MILESTONE SCIENTIFIC INC. 10-K

Item 9A. Controls and Procedures Milestone Scientific’s Interim Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of Milestone Scientific’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, Milestone Scientific’s Interim Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures as of December 31, 2020 are effective to ensure that information required to be disclosed in the reports Milestone Scientific files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to Milestone Scientific's management, including the Interim Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management’s Annual Report on Internal Control over Financial Reporting Milestone Scientific management is responsible for establishing and maintaining internal controls over financial reporting. The internal controls over financial reporting includes those policies and procedures that: ● Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets; ● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles in the United States, and that the receipts and expenditures are being made only in accordance with authorizations of the management and directors; and ● Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control instruments, no matter how well designed, have inherent limitations. Therefore, even those instruments determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Milestone Scientific management assessed the effectiveness of its internal control over financial reporting as of December 31, 2020. In making this assessment, management used the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) adopted in 2013. Based on the assessment and the criteria set forth by COSO, management believes that Milestone Scientific maintained effective internal control over financial reporting as of December 31, 2020. There have been no changes in Milestone Scientific’s internal control over financial reporting identified in connection with the evaluation that occurred during Milestone Scientific’s last fiscal quarter ended December 31, 2020 that have materially affected, or that are reasonably likely to materially affect, Milestone Scientific’s internal controls over financial reporting. Item 9B. Other Information None. 36 PART III Item 10. Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16 (a) of the Exchange Act. Milestone Scientific’s directors are elected annually by the stockholders and serve for one-year terms until his/her successor is elected and qualified or until such director’s earlier death, resignation, or removal. The executive officers and key personnel are appointed by and serve at the discretion of the Board of Directors The current executive officers and directors of Milestone Scientific and their respective ages, as of March 29, 2021 are as follows: NAME AGE POSITION DIRECTOR SINCE Leslie Bernhard (1) (2) (3) 76 Chairman of the Board 2003 Leonard Osser 73 Interim Chief Executive Officer and Director 1991 Jan Adriaan (Arjan ) Haverhals 59 President Joseph D'Agostino 69 Chief Financial Officer and Chief Operating Officer Leonard Schiller (1) (2) (3) 80 Director 1997 Gian Domenico Trombetta 60 Director 2014 Michael McGeehan (1) (2) (3) 55 Director 2017 Neal Goldman (2) (3) 77 Director 2019 1. Member of the Audit Committee 2. Member of the Compensation Committee 3. Member of the Nominating and Corporate Governance Committee The following are the names of individuals who are not executive officers of Milestone Scientific but are deemed key personnel of Milestone Scientific, their respective ages and positions as of March 29, 2021 . NAME AGE POSITION Eugene Casagrande, D.D.S. 76 Director of International Professional Relations Mark Hochman, D.D.S. 61 Director of Clinical Affairs Leonard Osser, Interim Chief Executive Officer and Director Leonard Osser has been Interim Chief Executive Officer since December 2017. From July 2017 to December 2017, he had been Managing Director –China Operations. Prior to that, he served as Milestone Scientific’s Chairman from 1991 until September 2009, and during that time, from 1991 until 2007, was also Chief Executive Officer of Milestone Scientific. In September 2009, he resigned as Chairman of Milestone Scientific, but remained director, and assumed the position of Chief Executive Officer. From 1980 until the consummation of Milestone Scientific’s public offering in November 1995, Mr. Osser was primarily engaged as the principal owner and Chief Executive Officer of U.S. Asian Consulting Group, Inc., a New Jersey-based provider of consulting services specializing in distressed or turnaround situations in both the public and private markets. Mr. Osser’s knowledge of our business and background with us since 1980 provides the Board with valuable leadership skills and insight into our business and accordingly, the expertise needed to serve as one of our directors. J an Adriaan (Arjan) Haverhals , President Mr. Haverhals has been Milestone Scientific's President since September 2020 and as the President and Chief Executive Officer of Milestone Scientific’s Dental Division (Wand Dental Inc.) since June 2020. He brings more than 30 years of sales, marketing, product development, and international expansion experience within the medical device, pharmaceutical, and other industries. Prior to joining Wand Dental and Milestone Scientific, Mr. Haverhals was senior vice president of sales at Xcentric Mold & Engineering from 2019 until 2020 where he was instrumental in increasing sales productivity and efficiency for the company's prototype injection molding services, which included leading healthcare company clients. From 2012 until 2018, Mr. Haverhals worked at Straumann, LLC, a global leader in manufacturing medical and dental devices, where he held a series of senior sales and marketing roles including vice president of customer marketing & education, where he oversaw all product franchises and led the launch of more than 30 products in the North American market. He also served as senior vice president for the Nordic Region at Straumann AB, senior vice president of global sales digital solutions, which included oversight of the strategic acquisition of Etkon; and served as vice president of the Prosthetics Business Unit, where he introduced a new implant and prosthetics product line within a new market segment. 37 He also served as senior vice president for the Nordic Region at Straumann AB, senior vice president of global sales digital solutions, which included oversight of the strategic acquisition of Etkon; and served as vice president of the Prosthetics Business Unit, where he introduced a new implant and prosthetics product line within a new market segment. He also served as vice president of global marketing & sales at Elkem AS, one of Norway's largest industrial companies. Previously, Mr. Haverhals served as executive vice president of marketing & sales at Cresco Ti Systems Sàrl, a global dental implant company, where he was responsible for turning around and managing global sales, marketing, international business. Mr. Haverhals holds an MS in Pharmacy from the University of Leyden in the Netherlands. Joseph D’Agostino, Chief Financial Officer and Chief Operating Officer Joseph D'Agostino has been Milestone Scientific's Chief Financial Officer since October 2008 and Chief Operating Officer since September 2011. Mr. D'Agostino joined Milestone Scientific in January 2008 as Acting CFO and has over 25 years of finance and accounting experience serving both publicly and privately held companies. A results-oriented and decisive leader, he has specific proven expertise in treasury and cash management, strategic planning, information technology, internal controls, Sarbanes-Oxley compliance, operations, and financial and tax accounting. Mr. D'Agostino served as Senior Vice President and Treasurer of Summit Global Logistics, a publicly traded, full service international freight forwarder and customs broker with operations in the United States and China. Previous executive posts also included Executive Vice President and CFO of Haynes Security, Inc., a leading electronic and manned security solutions company serving government agencies and commercial enterprises; Executive Vice President of Finance and Administration for Casio, Inc., the U.S. subsidiary of Casio Computer Co., Ltd., a leading manufacturer of consumer electronics with subsidiaries throughout the world; and Manager of Accounting and Auditing for Main Hurdman's National Office in New York City (merged into KPMG). Mr. D'Agostino is a Certified Public Accountant and holds memberships in the American Institute of CPA's, New Jersey Society of CPA's, Financial Executive Institute, He is a graduate of William Paterson University where he earned a Bachelor of Arts degree in Science. Leslie Bernhard, Chairman of the Board Leslie Bernhard has served as Milestone Scientific’s Chairman of the Board since October 2009 and served as Interim Chief Executive Officer from October 2017 to December 2017. In addition, Ms. Bernhard has also had been serving as an independent director of Milestone Scientific since May 2003. Since 2017, Ms. Bernhard has been an independent director of Sachem Capital Corp a Connecticut based real-estate investment trust. From 2007, Ms. Bernhard served as an independent director of Universal Power Group, Inc., a global supplier of power solutions until it became a private company in 2018. In 1986 she co-founded AdStar, Inc., an electronic ad intake service to the newspaper industry, and served as its president, chief executive officer and executive director until 2012. Ms. Bernhard holds a BS Degree in Education from St. John’s University. Ms. Bernhard’s professional experience and background with AdStar and with us, as one of our directors since 2003, have given her the expertise needed to serve as Chairman of the Board, and Chairman of the Audit Committee. Gian Domenico Trombetta, Director Gian Domenico Trombetta has been a director of Milestone Scientific in May 2014 and served as the President and Chief Executive Officer of Milestone Scientific’s Dental Division (Wand Dental Inc.) from October 2014 until May 2020. He founded Innovest S.p.A in 1993, a special situation firm acting in development and distressed capital investments. He has been its President and Chief Executive Officer since its inception. He served as the Chief Executive Officer or a board member of several private commercial companies in different industries including both industrial (e.g. IT, media, web, and fashion) and holding companies. Before founding Innovest, Mr. Trombetta was Project Manager for Booz Allen & Hamilton Inc., a management consulting firm from 1988 to 1992. Mr. Trombetta holds a degree in business administration from the Luiss University in Rome, Italy, and an MBA degree from INSEAD-Fontainbleau-France. Mr. Trombetta business background and experience has given him the expertise needed to serve as one of our directors. Leonard M. Schiller, Director Leonard Schiller has been a director of Milestone Scientific since April 1997. Mr. Schiller has been a partner in the Chicago law firm of Schiller Law P.C. and it's predecessors since 1977 and since 2002, its President. Mr. Schiller also serves as a director on the board of Creatd, Inc., a Nasdaq listed social media company since February 2016. He also is a general partner of Gravitas Capital LP, a hedge fund. Mr. Schiller’s professional experience and background have given him the expertise needed to serve as Chairman of the Compensation Committee and as one of our directors. 38 Neal Goldman Mr. Goldman is the President and Founder of Goldman Capital Management, Inc., a family office since 2018, which was previously an investment advisory firm founded in 1985. He was First Vice President of Research at Shearson Lehman Hutton. He has also held senior positions as a money manager and research analyst with a variety of firms including Neuberger Berman, Moseley Hallgarten Estabrook and Weeden, Bruns Nordeman, and Russ and Company. Mr. Goldman serves as Chairman of Charles & Colvard, Ltd. (Nasdaq: CTHR) since 2016 and serves on the board of Imageware Systems, Inc. (Nasdaq: IWSY). He also serves on the board of Deep-Down Inc. (DPDW). Prior to their acquisition, he served on the boards of Blyth Industries and IPASS Corporation. Mr. Goldman is a Chartered Financial Analyst (CFA). He also serves on numerous non-profit boards. Mr. Goldman received his B.A. degree in Economics from The City University of New York (City College). Michael McGeehan Michael McGeehan has been a director of Milestone Scientific since October 2017. Mr. McGeehan is a business consultant with 30 years of experience in a variety of business domains, including financial services, medical and healthcare products, consumer package goods and the software technology industry. Mr. McGeehan started his career at Metaphor Computer Systems in 1988 and then went to work at Microsoft Corporation in 1991. In 1995, Mr. McGeehan left Microsoft and founded Forefront Information Strategies, an information technology consulting firm. In 2002, Mr. McGeehan returned to Microsoft where he worked until 2017, when he returned to and re-started Forefront. Mr. McGeehan professional experience and background have given him the expertise needed to serve as Chairman of the Corporate Governance and Nominating Committee and as one of our directors. Mr. McGeehan was on the Board of Directors of Wand Dental Inc., (subsidiary of Milestone Scientific) a maker of a painless, anesthetic injection system for dentists. Mr. McGeehan has a Master’s in Business Administration from Pace University and a Bachelor of Science in Electrical Engineering and Computer Science from Marquette University. Mr. McGeehan background has given him the experience needed to serve as one of our directors. Mark Hochman, D.D.S., Director of Clinical Affairs Mark Hochman, D.D.S. has served as Milestone Scientific’s Director of Clinical Affairs and Director of Research and Development since 1999. He has a Doctor of Dental Surgery with advanced training in the specialties of Periodontics and Orthodontics from New York University of Dentistry and has been practicing dentistry since 1984. He is a former clinical associate professor at NYU School of Dental Surgery. Recognized as a world authority on Advanced Drug Delivery Instruments, Dr. Hochman has published numerous articles in this area, and shares in the responsibility for inventing much of the technology currently available from Milestone Scientific. Dr. Eugene Casagrande, Director of International & Professional Relations Since 1998, Eugene Casagrande, D.D.S. has served as Director of International and Professional Relations, charged with pursuing a broad range of clinical and industry-related strategic business opportunities for Milestone Scientific. Dr. Eugene R. Casagrande has practiced Cosmetic and Restorative Dentistry for over 30 years in Los Angeles. He is past president of the California State Board of Dentistry and the Los Angeles Dental Society and is a Fellow of the American and International Colleges of Dentists. Dr. Casagrande was a member of the faculty of the University of Southern California, School of Dentistry. He was also the Executive Director of the Los Angeles Oral Health Foundation and the Program Director of the Los Angeles Pediatric Oral Health Access Program. As the Director of International & Professional Relations for Milestone Scientific for over 20 years, he has published multiple articles and has lectured both nationally and internationally at over 100 dental schools and in over 50 countries on Computer-Controlled Local Anesthesia. Director Independence and Committees of the Board The Board has determined that Leslie Bernhard, Leonard M. Schiller, Neal Goldman, and Michael McGeehan (the “Independent Directors”) are independent as that term is defined in the listing standards of the NYSE American. As disclosed above, Leslie Bernhard, Leonard M. Schiller, and Michael McGeehan are members of the Audit Committee and are independent for such purposes. Leslie Bernhard, Leonard M. Schiller, and Neal Goldman are members of the Compensation Committee and are independent for such purposes. 