What changed in this filing

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Item 1. Financial Statements

2021-05-14 compared with 2020-11-16 · 292 added, 346 removed, 383 unchanged (62% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2020

March 31, 2021

December 31, 2020

2 unchanged sentences

Accounts receivable, net

Accounts receivable, related party net

Prepaid expenses and other current assets

3 unchanged sentences

Furniture, fixtures and equipment, net

Intangibles, net

Right of use assets

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Accrued expenses, related party

Current portion of finance leases

Current operating lease right-of-use liabilities

Current portion of finance leases liabilities

Current portion of operating lease right-of-use liabilities

Deferred profit, related party

Total current liabilities

Finance lease liabilities, non-current

Operating lease right-of-use liabilities

Finance lease liabilities

Operating lease liabilities

Total liabilities

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authorized 85,000,000 shares;

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

66,591,883 shares issued and 66,558,550 shares outstanding as of March 31, 2021;

64,171,435 shares issued and 64,138,102 shares outstanding as of December 31, 2020;

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the three months ended September 30, 2020

For the three months ended September 30, 2019

For the Nine months ended September 30, 2020

For the Nine months ended September 30, 2019

For the three months ended March 31,

Product sales, net

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Research and development expenses

Depreciation and amortization expense

Total operating expenses

Loss from operations

Interest expense

Change in fair value of derivative liability

Interest expense, net

Loss before provision for income taxes and net of equity investments

Provision for income taxes

Loss before equity in net earnings (losses) of equity investments

Earnings from China Joint Venture

Loss before equity in net earnings of equity investments

Income from China Joint Venture

Net loss attributable to noncontrolling interests

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

Preferred Stock Shares

Preferred Stock

FOR THREE MONTHS ENDED March 31, 2021 and 2020

Common Stock Share

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Stock based compensation

Common stock issued to employee for compensation

Common stock to be issued for payment of consulting services

Common stock issued to employee for compensation expensed in prior periods

Common stock to be issued for payment of consulting services expensed in prior periods

Common stock issued to board of directors for services expensed in prior periods

Common stock issued to employee for stock options exercised

Common stock to be issued to employees for bonuses

Common stock issued for warrants

Common stock issued for warrants exercised

Balance, March 31, 2021

Stock based compensation

Common stock issued to employee for compensation

Common stock issued for payment of consulting services

Common stock issued to board of directors for services

Common stock issued to employees for bonuses

Common stock to be issued to employees for bonuses

Common stock issued in public offering April 6,2020

Common stock issued in public offering-June 30, 2020

Acquired controlling interest in Milestone Advanced Cosmetic Systems

Common stock issued for warrants

Balance, June 30, 2020

Stock based compensation

Common stock issued to employee for compensation

Common stock issued for payment of consulting services

Common stock issued to board of directors for services

Common stock issued to employees for bonuses

Common stock issued for warrants

Balance, September 30, 2020

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

Preferred Stock Shares

Preferred Stock

MILESTONE SCIENTIFIC INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THREE MONTHS ENDED MARCH 31, 2020

Common Stock Share

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Stock based compensation

Common stock to be issued to employees for bonuses

Common stock to be issued for payment of consulting services

Common stock to be issued to employee for compensation

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

Common stock issued in public offering

Common stock issued in private offering

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

Balance, March 31, 2019

Stock based compensation

Common stock issued for payment of consulting services

Common stock to be issued to employee for compensation

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

Conversion of Preferred Shares to Common Stock (Mandatory)

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

Balance, June 30, 2019

Stock based compensation

Common stock to issued for payment of consulting services

Common stock to be issued for payment of consulting services

Common stock to be issued to employees for bonuses

Common stock to be issued to employee for compensation

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

Common stock issued for warrants exercised

Shares issued previously classified as derivative liability (Note 9)

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

Balance, September 30, 2019

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

Common stock issued for warrants

Balance, March 31, 2020

MILESTONE SCIENTIFIC INC.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine months ended September 30, 2020

For the Nine months ended September 30, 2019

For the Three months ended March 31, 2021

For the Three Months Ended March 31, 2020

Cash flows from operating activities:

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Expense paid in stock

Non-cash operating lease expense

Earnings on China joint venture

Change in fair value of derivative liability

Non-cash operating lease expense

Changes in operating assets and liabilities:

