MILESTONE SCIENTIFIC INC. 10-Q

Item 1. Financial Statements MILESTONE SCIENTIFIC AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31, 2021 December 31, 2020 ASSETS Current assets: Cash and cash equivalents $ 16,950,710 $ 14,223,917 Accounts receivable, net 978,761 1,080,656 Accounts receivable, related party net 267,300 - Prepaid expenses and other current assets 688,820 415,915 Inventories, net 2,020,549 2,420,179 Advances on contracts 753,197 414,202 Total current assets 21,659,337 18,554,869 Furniture, fixtures and equipment, net 27,074 30,729 Intangibles, net 317,896 329,249 Right of use assets 612,576 632,453 Other assets 24,150 24,150 Total assets $ 22,641,033 $ 19,571,450 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 694,044 $ 482,972 Accounts payable, related party 184,360 385,138 Accrued expenses and other payables 1,178,907 824,454 Accrued expenses, related party 382,627 586,734 Current portion of finance leases liabilities 7,977 7,796 Current portion of operating lease right-of-use liabilities 73,596 72,031 Deferred profit, related party 241,288 242,589 Note payable 276,180 276,180 Total current liabilities 3,038,979 2,877,894 Finance lease liabilities 26,544 28,607 Operating lease liabilities 538,421 557,981 Total liabilities $ 3,603,944 $ 3,464,482 Commitments and contingencies Stockholders’ equity Common stock, par value $.001; authorized 85,000,000 shares; 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; 66,591 64,171 Additional paid in capital 121,848,254 117,934,696 Accumulated deficit (101,858,826 ) (100,885,957 ) Treasury stock, at cost, 33,333 shares (911,516 ) (911,516 ) Total Milestone Scientific Inc. stockholders' equity 19,144,503 16,201,394 Noncontrolling interest (107,414 ) (94,426 ) Total stockholders’ equity 19,037,089 16,106,968 Total liabilities and stockholders’ equity $ 22,641,033 $ 19,571,450 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 4 MILESTONE SCIENTIFIC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the three months ended March 31, 2021 2020 Product sales, net $ 2,924,707 $ 1,811,386 Cost of products sold 1,122,413 527,250 Gross profit 1,802,294 1,284,136 Selling, general and administrative expenses 2,749,299 2,748,043 Research and development expenses 16,444 107,480 Depreciation and amortization expense 20,924 37,219 Total operating expenses 2,786,667 2,892,742 Loss from operations (984,373 ) (1,608,606 ) Interest expense, net (2,535 ) (4,097 ) Loss before provision for income taxes and net of equity investments (986,908 ) (1,612,703 ) Provision for income taxes (250 ) (250 ) Loss before equity in net earnings of equity investments (987,158 ) (1,612,953 ) Income from China Joint Venture 1,301 - Net loss (985,857 ) (1,612,953 ) Net loss attributable to noncontrolling interests (12,988 ) (12,738 ) Net loss attributable to Milestone Scientific Inc. $ (972,869 ) $ (1,600,215 ) Net loss per share applicable to common stockholders— Basic (0.01 ) (0.03 ) Diluted (0.01 ) (0.03 ) Weighted average shares outstanding and to be issued— Basic 66,578,435 49,730,252 Diluted 66,578,435 49,730,252 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 5 MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THREE MONTHS ENDED March 31, 2021 and 2020 (UNAUDITED) Common Stock Share Common Stock Amount Additional Paid in Capital Accumulated Deficit Noncontrolling Interest Treasury Stock Total Balance, January 1, 2021 64,171,435 $ 64,171 $ 117,934,696 $ (100,885,957 ) $ (94,426 ) $ (911,516 ) $ 16,106,968 Stock based compensation 113,507 - - - 113,507 Common stock issued to employee for compensation expensed in prior periods 7,075 7 - - - - 7 Common stock to be issued for payment of consulting services expensed in prior periods 40,010 40 - - - - 40 Common stock issued to board of directors for services expensed in prior periods 18,879 18 - - - - 18 Common stock issued to employee for stock options exercised 435,558 436 689,754 690,190 Common stock to be issued to employees for bonuses - - 100,000 - - - 100,000 Common stock issued for warrants exercised 1,918,925 1,919 3,010,297 - - - 3,012,216 Net loss (972,869 ) (12,988 ) - (985,857 ) Balance, March 31, 2021 66,591,882 $ 66,591 $ 121,848,254 $ (101,858,826 ) $ (107,414 ) $ (911,516 ) $ 19,037,089 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 6 MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THREE MONTHS ENDED MARCH 31, 2020 (UNAUDITED) Common Stock Share Common Stock Amount Additional Paid in Capital Accumulated Deficit Noncontrolling Interest Treasury Stock Total Balance, January 1, 2020 49,410,176 $ 49,410 $ 96,082,324 $ (93,524,297 ) $ (67,274 ) $ (911,516 ) $ 1,628,647 Stock based compensation - - 30,715 - - - 30,715 Common stock to be issued to employee for compensation 21,317 23 14,989 - - - 15,012 Common stock to be issued for payment of consulting services - - 25,000 - - - 25,000 Common stock to be issued to employees for bonuses 1,316 - 171,046 - - - 171,046 Common stock issued for warrants 460,725 460 229,902 - - - 230,362 Net loss - - - (1,600,215 ) (12,738 ) - (1,612,953 ) Balance, March 31, 2020 49,893,534 $ 49,893 $ 96,553,976 $ (95,124,512 ) $ (80,012 ) $ (911,516 ) $ 487,829 7 MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three months ended March 31, 2021 For the Three Months Ended March 31, 2020 Cash flows from operating activities: Net loss $ (985,857 ) $ (1,612,953 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 9,572 23,966 Amortization of patents 11,352 13,253 Stock compensation 113,507 30,715 Employees paid in stock 115,000 186,035 Expense paid in stock - 25,000 Earnings on China joint venture (1,301 ) - Non-cash operating lease expense 1,883 27,627 Changes in operating assets and liabilities: Decrease in accounts receivable 101,895 421,127 (Increase) in accounts receivable, related party (267,300 ) - Decrease in other assets - 11,755 (Increase) decrease in inventories 399,630 (102,316 ) (Increase) in advances on contracts (338,995 ) (65,171 ) (Increase) in prepaid expenses and other current assets (272,905 ) (165,032 ) (Decrease) in accounts payable 211,072 64,317 (Decrease) increase accounts payable, related party (200,778 ) 30,567 Increase in accrued expenses 339,518 215,437 (Decrease) in accrued expenses, related party (204,107 ) (76,406 ) Net cash used in operating activities $ (967,814 ) $ (972,079 ) Cash flows from investing activities: Purchase of property and equipment (5,916 ) (7,138 ) Net cash used in investing activities $ (5,916 ) $ (7,138 ) Cash flows from financing activities: Proceeds from exercise of warrants 3,012,216 230,362 Payments finance lease obligations (1,883 ) (1,442 ) Net proceeds from employee options exercised 690,190 - Net cash provided by financing activities $ 3,700,523 $ 228,920 Net increase in cash and cash equivalents 2,726,793 (750,297 ) Cash and cash equivalents at beginning of period 14,223,917 1,516,272 Cash and cash equivalents at end of period $ 16,950,710 $ 765,975 Supplemental non-cash disclosure of cash flow information: Initial recognition of operating lease-right of use assets $ - $ (706,071 ) Initial recognition of operating lease right to used liabilities $ - $ 706,071 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 8 MILESTONE SCIENTIFIC INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 — 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 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 unaudited condensed consolidated financial statements are issued. 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 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. 9 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. NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Principles of Consolidation The unaudited condensed 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), Milestone Education (wholly owned) and Milestone Medical (majority owned). All significant, intra-entity transactions and balances have been eliminated in consolidation. 2. Basis of Presentation The unaudited condensed consolidated financial statements of Milestone Scientific have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information with the instructions for Form 10-Q and Article 8 of Regulation S-X. 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 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 consolidated financial statements and notes thereto for the year ended December 31, 2020, included in Milestone Scientific's Annual Report on Form 10-K. 3. Reclassifications 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. 4. 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, 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. 5. 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 for customer arrangements the Company performs the following five steps: 10 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 standalone selling prices; and 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, “Revenue from Contracts with Customers”. 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 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. Milestone Scientific's only obligation after transfer of control, except for specific contracts and arrangements that provide for customer right to return provisions, is the normal commercial warranty against manufacturing defects if the alleged defective unit is returned within the warranty period. Sales Returns 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. 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 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 6. 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. 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 Milestone China CEO, which 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. See Note 6. 11 7. 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 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. 8. Accounts Receivable Milestone Scientific sells a significant amount of its product on credit terms to its major distributors. Milestone Scientific estimates losses from the 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 March 31, 2021 , and December 31, 2020 , accounts receivable was recorded, net of allowance for doubtful accounts of $10,000. 9. 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. 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. 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. See Note 4. 10. 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 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. 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. See Note 6. 11. 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 expense, as incurred. 12. 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 will be amortized based on the estimated useful life of the patent. These patents and developed technology are recorded at the acquisition cost. 13. 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: 12 ● 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; and ● 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. 14. 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 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. 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. See Note 8. 15. Research and Development Research and development costs, which consist principally of new product development costs payable to third parties, are expense as incurred. 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. 16. 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. See Note 10. 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. 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. 17. 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 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. 13 18. 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 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. 19. Stock-Based Compensation 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. 