39 Milestone Scientific’s Board of Directors has established a compensation, audit, nominating and corporate governance committees (respectively, “Compensation Committee,” “Audit Committee,” and “Nominating Committee”.) The Compensation Committee reviews and recommends to the Board of Directors the compensation and benefits of all the officers of Milestone Scientific, reviews general policy matters relating to compensation and benefits of employees of Milestone Scientific and administers the issuance of stock options to Milestone Scientific’s officers, employees, directors, and consultants. All compensation arrangements between Milestone Scientific and its directors, officers and affiliates are reviewed by the Compensation Committee. The Audit Committee meets with management and Milestone Scientific’s independent auditors to determine the adequacy of internal controls and other financial reporting matters; all the members are independent directors. The Board of Directors has determined that, Leslie Bernhard qualifies as an Audit Committee Financial Expert pursuant to Item 407(d)(5) of Regulation S-K, Leslie Bernhard is independent, as that term is defined in the listing standards of the NYSE American. The Nominating Committee has dual responsibilities. The Nominating Committee will assist the board by identifying and recommending individuals qualified to become member of the board. Additionally, the committee will evaluate the size and composition of the board and its members, reviewing governance issues and making recommendations to the board regarding possible changes and reviewing and monitoring compliance with the code of ethics and insider trading policy. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC. Executive officers, directors and greater than ten-percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. Based solely on review of the copies of such forms furnished to us, or written representations that no Forms 5 were required, we believe that all Section 16(a) filing requirements applicable to our officers and director were complied with during the fiscal year ended December 31, 2020. Code of Ethics Milestone Scientific has adopted a code of ethics that applies to its directors, principal executive officer, principal financial officer and other persons performing similar functions. This code of ethics is posted on Milestone Scientific’s web site at www.milestonescientific.com. Milestone Scientific will also provide a copy of the Code of Ethics to any person without charge, upon written request addressed to the Chief Financial Officer, Joseph D’Agostino at the principal executive office, located at 425 Eagle Rock road Roseland, NJ 07068. Item 11. Executive Compensation. The following Summary Compensation Table sets forth all compensation earned, in all capacities, during the fiscal years ended December 31, 2020 and 2019 by Milestone Scientific’s (i) Interim CEO and (ii) two most highly compensated executive officers other than the Interim CEO who were serving as executive officers at the end of the 2020 fiscal year and whose salary as determined by Regulation S-K, Item 402, exceeded $100,000 (the individuals falling within categories (i) and (ii) are collectively referred to as the “Named Executive Officers”). 40 SUMMARY COMPENSATION TABLE Name and Principal Position Year Salary Bonuses Option Awards (8) Other Compensation Total Leonard A. Osser (1) (8) Interim Chief Executive Officer 2020 $ 300,000 $ 700,000 $ 910,000 $ 20,668 $ 1,930,668 2019 $ 301,423 $ 350,000 $ - $ 39,879 $ 691,302 Gian Domenico Trombetta (2) Chief Executive Officer - Wand Dental Inc 2020 $ 80,000 $ - $ - $ - $ 80,000 2019 $ 280,000 $ - $ - $ - $ 280,000 Jan Adriaan (Arjan) Haverhals (3) Chief Executive Officer - Wand Dental Inc President of Milestone Scientific Inc. 2020 $ 156,666 $ 90,000 $ - $ - $ 246,666 Joseph D'Agostino (4) (8) Chief Financial Officer and Chief Operating Officer 2020 $ 200,738 $ 350,000 $ 455,000 $ 15,216 $ 1,020,954 2019 $ 203,300 $ 175,000 $ - $ 24,935 $ 403,235 Brent Johnston (5) President 2020 $ 193,556 $ 34,444 $ - $ 2,755 $ 230,756 2019 $ 86,218 $ 16,666 $ 9,033 $ 111,917 Sharon Smith (6) Executive Vice President Global Marketing 2020 $ - $ - $ - 2019 $ 181,064 $ - $ - $ 181,064 Eric Gilbert (7) Vice President US Sales and Marketing 2020 $ 269,423 $ 40,000 $ 309,423 2019 $ 218,301 $ - $ - $ - $ 218,301 1. Leonard Osser during 2020 other compensation represents payments made for health insurance coverage of approximately $6,800 and car allowance of approximately $14,400 in 2020. During 2020 the deferred compensation of approximately $175,000 from both 2019 and 2018, respectively was paid. Mr. Osser received $143,000 and 60,000 of the deferred pensions from 2018 in 2020 and 2019 respectively. During 2019 other compensation represents payments made for health insurance coverage of approximately $25,000 and car allowance of approximately $14,400 in 2019. 2. Gian Domenico Trombetta as of December 31, 2020, the company owes $275,000 of deferred compensation from 2019 and 2018, respectively. Mr. Trombetta did not receive a performance bonus in 2020 and 2019. In May 2020 Mr. Trombetta resigned as CEO of Wand Dental wholly-owned subsidiary of Milestone Scientific, Inc. 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. Mr. Trombetta received 15,000 in other compensation. 3. Jan Adriaan (Arjan) Haverhals was hired in June 2020 a Chief Executive Officer of Wand Dental, Inc., a wholly-owned subsidiary of Milestone Scientific, Inc. and in September 2020 Mr. Haverhals was appointed to President of Milestone Scientific Inc. Mr. Haverhals received $90,000, in a discretionary performance bonus for the year ended December 31, 2020. 4. Joseph D’Agostino during 2020 other compensation represents payments made for health insurance coverage of approximately $15,000 and car allowance of approximately $9,000. During 2020 the deferred compensation of approximately $28,400 from both 2019 and 2018, respectively was paid. Mr. D'Agostino received a discretionary performance bonus in 2020 and 2019 of $150,000 and $175,000 respectively (which will be paid stock). During 2019 other compensation represents payments made for health insurance coverage of approximately $16,000 and car allowance of approximately $9,000. 5. Brent Johnston was hired in September 2019 as President. Other compensation represents payments made for health insurance coverage of approximately $2,755 and car allowance of approximately $9,600. Mr. Johnston received a bonus in 2020 of approximately $34,000. Mr. Johnston resigned in August 2020. Other compensation represents payments made for health insurance coverage of approximately $4,800 and car allowance of approximately $4,200. Mr. Johnston received a discretionary performance bonus in 2019 of approximately $16,000. 41 6. Sharon Smith resigned from her position with the Company in October 2019. 7. Eric Gilbert received $40,000, in a discretionary performance bonus for the year ended December 31, 2019 and will be paid in common stock upon the termination of his employment with the Company. 8. The amounts in this column reflect the fair value of the options on the date of grant. For details used in the assumption calculating the fair value of the option reward, see Note C to the Financial Statements for the year ended December 31, 2020 a which is located on pages F-8 through F-12 of this Report. Compensation cost is generally recognized over the vesting period of the award. See the table below entitled Outstanding Equity Awards at December 31, 2020. Employment Contracts In July 2017, Milestone Scientific entered into a ten-year employment agreement with Leonard Osser, who previously served as the Company’s President and Chief Executive Officer, to serve as Managing Director – China Operations. This agreement provides for annual compensation of $300,000 consisting of $100,000 in cash and $200,000 in the Company’s common stock valued at the average closing price of the Company’s common stock on the NYSE or such other market or exchange on which its shares are then traded during the first fifteen (15) trading days of the last full calendar month of each year during the term of this agreement. This agreement supersedes all prior employment agreements between Mr. Osser and Milestone Scientific. If the Company terminates Mr. Osser’s employment “Without Cause,” other than due to his death or disability, or if Mr. Osser terminates his employment for “Good Reason” (both as defined in the agreement), Mr. Osser is entitled to be paid in one lump sum payment as soon as practicable following such termination: an amount equal to the aggregate present value (as determined in accordance with Section 280G(d)(4) of the Code) of all compensation pursuant to this agreement from the effective date of termination hereunder through the remainder of the Employment Term. In July 2017, Mr. Osser resigned from his positions of Chairman of the Board, Chief Executive Office and President of Milestone Medical. Upon his resignation, Milestone Medical entered in a consulting agreement with U.S. Asian Consulting Group LLC, an entity controlled by Mr. Osser, pursuant to which he will provide specific services to Milestone Medical for a ten- year term. Pursuant to the consulting agreement, U.S. Asian Consulting Group, LLC, is entitled to receive $100,000 per year for Mr. Osser's services. On December 19, 2017, the Board of Directors appointed Leonard Osser Interim Chief Executive Office, replacing Leslie Bernhard. Mr. Osser placed on hold his position as Managing Director-China Operations and his consulting agreement with Milestone Medical to rejoined Milestone Scientific Inc. as Interim Chief Executive Officer and will not receive or earn any compensation under those agreements until he is no longer Interim Chief Executive Officer. Mr. Osser as Interim Chief Executive Officer receives a base salary and may receive bonus determined by the compensation committee of Company. On March 2, 2021, Milestone Scientific Inc. (the “Company”) entered into a Royalty Sharing Agreement with Leonard Osser, the Company’s Interim Chief Executive Officer, pursuant to which Mr. Osser sold, transferred and assigned to the Company all of his rights in and to a certain patent application as to which he is a co-inventor with Mark Hochman, a consultant to the Company, and the Company agreed to pay to Mr. Osser, beginning May 9, 2027, half of the royalty (2.5%) on net sales that would otherwise be payable to Mark and Claudia Hochman under their existing Technology Sale Agreement, dated January 1, 2005 and amended from time to time, with the Company, the Hochman's having agreed with the Company pursuant to an addendum to such Technology Sale Agreement dated February 25, 2021 to reduce from five percent (5%) to two and one-half percent (2.5%) the payments due to them under their Technology Sale Agreement on May 9th, 2027 and thereafter, with respect to dental products. The Agreement confirms an understanding of the Company, Leonard Osser, and the Hochman's on sharing the five percent (5%) royalty to be paid by the Company beginning on May 9, 2027 with respect to dental products embodying the new invention. Objective of Executive Compensation Program The primary objective of the executive compensation program is to attract and retain qualified, energetic managers who are enthusiastic about the mission and culture of Milestone Scientific. A further objective of the compensation program is to provide incentives and reward each manager for their contribution. In addition, Milestone Scientific strives to promote an ownership mentality among key leadership and the Board of Directors. The Compensation Committee reviews and approves, or in some cases recommends for the approval of the full Board of Directors, the annual compensation procedures for the Named Executive Officers. The compensation program is designed to reward teamwork, as well as each manager’s individual contribution. In measuring the Named Executive Officers’ contribution, the Compensation Committee considers numerous factors including the growth, strategic business relationships and financial performance. Regarding most compensation matters, including executive and director compensation, management provides recommendations to the Compensation Committee; however, the Compensation Committee does not delegate any of its functions to others in setting compensation. Milestone Scientific does not currently engage any consultant to advise on executive and/or director compensation matters. 42 Stock price performance has not been a factor in determining annual compensation because the price of Milestone Scientific’s common stock is subject to a variety of factors outside of Milestone Scientific’s control. Milestone Scientific does not have an exact formula for allocating between cash and non-cash compensation. Annual CEO Compensation consists of a base salary component and periodic stock option grants. It is the Compensation Committee’s intention to set totals for the CEO for cash compensation sufficiently high enough to attract and retain a strong motivated leadership team, but not so high that it creates a negative perception with the other stakeholders. The CEO receives stock option grants under the stock option plan. The number of stock options granted to the executive officer is made on a discretionary rather than a formula basis by the Compensation Committee. The CEO’s current and prior compensation is considered in setting future compensation. To some extent, the compensation plan is based on the market and the companies that compete for executive management. The elements of the plan (e.g., base salary, bonus, and stock options) are like the elements used by many companies. The exact base pay, stock option grant, and bonus amounts are chosen to balance the competing objectives of fairness to all stakeholders and attracting and retaining executive managers. Outstanding Equity Awards at December 31, 2020 The following table includes certain information with respect to all unexercised stock options and unvested shares of common stock of Milestone Scientific outstanding owned by the Named Executive Officers at December 31, 2020. Options Awards Stock Awards Name Number of Securities Underlying Unexercised Options (#) Exercisable (1) Number of Securities Underlying Unexercised Options (#) Unexercisable (1) Option Exercise Price ($) Option Expiration Date Number of Shares or Units of Stock that have not vested (#) (2) Market Value of Number of Shares or Units of Stock that have not vested (#) (3) Leonard Osser 82,988 $ 1.72 2/4/2021 1,492,354 $ 3,163,790 171,429 $ 1.93 11/10/2021 62,112 $ 1.71 2/4/2021 234,482 469,036 $ 1.99 12/22/2025 Total 551,011 469,036 1,492,354 $ 3,163,790 Gian Domenico Trombetta 132,780 - $ 1.72 2/4/2021 - $ - 99,378 - $ 1.61 1/8/2022 Total 232,158 - - $ - Jan Adriaan (Arjan ) Haverhals 25,478 $ 54,013 Total - - 25,478 $ 54,013 Joseph D'Agostino 133,140 - $ 1.72 2/4/2021 402,450 $ 853,194 49,689 - $ 1.61 12/31/2021 86,650 - $ 1.04 12/31/2021 117,241 234,518 $ 1.99 12/22/2025 Total 386,720 234,518 402,450 $ 853,194 1. Represents stock option grants at fair market value on the date of grant. 