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MILESTONE SCIENTIFIC INC. - Quarter Report: 2022 September (Form 10-Q)

mlss20221008_10q.htm
 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarter ended September 30, 2022

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to

 

Commission file number 001-14053

Milestone Scientific Inc.

(Exact name of registrant as specified in its charter)  

 

Delaware

13-3545623

State or other jurisdiction of Incorporation or organization

(I.R.S. Employer Identification No.)

 

425 Eagle Rock Avenue Suite 403, Roseland, NJ 07068

(Address of principal executive offices)

 

Registrants telephone number, including area code: 973-535-2717

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Name of each exchange on which registered

Common Stock, par value $.001 per share

NYSE American

 

Securities registered pursuant to section 12(g) of the Act:                    NONE

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☑ Yes    ☐   No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  ☑ Yes   ☐ No

 

Indicate by check mark whether the registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large, accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large, accelerated  filer ☐

Accelerated filer ☐ 

Non-accelerated filer ☐ 

Smaller reporting company ☑

Emerging growth company ☐

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐ Yes    ☑ No

 

Securities registered pursuant to Section 12(b) of the Act: 

 

Title of each class

Trading Symbol(s)

Name of Exchange on which registered

Common Stock

MLSS

NYSE American

 

As of November 11, 2022, the registrant has a total of 69,795,330 shares of Common Stock, $0.001 par value outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

None

 

 

 
 

 

 

MILESTONE SCIENTIFIC INC.

Form 10-Q

TABLE OF CONTENTS

 

PART IFINANCIAL INFORMATION

 

Item 1.

Unaudited Condensed Consolidated Financial Statements

4

     
 

Balance Sheets as of September 30, 2022, and December 31, 2021

4

     
 

Statements of Operations for the three and nine months ended September 30, 2022, and 2021

5

     
 

Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2022, and 2021

6

     
 

Statements of Cash Flows for the nine months ended September 30, 2022, and 2021

8

     
 

Notes to Condensed Consolidated Financial Statements 

9

     

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

     

Item 4.

Controls and Procedures

31

     
 

PART IIOTHER INFORMATION

 
     

Item 1.

Legal Proceedings

31

     

Item 1A.

Risk Factors

31

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

     

Item 3.

Defaults Upon Senior Securities

32

     

Item 4.

Mine Safety Disclosures

33

     

Item 5.

Other Information

33

     

Item 6.

Exhibits

34

   

Signatures

35

 

2

 

 

 

FORWARD-LOOKING STATEMENTS

 

When used in this Quarterly Report on Form 10-Q, the words “may”, “will”, “should”, “expect”, “believe”, “anticipate”, “continue”, “estimate”, “project”, “intend” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) regarding events, conditions and financial trends that may affect Milestone Scientific’s future plans of operations, business strategy, results of operations and financial condition. Milestone Scientific wishes to ensure that such statements are accompanied by meaningful cautionary statements pursuant to the safe harbor established in the Private Securities Litigation Reform Act of 1995. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Milestone Scientific’s plans and objectives are based, in part, on assumptions involving the continued expansion of its business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of Milestone Scientific. Although Milestone Scientific believes that its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate. Considering the significant uncertainties inherent in the forward-looking statements included herein, our history of operating losses that are expected to continue during the recovery from the ongoing COVID-19 pandemic, the early stage operations of and relative lack of acceptance of our medical products, relying exclusively on two third parties to manufacture our products, changes in our distribution arrangements exposes us to risks of interruption of marketing efforts, changes in our informal manufacturing arrangements made by the manufacturers of our products and disruptions at the manufacturing facilities of our manufacturers exposes us to risks that may harm our business, restrict our operations or require us to relinquish proprietary rights, if physicians do not accept or use our CompuFlo® Epidural Computer Controlled Anesthesia System our ability to generate revenue from sales will be materially impaired, exposure to the risks inherent in international sales and operations, including China, and developments by competitors may render our products or technologies obsolete or non-competitive, the inclusion of such information should not be regarded as a representation by Milestone Scientific or any other person that the objectives and plans of Milestone Scientific will be achieved. Prospective investors are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and the actual results may differ materially from those included within the forward-looking statements as a result of various factors. Such forward-looking statements should, therefore, be considered in light of various important factors, including those set forth herein and others set forth from time to time in Milestone Scientific’s reports, including without limitation, Milestone Scientific's Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”). Milestone Scientific disclaims any intent or obligation to update such forward-looking statements. 

 

Milestone Scientific is the owner of the following registered U.S. trademarks: CompuDent® CompuMed® CompuFlo® DPS Dynamic Pressure Sensing technology® Milestone Scientific® CathCheck® the Milestone logo ® SafetyWand® STA Single Tooth Anesthesia Device® and The Wand ®.

 

3

 

 

 

Part I- Financial Information

Item 1. Financial Statements

MILESTONE SCIENTIFIC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

  

September 30, 2022

  

December 31, 2021

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $9,811,673  $14,764,346 

Accounts receivable, net

  1,091,729   943,272 

Accounts receivable, related party net

  -   - 

Prepaid expenses and other current assets

  478,218   375,360 

Inventories

  1,551,842   1,541,513 

Advances on contracts

  1,581,483   1,309,260 

Total current assets

  14,514,945   18,933,751 

Furniture, fixtures and equipment, net

  17,401   23,713 

Intangibles, net

  237,636   277,619 

Right of use assets

  484,327   550,511 

Other assets

  24,150   24,150 

Total assets

 $15,278,459  $19,809,744 
         
         

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

Current liabilities:

        

Accounts payable

 $1,282,721  $780,428 

Accounts payable, related party

  910,999   395,857 

Accrued expenses and other payables

  1,050,173   1,417,248 

Accrued expenses, related party

  

333,483

   414,241 

Current portion of finance lease liabilities

  9,153   8,545 

Current portion of operating lease liabilities

  88,933   81,001 

Total current liabilities

  3,675,462   3,097,320 

Non-current portion of finance lease liabilities

  13,120   20,062 

Non-current portion of operating lease liabilities

  408,998   476,980 

Total liabilities

 $4,097,580  $3,594,362 
         

Commitments

          
         

Stockholders’ equity

        

Common stock, par value $.001; authorized 100,000,000 shares; 68,907,394 and 68,153,336 shares issued on September 30, 2022, and December 31, 2021, and 68,874,061 and 68,120,003, shares outstanding as September 30, 2022, and December 31, 2021.

