstanding stock options, and warrants, were not included in the calculation as their effect would have been anti-dilutive.

Such outstanding options, and warrants totaled 7,477,171 and 5,004,415 on September 30, 2020 and 2019, respectively.

Fair Value of Financial Instruments

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Our assessment of the significance of an input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

As of June 30, 2020 the Company does not have any assets or liabilities that were measured at fair value on a recurring basis.

As of September 30, 2020 the Company does not have any assets or liabilities that were measured at fair value on a recurring basis.

The carrying amounts reported in the accompanying unaudited condensed consolidated financial statements for current assets and current liabilities approximate the fair value because of the immediate or short-term maturities of the financial instruments.

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Recent Accounting Pronouncements

In June 2016, the FASB issued a new standard ASU No.

2016-13, “Financial Instruments – Credit Losses” (Topic 326).

In June 2016, the Financial Accounting Standards Board (“FASB”) issued a new standard ASU No.

2016-13, “Financial Instruments – Credit Losses” (Topic 326), and subsequently amended.

The new standard is intended to replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

It will be effective for all smaller reporting entities for fiscal years and interim periods, beginning after December 15, 2022.

On November 28, 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-13, “Fair Value Measurement:

The adoption of this standard is not expected to have a material effect on financial statement presentation.

In August 2018, FASB issued ASU 2018-13, “Fair Value Measurement:

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820), which changes the fair value measurement disclosure requirements of ASC 820.

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The adoption of this standard did not have a material effect on financial statement presentation.

In August 2018, FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract , which provides guidance for the accounting treatment for the software arrangements used by companies.

ASU 2018-15 is effective for all entities with fiscal years beginning after December 15, 2019, including interim periods therein.

The adoption of this standard did not have a material effect on financial statement presentation.

In December 2019, FASB issued ASU 2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes, which clarifies for the accounting treatment for the accounting tax aspects relating, in part, to the intraperiod allocations and foreign subsidiaries.

ASU 2019-12 is effective for all entities with fiscal years beginning after December 15, 2020.

The adoption of this standard is not expected to have a material effect on financial statement presentation.

In January 2020, FASB issued ASU 2020-01, “Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), which, generally, provides guidance for investments in entities accounted for under the equity method of accounting .

ASU 2020-01 is effective for all entities with fiscal years beginning after December 15, 2021, including interim periods therein.

We are currently evaluating the impact of adopting this guidance on our consolidated balance sheets, results of operations, and financial condition.

In August 2020, FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity;

which, generally, provides guidance for accounting regarding derivatives relating to entities common stock and earnings per share.

ASU 2020-06 is effective for all entities with fiscal years beginning after December 15, 2021, including interim periods therein.

The adoption of this standard is not expected to have a material effect on financial statement presentation

NOTE 4 — INVENTORIES

Inventories consist of the following:

June 30, 2020

September 30, 2020

December 31, 2019

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Total inventories

On June 30, 2020, there is a reserve for slow moving medical finished goods of approximately $450,000 and damaged or slow moving dental finished goods of approximately $9,500.

On September 30, 2020, there is a reserve for slow moving medical finished goods of approximately $450,000 and damaged or slow moving dental finished goods of approximately $7,000.

The reserve for the medical finished goods was primarily related to the delay in regulatory approval and commercialization of the intra-articular medical instrument.

As of December 31, 2019, there is a reserve for slow moving medical finished goods of approximately $450,000 and damaged or slow moving dental finished goods of approximately $318,000.

Approximately $308,000 of the dental finished inventory reserved at December 31, 2019 was destroyed during the second quarter of 2020.

Approximately $311,000 of the dental finished inventory reserved at December 31, 2019 was destroyed during the nine months ended September 30, 2020.

NOTE 5 — ADVANCES ON CONTRACTS

The advances on contracts represent funding of future STA inventory purchases, epidural instruments, and epidural replacements parts.

The balance of the advances as of June 30, 2020 and December 31, 2019 is approximately $842,000 and $710,000, respectively.

The balance of the advances as of September 30, 2020 and December 31, 2019 is approximately $723,000 and $710,000, respectively.

The advance is classified as current based on the estimated annual usage of the underlying inventory.

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In first quarter 2020, Milestone China and certain marketing affiliates entered into a plan to merge (the Transaction) into an affiliated manufacturing company, Anhui Maishida Medical Technology, Co.