2. Issuance of the shares of common stock have been deferred until the termination of employment with Milestone Scientific in accordance with the terms of respective employment arrangements. 3. Based on the closing price per share of $2.12 as reported on the NYSE American on December 31, 2020. 43 Director Compensation The following table shows the compensation earned by or awarded or paid in 2020 to the individuals who served as our non-employee directors during such period. Neither Mr. Osser nor Mr. Trombetta received any additional compensation for their services as a director. NAME Fees Earned or Paid in Cash ($) Fees Earned or Paid in Common Stock Leslie Bernhard $ 66,000 15,000 Leonard Schiller $ 12,000 34,000 Michael McGeehan $ - 46,000 Neal Goldman $ - 46,000 Gian Domenico Trombetta $ - 36,000 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table, together with the accompanying footnotes, sets forth information, as of March 29, 2020 , regarding stock ownership of all persons known by Milestone Scientific to own beneficially more than 5% of Milestone Scientific’s outstanding common stock, Named Executives, all directors, and all directors and officers of Milestone Scientific as a group: Names of Beneficial Owner (1) Shares of Common Stock Beneficially Owned (2) Percentage Executive Officers and Directors Leonard Osser (3) 4,574,337 6.73 % Jan Adriaan (Arjan) Haverhals (4) 25,478 * Joseph D'Agostino (5) 1,290,307 1.90 % Leslie Bernhard (6) 70,000 * Leonard Schiller (7) 289,858 * Michael McGeehan (8) 192,800 Neal Goldman (9) 1,385,005 * Gian Domenico Trombetta (10) 10,331,768 15.19 % All directors & executive officers as group (8 persons) 18,159,553 23.82 % K. Tucker Andersen 3,730,384 5.49 % Tom Cheng 2,105,395 3.10 % * Less than 1% 1. The addresses of the persons named in this table are as follows: Leonard Osser, Jan Adriaan (Arjan) Haverhals, Joseph D'Agostino, Gian Domenico Trombetta, Leslie Bernhard, Neal Goldman and Michael McGeehan are at 425 Eagle Rock Avenue, Roseland, New Jersey 07068; Leonard M. Schiller, c/o Schiller, Klein & McElroy, P.C., 33 North Dearborn Street, Suite 1030, Chicago, Illinois 60602; 2. A person is deemed to be a beneficial owner of securities that can be acquired by such person within 60 days from March 29, 2021, as applicable, upon the exercise of options and warrants or conversion of convertible securities. Each beneficial owner's percentage ownership is determined by assuming that options, warrants and convertible securities that are held by such person (but not held by any other person) and that are exercisable or convertible within 60 days from March 29, 2021 have been exercised or converted. Except as otherwise indicated, and subject to applicable community property and similar laws, each of the persons named has sole voting and investment power with respect to the shares shown as beneficially owned. The percentages for each beneficial owner are determined based on dividing the number of shares of common stock beneficially owned by the sum of the outstanding shares of common stock on March 29, 2021 and the number of shares underlying options exercisable and convertible securities convertible within 60 days from March 29, 2021 held by the beneficial owner. 3. Includes 2,542,711 shares held by Mr. Osser or his family, 1,492,354 shares to be issued at the termination of his employment agreement, and 1,020,047 shares subject to common stock options and 71,250 shares subject to warrants to purchase common stock of the company. 4. Includes 25,478 shares to be issued at the termination of his employment. 44 5. Includes 720,927 shares held by Mr. D'Agostino, 402,450 shares to be issued at the termination of his employment, and 621,238 shares subject to common stock options. 6. Includes 70,000 shares held by Ms. Bernhard. 7. Includes 289,858 shares held by Mr. Schiller and 5,625 shares subject to common stock warrants to purchase common stock of the Company. 8. Includes 171,155 shares held by Mr. McGeehan and 21,250 shares subject to common stock warrants. 9. Includes 1,247,654 shares held by Mr. Goldman and 142,500 shares subject to common stock warrants. 10. Includes 99,378 shares subject to common stock options, 178,571 shares subject to warrants to purchase common stock of the Company in the name of Bp4 Sr.l, and 10,048,670 shares held directly by BP4 S.r.l. ("BP4") of which 5,982,906 shares were issued upon the conversion of $7 million of preferred stock at $1.17 per share, as adjusted to date. Innovest S.p.A. ("Innovest") is the controlling shareholder of BP4 and Mr. Trombetta is a controlling shareholder and director of Innovest, and, as such, is deemed to have voting and investment power over the securities held by BP4. Mr. Trombetta disclaims beneficial ownership of all securities held by BP4. Securities Authorized for Issuance under Equity Compensation Plans Equity Compensation Plan Information The following table summarizes, as of December 31, 2020, the (i) options granted under the Milestone Scientific 2004 Stock Option Plan (the “2004 Plan”), (ii) options granted under the Milestone Scientific 2011 Equity Compensation Plan (f/k/a Milestone Scientific 2011 Stock Option Plan) (the “2011 Plan”) and (iii) options granted under the Milestone Scientific 2020 Equity Incentive Plan (the “2020 Plan”). The shares covered by outstanding options and warrants are subject to adjustment for changes in capitalization, stock splits, stock dividends and similar events. No other equity compensation has been issued. Equity compensation plan approved by stockholders Number of Securities to be issued upon exercise of outstanding options and warrants Weighted-average exercise price of outstanding options and warrants Number of securities remaining available for future issuance under equity compensation plan Grants under our 2004 Stock Option Plan (1) - $ - - Grants under our 2011 Stock Option Plan (2) 2,028,440 $ 1.68 424,425 Grants under our 2020 Stock Option Plan (3) - $ - 2,000,000 Total 2,028,440 $ 1.68 2,424,425 1. The 2004 Plan, as amended, provided for awards of options up to a maximum 750,000 shares of Milestone Scientific's common stock and expired in July 2014. Options were granted to employees, officers, directors, and consultants of Milestone Scientific for the purchase of common stock of Milestone Scientific at a price not less than the fair market value of the common stock on the date of the grant. In general, options awarded under the 2004 Plan became exercisable over a three-year period from the grant date and expire five years after the date of grant. No options were exercised in 2019 or 2018. The options expired in 2019. 2. The 2011 Plan, as amended, provides for awards of restricted common stock and options to purchase up to a maximum 4,000,000 shares of common stock and expires in June 2021. Options may be granted to employees, directors, and consultants of Milestone Scientific for the purchase of shares of common stock at a price not less than the fair market value of common stock on the date of grant. In general, options become exercisable over a three-year period from the grant date and expire five years after the date of grant. For the years ended December 31, 2020 and 2019, 336,970 and 0 were exercised. 3. The 2020 provides for awards of restricted common stock and options to purchase up to a maximum 2,000,000 shares of common stock and expires in December 2030. Options may be granted to employees, directors, and consultants of Milestone Scientific for the purchase of shares of common stock at a price not less than the fair market value of common stock on the date of grant. In general, options become exercisable over a three-year period from the grant date and expire five years after the date of grant. For the years ended December 31, 2030 zero shares were issued. 45 13. Certain Relationships and Related Transactions and Director Independence. As of December 31, 2020, Milestone Scientific owned a 40% interest in Milestone China. See Note F. 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 $60,000 and $80,000 for years ended December 31, 2020 and 2019, respectively. This agreement was terminated September 30, 2020. The Director of Clinical Affairs’ royalty fee was approximately $267,000 and $403,000 for the years ended December 31, 2020 and 2019, respectively. Additionally, Milestone Scientific expensed consulting fees to the Director of Clinical Affairs of $156,000 for the years ended December 31, 2020, and 2019, respectively. As of December 31, 2020 and 2019 Milestone Scientific owed the Director Clinical Affairs for royalties of approximately $127,000 and $390,000, respectively, which is included in accounts payable, related party and accrued expense, related party. 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. Item 14. Principal Accounting Fees and Services Audit Fees and Audit Related Milestone Scientific incurred audit and financial statement review fees of approximately $330,000 and $302,000, respectively from Friedman LLP, its principal accountant for 2020 and 2019. These fees include fees for professional services rendered for the audit of our annual financial statements and the review of financial statements included in our report on Form 10-Q's or services that are normally provided in connection with statutory and regulatory filings and fees related to registration statements. Tax Fees Milestone Scientific incurred tax fees of approximately $34,000 and $36,000 respectively from Friedman LLP, its principal accountant for 2020 and 2019. All Other Fees Milestone Scientific did not incur other accounting fees from Friedman LLP, its principal accountant in either 2020 or 2019. Audit Committee Administration of the Engagement The engagement with Friedman LLP, the principal accountants, was approved in advance by the Board of Directors and the Audit Committee. No non-audit or non-audit related services were approved by the Audit Committee in 2020. Audit Committee Pre-Approval Policies and Procedures The Audit Committee charter provides that the Audit Committee will pre-approve audit services and non-audit services to be provided by the independent auditors before the accountant is engaged to render these services. The Audit Committee may consult with management in the decision-making process but may not delegate this authority to management. The Audit Committee may delegate its authority to preapprove services to one or more committee members, provided that the designees present the pre-approvals to the full committee at the next committee meeting. All audit and non-audit services performed by the independent accountants have been pre-approved by the Audit Committee to assure that such services do not impair the auditors’ independence from us. 46 PART IV Item 15. Exhibits and Financial Statement Schedules The following documents are filed as part of this Report: 1 Financial Statements. See Index to Financial Statements on page F-1. 2 Financial Statement Schedule Schedules are omitted because the information required is not applicable or the required information is shown in the consolidated financial statements or notes thereto. 3 Exhibits Certain of the following exhibits were filed as Exhibits to previous filings filed by Milestone Scientific under the Securities Act of 1933, as amended, or reports filed under the Securities and Exchange Act of 1934, as amended, and are hereby incorporated by reference. Exhibit No Description 3.1 Restated Certificate of Incorporation of Milestone filed on September 6, 2013 (11) 3.2 Form of Certificate of Designation filed on April 18, 2014 (12) 3.3 Certificate of Correction to the Certificate of Designation filed on May 12, 2014 (13) 3.4 Amended and Restated By-laws of Milestone filed April 1, 2019 (23) 3.5 Certificate of Amendment to Restated Certificate of Incorporation (24) 4.1 Specimen stock certificate (2) 4.3 Form of Common Stock Purchase Warrant issued in the 2016 Public Offering (16) 4.4 Form of Common Stock Purchase Warrant issued in the Feb. 2019 Public Offering (21) 4.5 Form of Common Stock Purchase Warrant issued in the Feb. 2019 Private Placement (22) 4.6 Description of Registrant’s Securities* 4.7 Form of Common Stock Purchase Warrant issued in the Apr. 2020 Public offering (25) 4.8 Form of Common Stock Purchase Warrant issued in the Jun. 2020 Public Offering (26) 10.1 Lease dated November 25, 1996 between Livingston Corporate Park Associates, L.L.C. and Milestone (3) 10.2 Lease amendment dated April 28, 2004 between Livingston Corporate Park Associates, L.L.C. And Milestone (4) 10.3 2011 Equity Compensation Plan (7) 10.4 Master Supply and Distribution Agreement, dated July 3, 2013, between Milestone Scientific Inc and Tri-anim Health Services, Inc (9) 10.5 Agreement with Mark Hochman, dated July 2015 (13) 10.6 Investment Agreement, dated April 15, 2014, between Milestone Scientific Inc. and BP4 S.p.A. (12) 10.7 Exclusive Distribution and Supply Agreement, dated as of June 20, 2016, among Milestone Scientific Inc., Wand Dental, Inc. and Henry Schein, Inc. (14) 10.8 Amended and Restated Employment Agreement, dated December 1, 2016, between Wand Dental Inc. and Gian Domenico Trombetta (15) 10.9 Final Form of Asset Purchase Agreement, dated June 2, 2017, among APAD Octrooi B.V., APAD B.V., and Milestone Scientific Inc. (17) 10.10 Final form of the Memorandum of Agreement, dated June 6, 2017, between Solee Science & Technology U.S.A. Ltd. and Milestone Scientific Inc. (18) 10.11 Final form of the Promissory Note, dated June 6, 2017, in the principal amount of $1,275,000 made by Solee Science & Technology U.S.A. Ltd. to Milestone Scientific Ltd. (18) 10.12 Final form of the Stock Option Agreement, dated June 6, 2017, Solee Science & Technology U.S.A. Ltd. and Milestone Scientific Inc. (18) 10.13 New Employment Agreement between Milestone Scientific Inc. and Leonard Osser dated as of July 11, 2017. (19) 10.14 Employment Agreement between Milestone Scientific Inc. and Daniel Goldberger dated as of July 11, 2017. (19) 10.15 Covenant Agreement between Milestone Scientific Inc. and Daniel Goldberger dated and effective as of July 11, 2017. (19) 10.16 Consultant Agreement between Milestone Medical Inc. and U.S. Asian Consulting Group, LLC dated as of July 10, 2017. (20) 10.17 Underwriting Agreement, dated as of February 1, 2019 between Milestone Scientific Inc. and Maxim Group LLC, as underwriter (21) 10.18 Stock Purchase Agreement, dated as of February 8, 2019 between Milestone Scientific Inc. and BP4 S.p.A. (22) 10.19 Underwriting Agreement, dated as of April 9, 2020 between the Company and Maxim Group LLC (25) 47 10.20 Underwriting Agreement, dated as of June 25, 2020 between the Company and Maxim Group LLC (26) 21.1 List of Subsidiaries* 23.1 Consent of Friedman, LLP* 31.1 Rule 13a-14(a) Certification-Chief Executive Officer* 31.2 Rule 13a-14(a) Certification-Chief Financial Officer* 32.1 Section 1350 Certifications-Chief Executive Officer*** 32.2 Section 1350 Certifications-Chief Financial Officer*** 101.INS XBRL Instance Document* 101.SCH XBRL Taxonomy Extension Schema Document* 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document* 101.LAB XBRL Taxonomy Extension Label Linkbase Document* 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document* 101.DEF XBRL Taxonomy Extension Definition Linkbase Document* * Filed herewith. ** Indicates management contract or compensatory plan or arrangement. *** Furnished, not filed, in accordance with item 601(32) (ii) of Regulations-S-K. 2) Incorporated by reference to Amendment No. 1 to Milestone Scientific’s Registration Statement on Form 10-KSB for the year ended May 15, 1995 3) Incorporated by reference to Milestone Scientific’s Form 10-KSB for the year ended December 31, 1996. 