 $68,907  $68,153 

Additional paid in capital

  126,666,340   124,915,560 

Accumulated deficit

  (114,436,281)  (107,704,274)

Treasury stock, at cost, 33,333 shares

  (911,516)  (911,516)

Total Milestone Scientific, Inc. stockholders' equity

  11,387,450   16,367,923 

Noncontrolling interest

  (206,571)  (152,541)

Total stockholders’ equity

  11,180,879   16,215,382 
         

Total liabilities and stockholders’ equity

 $15,278,459  $19,809,744 

 

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)

 

  

Three months ended September 30,

  

Nine months ended September 30,

 
  

2022

  

2021

  

2022

  

2021

 
                 

Product sales, net

 $2,215,699  $2,108,233  $6,564,969  $7,458,678 

Cost of products sold

  762,964   747,997   2,749,160   2,926,794 

Gross profit

  1,452,735   1,360,236   3,815,809   4,531,884 
                 

Selling, general and administrative expenses

  3,283,378   2,968,625   9,681,326   9,729,594 

Research and development expenses

  166,191   356,179   897,218   588,043 

Depreciation and amortization expense

  16,661   16,353   50,121   52,113 

Total operating expenses

  3,466,230   3,341,157   10,628,665   10,369,750 
                 

Loss from operations

  (2,013,495)  (1,980,921)  (6,812,856)  (5,837,866)

Interest income (expense)

  28,012   (4,608)  26,819   (11,604)

Gain on debt extinguishment-PPP

  -   -   -   276,180 

Loss before provision for income taxes and equity investments

  (1,985,483)  (1,985,529)  (6,786,037)  (5,573,290)

Provision for income taxes

  -   -   -   (333)

Loss before equity investment

  (1,985,483)  (1,985,529)  (6,786,037)  (5,573,623)

Deferred profit and divesture-equity investment (See Note 6)

  -   (69,905)  -   (164,461)

Net loss

  (1,985,483)  (2,055,434)  (6,786,037)  (5,738,084)

Net loss attributable to noncontrolling interests

  (13,680)  (12,227)  (54,030)  (41,540)

Net loss attributable to Milestone Scientific Inc.

 $(1,971,803) $(2,043,207) $(6,732,007) $(5,696,544)
                 

Net loss per share applicable to common stockholders—

                

Basic

  (0.03)  (0.03)  (0.10)  (0.08)

Diluted

  (0.03)  (0.03)  (0.10)  (0.08)
                 

Weighted average shares outstanding and to be issued—

                

Basic

  70,975,420   69,573,795   70,480,706   68,609,143 

Diluted

  70,975,420   69,573,795   70,480,706   68,609,143 

 

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

 

5

 
 

 

MILESTONE SCIENTIFIC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022  

(UNAUDITED)

 

  

Common Stock Share

  

Common Stock Amount

  

Additional Paid in Capital

  

Accumulated Deficit

  

Noncontrolling Interest

  

Treasury Stock

  

Total

 

Balance January 1, 2022

  68,153,336  $68,153  $124,915,560  $(107,704,274) $(152,541) $(911,516) $16,215,382 

Stock based compensation

  -   -   305,370   -   -   -   305,370 

Common stock to be issued to employees for bonuses

  -   -   164,385   -   -   -   164,385 

Net loss

  -   -   -   (1,901,723)  (17,502)  -   (1,919,225)

Balance March 31, 2022

  68,153,336  $68,153  $125,385,315  $(109,605,997) $(170,043) $(911,516) $14,765,912 

Stock based compensation

  -   -   392,266   -   -   -   392,266 

Common stock issued to employee for compensation

  27,051   27   39,973              40,000 

Common stock to be issued for payment of consulting services

  246,028   246   345,689              345,935 

Common stock issued to board of directors for services

  12,879   13   12,864              12,877 

Common stock issued to the board of directors for vested awards

  224,850   225   (225)             - 

Common stock to be issued to employees for bonuses

  147,338   147   (147)  -   -   -   - 

Net loss

  -   -   -   (2,858,481)  (22,848)  -   (2,881,329)

Balance June 30, 2022

  68,811,482  $68,811  $126,175,735  $(112,464,478) $(192,891) $(911,516) $12,675,661 

Stock based compensation

         400,202            400,202 

Common stock to be issued for payment of consulting services

  95,912   96   90,403            90,499 

Net loss

            (1,971,803)  (13,680)     (1,985,483)

Balance September 30, 2022

  68,907,394  $68,907  $126,666,340  $(114,436,281) $(206,571) $(911,516) $11,180,879 

 

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

 

6

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021

(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 

Stock based compensation

  -   -   193,824   -   -   -   193,824 

Common stock issued to employee for compensation

  4,202   4   14,996   -   -   -   15,000 

Common stock to be issued for payment of consulting services

  96,018   94   262,589   -   -   -   262,683 

Common stock issued to board of directors for services

  277,767   280   617,887   -   -   -   618,167 

Common stock issued for warrants exercised

  86,000   86   138,114   -   -   -   138,200 

Net loss

              (2,680,468)  (16,325)  -   (2,696,793)

Balance June 30, 2021

  67,055,869  $67,055  $123,075,664  $(104,539,294) $(123,739) $(911,516) $17,568,170 

Stock based compensation

  -   -   191,946   -   -   -   191,946 

Common stock issued to employee for compensation

  6,122   6   14,994   -   -   -   15,000 

Common stock to be issued for payment of consulting services

  96,694   97   227,748   -   -   -   227,845 

Common stock issued to employee for stock option exercise

  49,689   50   80,462   -   -   -   80,512 

Common stock issued to employee for bonus expense in prior periods

  402,490   402   (402)  -   -   -   - 

Net loss

            (2,043,207)  (12,227)  -   (2,055,434)

Balance September 30, 2021

  67,610,864  $67,610  $123,590,412  $(106,582,501) $(135,966) $(911,516) $16,028,039 

 

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

 

7

 

 

 

MILESTONE SCIENTIFIC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED

(UNAUDITED)

 

  

September 30, 2022

  September 30, 2021 

Cash flows from operating activities:

        

Net loss

 $(6,786,037) $(5,738,084)

Adjustments to reconcile net loss to net cash used in operating activities:

        

Depreciation expense

  10,139   23,076 

Amortization of intangibles

  39,982   34,060 

Stock based compensation

  1,097,838   499,276 

Inventory Reserve

  430,245   - 

Employees paid in stock

  217,262   748,658 

Expense paid in stock

  436,434   490,614 
Bad debt expense  100,000   - 

Amortization of right-of-use asset

  59,698   59,984 

Deferred profit and divesture-equity investment (See Note 6)

  -   164,461 

Gain on debt extinguishment-PPP

  -   (276,180)

Changes in operating assets and liabilities:

        

(Increase) decrease in accounts receivable

  (248,457)  112,549 

(Increase) decrease in inventories

  (440,574)  743,647 

(Increase) in advances on contracts

  (272,223)  (1,095,328)

(Increase) in prepaid expenses and other current assets

  (102,858)  (98,501)

Increase in accounts payable

  502,292   260,905 

Increase in accounts payable, related party

  515,142   35,113 

(Decrease) increase in accrued expenses

  (367,074)  510,790 

Decrease in accrued expenses, related party

  (80,758)   (51,253)

Decrease operating lease liability 

  (53,411)  (52,812)