Anhui will be the surviving entity after the merger and will have complete responsibility for sales, marketing, and distribution for the Company’s dental products in

However, as of June 30, 2020, due to the COVID-19 Pandemic, the regulatory documentation for the planned merger have been placed in suspense since applicable government offices are still closed in China and Hong Kong.

Anhui will be the surviving entity after the merger and will have complete responsibility for sales, marketing, and distribution for the Company’s dental products in China.

However, as of the filing date of this Quarterly Report, due to the COVID-19 Pandemic, the regulatory documentation for the planned merger has been placed in suspense since applicable government offices are still closed in China and Hong Kong.

After completion of the Transaction, Milestone Scientific is expected to have an approximate 28.4% direct ownership in Anhui.

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During 2017 and prior to the payment default during 2018, Milestone Scientific agreed to sell inventory to Milestone China and its agent.

During 2018, Milestone Scientific entered into a payment arrangement with Milestone China to satisfy past due receivables from Milestone China and it is agents which amounted to $2.8 million at the time of the payment arrangement.

During 2018, Milestone Scientific entered into a payment arrangement with Milestone China to satisfy past due receivables from Milestone China and its agents which amounted to $2.8 million at the time of the payment arrangement.

Milestone Scientific collected $950,000 under this arrangement, until Milestone China defaulted on the payment arrangements.

Milestone Scientific halted shipments to Milestone China and the Company has adjusted the accounts receivable related party and the deferred revenue related party based on the expected payment realization and recorded a reserve against the related deferred cost of $1.25 million during the fourth quarter of 2018.

For the three and six months ended June 30, 2020 Milestone Scientific did not ship and recognize any deferred revenue or net revenue for Milestone China and its agents, respectively.

For the three and six months ended June 30, 2019 Milestone Scientific did not ship and recognize any deferred revenue but recognized revenue of $50,000 and $100,000 for Milestone China and its agents, respectively.

United System transaction

In April of 2020, the Company entered into an agreement with United Systems, Inc., related party (see Note 13) regarding certain handpieces supplied to Milestone China in 2018, that were billed and shipped by United Systems, as well as STA instruments billed to United Systems and delivered to Milestone China, and not paid by Milestone China.

Milestone Scientific halted shipments to Milestone China and the Company has adjusted the accounts receivable related party and the deferred revenue related party based on the expected payment realization and recorded a charge for deferred cost associated with these transactions of $1.25 million during the fourth quarter of 2018.

For the three and nine months ended September 30, 2020 Milestone Scientific did not ship nor recognize any deferred revenue or net revenue for Milestone China and its agents.

For the three and nine months ended September 30, 2019 Milestone Scientific did not ship nor recognize any deferred revenues, but did recognize revenue of zero, and $100,000 for Milestone China and its agents, respectively, that was previously deferred as a result of additional cash collected.

United System Agreement

In April of 2020, the Company entered into an agreement with United Systems, Inc., related party (see Note 13) regarding certain handpieces supplied to Milestone China in 2018, that were billed and shipped to Milestone China by United Systems, as well as STA instruments billed to United Systems and delivered to Milestone China, and not paid by Milestone China.

United Systems sold their entire accounts receivable due from Milestone China for the above described handpieces and STA instruments for $370,260 to Milestone Scientific.

Milestone Scientific will pay United Systems the sale price as follows;

$100,000 in cash paid in April 2020, $170,260 in shares of the Corporation’s Common Stock (priced as of the close of business on April 23, 2020, $1.59, as negotiated and agreed by all parties ) issued in June 2020, and $100,000 in cash due July 2020.

All payment have been paid.

Milestone Scientific paid United Systems the sale price as follows;

$100,000 in cash paid in April 2020, $170,260 in shares of the Company’s Common Stock (priced as of the close of business on April 23, 2020, $1.59 ) issued in June 2020, and $100,000 in cash paid in July 2020.

The Company is entitled to the cash collections, if and when received, on the accounts receivable due to United Systems prior to this agreement up to approximately $1.4 million.

The Company has recorded a charge to the condensed consolidated statement of operations for $370,260 during the three months ended June 30, 2020.

The Company has recorded a charge to the unaudited condensed consolidated statement of operations for $370,260 during the nine months ended September 30, 2020.

Milestone Advanced Cosmetic Systems Inc.