4) Incorporated by reference to Milestone Scientific’s Form 10-KSB for the year ended December 31, 2004. 7) Filed as Appendix A to Milestone Scientific’s Proxy Statement filed with the SEC on May 2, 2011 and incorporated herein by reference. 9) Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on July 9, 2013. 11) Incorporated by reference to Milestone Scientific’s Form 10-K for the year ended December 31, 2013. 12) Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on April 18, 2014. 13) Incorporated by reference to Milestone Scientific’s Form 10-K for the year ended December 31, 2015. 14) Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on June 30, 2016. 15) Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on December 2, 2016. 16) Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on December 16, 2016. 17) Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on June 2, 2017. 18) Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on June 7, 2017. 19) Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on July 10, 2017. 20) Incorporated by reference to Milestone Scientific’s Form 10-Q filed with the SEC on August 14, 2017. 21) Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on February 1, 2019. 22) Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on February 14, 2019. 23) Incorporated by reference to Milestone Scientific’s Form 10-K filed with the SEC on April 1, 2019. 24) Incorporated by reference to Milestone Scientific’s Form 10-K/A filed with the SEC on April 2, 2020. 25) Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on April 9, 2020. 26) Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on June 25, 2020 48 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Milestone Scientific Inc. By: /s/ Leonard Osser Interim Chief Executive Officer (Principal Executive Officer) Date: March 31, 2021 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Date Title /s/ Leonard Osser March 31, 2021 Interim Chief Executive Officer Leonard Osser (Principal Executive Officer) /s/ Joseph D'Agostino March 31, 2021 Chief Financial Officer and Chief Operating Officer Joseph D'Agostino (Principal Financial Officer) March 31, 2021 Chairman and Director /s/ Leslie Bernhard Leslie Bernhard March 31, 2021 Director /s/ Gian Domenico Trombetta Gian Domenico Trombetta /s/ Leonard Schiller March 31, 2021 Director Leonard Schiller /s/ Michael McGeehan March 31, 2021 Director Michael McGeehan /s/ Neal Goldman March 31, 2021 Director Neal Goldman 49 REPORT INDEX TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 2020 and 2019 Report of Independent Registered Public Accounting Firm F-2 Consolidated Financial Statements: Consolidated Balance Sheets F-4 Consolidated Statements of Operations F-5 Consolidated Statements of Changes in Stockholders’ Equity F-6 Consolidated Statements of Cash Flows F-7 Notes to Consolidated Financial Statements F-8- F-28 F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Milestone Scientific, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Milestone Scientific, Inc., and subsidiaries (the “Company”) as of December 31, 2020, and 2019, and the related consolidated statements of operations, statements of changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Critical Audit Matter Description Certain inventory requires management to make significant assumptions and subjective judgments about the net realizable value when such medical devices are approved by the appropriate regulatory agencies, but also represent new technology with unproven market acceptance. These estimates include future demand, comparable market data and other assumptions within the sales forecasts without the benefit of historical experience. Given the subjectivity of these estimates, performing audit procedures to evaluate whether inventory was appropriately recorded at December 31, 2020 required a high degree of auditor judgment and an increased extent of effort. F-2 How We Addressed the Matter in Our Audit The following are the most relevant procedures : ● Testing of whether the data used to assess potential obsolescence and net realizable value of inventory at December 31, 2020 was complete and sufficiently precise. ● Evaluating whether the expected market demand used was reasonable, considering the Company’s current and past marketing efforts, their market studies, as well as current market penetration and comparable market data. Evaluating whether the inventory’s estimated useful life, the current economic conditions, and the expected timing of potential new or enhanced company products would impact the expected sale of this inventory. ● Evaluating the reasonableness of assumptions related to the potential for technological or competitive obsolescence considering such experience within similar products used in the Company’s other business segment. /s/ Friedman LLP We have served as the Company’s auditor since 2016. East Hanover, New Jersey March 31, 2021 F-3 MILESTONE SCIENTIFIC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2020 December 31, 2019 ASSETS Current assets: Cash and cash equivalents $ 14,223,917 $ 1,516,272 Accounts receivable, net 1,080,656 1,710,665 Prepaid expenses and other current assets 415,915 519,063 Inventories, net 2,420,179 1,620,509 Advances on contracts 414,202 710,662 Total current assets 18,554,869 6,077,171 Furniture, fixtures and equipment, net 30,729 44,976 Intangibles, net 329,249 382,260 Right of use assets 632,453 15,977 Other assets 24,150 35,905 Total assets $ 19,571,450 $ 6,556,289 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 482,972 $ 1,379,425 Accounts payable, related party 385,138 1,358,752 Accrued expenses and other payables 824,454 775,055 Accrued expenses, related party 586,734 1,057,957 Current portion of finance leases liabilities 7,796 3,904 Current portion of operating lease right-of-use liabilities 72,031 12,073 Deferred profit, related party 242,589 340,476 Note payable 276,180 - Total current liabilities 2,877,894 4,927,642 Finance lease liabilities 28,607 - Operating lease liabilities 557,981 - Total liabilities $ 3,464,482 $ 4,927,642 Commitments and contingencies Stockholders’ equity Common stock, par value $.001; authorized 85,000,000 shares; 64,171,435 shares issued and 64,138,102 shares outstanding as of December 31, 2020; 49,410,176 shares issued and 49,376,843 shares outstanding as of December 31, 2019; 64,171 49,410 Additional paid in capital 117,934,696 96,082,324 Accumulated deficit (100,885,957 ) (93,524,297 ) Treasury stock, at cost, 33,333 shares (911,516 ) (911,516 ) Total Milestone Scientific Inc. stockholders' equity 16,201,394 1,695,921 Noncontrolling interest (94,426 ) (67,274 ) Total stockholders’ equity $ 16,106,968 $ 1,628,647 Total liabilities and stockholders’ equity $ 19,571,450 $ 6,556,289 See notes to Consolidated Financial Statements F-4 MILESTONE SCIENTIFIC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2020 AND 2019 2020 2019 Product sales, net $ 5,437,236 $ 8,374,501 Cost of products sold 1,815,924 2,656,142 Gross profit 3,621,312 5,718,359 Selling, general and administrative expenses 10,766,580 9,527,429 Research and development expenses 307,850 189,923 Total operating expenses 11,074,430 9,717,352 Loss from operations (7,453,118 ) (3,998,993 ) Other expenses (24,790 ) (10,408 ) Interest income 6,709 1,543 Change in fair value of derivative liability - (3,635,580 ) Loss before provision for income taxes and net of equity investments (7,471,199 ) (7,643,438 ) Provision for income taxes (15,500 ) (18,126 ) Loss before equity in net earnings of equity investments (7,486,699 ) (7,661,564 ) Earnings from equity method investment 97,887 81,324 Net loss (7,388,812 ) (7,580,240 ) Net loss attributable to noncontrolling interests 51,539 55,872 Net loss attributable to Milestone Scientific Inc. (7,337,273 ) (7,524,368 ) Net loss per share applicable to common stockholders— Basic $ (0.12 ) $ (0.16 ) Diluted $ (0.12 ) $ (0.16 ) Weighted average shares outstanding and to be issued— Basic 63,061,358 45,740,050 Diluted 63,061,358 45,740,050 See notes to Consolidated Financial Statements F-5 MILESTONE SCIENTIFIC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2020 AND 2019 Preferred Stock Shares Preferred Stock Amount Common Stock Shares Common Stock Amount Additional Paid in Capital Accumulated Deficit Noncontrolling interest Treasury Stock Total Balance, January 1, 2019 7,000 $ 7 36,329,600 $ 36,330 $ 88,414,718 $ (85,999,929 ) $ (11,402 ) $ (911,516 ) $ 1,528,208 Stock Compensation 183,888 - - - 183,888 Conversion of Preferred Shares to Common Stock (Mandatory) (7,000 ) (7 ) 5,982,906 5,983 (5,976 ) - - - - Common stock issued for warrants exercised Total - 675,000 675 336,825 - - - 337,500 Common stock issued in private offering Total 714,286 714 249,286 - - - 250,000 Common stock issued in public offering Total 6,282,400 6,282 1,968,265 - - - 1,974,547 Common stock to be issued for bonus and compensation 428,635 429 790,237 - - - 790,666 Common stock to be issued for payment of consulting services 607,784 608 292,792 - - - 293,400 Common stock to be issued to Board of Directors 147,438 147 66,997 - - - 67,144 Common stock issued for payment of consulting services 339,058 339 147,616 - - - 147,955 Overallotment of securities, initial derivative reclassifications (3,360,830 ) (3,361 ) (2,199,664 ) - - - (2,203,025 ) Shares and warrants issued, previously classified as derivative liability 1,263,899 1,264 1,721,562 - - - 1,722,826 Settlement of derivative liability 4,115,778 4,115,778 Net loss - (7,524,368 ) (55,872 ) (7,580,240 ) Balance as December 31, 2019 - $ - 49,410,176 $ 49,410 $ 96,082,324 $ (93,524,297 ) $ (67,274 ) $ (911,516 ) $ 1,628,647 Stock based compensation 550,349 550,349 Common stock issued to employee for compensation 52,566 53 59,959 - - 60,012 Common stock issued for payment of consulting services 481,685 490 837,970 - - 838,460 Common stock issued to board of directors for services 121,527 122 238,065 - - 238,187 Common stock issued to employees for bonuses 414,736 406 734,264 - - 734,670 Common stock issued in public offering April 6,2020 5,420,000 5,420 4,621,022 4,626,442 Common stock issued in public offering-June 30, 2020 6,770,000 6,770 13,410,074 13,416,844 Acquired controlling interest in Milestone Advanced Cosmetic Systems (24,387 ) 24,387 - Common stock issued for warrants 1,163,775 1,163 1,016,860 1,018,023 Common stock issued to employee for option exercised 336,970 337 383,809 384,146 Net Loss (7,337,273 ) (51,539 ) (7,388,812 ) Balance as Balance at December 31, 2020 - - 64,171,435 64,171 117,934,696 (100,885,957 ) (94,426 ) (911,516 ) 16,106,968 See notes to Consolidated Financial Statements F-6 MILESTONE SCIENTIFIC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2020 AND 2019 2020 2019 Cash flows from operating activities: Net loss $ (7,388,812 ) $ (7,580,240 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 42,937 47,495 Amortization of intangibles 53,012 53,013 Stock based compensation 550,349 183,888 Employees paid in stock 794,732 857,810 Consulting expense paid in stock 838,410 441,355 Non-cash operating lease expense 34,332 - Earnings on China joint venture (97,887 ) (81,324 ) Change in fair value of derivative liability - 3,635,580 Changes in operating assets and liabilities: Decrease in accounts receivable 630,009 267,791 Decrease in accounts receivable, related party - 100,000 Decrease (increase) in other assets 11,755 (9,027 ) (Increase) decrease in inventories (799,670 ) 300,542 Decrease (increase) in advances on contracts 296,460 (61,879 ) Decrease (increase) in prepaid expenses and other current assets 103,148 (104,522 ) Decrease in accounts payable (896,453 ) 320,239 Decrease in accounts payable, related party (973,614 ) (303,346 ) Decrease in deferred cost, related party - 50,000 Increase in accrued expenses 50,323 273,537 (Decrease) in accrued expenses, related party (233,959 ) (70,200 ) (Decrease) in deferred revenue, related party - (100,000 ) Net cash used in operating activities (6,984,928 ) (1,779,288 ) Cash flows from investing activities: Purchase of property and equipment (21,438 ) (9,916 ) Net cash used in investing activities (21,438 ) (9,916 ) Cash flows from financing activities: Proceeds from exercise of warrants 1,018,023 337,500 Payments finance lease obligations (7,622 ) - Common stock issued to employee for option exercised 384,146 - Net proceeds from note payable 276,180 - Net proceeds from Public Offering 18,043,284 1,974,547 Net proceeds from Private Placement Offering - 250,000 Net cash provided by financing activities 19,714,011 2,562,047 Net increase (decrease) in cash and cash equivalents 12,707,645 772,843 Cash and cash equivalents at beginning of period 1,516,272 743,429 Cash and cash equivalents at end of period $ 14,223,917 $ 1,516,272 Supplemental non-cash disclosure of cash flow information: Initial recognition of operating lease-right of use assets $ (706,071 ) $ (166,292 ) Initial recognition of operating lease right to used liabilities $ 706,071 $ 166,292 See notes to Consolidated Financial Statements F-7 MILESTONE SCIENTIFIC INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A — ORGANIZATION AND BUSINESS All references in this report to “Milestone Scientific,” “us,” “our,” “we,” the “Company” or “Milestone” refer to Milestone Scientific Inc., and its consolidated subsidiaries, Wand Dental, Inc., Milestone Advanced Cosmetic Systems, Inc., Milestone Medical, Inc. and Milestone Education LLC (all described below), unless the context otherwise indicates. Milestone Scientific is the owner of the following registered U.S. trademarks: C ompuDent®; CompuMed®; CompuFlo®; DPS Dynamic Pressure Sensing technology®; Milestone Scientific ®; the Milestone logo ®; SafetyWand®; STA Single Tooth Anesthesia System®; and The Wand ®. Milestone Scientific was incorporated in the State of Delaware in August 1989. Milestone Scientific has developed a proprietary, computer-controlled anesthetic delivery device, using The Wand ®, a single use disposable handpiece. The device is marketed in dentistry under the trademark CompuDent ® , and STA Single Tooth Anesthesia System ® and in medicine 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 many other disciplines. The dental devices are sold in the United States, Canada and in 60 other countries. Certain medical devices have obtained CE mark approval and can be marketed and sold in most European countries. In June 2017, Milestone Scientific received 510(k) marketing clearance from the U.S. Food and Drug Administration (FDA) on the CompuFlo ® Epidural Computer Controlled Anesthesia System (“Epidural”). Through December 31, 2020 date there have been seven (7) medical devices sold in the United States and limited amounts sold internationally. 