Net cash used in operating activities

 $(4,942,360) $(3,629,025)
         

Cash flows from investing activities:

        

Purchase of furniture, fixtures, and equipment

  (3,827)  (19,486)

Net cash used in investing activities

 $(3,827) $(19,486)
         

Cash flows from financing activities:

        

Payments finance lease obligations

  (6,486)  (5,779)

Proceeds from exercise of warrants

  -   3,150,416 

Common stock issued to employee for option exercised

  -   770,702 

Net cash (used in) provided by financing activities

 $(6,486) $3,915,339 
         

Net (decrease) increase in cash and cash equivalents

  (4,952,673)  266,828 

Cash and cash equivalents at beginning of period

  14,764,346   14,223,917 

Cash and cash equivalents at end of period

 $9,811,673  $14,490,745 

 

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 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: CompuDent®; CompuMed®; CompuFlo®; DPS Dynamic Pressure Sensing technology®; Milestone Scientific ®; CathCheckTM; 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 is suitable for all dental procedures that require local anesthetic. The dental devices are sold in the United States, Canada and in 60 other countries. Certain medical devices have obtained CE mark approval and can be marketed and sold in most European countries. 

 

In June 2017, Milestone Scientific received 510(k) marketing clearance from the U.S. Food and Drug Administration (FDA) on the CompuFlo® Epidural Computer Controlled Anesthesia System (“Epidural”). We are in the process of meeting with medical facilities and device distributors within the United States, Middle East and Europe. 

 

In May 2022, the Company initiated a Corrective Action Preventative Action (CAPA) investigation of the Epidural Disposable Kit, Part # 6100-01, lot HC 51, the scope of the voluntary market withdrawal needed to be expanded to include Part # 6100-03, lot HC 50. A new non-conformance was initiated, and Lot HC 50 was added to the scope of the CAPA initiated above. The investigation via the CAPA identified that there is an issue with the id adaptors used in both lot’s HC 51 and HC 50. However, the health hazard evaluation shows that there is no risk to the patient or the user, thus management has determined there are no potential impacts to patients or users. Lot’s HC 51 and HC 50 are worth approximately $22,000 and $10,000 respectively. Management has determined that no other lots were affected.

 

In May 2022, the Company was notified that Wand STA handpieces, reference # STA—5050-2725, lot B210113 were packaged incorrectly. The Company initiated a Corrective Action Preventative Action (CAPA) investigation to determine the root cause and implement corrective actions. The Health Hazard Evaluation (HHE) was completed and showed that there is no risk to the patient or the user due to this discrepancy, thus management has determined there are no potential impacts to patients or users. However, to provide the highest quality products to the market, Milestone Scientific decided to initiate a voluntary market withdrawal on May 13, 2022. Lot B210113 is worth approximately $25,000. 

 

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 September 30, 2022, the Company had an accumulated deficit of $114.4 million and has incurred a net loss of approximately $2 million and $6.8 million for the three and nine months ended September 30, 2022, respectively. Management believes that the Company will have sufficient cash reserves to meet its anticipated obligations for at least the next twelve months from the filing date of this report. Milestone Scientific is actively pursuing the generation of positive cash flows from operating activities through an increase in revenue from its dental business worldwide, the generation of revenue from its medical devices and disposables business in the United States and worldwide, and a reduction in operating expenses. However, the Company’s continued operations will depend on its ability to raise additional capital through various potential sources until it achieves profitability, if ever. Management is actively pursuing financing or other strategic plans but can provide no assurances that such financing or other strategic plans will be available on acceptable terms, or at all.

 

To improve the Company’s cash position, management implemented a cost restructuring program to reduce the cash burn rate. This program included a reduction of the direct medical sales organization, and additional cost savings have been identified in other functional areas. The results of this program generated a cash burn rate for the three months ended September 30, 2022 of approximately $1.1million which is lower than the comparative previous quarter.

 

9

 

In addition to its employees, the Company relies 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 the Company, or any of these entities encounter any disruptions to its or their respective operations or facilities, or if the Company 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 public health crises, or other unforeseen disruption, then the Company or they may be prevented or delayed from effectively operating its or their business, respectively.

 

The coronavirus (COVID-19) adversely impacted the Company's operations, our distributors and suppliers in recent years. In spite of the reopening of dental offices, hospitals, and pain clinics throughout the country and the rest of the world, revenues for the three and nine months ended September 30, 2022, and 2021 were adversely affected in particular for the medical business. However, any business interruptions, resulting from COVID-19, or new variant, could significantly disrupt our operations further and could have a material adverse impact on our business in the future.  

 

In addition, it is uncertain as to what effect the continuing spread of COVID-19 will have on the commercialization efforts of our CompuFlo Epidural and CathCheck systems. Such future developments could have a material adverse effect on the Company financial results and its ability to conduct business as expected.

 

Sanctions imposed by the United States and other western democracies, against Russia because of Ukraine conflict, and any expansion of the conflict, is likely to have unpredictable and wide-ranging effects on the domestic and global economy and financial markets, which could have an adverse effect on our business and results of operations. The conflict has already caused market volatility, a sharp increase in certain commodity prices, such as wheat and oil, and an increasing number and frequency of cybersecurity threats. So far, we have experienced a decrease in international sales to Ukraine and halted all sales to Russia, as a direct impact from the conflict. We will continue to monitor the situation carefully and, if necessary, take action to protect our business, operations and financial condition.

 

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), and Milestone Medical (majority owned).  All significant, intra-entity transactions and balances have been eliminated in the 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, 2021, included in Milestone Scientific's Annual Report on Form 10-K

 

3.  Use of Estimates

 

The preparation of the unaudited condensed consolidated 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 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, stock compensation expense, and valuation allowances on deferred tax assets. Actual results could differ from those estimates.

 

10

 

4.  Revenue Recognition

 

The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To perform revenue recognition, the Company performs the following five steps:

 

i.

identification of the promised goods or services in the contract.

ii.

determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract.

iii.

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

iv.

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

v.

recognition of revenue when (or as) the Company satisfies each performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606.

 

The Company derives its revenues from the sale of its products, primarily dental instruments, handpieces, and other related products. The Company sells its products through a global distribution network and that includes both exclusive and non-exclusive distribution agreements with related and third parties.

 

Revenue from product sales is recognized upon transfer of control of a product to a customer, generally upon date of shipment. The Company has no obligation on product sales for any installation, set-up, or maintenance, these being the responsibility of the buyer. Milestone Scientific's only obligation after sale is the normal commercial warranty against manufacturing defects if the alleged defective unit is returned within the warranty period. 

 

Sales Returns

 

The Company records allowances for product returns as a reduction of revenue at the time product sales are recorded. Several factors are considered in determining whether an allowance for product returns is required, including the customers’ return rights and the Company’s historical experience with returns and the amount of product in the distribution channel not consumed by end users and subject to return. The Company relies on historical return rates to estimate returns. In the future, if any of these factors and/or the history of product returns change, adjustments to the allowance for product returns may be required.