Decrease in accounts receivable

Decrease in accounts receivable, related party

(Increase) in accounts receivable, related party

Decrease in other assets

(Increase) decrease in inventories

(Increase) decrease in advances on contracts

Decrease (Increase) in prepaid expenses and other current assets

(Increase) in advances on contracts

(Increase) in prepaid expenses and other current assets

(Decrease) in accounts payable

(Decrease) in accounts payable, related party

Decrease in deferred cost, related party

Increase (decrease) in accrued expenses

(Decrease) increase in accrued expenses, related party

(Decrease) in deferred revenue, related party

(Decrease) increase accounts payable, related party

Increase in accrued expenses

(Decrease) in accrued expenses, related party

Net cash used in operating activities

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Payments finance lease obligations

Net proceeds from note payable

Net proceeds from Public Placement Offering

Net proceeds from Private Placement Offering

Net proceeds from employee options exercised

Net cash provided by financing activities

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Supplemental non-cash disclosure of cash flow information:

Shares issued to board of directors

Shares issued to employees for compensation

Shares issued to consultants in lieu of cash payments

Shares issued to employee for bonuses

Credit from United Systems for defective handpieces

Initial recognition of operating lease-right of use assets

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NOTE 1 — ORGANIZATION AND BUSINESS

All references in this report to “Milestone Scientific, Inc.,” “us,” “our,” “we,” the “Company “or “Milestone” refer to Milestone Scientific Inc., and its consolidated subsidiaries, Wand Dental, Inc., Milestone Advanced Cosmetic Inc.

and Milestone Medical Inc.

and affiliate, Milestone Education LLC, unless the context otherwise indicates.

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.

C ompuDent ® ;

DPS Dynamic Pressure Sensing technology ® ;

Milestone Scientific ® ;

CathCheck ™, the Milestone logo ®;

Safety Wand ®;

the Milestone logo ® ;

SafetyWand ® ;

STA Single Tooth Anesthesia System ® ;

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Milestone Scientific was incorporated in the State of Delaware in August 1989.

Milestone Scientific is a medical technology research and development company that patents, designs, develops and commercializes innovative diagnostic and therapeutic injection technologies and devices for medical, dental, cosmetic, and veterinary applications.

Since our inception, we have engaged in pioneering proprietary, innovative, computer-controlled injection technologies, and solutions for the medical and dental markets.

Milestone Scientific has developed a proprietary, computer-controlled anesthetic delivery device, using The Wand ®, a single use disposable handpiece.

The device is marketed in the dental market under the trademark CompuDent®, and STA Single Tooth Anesthesia System® and in the medical market under the trademark CompuMed®.

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 upon regulatory approval, as required, 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.

During 2016, Milestone Scientific filed for 510(k) marketing clearance with the U.S.

Food and Drug Administration (FDA) for both intra-articular and epidural injections with the CompuFlo ® Computer Controlled Anesthesia System.

In June 2017, the FDA approved the CompuFlo ® Epidural Computer Controlled Anesthesia System for epidural injections.

Milestone Scientific is in the process of meeting with medical device distributors within the United States and foreign markets.

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

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

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

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

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

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

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

The company will revisit this project in 2021.

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

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

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

hospitals and 200,000 other providers to transform healthcare.

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

The Agreement expires on February 28, 2022.

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 approximately 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.

Through March 31, 2021 to date there have been twelve 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 or 2020.

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

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

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 9).

As of March 31, 2021, cash on hand was approximately $16.9 million, an increase of $2.7 million from December 31, 2020.

NOTE 2- 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 the second quarter of 2020 the Company completed two capital raises.

As of March 31, 2021, the Company had an accumulated deficit of approximately $101,900,000 and has incurred a net loss of approximately $973,000 for the three month period ending March 31, 2021.

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

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

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

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

As a result of the reduced hours and closings of dental offices throughout the country and the rest of the world due to the continuing spread of COVID-19, revenues for the three and the nine months ended September 30, 2020 was adversely affected.

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

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

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

As of March 31, 2021, cash on hand was approximately $16.9 million, an increase of $2.7 million from December 31, 2020.

Management believes the Company has sufficient liquidity to support operations beyond a year after the unaudited condensed consolidated financial statements issue date.

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

As a result of the reduced hours and closings of dental offices throughout the country and the rest of the world due to the continuing spread of COVID-19, revenues for the three months ended March 31, 2020 were adversely affected.

Business interruptions, including any interruptions resulting from COVID-19 could significantly disrupt our operations and could have a material adverse impact on our business.

All of our employees are located in the U.S.