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. The Company plans to file a new 510(k) application for the device in 2021, subject to sufficient funds being available. In February 2019, Milestone Scientific consummated a public offering and a private placement of common stock. The public offering generated gross proceeds of approximately $2.0 million for the issuance of 5,715,000 shares of common stock and warrants to purchase 1,428,750 shares of common stock. Subsequently the underwriter exercised its over-allotment option and paid approximately $198,000 for 567,400 additional shares of common stock and 141,850 warrants. Also, in February 2019, the Company generated gross proceeds from a private placement of approximately $250,000 for 714,286 shares of common stock and warrants to purchase 178,571 shares of common stock from Bp4 S.p.A., a principal stockholder of Milestone Scientific, that exercised its right to participate on a pro-rata basis on the aforementioned public offering. In April and June of 2020, the Company completed two Common Stock Offerings generating net proceeds of approximately $4.6 million and $13.4 million, respectively (see Note I). NOTE B- LIQUIDITY AND UNCERTAINTIES The Company has evaluated whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. In April and June of 2020, the Company completed two Common Stock Offerings generating net proceeds of approximately $4.6 million and $13.4 million, respectively. As of December 31, 2020, cash on hand was approximately $14.2 million, an increase of $12.7 million from December 31, 2019. With the combination of these two Common Stock Offerings, the Company has sufficient liquidity to support operations beyond one year from the consolidated financial statement filing 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 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, revenues for the 12 months ended December 31, 2020 were adversely affected. F-8 Although there was an increase in dental instrument and disposable sell through to dentists beginning in the third quarter of 2020, it is too early to determine what the continuing effect COVID-19 may have on the Company. In addition, it is uncertain as to what the effect will be on our commercialization effort of our CompuFlo Epidural and CathCheck system as a medical device. Such future developments could have a material adverse effect on our financial results and our ability to conduct business as expected. See Note N- Concentrations NOTE C — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Principles of Consolidation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and include the accounts of Milestone Scientific and its wholly owned and majority owned subsidiaries, including, Wand Dental (wholly owned), Milestone Advanced Cosmetic (majority owned) and Milestone Medical (majority owned). All significant, intra-entity transactions and balances have been eliminated in the consolidation. 2. Reclassifications Certain reclassifications have been made to the 2019 financial statements to conform to the condensed consolidated 2020 financial statement presentation. These reclassifications had no effect on net loss or cash flows as previously reported. 3. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to the allowance for doubtful accounts, inventory valuation, and cash flow assumptions regarding evaluations for impairment of long-lived assets and going concern considerations, and valuation allowances on deferred tax assets. Actual results could differ from those estimates . 4. Revenue Recognition The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To perform revenue recognition, the Company performs the following five steps: i. identification of the promised goods or services in the contract; ii. determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; iii. measurement of the transaction price, including the constraint on variable consideration; iv. allocation of the transaction price to the performance obligations based on estimated selling prices; and v. recognition of revenue when (or as) the Company satisfies each performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. The Company derives its revenues from the sale of its products, primarily dental instruments, handpieces, and other related products. The Company sells its products through a global distribution network and that includes both exclusive and non-exclusive distribution agreements with related and third parties. Revenue from product sales is recognized upon transfer of control of a product to a customer, generally upon date of shipment. For certain arrangements where the shipping terms are FOB destination, revenue is recognized upon delivery. 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. Sales Returns The Company records allowances for product returns as a reduction of revenue at the time product sales are recorded. Several factors are considered in determining whether an allowance for product returns is required, including the customers’ return rights and the Company’s historical experience with returns and the amount of product in the distribution channel not consumed by end users and subject to return. The Company relies on historical return rates to estimate returns. In the future, if any of these factors and/or the history of product returns change, adjustments to the allowance for product returns may be required. F-9 Financing and Payment Our payment terms differ by geography and customer, but payment is generally required within 90 days from the date of shipment or delivery. Disaggregation of Revenue We operate in two operating segments: dental and medical. Therefore, results of our operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting. See Note M for revenues by geographical market, based on the customer’s location, and product category for the years December 31, 2020 and 2019. 5. Variable Interest Entities A variable interest entity ("VIE") is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary. 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. Milestone Scientific would be considered the primary beneficiary of the VIE if it has both of the following characteristics: ● Power Criterion: The power to direct the activities that most significantly impact the entity’s economic performance; and ● Losses/Benefits Criterion: The obligation to absorb losses that could potentially be significant or the right to receive benefits that could potentially be significant to the VIE Milestone Scientific does not have the ability to control the activities that most significantly impact Milestone China's economics and, therefore, the power criterion has not been met. Management placed the most weight on the relationship and significance of activities of Milestone China to the CEO and a group of significant shareholders, including the CEO, of Milestone China who have the power to direct the activities that most significantly impact the economic performance of Milestone China. Management has concluded that Milestone Scientific is not the primary beneficiary under ASC 810. Accordingly, Milestone China has not been consolidated into the financial statements of Milestone Scientific and is accounted for under the equity method. See Note F. 6. Cash and Cash Equivalents Milestone Scientific considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of December 31, 2020 and 2019 Milestone Scientific has approximately $13.1 million and $302,000 of investments with short term maturities classified as cash equivalents. At times, such cash, may be more than the Federal Deposit Insurance Corporation insurance limit. As of December 31, 2020, the Company has approximately $700,000 of cash in excess of FDIC coverage. 7. Accounts Receivable Milestone Scientific sells a significant amount of its product on credit terms to its major distributors. Milestone Scientific estimates losses from the ability or inability of its customers to make payments on amounts billed. Most credit sales are due within 90 days from invoicing. There have not been any significant credit losses incurred to date. As of December 31, 2020 and 2019, accounts receivable was recorded, net of allowance for doubtful accounts of $10,000. 8. Inventories Inventories principally consist of finished goods and component parts stated at the lower of cost (first-in, first-out method) or net realizable value. Inventory quantities on hand are reviewed on a quarterly basis and a provision for excess, slow moving, defective, and obsolete inventory is recorded if required based on past and expected future sales, potential technological obsolescence, and product expiration requirements. F-10 The valuation allowance creates a new cost basis for the inventory, and it is not subsequently marked up through a reduction in the valuation allowance based on any changes in the underlying facts and circumstances. When the valuation allowance is initially recorded, the increase to the allowance is recognized as an increase in cost of sales. The valuation allowance is only reduced if or when the underlying inventory is sold or destroyed, at which time cost of sales recognized would include the previous adjusted cost basis. 9. Equity Method Investments 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 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 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. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period. 10. Furniture, Fixture and Equipment Equipment is recorded at cost, less accumulated depreciation. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets, which range from two to seven years. The costs of maintenance and repairs are charged to operations as incurred. 11. Intangible Assets – Patents and Developed Technology Patents are recorded at cost to prepare and file the applicable documents with the US Patent Office, or internationally with the applicable governmental office in the respective country. The costs related to these patents are being amortized using the straight-line method over the estimated useful life of the patent. Patents and other developed technology acquired from another business entity are recorded at acquisition cost and be amortized at the estimated useful life. Patent defense costs, to the extent applicable, are expensed as incurred. 12. Impairment of Long-Lived Assets Long-lived assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company’s impairment review process is based upon an estimate of future undiscounted cash flow. Factors the Company considers that could trigger an impairment review include the following: • significant under performance relative to expected historical or projected future operating results, • significant changes in the manner of our use of the acquired assets or the strategy for our overall business • significant negative industry or economic trends • significant technological changes, which would render the technology obsolete Recoverability of assets that will continue to be used in the Company's operations is measured by comparing the carrying value to the future net undiscounted cash flows expected to be generated by the asset or asset group. Future undiscounted cash flows include estimates of future revenues, driven by market growth rates, and estimated future costs. 13. Note Payable 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 Loan, which was in the form of a Note dated April 27, 2020, matures on April 27, 2022, and bears interest at a rate of 1.00% per annum, payable monthly commencing on November 26, 2020. The Note may be prepaid by the Borrower at any time prior to maturity with no prepayment penalties. Funds from the Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before February 15, 2020. 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. The company is in the process of applying for loan forgiveness. F-11 14. Research and Development Research and development costs, which consist principally of new product development costs payable to third parties, are expensed as incurred. Advance payments for the research are amortized to expense either as services are performed or over the relevant service period using the straight-line method. 15. Income Taxes Milestone Scientific accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed for temporary differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. At December 31, 2020 and 2019, we had no uncertain tax positions that required recognition in the consolidated financial statements. Milestone Scientific's policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Consolidated Statements of Operations. No interest and penalties are present for periods open. Tax returns for the 2017, 2018 and 2019 years are subject to audit by federal and state jurisdictions. 16. Basic and diluted net loss per common share 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 year ended December 31, 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 8,397,836 and 2,336,611 on December 31, 2020 and 2019, respectively. 17. Fair Value of Financial Instruments Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market at the measurement date (exit price). We are required to classify fair value measurements in one of the following categories: ● Level 1 inputs which are defined as quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. ● Level 2 inputs which are defined as inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly or indirectly. ● Level 3 inputs are defined as unobservable inputs for the assets or liabilities. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. 