 

Financing and Payment

 

The Company's 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

 

The Company operates in two operating segments: dental and medical. Therefore, results of the Company operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting. See Note 10 for revenues by geographical market, based on the customer’s location, and product category for the three and nine months ended September 30, 2022, and 2021.

 

5.  Variable Interest Entities

 

A variable interest entity ("VIE") is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary. The primary beneficiary has both the power to direct the activities that most significantly impact the entity's economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. 

 

If Milestone Scientific determines that it has operating power and the obligation to absorb losses or receive benefits, Milestone Scientific consolidates the VIE as the primary beneficiary. Milestone Scientific’s involvement constitutes power that is most significant to the entity when it has unconstrained decision-making ability over key operational functions within the entity. Milestone Scientific has completed the VIE analysis relating to Milestone China and Anhui Maishida Medical Technology, Co. Ltd. (“Anhui”).

 

11

 
 

Milestone Scientific has determined that due to the loss of equity investment in Anhui, the Company no longer has significant influence of Anhui and therefore Anhui is not a variable interest entity. 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 of Milestone China who has the power to direct the activities that most significantly impact the economic performance of Milestone China. Management has concluded that Milestone Scientific is not the primary beneficiary under ASC 810. Accordingly, Milestone China has not been consolidated into the financial statements of Milestone Scientific and is accounted for under the equity method. See Note 6.

 

6.  Cash and Cash Equivalents

 

Milestone Scientific considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of September 30, 2022 and December 31, 2021, Milestone Scientific had approximately $9.7 million and $13.9 million, respectively, of investments with short term maturities classified as cash equivalents.  At times, such cash, may be more than the Federal Deposit Insurance Corporation insurance limit.  

 

7.  Accounts Receivable

 

Milestone Scientific sells a significant amount of its products on credit terms to its major distributors. Milestone Scientific estimates losses from the ability or inability of its customers to make payments on amounts billed. Most credit sales are due within 90 days from invoicing. There have not been any significant credit losses incurred to date. As of September 30, 2022 and December 31, 2021, accounts receivable and accounts receivable, related party was recorded, net of allowance for doubtful accounts of $110,000 and $10,000, respectively.

 

8.  Inventories

 

Inventories principally consist of finished goods and component parts stated at the lower of cost (first-in, first-out method) or net realizable value. Inventory quantities on hand are reviewed on a quarterly basis and a provision for excess, slow moving, defective, and obsolete inventory is recorded if required based on past and expected future sales, potential technological obsolescence, and product expiration requirements.

 

The valuation allowance creates a new cost basis for the inventory, and it is not subsequently marked up through a reduction in the valuation allowance based on any changes in the underlying facts and circumstances. When the valuation allowance is initially recorded, the increase to the allowance is recognized as an increase in cost of sales. The valuation allowance is only reduced if or when the underlying inventory is sold or destroyed, at which time cost of sales recognized would include the previous adjusted cost basis.

 

9.  Equity Method Investments

 

Investments in which Milestone Scientific can exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in the long-term assets on the 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 provision for income tax on the unaudited Condensed Consolidated Statements of Operations. Milestone Scientific evaluates its equity method investments whenever events or changes in circumstance indicate that the carrying amounts of such investments may be impaired. 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.

 

12

 
 

10.  Impairment of Long-Lived Assets

 

Long-lived assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company’s impairment review process is based upon an estimate of future undiscounted cash flow. Factors the Company considers that could trigger an impairment review include the following:

 

 

significant under performance relative to expected historical or projected future operating results,

 

significant changes in the manner of our use of the acquired assets or the strategy for our overall business

 

significant negative industry or economic trends; 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.

 

11.  Research and Development

 

Research and development costs, which consist principally of new product development costs payable to third parties, are expensed as incurred. Advance payments for the research are amortized to expense either as services are performed or over the relevant service period using the straight-line method.

 

12.  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.

 

On September 30, 2022 and December 31, 2021, 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 unaudited condensed Consolidated Statements of Operations. No interest and penalties are present for periods open. Tax returns for the 2018, 2019 and 2020 years are subject to audit by federal and state jurisdictions. The 2021 tax returns were filed subsequent to September 30, 2022.

 

13.  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 common shares of 70,975,420 and 69,573,795 for the three months ended September 30, 2022 and 2021 respectively. 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 common shares of 70,480,706 and 68,609,143 for the nine months ended September 30, 2022 and 2021 respectively. 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. The Company also includes shares to be issued to employees in the calculation of basic earnings per share because the shares to be issued settle a compensation obligation in a fixed number of shares.

 

13

 
 

Since Milestone Scientific had net losses in the three and nine months ended September 30, 2022 and 2021, the assumed effects of the exercise of potentially dilutive outstanding stock options, unissued restricted stock awards (“RSA”) and warrants, were not included in the calculation as their effect would have been anti-dilutive. Such outstanding options, RSA and warrants totaled 8,135,704 and 7,674,239 for the nine months ended on September 30, 2022 and 2021, respectively.

 

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). The Company 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 Company 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 September 30, 2022 and December 31, 2021, the Company did not have any assets or liabilities that were measured at fair value on a recurring basis.

 

14. Stock-Based Compensation 
 

Milestone Scientific accounts for stock-based compensation under ASC Topic 718, Share-Based Payment. ASC Topic 718 requires all share-based payments to employees, non-employees, directors, and officers, including grants of employee stock options, to be recognized in the unaudited condensed consolidated statements of operations over the service period, as an operating expense, based on the grant-date fair values. 

 

15.  Recent 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 adoption of this standard did not have an impact on the Company's condensed consolidated financial statement.

 

In August 2020, FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, which, generally, provides guidance for accounting regarding derivatives relating to entities common stock and earnings per share. ASU 2020-06 is effective for all entities with fiscal years beginning after December 15, 2021, including interim periods therein. The adoption of this standard did not have an impact on the Company's condensed consolidated financial statement.

 

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the guidance on measuring credit losses for certain financial assets measured at amortized cost, including trade receivables. The FASB has subsequently issued several updates to the standard, providing additional guidance on certain topics covered by the standard. This update requires entities to recognize an allowance for credit losses using a forward-looking expected loss impairment model, taking into consideration historical experience, current conditions, and supportable forecasts that impact collectability.

 

14

In November 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic, 326), Derivatives and hedging (Topic 815), and Leases (Topic 842): Effective dates, which deferred the effective date of ASU 2016-13 for the Company. As a result of ASU 2019-10, ASU 2016-13 is effective for all entities with fiscal years beginning after December 15, 2022, including interim periods. The adoption of this update is not expected to have a material impact on the Company's condensed consolidated financial statements

 

NOTE 4 — INVENTORIES

 

Inventories consist of the following:

   

September 30, 2022

   

December 31, 2021

 
                 

Dental finished goods, net

  $ 900,396     $ 342,465  

Medical finished goods, net

    488,786       1,119,709  

Component parts and other materials

    162,660       79,339  

Total inventories

  $ 1,551,842     $ 1,541,513  

 

The Company maintains an allowance for doubtful accounts on slow moving Medical finished goods of approximately $880,000 and $450,000 as of September 30, 2022 and December 31, 2021, respectively.