In addition to our employees, we rely on (i) distributors, agents, and third-party logistics providers in connection with product sales and distribution and (ii) raw material and component suppliers in the U.S., Europe, and China.

If we, or any of these third-party partners encounter any disruptions to our or their respective operations or facilities, or if we or any of these third-party partners were to shut down for any reason, including by fire, natural disaster, such as a hurricane, tornado or severe storm, power outage, systems failure, labor dispute, pandemic, or other unforeseen disruption, then we or they may be prevented or delayed from effectively operating our or their business, respectively.

In addition, it is uncertain as to what effect the continuing spread of COVID-19 will have on our commercialization efforts of our CompuFlo Epidural and CathCheck system as medical devices.

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

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Accordingly, they do not include all the information and footnotes required by GAAP for complete annual financial statements.

In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring entries) necessary to fairly present such interim results.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring entries) necessary to fairly present such interim results.

Interim results are not necessarily indicative of the results of operations which may be expected for a full year or any subsequent period.

These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2019, included in Milestone Scientific's Annual Report on Form 10-K.

These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2020, included in Milestone Scientific's Annual Report on Form 10-K.

Reclassifications

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

Certain reclassification has been made to the 2020 unaudited condensed consolidated financial statements to conform to the 2021 unaudited condensed consolidated financial statement presentation.

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

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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.

The most significant estimates relate to the allowance for doubtful accounts, inventory valuation, 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.

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measurement of the transaction price, including the constraint on variable consideration;

allocation of the transaction price to the performance obligations based on estimated selling prices;

allocation of the transaction price to the performance obligations based on estimated standalone selling prices;

and selling prices;

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.

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, “Revenue from Contracts with Customers”.

The Company derives its revenues from the sale of its products, primarily dental instruments, handpieces, and other related products.

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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.

For certain arrangements where the shipping terms are freight-on-board (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.

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

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

See Note 11 for revenues by geographical market, and product category for the three months ended March 31, 2021

Variable Interest Entities

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

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

As of March 31, 2021, and December 31, 2020 Milestone Scientific has approximately $15.0 million and $13.1 million, respectively, of investments with short term maturities classified as a cash equivalent.

At times, such investments, may be more than the Federal Deposit Insurance Corporation insurance limit.

Accounts Receivable

3 unchanged sentences

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

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

As of March 31, 2021 , and December 31, 2020 , accounts receivable was recorded, net of allowance for doubtful accounts of $10,000.

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

3 unchanged sentences

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.

As of March 31, 2021, and December 31, 2020 , inventory was recorded net of a valuation allowance for slow moving and defective inventory of approximately $450,000, and $453,000, respectively.

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 Condensed Consolidated Balance Sheets.

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

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 within long-term assets in the unaudited Condensed Consolidated Balance Sheets.

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

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

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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.

The costs of maintenance and repairs are charged to expense, as incurred.

Intangible Assets – Patents and Developed Technology

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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.

The Note may be prepaid by the Company 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.

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Research and development costs, which consist principally of new product development costs payable to third parties, are expense 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.

Advance payments received for the research are amortized to expense either as services are performed or over the relevant service period using the straight-line method.

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.

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

On March 31, 2021 and December 31, 2020 , we had no uncertain tax positions that required recognition in the unaudited condensed consolidated financial statements.

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

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

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

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

Since Milestone Scientific had net losses in the three months ended March 31, 2021 and 2020 , 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 6,092,193 and 1,875,886 on March 31, 2021 and 2020 , respectively.

Fair Value of Financial Instruments

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

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

As of March 31, 2021 and December 31, 2020, the Company does not have any assets or liabilities that were measured at fair value on a recurring basis.

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

Derivative Liability

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks;

however, the Company had certain financial instruments that qualified as derivatives and were classified as liabilities on the balance sheet during the year ended December 31, 2019.

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 9, Outstanding Equity Instruments in Excess of Authorized Shares.

Stock-Based Compensation

Milestone Scientific accounts for stock-based compensation under ASC Topic 718, "Compensation - Stock Compensation".

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.

Milestone Scientific accounts for stock-based compensation under ASC 718, "Compensation - Stock Compensation" (“ASC 718”).

ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the Condensed Consolidated Statements of Operations over the service period, as an operating expense, based on the grant-date fair values.

At the inception of an arrangement, we determine whether an arrangement is, or contains, a lease.