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Milestone China will have the option to repurchase the 50% interest in Advanced Cosmetic Systems within one year from the sale date for $900,000 in cash.

As a result of the purchase Milestone Scientific will own 100% of Advanced Cosmetic Systems Inc at the expiration of the option period.

Due to Milestone Scientific controlling financial interest both before and after the transaction the transaction has been accounted for as an equity transaction.

As a result of the purchase Milestone Scientific will own 100% of Advanced Cosmetic Systems Inc.

at the expiration of the option period.

Gross Profit Deferral

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In accordance with ASC 323 Equity Method and Joint Ventures, Milestone Scientific has deferred 40% of the gross profit associated with recognized revenue from sales to Milestone China until that product is sold to third parties.

At June 30, 2020 and December 31, 2019, the deferred profit was $340,476, which is included in deferred profit, related party in the condensed consolidated balance sheets.

For the three and six months ended June 30, 2020 and 2019 Milestone Scientific recorded earnings on equity investment of $- and $- and $9,564 and $58,664 respectively, for product sold by Milestone China to third parties.

At September 30, 2020 and December 31, 2019, the deferred profit was $340,476, which is included in deferred profit, related party in the condensed consolidated balance sheets.

For the three and nine months ended September 30, 2020 and 2019 Milestone Scientific recorded earnings on equity investment of $0 and $0 and $0 and $49,099 respectively, for product sold by Milestone China to third parties.

Equity Method Disclosures

As a result of the COVID-19 Pandemic, as previously noted, Milestone China, Milestone Beijing and Anhui have not legally finalized the Transaction, previously noted.

Further, Milestone China and Milestone Beijing have not completed the financial accounting and reporting as of and for the three and six months ended June 30, 2020.

As a result of the COVID-19 Pandemic, as previously noted, Milestone China, Milestone Beijing and Anhui have not legally finalized the Transaction.

Further, Milestone China and Milestone Beijing have not completed the financial accounting and reporting as of and for the three and nine months ended September 30, 2020.

Consequently, the summarized financial information (unaudited) for Milestone China, Milestone Beijing are not available and therefore not included herein.

Milestone Scientific, in previous years, reduced its investment in Milestone China to zero and had accumulated losses over the investment balance of approximately $4.3 million as of December 31, 2019, which have been suspended.

Milestone Scientific believes that its equity method portion of Milestone China’s expected losses for the three and six months ending June 30, 2020 do not have a significant impact on and are not material to the consolidated financial statements of the Company.

Milestone Scientific believes that its equity method portion of Milestone China’s expected losses for the three- and nine-months ending September 30, 2020 do not have a significant impact on and are not material to the consolidated financial statements of the Company.

NOTE 7 — PATENTS

June 30, 2020

September 30, 2020

Accumulated Amortization

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Patents are amortized utilizing the straight-line method over estimated useful lives ranging from 3 to 20 years.

Amortization expense was approximately $13,200 and $26,500 for both the three and six months ended June 30, 2020 and 2019, respectively.

Amortization expense was approximately $13,000 and $40,000 for the three and nine months ended September 30, 2020, respectively.

Amortization expense was approximately $13,000 and $40,000 for the three and nine months ended September 30, 2019, respectively.

NOTE 8 — NOTE PAYABLE

On April 27, 2020, the Company, was granted a loan (the “Loan”) from Savoy Bank.

in the aggregate amount of approximately $272,000, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020.

On April 27, 2020, the Company, was granted a loan (the “Loan”) from Savoy Bank in the aggregate amount of approximately $276,000, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020.

The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business.

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The Company intends to use the entire Loan amount for qualifying expenses.

Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.

While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan, we cannot be assured that certain actions taken that could cause the Company to be ineligible for forgiveness of the loan, in whole or in part.

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

The following table summarizes information about shares issuable under warrants outstanding as of June 30, 2020:

The following table summarizes information about shares issuable under warrants outstanding as of September 30, 2020 :

Warrant shares outstanding

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Expired or cancelled

Outstanding and exercisable at June 30, 2020

The following table summarizes information about shares issuable under warrants outstanding as of June 30, 2019:

Outstanding and exercisable at September 30, 2020

The following table summarizes information about shares issuable under warrants outstanding as of September 30, 2019

Warrant shares outstanding

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Expired or cancelled

Outstanding and exercisable at June 30, 2019

Outstanding and exercisable at September 30, 2019

PREFERRED STOCK

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SHARES TO BE ISSUED

As of June 30, 2020 and 2019, there were 2,370,345 and 2,185,910 shares to be issued whose issuance has been deferred to the Chief Executive Officer, Chief Financial Officer, and other employees of Milestone Scientific, respectively.