 

NOTE 5 — ADVANCES ON CONTRACTS

 

The advances on contracts represent funding of future STA Single Tooth Anesthesia System inventory purchases, epidural instruments, and epidural replacements parts. The balance of the advances as of September 30, 2022 and December 31, 2021, is approximately $1.6 million and $1.3 million, 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”). At the time, Milestone Beijing had primary responsibility for the sales, marketing, and distribution of the Company’s dental products in China. Milestone Scientific recorded its investment in Milestone China under the equity method of accounting. 

 

In first quarter of 2020, Milestone China and certain manufacturing/marketing affiliates entered into a reorganization agreement (the “Transaction”) pursuant to which Milestone China was to merge into an affiliated manufacturing company, Anhui Maishida Medical Technology, Co. Ltd. (“Anhui”), with Anhui as the surviving entity and to have complete responsibility for sales, marketing, and distribution for the Company’s dental products in China. After completion of the Transaction, Milestone Scientific was expected to have an approximate 28.4% direct ownership in Anhui. Due to the COVID-19 pandemic, the regulatory approval of the planned Transaction was delayed while applicable government offices were closed in China and Hong Kong. Until the completion of the transaction Milestone Scientific's 28.4% in Anhui was held by Milestone China.

 

On November 23, 2021, management of Milestone Scientific became aware that on October 8, 2021, without approval from Milestone Scientific, (i) Milestone China entered into an Equity Transfer Agreement whereby Milestone China’s 28.4% equity stake in Anhui was transferred to Lidong Zhang, the CEO of Milestone China and Anhui, in exchange for RMB 2,840 million (approximately $440,351) of which no amounts have been or are expected to be received, see below, and (ii) Anhui held a shareholders’ meeting at which the Equity Transfer Agreement was approved by the shareholders of Anhui, eliminating Milestone China’s equity interest in Anhui and Milestone Scientific’s indirect equity interest in Anhui. Based on a review of the minutes of the Anhui shareholders’ meeting, Milestone China was not listed as a shareholder in such meeting due to the executed Equity Transfer Agreement between Lidong Zhang and Milestone China.

 

15

 
 

Though management believes that this conveyance by Milestone China to Lidong Zhang is outside of the laws of Hong Kong and/or China, as may be applicable, at this juncture Milestone Scientific has no ownership in Anhui and Milestone China has no assets or operations. After considering taking action to assert our rights in the matter, and based on the acknowledgement that such course of action is not without its procedural and substantive challenges in Hong Kong and/or China and, importantly, in view of Michelle Zhang dba Solee Science & Technology USA (“Solee”) (see below), a company located in New Jersey, then becoming the independent distributor for Milestone China and its subsidiaries, and due to the good working relationship then developing between Milestone Scientific and Solee and to the reduction of Milestone Scientific’s credit exposure to a Chinese entity, management is not pursuing any legal action at this time to recover our equity interest. Given the significant deterioration of the economy in China, caused by in large part the actions of the Chinese central government in dealing with COVID-19, the crash of the real estate market and the moves against independent companies, the Company does not believe it is prudent at this time to continue to pursue its investigation of any options it may have regarding its Chinese distributor, and therefore, in order to preserve cash the Company is for the time being suspending its investigation. 

 

At this time, Milestone Scientific has not received any consideration, does not know if any of such consideration promised to Milestone China for its interest in Anhui has been paid and, if paid, whether it can recover its share of such consideration. Unless circumstances change, Milestone Scientific does not expect it will receive any of the consideration received by Milestone China for its assets without pursuing legal action. As a result, Milestone Scientific has not recorded a gain or receivable related to the transfer of Anhui. As of September 30, 2022 and December 31, 2021, the investment in Milestone China was zero.

 

Related Party Transactions 

 

Milestone China Distribution Agreement

 

Milestone China had been 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.

 

Beginning in mid- November 2021, Milestone Scientific entered into discussions with Michelle Zhang dba Solee Science & Technology USA (“Solee”), a company located in New Jersey, to become Milestone Scientific’s independent distributor for China, replacing its former distributor Milestone China and its subsidiaries. On November 22, 2021, Wand Dental, Inc., a United States subsidiary of Milestone Scientific, entered into a Buy and Sell Agreement with Solee, pursuant to which Milestone Scientific granted Solee the right to sell Milestone Scientific’s STA instruments, associated handpieces, and spare parts in China to Anhui. For the three months ended September 30, 2022, Milestone Scientific shipped no instruments or handpieces to Solee. For the nine months ended September 30, 2022, Milestone Scientific shipped handpieces to Solee for sale to Anhui and recognized revenue of approximately $370,000. As of September 30, 2022, approximately $100,000 was included in account receivable related party, however management has recorded a reserve against this receivable. For the three and nine months ended September 30, 2021, Milestone Scientific shipped instruments, and handpieces to Solee for the sale to Anhui and recognized revenue of $360,000 and $1.4 million, respectively. As of December 31, 2021, the Company had approximately $89,000 of deposits from Solee for future shipment of goods included in accrued expenses on the accompanying condensed consolidated balance sheet. As of September 30, 2022, the Company had no deposits from Solee for future shipment of goods included in accrued expenses on the accompanying condensed consolidated balance sheet.  

 

Gross Profit Deferral

 

Due to timing differences of when the inventory sold to Milestone China, Anhui or their agent is recognized and when Milestone China and Anhui sells the acquired inventory to third parties, an elimination of the recorded profit is required as of the balance sheet date. In accordance with ASC 323 Investment Equity Method and Joint Ventures, Milestone Scientific has deferred its ownership percentage of the gross profit associated with recognized revenue from sales to Milestone China, Solee as an agent, and Anhui until that product is sold to third parties.

 

16

 

As of September 30, 2022 and December 31, 2021, the Company had no deferred profit in the unaudited condensed consolidated balance sheets. For the three and nine months ended September 30, 2022, Milestone Scientific did not record any loss on equity investment in relation to gross profit on product sold to Milestone China, Anhui, and Solee. For the three and nine months ended September 30, 2021, Milestone Scientific recorded loss on equity investment of approximately $70,000 and $164,000, respectively, in relation to gross profit previously deferred on product sold to Milestone China, Anhui, and Solee, recorded as deferred profit and divesture-equity investment on the accompanying unaudited condensed consolidated statement of operations. 