20. Leases At the inception of an arrangement, we determine whether an arrangement is, or contains, a lease. An arrangement is, or contains, a lease if the arrangement conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Leases with a term greater than one year are generally recognized on the balance sheet as right-of-use assets and current and non-current lease liabilities, as applicable. We have elected not to recognize on the balance sheet leases with terms of 12 months or less. We typically only include the initial lease term in our assessment of a lease arrangement. Options to extend a lease are not included in our assessment unless there is reasonable certainty that we will renew. Finance and operating lease right-of-use assets represent the Company’s right to use an underlying asset over the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. These assets and obligations are recognized at the lease commencement date based on the present value of lease payments, net of incentives, over the lease term. The interest rate implicit in our leases is typically not readily determinable. As a result, we utilize our incremental borrowing rate, which reflects the fixed rate at which we could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. We evaluate the classification of our leases as either finance leases or operating leases. Leases that are economically similar to the purchase of assets are generally classified as finance leases; otherwise, the leases are classified as operating leases. Lease cost for our operating leases is recognized on a straight-line basis over the lease term. Included in lease cost are any variable lease payments incurred in the period that are not included in the initial lease liability and lease payments incurred in the period for any leases with an initial term of 12 months or less. See Note 14. 22. Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements In December 2019, FASB issued ASU 2019-12, “Income Taxes (Topic 740): 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 as of January 1, 2021, did not have a material effect on the Company’s unaudited condensed consolidated financial statement presentation. 14 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. 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. ASU 2020-06 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; 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). 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. NOTE 4 — INVENTORIES Inventories consist of the following: March 31, 2021 December 31, 2020 Dental finished goods, net $ 1,337,117 $ 1,888,141 Medical finished goods, net 345,754 200,327 Component parts and other materials 337,678 331,711 Total inventories $ 2,020,549 $ 2,420,179 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 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. NOTE 6 – 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 (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. 15 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. 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. United Systems, Inc. Agreement In April of 2020, the Company entered into an agreement with United Systems, Inc., related party (see Note 13) regarding certain handpieces supplied to Milestone China in 2018, that were billed and shipped to Milestone China by United Systems, as well as STA instruments billed to United Systems and delivered to Milestone China, and not paid by Milestone China. United Systems sold their entire accounts receivable due from Milestone China for the above- described handpieces and STA instruments for $370,260 to Milestone Scientific. Milestone Scientific 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. 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 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 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. 16 NOTE 7 — PATENTS March 31, 2021 Cost Accumulated Amortization Net Patents-foundation intellectual property $ 1,377,863 $ (1,059,966 ) $ 317,897 Total $ 1,377,863 $ (1,059,966 ) $ 317,897 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 Patents are amortized utilizing the straight-line method over estimated useful lives ranging from 3 to 20 years. 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 On April 27, 2020, the Company, was granted a loan (the “Loan”) from Savoy Bank in the aggregate amount of approximately $276,000, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after seven weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period. 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 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. 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 originating before February 15, 2020. 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 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. 17 Warrants The following table summarizes information about shares issuable under warrants outstanding as of March 31, 2021 : Warrant shares outstanding Weighted Average exercise price Weighted Average remaining life Intrinsic value Outstanding at January 1, 2021 6,369,396 $ 1.49 $ 2.48 $ 2,784,117 Issued - Exercised (1,918,925 ) 1.57 - 4,044,164 Expired or cancelled - - - - Outstanding and exercisable at March 31, 2021 4,450,471 $ 2.14 $ 2.26 $ 6,381,930 The following table summarizes information about shares issuable under warrants outstanding as of March 31, 2020 Warrant shares outstanding Weighted Average exercise price Weighted Average remaining life Intrinsic value Outstanding at January 1, 2020 1,074,171 $ 0.50 $ 4.10 $ 956,012 Issued - - - Exercised (460,725 ) 0.50 - 630,389 Expired or cancelled - - - - Outstanding and exercisable at March 31, 2020 613,446 $ 0.50 $ 3.85 $ 460,085 Shares to Be Issued 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 March 31, 2021 and 2020 , respectively. March 31, 2021 March 31, 2020 Shares-to-be-issued, outstanding January 1, 2021 and 2020, respectively 