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Recent Accounting Pronouncements

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

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

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

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

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

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

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

This ASU removes certain disclosure requirements regarding the amounts and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of transfers between the levels.

This ASU also adds disclosure requirements regarding unrealized gains and losses included in Other Comprehensive Income for recurring Level 3 fair value measurements and the range and weighted average of unobservable inputs used in Level 3 fair value measurements.

ASU 2018-13 is effective for all entities with fiscal years beginning after December 15, 2019, including interim periods therein.

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

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

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

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

Recently Adopted 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.

Simplifying the Accounting for Income Taxes”, which clarifies 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.

The adoption of this standard as of January 1, 2021, did not have a material effect on the Company’s unaudited condensed consolidated financial statement presentation.

Recently Issued Accounting Pronouncements

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

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

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

The Company is analyzing the impact of the adoption of this standard;

however, the adoption is not expected to have a material effect on the Company’s unaudited condensed consolidated 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.

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

The Company is analyzing the impact of the adoption of this standard;

however, the adoption of this standard is not expected to have a material effect on the Company’s unaudited condensed consolidated financial statement.

In June 2016, the FASB issued a new standard ASU No.2016-13, “Financial Instruments – Credit Losses” (Topic 326).

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

NOTE 4 — INVENTORIES

Inventories consist of the following:

September 30, 2020

March 31, 2021

December 31, 2020

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Total inventories

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

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

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

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

On March 31, 2021 , there are allowances for slow moving medical finished goods of approximately $450,000.

As of 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.

NOTE 5 — ADVANCES ON CONTRACTS

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

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

The balance of the advances as of March 31, 2021 and December 31, 2020 is approximately $753,000 and $414,000, respectively.

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

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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”), by contributing dental instruments to Milestone China for a (40%) ownership interest.

Milestone China owns approximately 75% of Milestone Beijing Medical Equipment Company, Ltd (“Milestone Beijing”).

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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.

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.

Milestone Scientific, in previous years, reduced its investment in Milestone China to zero and had accumulated losses over the investment balance of approximately $ 5.9 million at December 31, 2020, which have been suspended.

For the three months ended March 31, 2021, Milestone Scientific shipped instruments and handpieces to Milestone China and its agents and recognized revenue of $506,400.

As of March 31, 2021 the Company has approximately $178,000 of deposits from Milestone China for future shipment of goods included in accrued expenses, related party on the accompanying consolidated balance.

The Company did not recognize any revenue related to Milestone China for the three months ended March 31, 2020.

Related Party Transactions

Milestone China Distribution Agreement

Milestone China is Milestone Scientific’s exclusive distributor in China.

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

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

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

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

United System Agreement

United Systems, Inc.

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

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

Milestone Scientific paid United Systems the sale price as follows;

Milestone Scientific paid United Systems 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 unaudited condensed consolidated statement of operations for $370,260 during the nine months ended September 30, 2020.

Milestone Advanced Cosmetic Systems Inc.

Advanced Cosmetics Systems Agreement

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.

As a result of the purchase Milestone Scientific now owns 100% of Advanced Cosmetic Systems Inc., subject to Milestone China’s option to repurchase.

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

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

Equity Method Disclosures

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

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

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

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

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

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

At March 31, 2021, and December 31, 2020, the deferred profit was approximately and $241,000 and $243,000, respectively, which is included in deferred profit, related party in the condensed consolidated balance sheets.

For three months ended March 31, 2021, and 2020 Milestone Scientific recorded income on equity investment of $1,301 and $ zero, respectively, for product sold by Milestone China to third parties.

NOTE 7 — PATENTS

September 30, 2020

March 31, 2021

Accumulated Amortization

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

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

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

Amortization expense was approximately $11,000 and $13,000 for the three months ended March 31, 2021 and March 31, 2020, respectively.

NOTE 8 — NOTE PAYABLE

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The Loan 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 payable principal is due April 27, 2022 in a balloon payment if the loan is not forgiven.

The Note is due April 27, 2022 in a balloon payment if the loan is not forgiven.

The Note may be prepaid by the Borrower at any time prior to maturity with no prepayment penalties.

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

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

The Company used the entire Loan amount for qualifying expenses.

On May 7, 2021, the Company has been notified that approximately $201,000 in eligible expenditures for payroll and other expenses described in the CARES Act has been forgiven.

The company still has pending loan forgiveness application for $75,000.

NOTE 9— 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 have a term of 5 years and 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 and at the time also Chief Executive Officer and Director of Wand Dental, a wholly owned subsidiary of Milestone Scientific.