 

NOTE 7 — PATENTS    

 

   

September 30, 2022

         
   

Cost

   

Accumulated Amortization

   

Net

 

Patents-foundation intellectual property

    1,377,863       (1,140,227 )     237,636  

Total

    1,377,863       (1,140,227 )     237,636  

 

 

   

December 31, 2021

         
   

Cost

   

Accumulated Amortization

   

Net

 

Patents-foundation intellectual property

    1,377,863       (1,100,244 )     277,619  

Total

    1,377,863       (1,100,244 )     277,619  

 

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, 2022, respectively. Amortization expense was approximately $11,000 and $34,000 for the three and nine months ended September 30, 2021, respectively. The annual amortization expense expected to be recorded for existing intangibles assets for the years 2022 through 2026 and thereafter, is approximately $13,000, $52,000, $34,000, $28,000, and $111,000, respectively.   

 

NOTE 8 STOCKHOLDERS EQUITY

 

Warrants

 

The following table summarizes information about shares issuable under warrants outstanding as of September 30, 2022

 

  

Warrant shares outstanding

  

Weighted Average exercise price

  

Weighted Average remaining life

  

Intrinsic value

 
                 

Outstanding at January 1, 2022

  4,268,221   2.18   1.50   1,187,546 

Issued

  -   -   -   - 

Exercised

  -   -   -   - 

Outstanding and exercisable at September 30, 2022

  4,268,221   2.18   0.75   91,226 

 

Shares to Be Issued

 

As of September 30, 2022 and 2021, there were 1,852,789 and 1,861,639 shares, respectively, to be issued whose issuance has been deferred by certain employees of Milestone Scientific.  As of September 30, 2022 and 2021, there were 174,364 and 144,024 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.

 

17

 

The following table summarizes information about shares to be issued on:

 

  

September 30, 2022

  

September 30, 2021

 
         

Shares-to-be-issued, outstanding January 1, 2022, and 2021, respectively

  2,066,343   2,428,329 

Granted in current period

  108,148   33,238 

Issued in current period

  (147,338)  (455,906)

Shares-to be issued outstanding September 30, 2022, and 2021, respectively

  2,027,153   2,005,661 

 

Stock Options Plans

 

The Milestone Scientific Inc. 2020 Equity Compensation Plan, as amended and restated (the "2020 Plan"), provides for awards of restricted common, stock restricted stock units, options to purchase and other awards, up to a maximum 4,000,000 shares of common stock, and expires in June 2031. 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. 

 

Milestone Scientific recognizes stock compensation expense over the requisite service period. For three and nine months ended September 30, 2022, Milestone Scientific recognized approximately $232,998 and $1.1 million of total employee stock compensation cost, respectively, recorded in general and administrative expenses on the statement of operations. For three and nine months ended September 30, 2021, Milestone Scientific recognized approximately $165,000 and $451,000 of total employee stock compensation cost, respectively, recorded in general and administrative expenses on the statement of operations.

 

As of September 30, 2022, there was approximately $2.7 million of total unrecognized compensation cost related to non-vested options. Milestone Scientific expects to recognize these costs over a weighted average period of 2.75 years. 

 

A summary of option activity for employees under the plans and changes during the nine months ended September 30, 2022 is presented below:        

 

  

Number of Options

  

Weighted Averaged Exercise Price $

  

Weighted Average Remaining Contractual Life (Years)

  

Aggregate Intrinsic Options Value $

 

Options outstanding January 1, 2022

  2,843,693   2.39   7.69   49,246 

Granted during 2022

  216,296   1.52   2.23   - 

Exercised during 2022

  -   -   -   - 

Forfeited or expired during 2022

  -   -   -   - 

Options outstanding September 30, 2022

  3,059,989   2.29   6.63   - 

Exercisable, September 30, 2022

  994,914   

2.18

   5.28   - 

 

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A summary of option activity for non-employees under the plans and changes during the nine months ended September 30, 2022 is presented below:        

 

  

Number of Options

  

Weighted Averaged Exercise Price $

  

Weighted Average Remaining Contractual Life (Years)

  

Aggregate Intrinsic Options Value $

 

Options outstanding January 1, 2022

  83,330   1.85   3.33   49,748 

Granted during 2022

  -   -   -   - 

Exercised during 2022

  -   -   -   - 

Options outstanding September 30, 2022

  83,330   1.85   2.58   4,333 

Exercisable, September 30, 2022

  69,441   1.68   2.37   4,333 

 

For the three and nine months ended  September 30, 2022, Milestone Scientific recognized approximately $5,000 and $15,000 expense related to non-employee options, respectively. For the three and nine months ended  September 30, 2021, Milestone Scientific recognized approximately $5,000 and $20,000 expense related to non-employee options, respectively.

 

The information below summarizes the restricted stock award activity for the nine months September 30, 2022.

  

Number of Shares

  

Weighted Average Grant-Date Fair Value per Award

 

Non-vested as January 1, 2022

  96,557   2.33 

Granted

  975,148   0.86 

Vested

  (224,850)    

Cancelled

  (122,693)    

Non-vested as September 30, 2022

  724,162   1.11 

 

As of September 30, 2022, there were 49,616 restricted shares granted and deferred under the terms of an employment agreement with the Territory Manager of Milestone Scientific, Inc. Such shares will be issued to him (or her) completion of 2 years of employment. For the three and nine months ended September 30, 2022, the Company recognized negative stock compensation of approximately $10,400 and $37,500, respectively, due to termination of non-vested employees in the current period. For the three and nine months ended September 30 2021, the Company recognized stock compensation expense of approximately $16,667 and $37,500, respectively. As of September 30, 2022, the total unrecognized stock compensation expense was $46,875 related to non-vested restricted stock awards, which the Company expects to recognize over an estimated weighted average period of 1.28 years.

 

As of September 30, 2022, the Company entered into restricted stock agreements with members of the Board of Directors of the Company. The Company granted 899,300 restricted stock awards with a fair market value of $0.82 per share. Such restricted stock vests as follows: 25% on the grant date, and 25% quarterly, on the first day of the following months:  October 2022, January 2023, and April 2023. These awards vest immediately upon a change of control as defined in the agreements. For the three and nine months ended September 30, 2022, the Company recognized approximately $167,000, and $381,000, respectively for restricted stock expenses recorded in general and administrative expenses on the statement of operation. As of September 30, 2022, the total unrecognized stock compensation expense was $356,000 related to non-vested restricted stock awards with the members of the Board of Directors, which the Company expects to recognize over an estimated weighted average period of 0.5 years.

 

NOTE 9 — 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. 

 

19

 
 

NOTE 10 — 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 bases. The Company provides general corporate services to its segments; however, these services are not considered when making operating decisions and assessing segment performance. These services are reported under “Corporate Services” below and these include costs associated with executive management, investor relations, patents, trademarks, licensing agreements, new instruments developments, financing activities and public company compliance.