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 December 31, 2020 and 2019 the Company does not have any assets or liabilities that were measured at fair value on a recurring basis. During the year ended December 31, 2019 the Company did not have sufficient authorized shares to support the exercise of outstanding securities and reclassified all outstanding warrants and certain employee stock options to liability classification, measured using level 3 inputs and reclassified all shares-to-be-issued measured using level 1 inputs, the trading price of the Company’s stock. At December 17, 2019, the Company increased the number of authorized shares available, extinguishing the derivative liability. The roll forward of the liability associated with certain outstanding warrants and stock options which use level 3 inputs is as follows. Refer to Note I for more detail. F-12 December 31, 2019 Balance at beginning of year $ - Warrants issued in connection with public offering (See Note I) 376,497 Change in fair value of derivative liability 422,484 Employee options reclassified as derivative liability 500,000 Change in value of derivative securities – exercised (655,000 ) Reversal of derivative liability for exercised warrants 820,954 Reversal of Level 3 of derivative liability to equity upon authorized share increase (1,464,935 ) Balance at end of period $ - 18. Derivative Liability The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks; however, the Company has certain financial instruments that qualify as derivatives and are classified as liabilities on the balance sheet. The Company evaluates all its financial instruments to determine if those instruments or any potential embedded components of those instruments qualify as derivatives that need to be separately accounted for in accordance with FASB ASC 815, “Derivatives and Hedging”. Derivatives satisfying certain criteria are recorded at fair value at issuance and marked-to-market at each balance sheet date with the change in the fair value recorded as income or expense. In addition, upon the occurrence of an event that requires a derivative liability to be reclassified to equity, the derivative liability is revalued to fair value at that date. See Note I, Outstanding Equity Instruments in Excess of Authorized Shares. 19. Stock-Based Compensation Milestone Scientific accounts for stock-based compensation under ASC Topic 718, Share-Based Payment. ASC Topic 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the Statements of Operations over the service period, as an operating expense, based on the grant-date fair values. The fair value of the non-employee options were also estimated on the date of grant using the Black Scholes option-pricing model. See Note J. 20. Recent Accounting Pronouncements 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. The company is analyzing the impact of the adoption of this standard is not expected to have a material effect on financial statement presentation. 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. F-13 NOTE D — INVENTORIES Inventories consist of the following: December 31, 2020 December 31, 2019 Dental finished goods, net $ 1,888,141 $ 1,306,763 Medical finished goods, net 200,327 213,861 Component parts and other materials 331,711 99,885 Total inventories $ 2,420,179 $ 1,620,509 At December 31, 2020, there are allowances for slow moving medical finished goods of approximately $450,000 and damaged slow moving dental finished goods of approximately $3,000. In July 2019, United System issued a credit to the Company for approximately $151,000 for handpieces found to be defective. The Company recorded the credit in cost of sales because the Company previously recorded an allowance against the associated inventory during 2018. At December 31, 2019, there was a reserve for slow moving medical finished goods of $450,000 and damaged slow moving dental finished goods of $318,000. During 2020 $315,000 of previously reserved for dental finished good inventory was destroyed. The reserve for the medical finished goods was provided due to the delay in commercialization of the intra-articular medical instrument. NOTE E — ADVANCES ON CONTRACTS The advances on contracts represent funding of future dental STA, and epidural inventory purchases and epidural replacements parts. The balance of the advances as of December 31, 2020 and 2019 is approximately $414,000 and $710,000, respectively. NOTE F – INVESTMENT IN AND TRANSACTIONS WITH EQUITY INVESTEES Milestone China Ltd. Ownership In June 2014, Milestone Scientific invested $1 million in Milestone China Ltd. (“Milestone China”), by contributing dental instruments to Milestone China for a forty (40%) ownership interest. Milestone China owns approximately 75% of Milestone Beijing Medical Equipment Company, Ltd (“Milestone Beijing”). Milestone Beijing has primary responsibility for the sales, marketing, and distribution of the Company’s dental products in China. Milestone Scientific recorded their investment in Milestone China under the equity method of accounting. 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. Ltd. (Anhui). 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 Annual 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. Milestone China and certain marketing affiliates are expected to be dissolved upon completion of the merger and upon the required regulatory filings in China and Hong Kong. Related Party Transactions Milestone China is Milestone Scientific’s exclusive distributor in China. 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 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. F-14 During the year ended December 31, 2020 Milestone Scientific shipped 100 instruments to Milestone China and its agents and recognized revenue of $75,000. As of December 31, 2020, the Company has approximately $183,000 of deposits from Milestone China for future shipment of goods included in accrued expenses, related party on the accompanying consolidated balance sheet. During the year ended December 31, 2019, Milestone Scientific recognized gross revenue associated with 2018 delivered products to Milestone China and its agents of approximately $259,000, offset by accepted returns of approximately $104,000 that was previously deferred as a result of additional cash collected. In April of 2020, the Company entered into an agreement with United Systems, Inc., related party (see Note O) 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 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 consolidated statement of operations for $370,260 during the twelve months ended December 31, 2020. In May 2020, Milestone Scientific finalized an agreement for the purchase of Milestone China’s 50% interest in Advanced Cosmetic Systems Inc., for the forgiveness of $900,000 in accounts receivable owed by Milestone China to Milestone Scientific (and previously fully reserved for), resulting in a noncash transaction. 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. Gross Profit Deferral Due to timing differences of when the inventory sold to Milestone China is recognized and when Milestone China sells the acquired inventory to third parties, an elimination of the profit is required as of the balance sheet date. 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 December 31, 2020 and 2019, the deferred profit was approximately $243,000 and $340,000, respectively, which is included in deferred profit, related party in the condensed consolidated balance sheets. For twelve months ended December 31, 2020 and 2019 Milestone Scientific recorded earnings on equity investment of $97,887 and $81,324 respectively, for product sold by Milestone China to third parties. Equity Method Disclosures 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 and $ 5.9 million at December 31, 2020, which have been suspended. F-15 The following includes summarized financial information of Milestone China for the year ending December 31, 2019. December 31, 2019 Assets: Current assets $ 8,392,858 Non-current assets 5,082,313 Total assets: $ 13,475,171 Liabilities and stockholders’ deficit: Current liabilities $ 17,910,452 Stockholders' deficit (4,435,281 ) Total liabilities and stockholders’ deficit $ 13,475,171 December 31, 2019 Net sales $ 3,401,025 Cost of goods sold 1,724,882 Gross profit 1,676,143 Other expenses (3,996,663 ) Net loss $ (2,320,520 ) 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. Ltd. (Anhui). 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. The following includes summarized combined financial information of Milestone China and Anhui for the year ending December 31, 2020. December 31, 2020 Assets: Current assets $ 4,726,883 Non-current assets 4,040,327 Total assets: $ 8,767,210 Liabilities and stockholders’ deficit: Current liabilities $ 10,885,019 Stockholders' deficit (2,117,809 ) Total liabilities and stockholders’ deficit $ 8,767,210 December 31, 2020 Net sales $ 4,183,774 Cost of goods sold 2,895,092 Gross profit 1,288,682 Other expenses (5,376,391 ) Net loss $ (4,087,709 ) F-16 NOTE G— FURNITURE, FIXTURES AND EQUIPMENT 2020 2019 Furniture, Fixtures and Equipment consist of the following: Leasehold improvements $ 24,734 $ 24,734 Office furniture and equipment 174,147 134,947 Molds 7,200 7,200 Trade show displays 151,462 151,462 Computers and software 262,290 280,577 Tooling Safety Wand 125,022 125,022 Tooling equipment-STA & Wand 11,100 11,100 EPI and IA Instruments 82,363 82,363 STA Trials Instruments 63,752 63,752 Total 902,070 881,157 Less accumulated depreciation (871,341 ) (836,181 ) Total $ 30,729 $ 44,976 Depreciation expense was approximately $43,000 and $47,500 for the years ended December 31, 2020 and 2019, respectively. NOTE H — PATENTS December 31, 2020 Cost Accumulated Amortization Net Patents-foundation intellectual property $ 1,377,863 $ (1,048,614 ) $ 329,249 Total $ 1,377,863 $ (1,048,614 ) $ 329,249 December 31, 2019 Cost Accumulated Amortization Net Patents-foundation intellectual property $ 1,377,863 $ (995,603 ) $ 382,260 Total $ 1,377,863 $ (995,603 ) $ 382,260 Patents are amortized utilizing the straight-line method over estimated useful lives ranging from 3 to 20 years. Amortization expense was $53,013 for the year ended December 31, 2020 and 2019, respectively. The annual amortization expense expected to be recorded for existing intangibles assets for the years 2021 through 2025 is approximately $53,000, $53,000, $47,000, $33,000 and $24,000. NOTE I — STOCKHOLDERS’ EQUITY PUBLIC OFFERING AND PRIVATE PLACEMENT In February 2019, Milestone Scientific consummated a public offering and a private placement of Common Stock. The public offering generated gross proceeds of approximately $2.0 million for the issuance of 5,715,000 shares of common stock and warrants to purchase 1,428,750 shares of common stock. The warrants’ term is 5 years, and they are exercisable at $0.50 per share. Subsequent to the public offering the underwriter exercised its over-allotment option and paid approximately $198,000 for 567,400 additional shares of common stock and 141,850 warrants. Also, in February 2019, the Company generated gross proceeds from a private placement of approximately $250,000 for 714,286 shares of common stock and warrants to purchase 178,571 shares of common stock from Bp4 S.p.A., a principal stockholder of Milestone Scientific, that exercised its right to participate on a pro-rata basis on the recent public offering. Bp4’s CEO is a director of Milestone Scientific. The warrants’ term is 5 years, and they are exercisable at $0.50 per share. F-17 In the second quarter of 2020, the Company completed two public offerings. In April 2020, a Common Stock offering generating gross proceeds of approximately $5.1 million (5,420,000 common shares and 2,710,000 warrants). The combined price of the shares and warrants was $0.95 per share. The warrants are exercisable at a price of $1.20 per share and have an expiration of three (3) years from the issue date. In June 2020, the Company completed a second Common Stock offering generating gross proceeds of approximately $14.6 million (6,770,000 common shares and 3,749,000 warrants). The combined price of the shares and warrants was $2.15 per share. The warrants are exercisable at $2.60 and expire three (3) years from the issue date. WARRANTS The following table summarizes information about shares issuable under warrants outstanding at December 31, 2020: Warrant shares outstanding Weighted Average exercise price Weighted Average remaining life Intrinsic value Outstanding at January 1, 2019 1,592,775 2.55 0.21 Issued 1,749,171 0.50 4.10 1,556,762 Exercised (675,000 ) 532,413 Expired or cancelled (1,592,775 ) 2.55 - - Outstanding and exercisable at December 31,2019 1,074,171 0.50 4.10 956,012 Issued 6,459,000 2.01 3.00 $ - Exercised (1,163,775 ) 0.85 - - Expired or cancelled - - - Outstanding and exercisable at December 31, 2020 6,369,396 1.97 2.48 $ 2,784,117 PREFERRED STOCK In May 2014, Milestone completed a private placement, which raised gross proceeds of $10 million, from the sale of $3 million of Milestone Scientific common stock (two million shares at $1.50 per share) and $7 million of our Series A Convertible Preferred Stock ("preferred stock") (7,000 shares at $1,000 per share). These shares were convertible, at the option of the holder, into the number of shares of common stock equal to the stated value divided by $2.545, subject to anti-dilution adjustments, at any time before May 14, 2019. These shares were mandatory convertible on May 14, 2019, into the number of shares of common stock equal to the stated value divided by $2.54 per share or $1.50 per share if the common stock does not trade at $3.15 for period of time, as defined by the agreements, both subject to anti-dilution adjustment. On May 14, 2019, the mandatory conversion date, the Preferred Stock was converted at a rate of $1.17 per common share resulting in the issuance of 5,982,906 shares of common stock. SHARES TO BE ISSUED As of December 31, 2020 and 2019, there were 2,256,844 and 2,226,473 shares to be issued whose issuance has been deferred under the terms of an employment agreements with the Chief Executive Officer, Chief Financial Officer, and other employees of Milestone Scientific. Such shares will be issued to each party upon termination of their employment. As of December 31, 2020 and 2019, there were 171,485 and 149,287 shares to be issued to non-employees, respectively, that will be issued to non-employees for services rendered. The number of shares was fixed at the date of grant and were fully vested upon grant date. F-18 The following table summarizes information about shares to be issue at December 31, 2020. December 31, 2020 December 31, 2019 Shares-to-be-issued, outstanding January 1, 2020 and 2019, respectively 2,375,760 2,470,566 Granted in current period 642,667 2,103,793 Issued in current period (590,098 ) (2,198,599 ) Shares-to be issued outstanding December 31, 2020 and 2019, respectively 2,428,329 2,375,760 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, certain equity instruments are classified as liabilities until there is a sufficient number of authorized shares of common stock to cover the shares issuable upon exercise of the equity instruments. As long as these equity instruments are liability-classified, 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 consolidated statement of operations. During 2019, the Company initially reclassified approximately 1.6 million warrants issued during the 2016 capital raise, 1.7 million warrants during the 2019 capital raise, 0.6 million employee options, and 3.4 million shares to be issued, totaling approximately $-, $376,000, $422,000, and $1,405,000, respectively. During the year, approximately 665,000 of the warrants issued in 2019, and 1.3 million shares to be issued were exercised and issued, respectively. Through the exercise