As of June 30, 2020, and 2019, there were 149,285 and 717,456 shares, respectively, to be issued to non-employees, respectively, that will be issued to non-employees for services rendered.

As of September 30, 2020 and 2019, there were 2,202,229 and 2,294,734 shares to be issued whose issuance has been deferred to the Chief Executive Officer, Chief Financial Officer, and other employees of Milestone Scientific, respectively.

As of September 30, 2020, and 2019, there were 149,498 and 351,612 shares, respectively, to be issued to non-employees, that will be issued for services rendered.

The number of shares was fixed at the date of grant and were fully vested upon grant date.

The following table summarizes information about shares to be issued on June 30, 2020 and 2019, respectively.

June 30, 2020

June 30, 2019

Shares-to-be-issued, outstanding January 1,

The following table summarizes information about shares to be issued on September 30, 2020 and 2019, respectively.

September 30, 2020

September 30, 2019

Shares-to-be-issued, outstanding January 1, 2020 and 2019, respectively

Granted in current period

Issued in current period

Shares-to be issued outstanding June 30,

Shares-to be issued outstanding September 30, 2020 and 2019, respectively

OUTSTANDING EQUITY INSTRUMENTS IN EXCESS OF AUTHORIZED SHARES

As a result of the shares and warrants issued in the public and private offerings as well as other issuance of common stock during 2019, the Company did not have a sufficient number of authorized shares of common stock to cover the exercise and issue of outstanding equity instruments.

Therefore, as of June 30, 2019, the warrants issued in the public and private placement were classified as liabilities.

Therefore, as of September 30, 2019, the warrants issued in the public and private placement were classified as liabilities.

As long as the warrants remained liability-classified, they were continued to be re-measured each reporting period, with any increase or decrease in value recorded as a loss or gain in the condensed consolidated statement of operations.

The initial fair value of the warrants was determined using a Black-Scholes option pricing model.

The following assumptions were used to value the warrants at the grant date:

The following assumptions were used to value the warrants at the reclassification date in 2019:

2016 Warrants

2019 Warrants

Fair Value of Common Stock

Expected Term (years)

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Number of shares underlying warrants granted

As these warrants are liability-classified, they were revalued on June 30, 2019 using the following assumptions:

On the date of issuance and reclassification the fair value of the warrants was approximately $376,000.

As these warrants are liability-classified, they were revalued on September 30, 2019 using the following assumptions:

2016 Warrants

2019 Warrants

Fair Value of Common Stock

Expected Term (years)

3 unchanged sentences

Weighted average fair value of warrants granted

Additionally, as of June 30, 2019 approximately 2,900,000 of the shares to be issued were also classified as a liability until there was a sufficient number of authorized shares of common stock to cover the issuance of the shares.

These shares were valued at the trading price of a share of the Company’s common stock ($0.36 upon the creation of the liability and as of June 30, 2019) and are continuously re-measured each reporting period, with any increase or decrease in value recorded as a loss or gain in the condensed consolidated statement of operations.

For the three and six months ended June 30, 2019 the Company recognized a gain of approximately $12,500 and $52,700, respectively, in relation to the revaluation of the derivative warrants and shares to be issued.

Number of shares underlying warrants granted

For the three and nine months ended September 30, 2019 the loss on the liability classified warrants was approximately $680,542 and $674,792, respectively.

Additionally, approximately 2.6 million of shares to be issued are classified as liabilities until there are sufficient number of authorized shares of common stock to cover the issuance of such shares.

These shares were valued at the trading price of a share of the Company’s common stock ($0.83 as of September 30, 2019 ) and they will continue to be re-measured each reporting period, with any increase or decrease in value recorded as a loss or gain in the condensed consolidated statement of operations.

For the three and nine months ended September 30, 2019 the loss on the liability classified shares to be issued was approximately $1.2 million, respectively.

On December 17, 2019, the Company’s shareholders approved an increase to the authorized share limit to 75,000,000.