The warrants have a term of 5 years and are exercisable at $0.50 per share.

In the second quarter of 2020, the Company completed two public offerings.

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

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

The following table summarizes information about shares issuable under warrants outstanding as of March 31, 2021 :

Warrant shares outstanding

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Expired or cancelled

Outstanding and exercisable at September 30, 2020

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

Outstanding and exercisable at March 31, 2021

The following table summarizes information about shares issuable under warrants outstanding as of March 31, 2020

Warrant shares outstanding

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Expired or cancelled

Outstanding and exercisable at September 30, 2019

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.

Outstanding and exercisable at March 31, 2020

Shares to Be Issued

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

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

As of March 31, 2021 and 2020 , there were 2,264,127 and 2,306,698 shares to be issued whose issuance has been deferred to the interim Chief Executive Officer, former Chief Financial Officer, and other employees of Milestone Scientific, respectively.

As of March 31, 2021 and 2020 , there were 144,024 and 159,835 shares, respectively, to be issued to non-employees, that will be issued for services rendered.

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

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

September 30, 2020

September 30, 2019

The following table summarizes information about shares to be issued on March 31, 2021 and 2020 , respectively.

March 31, 2021

March 31, 2020

Shares-to-be-issued, outstanding January 1, 2021 and 2020, respectively

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Issued in current period

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

OUTSTANDING EQUITY INSTRUMENTS IN EXCESS OF AUTHORIZED SHARES

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

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

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

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

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

2016 Warrants

2019 Warrants

Fair Value of Common Stock

Expected Term (years)

Dividend yield

Exercise Price

Risk-free interest rate

Weighted average fair value of warrants granted

Number of shares underlying warrants granted

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

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

2016 Warrants

2019 Warrants

Fair Value of Common Stock

Expected Term (years)

Dividend yield

Exercise Price

Risk-free interest rate

Weighted average fair value of warrants granted

Number of shares underlying warrants granted

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

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

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

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

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

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

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

Shares-to be issued outstanding March 31, 2021 and 2020, respectively

Stock Options 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 March 31, 2021, and December 31, 2020, the Company had 293,505, and 424,425, respectively, remaining options available for grants.

The Milestone Scientific Inc.

2020 Equity Compensation Plan (the "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.

There were no shares a granted under this plan as March 31, 2021 or December 31, 2020, respectively.

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 three months ended March 31, 2021 and 2020, Milestone Scientific recognized $113,507 and $56,988 of total employee compensation cost, respectively.

As of March 31,2021 there was $914,389 of total unrecognized compensation cost related to non- vested options.

Milestone Scientific expects to recognize these costs over a weighted average period of 2.7 years

A summary of option activity for employees under the plans and changes during the years ended March 31, 2021 and 2020 is presented below:

Number of Options

Weighted Averaged Exercise Price $

Weighted Average Remaining Contractual Life (Years)

Aggregate Intrinsic Options Value $

Options outstanding January 1, 2021

Exercised during 2021

Forfeited or expired

Options outstanding March 31, 2021

Exercisable, March 31, 2021

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 three month period ended March 31, 2021, risk free interest rate of 1.42% , Volatility of 89.46% (which is based on the Company’s historical volatility over the expected term), expected term of 3 years, 0% dividend rate and closing price of the stock of $3.11.

Number of Options

Weighted Averaged Exercise Price $

Weighted Average Remaining Contractual Life (Years)

Aggregate Intrinsic Options Value $

Options outstanding January 1, 2020

Exercised during 2020

Forfeited or expired

Options outstanding March 31, 2020

Exercisable, March 31, 2020

A summary of option activity for non-employees under the plans and changes during the years ended March 31, 2021 and 2020 is presented below:

Number of Options

Weighted Averaged Exercise Price $

Weighted Average Remaining Contractual Life (Years)

Aggregate Intrinsic Options Value $

Options outstanding January 1, 2021

Exercised during 2021

Options outstanding March 31, 2021

Exercisable, March 31, 2021

Number of Options

Weighted Averaged Exercise Price $

Weighted Average Remaining Contractual Life (Years)

Aggregate Intrinsic Options Value $

Options outstanding January 1, 2020

Exercised during 2020

Options outstanding March 31, 2020

Exercisable, March 31, 2020

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 three months ended March 31 ,2021 and 2021, Milestone Scientific recognized approximately $10,329 and $- zero 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 three months ended March 31, 2021, risk free interest rate of 0.2% -1.41 %, Volatility of 86.97% to 89.90%, expected term of 5 years, 0% dividend rate and closing price of the stock of $3.57 to $4.30 .