 

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

 

   

Three months ended September 30,

   

Nine months ended September 30,

 

Sales

                               

Net Sales:

 

2022

   

2021

   

2022

   

2021

 

Dental

  $ 2,206,499     $ 2,076,233     $ 6,509,619     $ 7,334,628  

Medical

    9,200       32,000       55,350       124,050  

Total net sales

  $ 2,215,699     $ 2,108,233     $ 6,564,969     $ 7,458,678  

 

Operating Income (Loss):

 

2022

   

2021

   

2022

   

2021

 

Dental

  $ 308,913     $ 193,252     $ 826,175     $ 1,844,083  

Medical

    (937,468 )     (937,876 )     (3,788,842 )     (2,968,596 )

Corporate

    (1,384,940 )     (1,236,297 )     (3,850,189 )     (4,713,353 )

Total operating loss

  $ (2,013,495 )   $ (1,980,921 )   $ (6,812,856 )   $ (5,837,866 )

 

Depreciation and Amortization:

 

2022

   

2021

   

2022

   

2021

 

Dental

  $ 951     $ 892     $ 2,737     $ 3,458  

Medical

    1,019       1,241       3,056       6,257  

Corporate

    14,691       14,220       44,328       42,398  

Total depreciation and amortization

  $ 16,661     $ 16,353     $ 50,121     $ 52,113  

 

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

 

2022

   

2021

   

2022

   

2021

 

Dental

  $ 307,699     $ 191,864     $ 822,270     $ 1,915,148  

Medical

    (938,963 )     (939,202 )     (3,793,236 )     (2,972,462 )

Corporate

    (1,354,219 )     (1,238,191 )     (3,815,071 )     (4,515,976 )

Total loss before taxes and equity in earnings of affiliate

  $ (1,985,483 )   $ (1,985,529 )   $ (6,786,037 )   $ (5,573,290 )

 

Total Assets

 

September 30, 2022

   

December 31, 2021

 

Dental

  $ 4,083,657     $ 6,163,169  

Medical

    863,470       1,373,511  

Corporate

    10,331,332       12,273,064  

Total assets

  $ 15,278,459     $ 19,809,744  

 

20

 

The following table presents information about our operations by geographic area for the three and nine months ended September 30, 2022 and 2021.  Net sales by geographic area are based on the respective locations of our subsidiaries:

   

Three months ended September 30, 2022

   

Three months ended September 30, 2021

 

Domestic: US

 

Dental

   

Medical

   

Grand Total

   

Dental

   

Medical

   

Grand Total

 

Instruments

  $ 164,341     $ 7,500     $ 171,841     $ 36,480     $ -     $ 36,480  

Handpieces

    678,473       1,700       680,173       721,149       11,500       732,649  

Accessories

    24,304       -       24,304       21,253       -       21,253  

Grand Total

  $ 867,118     $ 9,200     $ 876,318     $ 778,882     $ 11,500     $ 790,382  
                                                 

International: Rest of World

                                               

Instruments

  $ 436,069     $ -     $ 436,069     $ 253,063     $ 4,500     $ 257,563  

Handpieces

    881,616       -       881,616       674,133       16,000       690,133  

Accessories

    21,696       -       21,696       9,300             9,300  

Grand Total

  $ 1,339,381     $ -     $ 1,339,381     $ 936,496     $ 20,500     $ 956,996  
                                                 

International: China

                                               

Instruments

  $ -     $ -     $ -     $ -     $ -     $ -  

Handpieces

    -       -       -       360,855       -       360,855  

Accessories

    -       -       -             -       -  

Grand Total

  $ -     $ -     $ -     $ 360,855     $ -     $ 360,855  
                                                 

Total Product Sales

  $ 2,206,499     $ 9,200     $ 2,215,699     $ 2,076,233     $ 32,000     $ 2,108,233  

 

   

Nine months ended September 30, 2022

   

Nine months ended September 30, 2021

 

Domestic: US

 

Dental

   

Medical

   

Grand Total

   

Dental

   

Medical

   

Grand Total

 

Instruments

  $ 442,336     $ 7,500     $ 449,836     $ 391,250     $ -     $ 391,250  

Handpieces

    2,275,865       25,750       2,301,615       2,319,049       19,650       2,338,699  

Accessories

    73,210       2,100       75,310       58,134       -       58,134  

Grand Total

  $ 2,791,411     $ 35,350     $ 2,826,761     $ 2,768,433     $ 19,650     $ 2,788,083  
                                                 

International: Rest of World

                                               

Instruments

  $ 1,050,443     $ -     $ 1,050,443     $ 792,903     $ 62,500     $ 855,403  

Handpieces

    2,265,367       20,000       2,285,367       2,337,692       41,900       2,379,592  

Accessories

    42,434       -       42,434       42,409       -       42,409  

Grand Total

  $ 3,358,244     $ 20,000     $ 3,378,244     $ 3,173,004     $ 104,400     $ 3,277,404  
                                                 

International: China

                                               

Instruments

  $ -     $ -     $ -     $ 228,000     $ -     $ 228,000  

Handpieces

    359,964       -       359,964       1,165,191       -       1,165,191  

Accessories

    -       -       -       -       -       -  

Grand Total

    359,964       -     $ 359,964     $ 1,393,191     $ -     $ 1,393,191  
                                                 

Total Product Sales

  $ 6,509,619     $ 55,350     $ 6,564,969     $ 7,334,628     $ 124,050     $ 7,458,678  

 

21

 
 

NOTE 11 -- CONCENTRATIONS

 

Milestone Scientific has informal arrangements with third-party U.S. manufacturers of the STA, CompuDent and CompuMed devices, pursuant to which they manufacture these products under specific purchase orders but without any long-term contract or minimum purchase commitment. Consequently, advances on contracts have been classified as current on September 30, 2022 and 2021.  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 September 30, 2022, an aggregate of approximately 11% and 32% of the Company’s net product sales were from two distributors. For the nine months ended September 30, 2022, an aggregate of approximately 36% of the Company’s net product sales were from one distributor. For the three months ended September 30, 2021, an aggregate of approximately 17% and  34% of the Company’s net product sales were from two distributor. For the nine months ended September 30, 2021, an aggregate of approximately 19% and 34% of the Company’s net product sales were from two distributors. 

 

For the nine months ended September 30, 2022, we had the four distributors that accounted for 13%, 15%, 18% and 36% of the aggregate accounts receivable.  As of December 31, 2021, we had three distributors that accounted for 13%, 28%, and 29% of the aggregate accounts receivable. 

 

NOTE 12 -- 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 manufacturer of its handpieces, pursuant to which it manufactures products under specific purchase orders, but without minimum purchase commitments. Purchases from this manufacturer were approximately $658,000 and $2.3 million, respectively for three and nine months ended September 30, 2022. Purchases from this manufacturer were approximately $417,000 and $1.3 million, respectively for three and nine months ended September 30, 2021. 

 

As of September 30, 2022 and December 31, 2021, Milestone Scientific owed this manufacturer approximately $904,000 and $548,000, respectively, which approximately $904,000 and $395,000 is included in accounts payable, related party, respectively, and $0 and approximately $153,000 is included in accrued expense, related party, respectively, on the unaudited condensed consolidated balance sheets. 