On December 17, 2019, the Company reclassified all derivative liabilities related to the insufficient number of authorized shares to stockholders’ equity.

As such, there were no derivative liabilities during the six months ended June 30, 2020.

As such, there were no derivative liabilities during the nine months ended September 30, 2020.

NOTE 10 — INCOME TAXES

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The following tables present information about our reportable and operating segments:

Three months ended

June 30, 2019

Six months ended

June 30, 2019

Three months ended September 30,2020

Three months ended September 30, 2019

Nine months ended September 30,2020

Nine months ended September 30, 2019

Total net sales

Operating (Loss):

Three months ended

June 30, 2019

Six months ended

June 30, 2019

Operating Income (Loss):

Three months ended September 30,2020

Three months ended September 30, 2019

Nine months ended September 30,2020

Nine months ended September 30, 2019

Total operating loss

Depreciation and Amortization

Three months ended

June 30, 2019

Six months ended

June 30, 2019

Three months ended September 30, 2020

Three months ended September 30, 2019

Nine months ended September 30, 2020

Nine months ended September 30, 2019

Total depreciation and amortization

(Loss) before taxes and equity in earnings of affiliates:

Three months ended

June 30, 2019

Six months ended

June 30, 2019

Income (loss) before taxes and equity in earnings of affiliates:

Three months ended September 30, 2020

Three months ended September 30, 2019

Nine months ended September 30, 2020

Nine months ended September 30, 2019

Total loss before taxes and equity in earnings of affiliate

Total Assets:

September 30, 2020

December 31, 2019

The following table presents information about our operations by geographic area for three months ended June 30, 2020 and 2019.

The following table presents information about our operations by geographic area for three months ended September 30, 2020 and 2019.

Net sales by geographic area are based on the respective locations of our subsidiaries:

Three months ended June 30, 2020

Three months ended June 30, 2019

Three months ended September 30, 2020

Three months ended September 30, 2019

Total Domestic US

International ROW

Total International ROW

international

Total International

International-China

Total International

Total Product Sales

The following table presents information about our operations by geographic area for the six months ended June 30, 2020 and 2019.

The following table presents information about our operations by geographic area for the nine months ended September 30, 2020 and 2019.

Net sales by geographic area are based on the respective locations of our subsidiaries:

Six months ended June 30, 2020

Six months ended June 30, 2019

Total Domestic US

Nine months ended September 30, 2020

Nine months ended September 30, 2019

Domestic-US & Canada

Total Domestic US & Canada

International ROW

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International-China

Total International

Total Product Sales

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Milestone Scientific has informal arrangements with third-party manufacturers of the STA, epidural, and intra-articular devices, pursuant to which they manufacture these products under specific purchase orders but without any long-term contract or minimum purchase commitment.

Consequently, advances on contracts have been classified as current on June 30, 2020 and December 31, 2019.

Consequently, advances on contracts have been classified as current on September 30, 2020 and December 31, 2019.

The termination of the manufacturing relationship with any of these manufacturers could have a material adverse effect on Milestone Scientific’s ability to produce and sell its products.

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Any curtailment or interruption of the supply, because of termination of such a relationship, would have a material adverse effect on Milestone Scientific’s financial condition, business, and results of operations.

For the six months ended June 30, 2020, and 2019 an aggregate of approximately 37% and 50% of the Company’s net product sales were from one domestic distributor, respectively.

For the three months ended June 30, 2020 net product sales were 40% from one domestic distributor and 23% from one international distributor.

For the three months ended June 30, 2019 an aggregate of approximately 52% of the Company’s product sales were to one domestic customer/distributor.

Accounts receivable for the domestic and international distributor amounted to approximately or 61% and 0%, of Milestone Scientific's gross accounts receivable as of June 30, 2020, respectively.

Accounts receivable for the major domestic customer/distributor amounted to approximately or 77%, of Milestone Scientific's gross accounts receivable as of December 31, 2019.

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

For the three and nine months ended September 30, 2020, approximately 40% and 45% of the Company’s net product sales were from the Company’s exclusive domestic dental distributor, respectively.

For the three and nine months ended September 30, 2019 net product sales were 54% and 51%, respectively, to the Company’s exclusive domestic dental distributor.

Accounts receivable for two customers/distributors amounted to approximately $720,000 or 74%, or 60% and 14% of Milestone Scientific's gross accounts receivable as of September 30, 2020, one of which was the Company’s exclusive domestic dental distributor.