NOTE 10 — INCOME TAXES

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

Three months ended September 30,2020

Three months ended September 30, 2019

Nine months ended September 30,2020

Nine months ended September 30, 2019

Three months ended March 31, 2021

Three months ended March 31, 2020

Total net sales

Operating Income (Loss):

Three months ended September 30,2020

Three months ended September 30, 2019

Nine months ended September 30,2020

Nine months ended September 30, 2019

Three months ended March 31, 2021

Three months ended March 31, 2020

Total operating loss

Depreciation and Amortization

Three months ended September 30, 2020

Three months ended September 30, 2019

Nine months ended September 30, 2020

Nine months ended September 30, 2019

Three months ended March 31, 2021

Three months ended March 31, 2020

Total depreciation and amortization

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

Three months ended September 30, 2020

Three months ended September 30, 2019

Nine months ended September 30, 2020

Nine months ended September 30, 2019

Three months ended March 31, 2021

Three months ended March 31, 2020

Total loss before taxes and equity in earnings of affiliate

Total Assets:

September 30, 2020

March 31, 2021

December 31, 2020

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

The following table presents information about our operations by geographic area for three months ended March 31, 2021 and 2020 .

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

Three months ended September 30, 2020

Three months ended September 30, 2019

Three months ended March 31, 2021

Three months ended March 31, 2020

Total Domestic US

International:

Total International

International-China

Rest of World

Total International

Total Product Sales

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

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

Nine months ended September 30, 2020

Nine months ended September 30, 2019

Domestic-US & Canada

Total Domestic US & Canada

International ROW

Total International-ROW

International-China

International:

Total International

2 unchanged sentences

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

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

Consequently, advances on contracts have been classified as current at March 31, 2021, and December 31, 2020 .

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

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

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

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

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

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

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

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

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

To the extent the Company is able to obtain information about and maintain communications with its customers, suppliers, vendors, and other business partners, the Company will seek to minimize disruptions to its supply chain and distribution channels, but many circumstances will be beyond the Company’s control.

Governmental action may further cause the Company to temporarily close its facilities and/or regional quarantines may result in labor shortages and work stoppages.

All of these factors may have far reaching direct and indirect impacts on the Company’s business, operations, and financial results and condition.

The ultimate extent of the effects of the COVID-19 pandemic on the Company is highly uncertain and will depend on future developments which cannot be predicted.

For the three months ended March 31, 2021, and 2020 an aggregate of approximately 29% and 39% of the Company’s net product sales were from one domestic distributor, respectively.

Additionally, three months ended March 31, 2021 approximately 18% of the Company’s net product sales are to Milestone China.

Accounts receivable for the domestic distributor and Milestone China amounted to approximately 28% and 21% of Milestone Scientific's gross accounts receivable as of March 31, 2021, respectively.

Accounts receivable for the major customer/distributor amounted to approximately 69% of Milestone Scientific's gross accounts receivable as of December 31, 2020.

NOTE 13 -- RELATED PARTY TRANSACTIONS

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

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

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

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

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

These shares were issued July 2019.

Purchases from this manufacturer were approximately $385,000 and $544,000 for the three months ended March 31, 2021 and 2020 , respectively.

As of March 31, 2021, and December 31, 2020, Milestone Scientific owed this manufacturer approximately $179,000 and $362,000, respectively, which is included in accounts payable, related party on the condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020, respectively.

On April 29, 2020, the Board of Directors approved the purchase of United Systems accounts receivable ($370,260) See Note 6.

Milestone China

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

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

As of March 31, 2021, and December 31, 2020, Milestone Scientific had deferred compensation for Gian Domenico Trombetta, a director of the Company and the previous Chief Executive Officer of Wand Dental, of approximately $ zero and $ 275,000, respectively, which is included accrued expenses related party.

The Company engaged Mr.

Trombetta as a consultant for a period of twelve months (beginning October 1, 2020 and ending September 30, 2021).

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.

As of March 31, 2021, the company had $45,000 payable on this agreement, which is included accrued expenses related party, in the unaudited condensed consolidated balance sheet.

In August 2016, K.

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

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

Expenses recognized on this agreement were $25,000 for each of the three months ended March 31, 2021 and 2020.