date and issuance date, these warrants, and shares to be issued were marked to market and a loss of $0.5 million and $0.5 million was recognized, respectively. At the exercise and issuance dates, this resulted in a reclassification of the derivative liabilities to additional paid in capital of approximately $0.65 million and $1.07 million, respectively. The fair value of the Company’s shares to be issued is measured using the trading price of the Company’s stock on the measurement and reclassification dates and the fair value of the warrants and stock options is determined using a Black-Scholes option pricing model on the measurement and reclassification dates. On December 17, 2019, the Company’s shareholders increased the authorized share limit to 75,000,000, and the Company had sufficient authorized shares to cover the exercise and issuance of all outstanding securities, settling and reclassifying the outstanding derivative liability. At time of reclassification approximately 1.6 million warrants issued during 2016 capital raise, 1.1 million warrants during the 2019 capital raise, 0.6 million employee options, and 2.1 million shares to be issued, were marked to market for reported losses (gains) totaling approximately $-, $860,000, ($40,000), and $1,800,000, respectively, or approximately $2.6 million. At December 17, 2019, the reclassification of derivative liabilities to additional paid in capital was approximately $-, $1,095,000, $380,000, and $2,640,000, respectively for a total of approximately $4.1 million. The following assumptions were used to value the warrants and stock options at the reclassification to liability date: 2016 Warrants 2019 Warrants Employee Stock Options Fair Value of Common Stock $ 0.36-$.83 $ 0.33 $ 1.07 – 1.60 Expected Term .2-.5 years 4.9 years 1.1 – 2.22 years Volatility 86%-100 % 83 % 91.8 – 102.3 % Dividend yield 0.00 % 0.00 % 0.00 % Exercise Price $ 2.55 $ 0.50 $ 1.04 – 2.09 Risk-free interest rate 1.88%-2.09 % 2.30 % 1.68 – 1.53 % Weighted average fair value of securities granted $ - $ 0.22 $ 0.72 Number of shares underlying securities granted 1,592,775 1,749,171 592,358 F-19 During the year ended December 31, 2019 approximately 675,000 liability classified warrants were exercised. At time of exercise, these warrants were revalued using the following assumptions: 2019 Warrants Fair Value of Common Stock $ 0.83 – 1.42 Expected Term 4.2 -4.3 years Volatility 86 - 87 % Dividend yield 0.00 % Exercise Price $ 0.50 Risk-free interest rate 1.38 – 1.73 % Weighted average fair value of warrants exercised $ 0.98 Number of shares underlying warrants exercised 665,000 The reclassification to additional paid in capital was approximately $655,000, and a mark to market loss of approximately $500,000 was recognized up to the date of reclassification. In addition, during 2019, approximately 1.3 million shares to be issued were issued at a weighted average trading price $0.84 which resulted to a reclassification to additional paid in capital of $1.07 million and a mark to market loss of approximately $500,000 up to the date of reclassification. In December 2019, upon the increase of the authorized shares of common stock to 75,000,000, the derivative liabilities associated with the lack of authorized shares were reclassified into equity and revalued using the following assumptions: 2016 Warrants 2019 Warrants Employee Stock Options Fair Value of Common Stock $ 1.28 $ 1.28 $ 1.28 Expected Term 0.1 years 4.1 years 1- 2.1 years Volatility 38 % 88 % 92-102 % Dividend yield 0.00 % 0.00 % 0.00 % Exercise Price $ 2.55 $ 0.50 $ 1.04 – 2.09 Risk-free interest rate 1.56 % 1.71 % 1.53 – 1.63 % Weighted average fair value of warrants granted $ - $ 1.01 $ 0.64 Number of shares underlying warrants granted 1,592,775 1,084,171 592,358 The reclassification to additional paid in capital for the 2016 warrants, 2019 warrants, and employee stock options was approximately $-, $1,095,000, $380,000, respectively. A mark to market loss (gain) of approximately $-, $860,000, and ($40,000) was recognized. In addition, the remaining 2.1 million shares to be issued resulted in a reclassification to additional paid in capital of approximately $2.7 million and a loss on re-measurement up to that date of approximately $1.8 million. NOTE J — STOCK OPTION PLANS In June 2011, the stockholders of Milestone Scientific approved the 2011 Stock Option Plan (the "2011 Plan") which originally provided for stock options to our employees, directors and consultants and incentive and non-qualified stock options to purchase up to 2,000,000 shares of common stock and was later amended in 2016 to increase the maximum number of shares reserved for grant to 4,000,000. Generally, options become exercisable over a three-year period from the grant date and expire five years after the date of grant. As of December 31, 2020 the company has 424,425 remaining options available for grants. The Milestone Scientific Inc. 2020 Equity Incentive Plan provides for awards of restricted common stock and options to purchase up to a maximum 2,000,000 shares of common stock and expires in December 2030. Options may be granted to employees, directors, and consultants of Milestone Scientific for the purchase of shares of common stock at a price not less than the fair market value of common stock on the date of grant. In general, options become exercisable over a three-year period from the grant date and expire five years after the date of grant. For the year ended December 31, 2020 there were no shares issued, and the full 2,000,000 remain available for grants. F-20 Milestone Scientific recognizes compensation expense over the requisite service period and in the case of performance-based options over the period of the expected performance. For the twelve months ended December 31, 2020 and 2019, Milestone Scientific recognized approximately $537,000, and $181,000 of total employee compensation cost, respectively, recorded in general and administrative expenses on the statement of operations. As of December 31, 2020 and 2019, there was $936,442 and $82,526 of total unrecognized compensation cost related to non- vested options, respectively. Milestone Scientific expects to recognize these costs over a weighted average period of 2.98 and 1.75 years as of December 31, 2020 and 2019, respectively. A summary of option activity for employees under the plans and changes during the years ended December 31, 2020 and 2019 is presented below: Number of Options Weighted Averaged Exercise Price $ Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Options Value $ Options outstanding December 31, 2019 1,670,221 1.71 2.40 - Granted - - - - Exercised during 2019 - - - - Forfeited or expired (457,779 ) 1.96 - - Options outstanding December 31, 2019 1,212,442 1.61 2.00 - Granted during 2020 1,135,277 2.00 4.82 137,186 Exercised during 2020 (336,970 ) 1.14 - - Forfeited or expired during 2020 (57,306 ) 3.89 - - Options outstanding December 31, 2020 1,953,443 1.88 3.09 476,964 Exercisable, December 31, 2020 1,169,925 1.79 1.90 385,507 The Company used the following assumptions to calculate the fair value of the stock option grants using the Black-Scholes option pricing model on the measurement date during the year ended December 31, 2020, risk free interest rate of 1.73% to 1.81%, Volatility of 89.80% to 92.90% (which is based on the Company’s historical volatility over the expected term), expected term of 3 to 5 years, 0% dividend rate and closing price of the stock of $1.99 to $2.16. A summary of option activity for non-employees under the plans and changes during the years ended December 31, 2020 and 2019, is presented below: Number of Options Weighted Averaged Exercise Price $ Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Options Value $ Options outstanding December 31, 2019 33,332 1.87 2.94 - Granted 16,666 0.55 4.43 13,999 Exercised during 2019 - - - - Options outstanding December 31, 2019 49,998 1.87 2.94 Granted during 2020 33,332 1.71 4.60 13,666 Exercised during 2020 - - - - Forfeited or expired during 2020 (8,333 ) 2.70 - Options outstanding December 31, 2020 74,997 1.41 3.18 54,748 Exercisable, December 31, 2020 47,220 1.38 2.55 36,915 The fair value of the non-employee options was estimated on the date of grant using the Black Scholes option-pricing model at the date of grant. For the twelve months ended December 31, 2020 and 2019, Milestone Scientific recognized approximately $13,600 and $2,400 expense related to non-employee options, respectively. The Company used the following assumptions to calculate the fair value of the stock option grants using the Black-Scholes option pricing model on the measurement date during the year ended December 31, 2020, risk free interest rate of 0.2% -0.5 %, Volatility of 86.97% to 94.05%, expected term of 5 years, 0% dividend rate and closing price of the stock of $1.65 to $1.75. F-21 NOTE K–EMPLOYMENT CONTRACT AND CONSULTING AGREEMENTS Employment Contracts On December 1, 2016, Wand Dental and Gian Domenico Trombetta (“Trombetta”) entered into an Amended and Restated Employment Agreement (the “Agreement”), pursuant to which Trombetta receives base compensation of $280,000 per year and is eligible to receive annual bonuses in the sole discretion of the Compensation Committee. Pursuant to the Agreement, Trombetta will continue to serve as the Chief Executive Officer of Wand Dental for a period of one-year beginning on September 1, 2016 through August 31, 2017 (the “Employment Term”). The Employment Term automatically renews for a one-year period, from September 1st through August 31st of each successive year (each a “Renewal Term”), unless prior to June 1st of the Employment Term or any Renewal Term, as applicable, either party notifies the other that he or it chooses not to extend the term of employment in accordance with the terms of the Agreement. In May 2020, Trombetta resigned as Chief Executive Officer of Wand Dental. In July 2017, Milestone Scientific entered into a ten-year employment agreement with Leonard Osser, who previously served as the Company’s President and Chief Executive Officer, to serve as Managing Director – China Operations. This agreement provides for annual compensation of $300,000 consisting of $100,000 in cash and $200,000 in the Company’s common stock valued at the average closing price of the Company’s common stock on the NYSE or such other market or exchange on which its shares are then traded during the first fifteen (15) trading days of the last full calendar month of each year during the term of this agreement. This agreement supersedes all prior employment agreements between Mr. Osser and Milestone Scientific. If the Company terminates Mr. Osser’s employment “Without Cause,” other than due to his death or disability, or if Mr. Osser terminates his employment for “Good Reason” (both as defined in the agreement), Mr. Osser is entitled to be paid in one lump sum payment as soon as practicable following such termination: an amount equal to the aggregate present value (as determined in accordance with Section 280G(d)(4) of the Code) of all compensation pursuant to this agreement from the effective date of termination hereunder through the remainder of the Employment Term. In July 2017, Mr. Osser also resigned from his positions of Chairman of the Board, Chief Executive Office and President of Milestone Medical. Upon his resignation, Milestone Medical entered in a consulting agreement with U.S. Asian Consulting Group LLC, an entity controlled by Mr. Osser, pursuant to which he will provide specific services to Milestone Medical for a ten- year term. Pursuant to the consulting agreement, U.S. Asian Consulting Group, LLC, is entitled to receive $100,000 per year for Mr. Osser's services. On December 19, 2017, the Board of Directors appointed Leonard Osser Interim Chief Executive Office, replacing Leslie Bernhard .Mr. Osser placed on hold his position as Managing Director-China Operations and his consulting agreement with Milestone Medical to rejoined Milestone Scientific Inc. as Interim Chief Executive Officer and will not receive or earn any compensation under those agreements until he is no longer Interim Chief Executive Officer. Mr. Osser as Interim Chief Executive Officer receives a base salary and may receive bonus determined by the compensation committee of Company. NOTE L — INCOME TAXES Due to Milestone Scientific's history of operating losses, a full valuation allowances have been provided for all of Milestone Scientific's deferred tax assets. At December 31, 2020 and 2019, no recognition was given to the utilization of the remaining net operating loss carry forwards in each of these periods. Deferred tax attributes resulting from differences between financial accounting amounts and tax bases of assets and liabilities at December 31, 2020 and 2019 are as follows: 2020 2019 Allowance for Doubtful Accounts $ 2,000 $ 2,000 Warranty Reserve 5,000 5,000 Impaired Assets - - Inventory Reserve 110,000 178,000 Deferred Officer's Compensation 816,000 820,000 Depreciation and Amortization (67,000 ) (103,000 ) Net Operating Loss Carryforwards 17,993,000 16,504,000 Tax Credits 416,000 384,000 Other 10,000 (28,000 ) Subtotal 19,285,000 17,762,000 Valuation allowance (19,285,000 ) (17,762,000 ) Non-current deferred tax asset - - F-22 As of December 31, 2020 federal net operating loss carry-forwards are approximately $66,000,000. As of December 31, 2019, Milestone Scientific has federal net operating loss carry-forwards of approximately $59,000,000, which is comprised solely of losses attributable Milestone Scientific and its subsidiaries. Net operating losses generated before December 31, 2017 will be available to offset future income, if any, through December 2037. During 2020 and 2019 approximately $3.4 million and $4.5 million of net operating losses expired, respectively. Net operating losses generated in 2018 or after can be carried forward indefinitely. State net operating losses were approximately $56,300,000 and 56,700,000 for the periods ended December 31, 2020 and 2019, respectively. Net operating losses will be available to offset future taxable income, if any, through December 2040. The utilization of Milestone Scientific's net operating losses may be subject to a substantial limitation due to the "change of ownership provisions" under Section 382 of the Internal Revenue Code and similar state provisions. Such limitation may result in the expiration of the net operating loss carry forwards before their utilization. Milestone Scientific has established a 100% valuation allowance for all its deferred tax assets due to uncertainty as to their future realization. As of December 31, 2020, and 2019, state tax liability was approximately $24,000 and $18,000, respectively. Such expense was recognized in selling, general and administrative expenses in the consolidated financial statements. Accounting for uncertainties in income taxes prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, disclosure, and transition. At December 31, 2020 and 2019, we had no uncertain tax positions that required recognition in the consolidated financial statements. Milestone Scientific's policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Statements