Accounts receivable for the Company’s exclusive domestic dental distributor amounted to approximately or 77%, of Milestone Scientific's gross accounts receivable as of December 31, 2019.

The Company’s exclusive domestic dental distributor exclusivity for the domestic dental market is subject to annual purchase requirements and other requirements, as defined in the agreement.

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

The Company is continuously monitoring its own operations and intends to take appropriate actions to mitigate the risks arising from the COVID-19 pandemic to the best of its abilities, but there can be no assurances that the Company will be successful in doing so.

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Milestone Scientific has a manufacturing agreement with United Systems (whose controlling shareholder, Tom Cheng, is a significant stockholder of Milestone Scientific), the principal manufacturers of its handpieces, pursuant to which it manufactures products under specific purchase orders, but without minimum purchase commitments.

Purchases from this manufacturer were approximately $725,000 and $505,000 for the six months ended June 30, 2020 and 2019, respectively.

As June 30, 2020 and December 31, 2019, Milestone Scientific owed this manufacturer approximately $281,000 and $943,000, respectively, which is included in accounts payable, related party on the condensed consolidated balance sheets.

Purchases from this manufacturer were approximately $373,000 and $549,000 for the three months ended September 30, 2020 and 2019, respectively.

Purchases from this manufacturer were approximately $1,200,000 and $1,100,000 for the nine months ended September 30, 2020 and 2019, respectively.

As September 30, 2020 and December 31, 2019, Milestone Scientific owed this manufacturer approximately $365,000 and $943,000, respectively, which is included in accounts payable, related party on the condensed consolidated balance sheets.

In February 2019, Milestone Scientific Board of Directors granted United Systems 285,714 shares of stock at $0.35 or $100,000 for consulting services.

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Milestone China

As of June 30, 2020, Milestone Scientific owned a 40% interest in Milestone China.

As of June 30, 2020, and December 31, 2019, Milestone Scientific had deferred compensation for Chief Executive Officer of Wand Dental of approximately of and $356,000, and $380,000, respectively which is included accrued expenses related party.

As of September 30, 2020, Milestone Scientific owned a 40% interest in Milestone China.

As of September 30, 2020, and December 31, 2019, Milestone Scientific had deferred compensation for the previous Chief Executive Officer of Wand Dental of approximately of and $308,000 and $380,000, respectively which is included accrued expenses related party.

In August 2016, K.

Tucker Andersen, a significant stockholder of Milestone Scientific, entered into an agreement with Milestone Scientific to provide financial and business strategic services.

Expenses recognized on this agreement were $25,000, and $50,000 for the three and six months ended June 30, 2020, and 2019, respectively.

Expenses recognized on this agreement were $25,000, and $75,000 for the three and nine months ended September 30, 2020, and 2019, respectively.

In January 2017, Milestone Scientific entered into a twelve-month agreement with Innovest S.p.A., a significant stockholder of Milestone Scientific, to provide consulting services.

This agreement will renew for successive twelve-month terms unless terminated by Innovest S.p.A or Milestone Scientific.

Expenses recognized on this agreement were $20,000 and $40,000 for the three and six months ended June 30, 2020, and 2019, respectively.

The Director of Clinical Affairs’ royalty fee was approximately $97,000 and $199,000 for the six months ended June 30, 2020 and 2019, respectively.

Additionally, Milestone Scientific expensed consulting fees to the Director of Clinical Affairs of $78,000 for the six months ended June 30, 2020 and 2019, respectively.

As of June 30, 2020 and December 31, 2019, Milestone Scientific owed the Director Clinical Affairs for royalties of approximately $284,000 and $390,000, respectively, which is included in accounts payable, related party and accrued expense, related party.

Expenses recognized on this agreement were $20,000 and $60,000 for both the three and nine months ended September 30, 2020, and 2019, respectively.

This agreement was terminated September 30, 2020.

The Director of Clinical Affairs’ royalty fee was approximately $61,000 and $92,000 for the three months ended September 30, 2020 and 2019, respectively.

The Director of Clinical Affairs’ royalty fee was approximately $158,000 and $292,000 for the nine months ended September 30, 2020 and 2019, respectively.