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

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

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

This agreement was terminated September 30, 2020.

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

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

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

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

Expenses recognized on this agreement were zero and $20,000 for the three months ended March 31, 2021 and 2020, respectively.

This agreement was terminated on September 30, 2020.

The Director of Clinical Affairs’ royalty fee was approximately $136,000 and $95,000 for the three months ended March 31, 2021 and 2020, respectively.

Additionally, Milestone Scientific expensed consulting fees to the Director of Clinical Affairs of $39,000 for each of the three months ended March 31, 2021 and 2020.

As of March 31, 2021 and December 31, 2020, Milestone Scientific owed the Director Clinical Affairs for royalties of approximately $159,000 and $467,000, respectively, which is included in accounts payable, related party and accrued expense, related party, in the unaudited condensed consolidated balance sheet.

See Note 14(3) below for additional information about the royalty agreement.

NOTE 14 — COMMITMENTS

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

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

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

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

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

In January 2021, the Company entered into a new purchase commitment for the delivery of 2,000 dental instruments beginning in 2021.

As of March 31, 2021 , the purchase order commitment for dental instruments was approximately $1.5 million and advances of approximately $504,000 are reported in advances on contracts in the unaudited condensed consolidated balance sheet.

As of March 31, 2021 , the Company has an open purchase order of approximately $102,000 for 100 Epidural instruments and has advanced approximately $54,000,against this purchase commitment.

In January 2021, the Company entered a new purchase commitment for the delivery of 100 Epidural instruments beginning in 2021.

As of March 31, 2021 , the purchase order commitment for epidural instruments was approximately $328,000 and advances of approximately $150,000 are reported in advances on contract in the unaudited condensed consolidated balance sheet.

In February 2021, the company entered a new purchase commitment for the delivery of 246 cases of Epidural and CathCheck disposable kits beginning in April 2021.

As of March 31, 2021 , we have an open purchase order of approximately $58,000 for 246 cases of Epidural and CathCheck disposable kits and have advanced approximately$44,000 reported in advances on contract in the unaudited condensed consolidated balance sheet.

Operating Leases

2 unchanged sentences

The Company had an option to further extend the term of the lease, however, this option was not included in the determination of the lease’s right-of-use asset or lease liability.

Per the terms of the lease agreement, the Company does not have a residual value guarantee.

The Company will also be 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.

These costs are considered to be variable lease payments and are not included in the determination of the lease’s right-of-use asset or lease liability.

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.

Per the terms of the lease agreement, the Company did not have a residual value guarantee.

The Company was 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.

These costs were considered to be variable lease payments and were not included in the determination of the lease’s right-of-use asset or lease liability.

In August 2019, the Company made the decision to not renew the existing office lease for it's 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 commenced 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.

1 unchanged sentence

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

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

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

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

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

As of March 31, 2021, total operating lease right-of-use assets were $579,990 and total operating lease liabilities were $612,016, of which $73,596 and $538,421 were classified as current and non-current, respectively.

As of March 31, 2021, total finance lease liabilities were $34,521, of which $7,977 and $26,544 were classified as current and non-current, respectively.

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, 2020, total finance lease liabilities were $36,403, of which $7,796 and $28,607 were classified as current and non-current, respectively.

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

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

Cash paid for operating lease liabilities

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Property and equipment obtained in exchange for new finance lease liabilities

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

(1) For the three months ended March 31, 2021, the balance includes operating leases existing as of the adoption of ASC 842 on January 1, 2021.

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

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(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.

See note 13 Other.

The technology underlying the Safety Wand ® and CompuFlo ®, and an improvement to the controls for CompuDent ® were developed by Mark Hochman, the Company’s Director of Clinical Affairs, and assigned to Milestone Scientific.

Milestone Scientific purchased this technology pursuant to Technology Sale 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% (or 2.5% effective as of May 9, 2027 – see below) of the total sales of products using certain other of the technologies until the expiration of the last patent covering these technologies.

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

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

This agreement expires on February 28, 2022.

On March 2, 2021, Milestone Scientific 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 Mr.

Hochman, 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 Mr.

Hochman and his wife under the Technology Sale Agreement referred to above, the Hochman's having agreed with the Company pursuant to an addendum to such Technology Sale Agreement dated February 25, 2021 to reduce from 5% to 2.5% the payments due to them on May 9, 2027 and thereafter, with respect to dental products.

NOTE 15— SUBSEQUENT EVENTS

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

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

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

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

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

Under this agreement, Mr.