of Operations. No interest and penalties are present for periods open. Tax returns for the 2017, 2018, and 2019 years are subject to audit by federal and state jurisdictions. A reconciliation of the statutory tax rates for the years ended December 31, is as follows: 2020 2019 Statutory rate 21 % 21 % State income tax-all states 1 4 Warrant Revaluation - (11 ) NOL Expiration (11 ) (22 ) Other 8 (3 ) Subtotal 19 % -11 % Valuation allowance -19 % 11 % Effective tax rate - - NOTE M — SEGMENT AND GEOGRAPHIC DATA We conduct our business through two reportable segments: Dental and Medical. These segments offer different products and services to different customer base. The Company provides general corporate services to its segments; however, these services are not considered when making operating decisions and assessing segment performance. These services are reported under “Corporate Services” below and these include costs associated with executive management, investor relations, patents, trademarks, licensing agreements, new instruments developments, financing activities and public company compliance. The following tables present information about our reportable and operating segments: Years Ended December 31, Sales Net Sales: 2020 2019 Dental $ 5,421,436 $ 8,336,901 Medical 15,800 37,600 Total net sales $ 5,437,236 $ 8,374,501 F-23 Operating Income (Loss): 2020 2019 Dental $ 817,355 $ 2,775,730 Medical (3,338,411 ) (2,350,103 ) Corporate (4,932,062 ) (4,424,620 ) Total operating loss $ (7,453,118 ) $ (3,998,993 ) Depreciation and Amortization: 2020 2019 Dental $ 9,896 $ 15,793 Medical 5,693 8,392 Corporate 80,360 76,323 Total depreciation and amortization $ 95,949 $ 100,508 Income (loss) before taxes and equity in earnings of affiliates: 2020 2019 Dental $ 807,770 $ 2,774,359 Medical (3,342,853 ) (2,353,194 ) Corporate (4,936,116 ) (8,064,603 ) Total loss before taxes and equity in earnings of affiliate $ (7,471,199 ) $ (7,643,438 ) Total Assets 2020 2019 Dental $ 6,035,645 $ 5,008,324 Medical 923,658 590,727 Corporate 12,612,147 957,238 Total loss before taxes and equity in earnings of affiliate $ 19,571,450 $ 6,556,289 The following table presents information about our operations by geographic area as December 31, 2020 and 2019. Net sales by geographic area are based on the respective locations of our subsidiaries. Total Product Sales-Dental 2020 2019 Domestic-US $ 2,118,186 $ 4,512,904 International Rest of World 3,225,850 3,665,347 International-China 77,400 158,650 Total Product Sales-Dental $ 5,421,436 $ 8,336,901 Total Product Sales-Medical Domestic-US $ 2,000 $ 13,700 International Rest of World 13,800 23,900 International-China - - Total Product Sales-Medical $ 15,800 $ 37,600 Domestic-US and Canada $ 2,120,186 $ 4,526,604 International Rest of World 3,239,650 3,689,247 International-China 77,400 158,650 Total $ 5,437,236 $ 8,374,501 NOTE N-- CONCENTRATIONS Milestone Scientific has informal arrangements with third-party US manufacturers of the STA, CompuDent and CompuMed 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 at December 31, 2020 and 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. Although alternate sources of supply exist, and new manufacturing relationships could be established, Milestone Scientific would need to recover its existing tools or have new tools produced. Establishment of new manufacturing relationships could involve significant expense and delay. 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. F-24 For the twelve months ended December 31,2020 an aggregate of approximately 38% of the Company’s net product sales were from one US Distributor. For the twelve months ended December 31, 2019, an aggregate of approximately 46% of Wand Dental’s net product sales were from one US Distributor. Accounts receivable for the major customer/distributors amounted to approximately or 69%, of Milestone Scientific's gross accounts receivable as of December 31, 20120. Accounts receivable for the major customer/distributors amounted to approximately or 71% of Milestone Scientific's gross accounts receivable as of December 31, 2019. NOTE O -- RELATED PARTY TRANSACTIONS United Systems 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 $1,850,000 and $1,200,000 for the twelve months ended December 31, 2020 and 2019, respectively. As December 31, 2020 and December 31, 2019, Milestone Scientific owed this manufacturer approximately $362,000 and $943,000, respectively, which is included in accounts payable, related party on the 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. These shares were issued July 2019. On April 29, 2020, the Board of Directors approved the purchase of United Systems accounts receivable ($370,260) See Note F. Milestone China Milestone Scientific owns a 40% interest in Milestone China. See Note F. Other In August 2016, K. Tucker Andersen, a significant stockholder of Milestone Scientific, entered into a three-year agreement with Milestone Scientific to provide financial and business strategic services. Expenses recognized on this agreement were $100,000 for years ended December 31, 2020 and 2019, respectively. In December 2019, Milestone Scientific extended this agreement for one year at a cost of $100,000. 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 $60,000 and $80,000 for years ended December 31, 2019 and 2018, respectively. This agreement was terminated September 30, 2020. As of December 31, 2020 and 2019 Milestone Scientific recorded deferred compensation for Gian Trombetta of approximately of and $275,000, and $380,000, respectively which is included accrued expenses related party. The Company engaged Gian Domenico Trombetta, former CEO of Wand Dental Inc. as a consultant for a period of twelve months (beginning October 1, 2020 and ending September 30, 2021). Gian Domenico Trombetta will provide International Business, Dental Segment information and business contacts to the Company 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. The Director of Clinical Affairs’ royalty fee was approximately $267,000 and $403,000 for the years ended December 31, 2020 and 2019, respectively. Additionally, Milestone Scientific expensed consulting fees to the Director of Clinical Affairs of $156,000 for the both the years ended December 31, 2020, and 2019. As of December 31, 2020 and 2019 Milestone Scientific owed the Director Clinical Affairs for royalties of approximately $127,000 and $390,000, respectively, which is included in accounts payable, related party and accrued expense, related party. F-25 On March 2, 2021, the Company entered into a Royalty Sharing Agreement with Leonard Osser, the Company’s Interim Chief Executive Officer, pursuant to which Mr. Osser sold, transferred and assigned to the Company all of his rights in and to a certain patent application as to which he is a co-inventor with Mark Hochman, a consultant to the Company, and the Company agreed to pay to Mr. Osser, beginning May 9, 2027, half of the royalty (2.5%) on net sales that would otherwise be payable to Mark and Claudia Hochman under their existing Technology Sale Agreement, dated January 1, 2005 and amended from time to time, with the Company, the Hochman's having agreed with the Company pursuant to an addendum to such Technology Sale Agreement dated February 25, 2021 to reduce from five percent (5%) to two and one-half percent (2.5%) the payments due to them under their Technology Sale Agreement on May 9, 2027 and thereafter, with respect to dental products. The Agreement confirms an understanding of the Company, Leonard Osser and the Hochman's on sharing the five percent (5%) royalty to be paid by the Company beginning on May 9, 2027 with respect to dental products embodying the new invention. NOTE P — COMMITMENTS (1) Contract Manufacturing Agreement Milestone Scientific has informal arrangements with third-party manufacturers of the STA, CompuDent® and CompuMed® devices, pursuant to which they manufacture these products under specific purchase orders but without any long-term contract or minimum purchase commitment. In July 2019, the company entered into a new purchase commitment for the delivery of 1,400 STA CompuDent® instruments. As of December 31, 2020, the purchase order commitment was $147,224 and advances of $100,090 is reported in advances on contracts. As of December 31, 2020, we have an open purchase order of $607,735 Epidural instruments and have advanced $259,435 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 of $55,000. See Note R- Subsequent Events (2) Leases Operating Leases As of December 31, 2020, total operating lease right-of-use assets were $597,770 and total operating lease liabilities were $630,012, of which $72,031 and $557,981 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 year ended December 31, 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 $34,683. As of December 31, 2020, total finance lease liabilities were $36,403, of which $7,796 and $28,607 were classified as current and non-current, respectively. In August 2019, the Company made the decision to not renew the its existing office lease for its corporate headquarters located in Livingston, New Jersey and instead signed a new seven (7) year lease in a new facility located in Roseland, New Jersey (the “Roseland Facility”), which commenced of January 8, 2020. Under the Roseland Facility lease, rent payments commence on April 1, 2020 and the monthly lease payments escalate annually on January 1 of each year, and range from $9,275 to $10,898 per month over the lease term. The Company is also required to pay a fixed electric charge equal to $2.00 per square foot which is paid in equal monthly installments over the lease term or $11,130 annually. These fixed monthly payments have been included in the measurement of the operating lease liability and related operating lease right-of-use asset as the Company has elected the practical expedient to not separate lease and non-lease components for all leases. 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. The Company identified and assessed the following significant assumptions in recognizing its right-of-use assets and corresponding lease liabilities: ● As the Company’s leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease payments. The Company has utilized its incremental borrowing rate based on the long-term borrowing costs of comparable companies in the Medical Device industry. ● Since the Company elected to account for each lease component and its associated non-lease components as a single combined lease component, all contract consideration was allocated to the combined lease component. ● The expected lease terms include non-cancellable lease periods. Renewal option periods are not included in the determination of the lease terms as they were not reasonably certain to be exercised. F-26 The components of lease expense as of December 31, 2020 were as follows: Years Ended 12/31/2020 12/31/2019 Cash paid for operating lease liabilities 109,654 158,218 Cash paid for finance lease liabilities 10,307 - Right-of-use assets obtained in exchange for new operating lease liabilities (1) 663,009 - Property and equipment obtained in exchange for new finance lease liabilities 43,242 - Weighted Average Remaining Lease Term Finance leases 4.04 years 0.2 years Operating leases 6.25 years Weighted-average discount rate - operating leases 9.2% 9.2% Maturity of lease liabilities As of December 31, 2020 As of December 31, 2019 2020 16,030 2021 135,953 - 2022 138,735 - 2023 141,518 - 2024 144,300 - 2025 136,776 - Thereafter 174,602 - Total lease payments 871,884 16,030 Less: interest (205,469) (53 ) Present value of lease liabilities 666,415 15,977 (3) Other Commitments The technology underlying the Safety Wand® and CompuFlo ®, and an improvement to the controls for CompuDent ® were developed by the Director of Clinical Affairs and assigned to Milestone Scientific. Milestone Scientific purchased this technology pursuant to an agreement dated January 1, 2005. The Director of Clinical Affairs will receive additional payments of 2.5% of the total sales of products using certain of these technologies, and 5% of the total sales of products using certain other of the technologies until the expiration of the last patent covering these technologies. If products produced by third parties use any of these technologies (under license from us) then the Director of Clinical Affairs will receive the corresponding percentage of the consideration received by Milestone Scientific for such sale or license. The Director of Clinical Affairs’ royalty fee was approximately $267,000 and $403,000 for the years ended December 31, 2020 and 2019, respectively. Additionally, Milestone Scientific expensed consulting fees to the Director of Clinical Affairs of $156,000 for the years ended December 31, 2020, and 2019, respectively. As of December 31, 2020 and 2019 Milestone Scientific owed the Director Clinical Affairs for royalties of approximately $127,000 and $390,000, respectively, which is included in accounts payable, related party and accrued expense, related party. NOTE Q — BENEFIT PLAN Milestone Scientific has a Defined Contribution Plan that allows eligible employees to contribute part of their salary through payroll deductions. Milestone Scientific does not contribute to this plan, but does pay the administrative costs of the plan, which were not significant. F-27 NOTE R — SUBSEQUENT EVENTS Since the year ended December 31, 2020, the Company issued 147,625 shares of common stock for warrants exercised at $0.50 for proceeds of $73,813. Since the year ended December 31, 2020, the Company issued 1,190,700 shares of common stock for warrants exercised at $1.20 for proceeds of $1,428,840. Since the year ended December 31, 2020, the Company issued 580,601 shares of common stock for warrants exercised at $2.60 for proceeds of $1,509,563. In January 2021, the company entered into a new purchase commitment for the delivery of 2,000 STA CompuDent® instruments. The purchase order commitment was $1,518,364. On March 2, 2021, the Company entered into a Royalty Sharing Agreement with Leonard Osser, the Company’s Interim Chief Executive Officer, pursuant to which Mr. Osser sold, transferred and assigned to the Company all of his rights in and to a certain patent application as to which he is a co-inventor with Mark Hochman, a consultant to the Company, and the Company agreed to pay to Mr. Osser, beginning May 9, 2027, half of the royalty (2.5%) on net sales that would otherwise be payable to Mark and Claudia Hochman under their existing Technology Sale Agreement, dated January 1, 2005 and amended from time to time, with the Company, the Hochman's having agreed with the Company pursuant to an addendum to such Technology Sale Agreement dated February 25, 2021 to reduce from five percent (5%) to two and one-half percent (2.5%) the payments due to them under their Technology Sale Agreement on May 9, 2027 and thereafter, with respect to dental products. The Agreement confirms an understanding of the Company, Leonard Osser, and the Hochman's on sharing the five percent (5%) royalty to be paid by the Company beginning on May 9, 2027 with respect to dental products embodying the new invention. F-28