Additionally, Milestone Scientific expensed consulting fees to the Director of Clinical Affairs of $39,000 and $117,000 for the three and nine months ended September 30, 2020 and 2019, respectively.

As of September 30, 2020 and December 31, 2019, Milestone Scientific owed the Director Clinical Affairs for royalties of approximately $80,000 and $390,000, respectively, which is included in accounts payable, related party and accrued expense, related party.

NOTE 14 — COMMITMENTS

1 unchanged sentence

As of June 30, 2020, the purchase order commitment for dental instruments was $736,120 and advances of $313,766 are reported in inventory advances.

As of September 30, 2020, the purchase order commitment for dental instruments was $515,284 and advances of $350,311 are reported in inventory advances.

In August 2019, the company entered a new purchase commitment for the delivery of 100 Epidural instruments beginning in 2020.

As of June 30, 2020, we have an open purchase order of $299,000 for 100 Epidural instruments and have advanced $149,500 against this purchase commitment.

The Company also has advances on an open purchase order for long lead items for a future purchase order for the manufacturing of Epidural instrument in 2021, in which an advance of $121,649 is reported in inventory advances.

As of September 30, 2020, we have an open purchase order of $299,000 for 100 Epidural instruments and have advanced $161,000 against this purchase commitment.

In July 2020, the company entered a new purchase commitment for the delivery of 110 cases of Epidural and Cathcheck disposable kits beginning in November 2020.

As of September 30, 2020, we have an open purchase order of $30,395 for 110 cases of Epidural and Cathcheck disposable kits and have advanced $21,195 against this purchase commitment.

Operating Leases

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The Company is also required to pay its proportionate share of certain operating costs and property taxes applicable to the leased premises in excess of new base year amounts, which are accounted for as variable lease expenses.

As of June 30, 2020, total operating lease right-of-use assets were $632,536 and total operating lease liabilities were $661,098, of which $66,682 and $594,416 were classified as current and non-current, respectively.

As of September 30, 2020, total operating lease right-of-use assets were $655,870 and total operating lease liabilities were $645,341, of which $68,934 and $576,407 were classified as current and non-current, respectively.

As of December 31, 2019, total operating right-of-use assets were $15,977 and total operating lease liabilities (current) were $15,977.

During the six months ended June 30, 2020, the Company also entered into a five-year lease for copiers which resulted in the recognition of property and equipment and total finance lease liabilities of $43,242.

As of June 30, 2020, total finance lease liabilities were $38,704, of which $6,108 and $32,596 were classified as current and non-current, respectively.

During the nine months ended September 30, 2020, the Company also entered into a five-year lease for copiers which resulted in the recognition of property and equipment and total finance lease liabilities of $43,242.

As of September 30, 2020, total finance lease liabilities were $38,527, of which $7,903 and $30,624 were classified as current and non-current, respectively.

Cash flow information related to the Company's right-of-use assets and related lease liabilities were as follows:

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

Cash paid for operating lease liabilities

2 unchanged sentences

Property and equipment obtained in exchange for new finance lease liabilities

(1) For the Six months ended June 30, 2019, the balance includes operating leases existing as of the adoption of ASC 842 on January 1, 2019.

(1) For the nine months ended September 30, 2019, the balance includes operating leases existing as of the adoption of ASC 842 on January 1, 2019.

Weighted-average remaining lease term - operating leases (years)

7 unchanged sentences

NOTE 15— SUBSEQUENT EVENTS

Since the quarter ended June 30, 2020, the Company issued 37,500 shares of common stock for warrants exercised at $0.50 for proceeds of $18,750 and 15,000 shares of common stock for warrants exercised at $1.20 for proceeds of $18,000.

Since the quarter ended September 30, 2020, the Company issued 8,000 shares of common stock for warrants exercised at $1.20 for proceeds of $9,600.

The Company engaged Gian Domenico Trombetta, former CEO of Wand Dental Inc.

as a consultant to Leonard Osser, Interim – Chief Executive Officer of Milestone Scientific for a period of twelve months (beginning October 1, 2020 and ending September 30, 2021).

Gian Domenico Trombetta will provide historical International Business, Dental Segment information and business contacts to Mr.

Osser and provide consulting services for new International Business and Dental Segment concepts during this twelve month consulting period.

Under this agreement, Mr.

Trombetta is to receive $60,000 payable in Milestone Scientific shares.

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 1. Financial Statements