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

Exercise of Warrants

Since the quarter ended March 31, 2021, the Company issued 52,000 shares of common stock for warrants exercised at $1.20 for proceeds of $62,400.

Since the quarter ended March 31, 2021, the Company issued 25,000 shares of common stock for warrants exercised at $2.60 for proceeds of $65,000.

On April 6, 2001, the Company and Leonard Osser, the Company’s Interim Chief Executive Officer, entered into a Succession Agreement to restructure certain of Mr.

Osser’s existing agreements with the Company, which provide for additional and broader executive support, and at such time as he elects to step down as Interim Chief Executive Officer of the Company, to become the Vice Chairman of the Board of Directors of the Company.

This commitment is expected to be for at least five years.

Succession Agreement

With respect to (i) the Employment Agreement dated as of July 10, 2017 between Mr.

Osser and the Company, pursuant to which upon Mr.

Osser stepping down as Chief Executive Officer of the Company the Company agreed to employ him as Managing Director, China Operations of the Company (the “China Operations Agreement”), and (ii) the Consulting Agreement dated as of July 10, 2017 (the “Consulting Agreement”) between the Company and U.S.

Asian Consulting Group, LLC, a company of which Mr.

Osser is a principal, the compensation under the China Operations Agreement is modified to reduce the overall compensation by $100,000 to $200,000, split equally between a cash amount and an amount in shares, and the compensation under the Consulting Agreement is increased by $100,000 to $200,000, equally split between a cash amount and an amount in shares, which shares were formerly payable under the China Operations Agreement.

Compensation under the China Operations Agreement and the Consulting Agreement are payable for 9.5 years from the date Mr.

Osser steps down as Interim-CEO.

In connection with his acceptance of the Vice Chairman position and in consideration of his services as a member of the Board and agreement to provide certain additional general consulting services, he will be granted options to purchase 2,000,000 shares of common stock, exercisable at the fair market value of the common stock on the date of grant, vesting over the five-year period after he steps down as Chief Executive Officer of the Company or ten years from the date of grant, whichever shall end first.

Leonard Osser has announced his intention to resign as Interim Chief Executive Officer of the Company effective May 19, 2021 and will become Vice Chairman of the Board, and Arjan Haverhals, President of the Company, will assume the additional title of Chief Executive Officer of the Company.

The Company has from time to time taken steps to plan for the successor of Mr.

Osser, most recently by on-boarding Mr.

Haverhals as President and also entering into a previously disclosed Succession Agreement with Mr.

In connection with the appointment by the Board of Directors on May 12, 2021 of Mr.

Haverhals as Chief Executive Officer, Mr.

Haverhals and the Company entered into an agreement effective as of May 19, 2021 increasing the base salary of Mr.

Haverhals to $350,000 per year and providing for annual bonuses of up to $400,000 per year based, payable one-third in cash and two-thirds in shares of Common Stock of the Company plus options at the rate of double the amount of stock paid.

The bonus for the period from May 19, 2021 through December 31, 2021 will be determined with respect to the achievement of the four bonus targets set forth in the agreement.

The bonus targets for subsequent periods will be set by the Compensation Committee from time to time in its reasonable discretion.

Also on May 12, 2021, the Board of Directors appointed Scott Kahn as the Chief Financial Officer of the Company, effective May 24, 2021.

Kahn has experience in environments as diverse as a start-up operation, a company going public for the first time (IPO) and divisions of Fortune 500 companies.

Kahn has extensive accounting, finance, information systems and international operations experience.

Kahn’s base salary will be $200,000 per year and he will be entitled to a bonus based on achievement of his and the Company’s performance, as determined by the Compensation Committee.

Prior to joining the Company, Mr.

Kahn was Chief Financial Officer and Vice President Finance and Human Resources of Diopsys, Inc., a privately held medical device manufacturer, a position he held since July 2006.

From August 2005 to April 2006, Mr.

Kahn was Chief Financial Officer of Diamond Chemical Co., Inc., a privately held chemical manufacturer.

Prior thereto, Mr.

Kahn was Corporate Controller of Pharmaceutical Formulations, Inc., publicly traded pharmaceutical manufacturer.

Kahn, a certified public accountant and chartered global management accountant, received a B.A.

in Accounting from Franklin and Marshall College, and an M.B.A., International Business, from Rutgers Business School.

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

What changed 10-Q

Item 1. Financial Statements