2,440,878 2,375,760 Granted in current period 33,238 102,768 Issued in current period (65,965 ) (11,995 ) Shares-to be issued outstanding March 31, 2021 and 2020, respectively 2,408,151 2,466,533 18 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 1,953,443 1.88 3.09 476,964 Granted 32,175 3.11 - - Exercised during 2021 - - - - Forfeited or expired (435,558) 1.58 - - Options outstanding March 31, 2021 1,550,060 1.98 3.62 2,457,153 Exercisable, March 31, 2021 745,045 1.93 2.60 1,222,127 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 1,212,442 1.71 2.40 - Granted - - - - Exercised during 2020 - - - - Forfeited or expired - - - - Options outstanding March 31, 2020 1,212,442 1.71 2.40 - Exercisable, March 31, 2020 1,117,829 1.84 1.84 - 19 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 74,997 1.41 3.18 54,748 Granted 16,666 4.30 Exercised during 2021 - - - - Options outstanding March 31, 2021 91,663 1.87 3.30 161,660 Exercisable, March 31, 2021 52,769 1.34 2.37 117,829 Number of Options Weighted Averaged Exercise Price $ Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Options Value $ Options outstanding January 1, 2020 49,998 1.87 2.94 - Granted 8,333 1.65 - Exercised during 2020 - - - - Options outstanding March 31, 2020 58,331 1.87 2.94 Exercisable, March 31, 2020 41,663 1.71 2.03 84,579 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 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. NOTE 11 — 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. 20 The following tables present information about our reportable and operating segments: Net Sales: Three months ended March 31, 2021 Three months ended March 31, 2020 Dental $ 2,853,657 $ 1,803,586 Medical 71,050 7,800 Total net sales $ 2,924,707 $ 1,811,386 Operating Income (Loss): Three months ended March 31, 2021 Three months ended March 31, 2020 Dental $ 1,126,069 $ 576,386 Medical (895,781 ) (669,814 ) Corporate (1,214,661 ) (1,515,178 ) Total operating loss $ (984,373 ) $ (1,608,606 ) Depreciation and Amortization Three months ended March 31, 2021 Three months ended March 31, 2020 Dental $ 1,706 $ 5,699 Medical 3,851 3,712 Corporate 15,367 27,808 Total depreciation and amortization $ 20,924 $ 37,219 Income (loss) before taxes and equity in earnings of affiliates: Three months ended March 31, 2021 Three months ended March 31, 2020 Dental $ 1,125,154 $ 572,289 Medical (897,051 ) (669,814 ) Corporate (1,215,011 ) (1,515,178 ) Total loss before taxes and equity in earnings of affiliate $ (986,908 ) $ (1,612,703 ) Total Assets: March 31, 2021 December 31, 2020 Dental $ 6,954,380 $ 6,035,645 Medical 1,019,186 923,658 Corporate 14,667,467 12,612,147 Total assets $ 22,641,033 $ 19,571,450 21 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 March 31, 2021 Three months ended March 31, 2020 Dental Medical Total Dental Medical Total Domestic: US/Canada Instruments $ 176,016 $ - $ 176,016 $ 525 $ - $ 525 Handpieces 794,984 8,150 803,134 697,360 - 697,360 Accessories 17,908 17,908 22,506 - 22,506 Total Domestic US $ 988,908 $ 8,150 $ 997,058 $ 720,391 $ - $ 720,391 International: Rest of World Instruments $ 383,255 $ 42,500 $ 425,755 $ 242,504 $ 7,600 $ 250,104 Handpieces 954,534 20,400 974,934 830,208 200 830,408 Accessories 20,560 - 20,560 10,483 - 10,483 Total International $ 1,358,349 $ 62,900 $ 1,421,249 $ 1,083,195 $ 7,800 $ 1,090,995 International: China Instruments $ 150,000 $ - $ 150,000 $ - $ - $ - Handpieces 356,400 - 356,400 - - - Other - - - - - - Total International $ 506,400 $ - $ 506,400 $ - $ - $ - Total Product Sales $ 2,856,658 $ 71,050 $ 2,924,707 $ 1,803,586 $ 7,800 $ 1,811,386 NOTE 12 -- CONCENTRATIONS 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 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. 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. 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 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 $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. 22 Milestone China See Note 6. Other 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). Mr. 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 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. 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 (1) Contract Manufacturing Agreement 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. 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. 23 (2) Leases Operating Leases In June 2015, the Company amended its original office lease for its headquarters in Livingston, New Jersey. Under the amendment, the Company leased an additional 774 square feet of rentable area of the building and extended the term of the lease through January 31, 2020 at a monthly cost of $12,522. 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 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. 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. 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 March 31, Lease cost 2021 2020 Cash paid for operating lease liabilities 31,303 17,264 Cash paid for finance lease liabilities 2,685 2,252 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 (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) 6.0 7.0 Weighted-average remaining lease term- finance leases (years) 3.8 4.8 (3) Other Commitments 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. 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). 24 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 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. Osser. 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. 25 Also on May 12, 2021, the Board of Directors appointed Scott Kahn as the Chief Financial Officer of the Company, effective May 24, 2021. Mr. 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. Mr. Kahn has extensive accounting, finance, information systems and international operations experience. Mr. 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. Mr. 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. 26