 

Milestone China

 

See Note 6 of the notes to the unaudited condensed consolidated financial statements.
 
Other

 

K. Tucker Andersen, a significant stockholder of Milestone Scientific provides financial and business strategic services to the Company. Expenses recognized were $25,000 and $75,000 for each of the three and nine months ended September 30, 2022 and 2021, respectively.

 

The Company engaged Mr. Trombetta as a consultant for a period of twelve months (beginning October 1, 2020, and ending September 30, 2021), to provide international business dental information and business contacts to the Company and provide consulting services for new international business and dental segments. For the three and nine months ended September 30, 2021, the Company expensed $15,000 and $45,000, respectively, for services rendered by Mr. Trombetta. Mr. Trombetta received shares of the Company’s common stock in lieu of the cash under this agreement. This agreement was terminated September 30, 2021, and therefore, no expenses were incurred for services rendered by Mr. Trombetta for the three and nine months ended September 30, 2022. 

 

22

 

The Director of Clinical Affairs’ royalty fee was approximately $108,000 and $322,000 for three and nine months ended September 30, 2022, respectively. The Director of Clinical Affairs’ royalty fee was approximately $74,000 and $322,000 for three and nine months ended September 30, 2021, respectively. Additionally, Milestone Scientific expensed consulting fees to the Director of Clinical Affairs of $39,000 and $115,000 for each of the three and nine months ended September 30, 2022, and 2021, respectively. As of September 30, 2022, and December 31, 2021, Milestone Scientific owed the Director Clinical Affairs for royalties of approximately $108,000 and $123,000, respectively, which is included in accrued expense, related party, in the condensed consolidated balance sheet.

 

On March 2, 2021, Milestone Scientific entered into a Royalty Sharing Agreement with Leonard Osser, the Company’s then 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 Dr. 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 Dr. Hochman and his wife under their Technology Sale Agreement with the Company, the Hochman's having agreed with the Company pursuant to an addendum to such Technology Sale Agreement dated February 25, 2021 to reduce from 5% to 2.5% the payments due to them on May 9, 2027 and thereafter, with respect to dental products.

 

Pursuant to a Succession Agreement dated April 6, 2021 between Mr. Osser and the Company: (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 Interim 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 was 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 May 19, 2021.

 

The Company recorded expense of $50,000 and $150,000 which is included SG&A expenses and accrued expense, related party, respectively, related to the Managing Director, China Operations for three and nine months ended September 30, 2022, respectively. The Company recorded expense of $50,000 and $75,000 which is included SG&A expenses and accrued expense, related party, respectively, related to the Managing Director, China Operations for the three and nine months ended September 30, 2021, respectively. The Company recorded expense of $50,000 and $150,000 which includes consultant expenses and accrued expenses, related party, respectively, related to the US Asian Consulting Group, LLC for the three and nine months ended September 30, 2022. The Company recorded expense of $50,000 and $75,000 which is included consultant expenses and accrued expense, related party, respectively, related to the US Asian Consulting Group, LLC for each of the three and nine months ended September 30, 2021.  As of September 30, 2022, and December 31, 2021, the Company owed Mr. Osser approximately $166,000 and $0, respectively, which is included accrued expense, related party in the condensed consolidated balance sheet.     

 

 

NOTE 13 — COMMITMENTS

 

(1)  Contract Manufacturing Agreement 

 

Milestone Scientific has informal arrangements with third-party manufacturers of the STA, CompuDent® devices, pursuant to which they manufacture these products under specific purchase orders but without any long-term contract or minimum purchase commitment. The Company has an open purchase commitment for the delivery of 2,410 STA CompuDent® instruments. 

 

As of September 30, 2022, the purchase order commitment was approximately $1.9 million and advances of approximately $1.5 million are reported in advances on contracts in the condensed consolidated balance sheet. As of September 30, 2022, the Company made advanced payments of approximately $1.3 million for a purchase commitment for STA instruments, sound chips for future instruments of approximately $191,000 and advanced to customers for handpiece replacement of approximately $23,000 from market withdrawal in May 2022 are reported in advances on contracts in the condensed consolidated balance sheet. As of December 31, 2021, the purchase order commitment was approximately $2.6 million and advances of approximately $1.3 million are reported in advances on contracts in the condensed consolidated balance sheet. 

 

23

 

As of September 30, 2022, the company also had advances on an open purchase order for long lead items for a future purchase order for the manufacturing of Epidural instrument of approximately $41,000 and advanced to customers for handpiece replacement of $34,000 from market withdrawal in  May 2022 a reported in advances on contracts in the condensed consolidated balance sheet. The advance is classified as current based on the estimated annual usage of the underlying inventory. As of December 31, 2021, the company also has advances on an open purchase order for long lead items for a future purchase order for the manufacturing of Epidural instrument of approximately $34,000 reported in advances on contracts in the condensed consolidated balance sheet. The advance is classified as current based on the estimated annual usage of the underlying inventory.

 

(2)  Leases

 

Operating Leases

 

In August 2019, the Company made the decision to not renew 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 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 more than new base year amounts, which are accounted for as variable lease expenses. 

 

As of September 30, 2022, total operating lease and finance right-of-use assets were $484,327 and total operating lease and finance liabilities were $497,931, of which $88,933 and $408,998 were classified as current and non-current, respectively. As of September 30, 2022, total finance lease liabilities were $22,273 of which $9,153 and $13,120 were classified as current and non-current, respectively. As of December 31, 2021, total operating lease and finance right-of-use assets were $550,511 and total operating lease and finance liabilities were $577,981, of which $81,001 and $476,980 were classified as current and non-current, respectively. As of December 31, 2021, total finance lease liabilities were $28,607, of which $8,545 and $20,062 were classified as current and non-current, respectively. 

 

The components of lease expense were as follows:

 

  

Three months ended

  

Nine months ended

 
  

September 30, 2022

  

September 30, 2021

  

September 30, 2022

  

September 30, 2021

 

Cash paid for operating lease liabilities

  31,999   31,882   95,996   95,645 

Cash paid for finance lease liabilities

  2,685   2,685   8,055   8,055 

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 
               0.00%

Weighted Average Remaining Lease Term

                

Finance leases (years)

         

2.3

  

5.5

 

Operating leases (years)

         

4.5

  

3.3

 

 

24

 

(3) Other Commitments

 

On March 2, 2021, Milestone Scientific entered into a Royalty Sharing Agreement with Leonard Osser, the Company’s  then 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.

 

25

 

 

 

ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussions of the financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements contained in this report and in connection with management's discussion and analysis and the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission, or SEC on March 31, 2022. Certain statements in this discussion and elsewhere in this report constitute forward-looking statements, within the meaning of section 21E of the Exchange Act, that involve risks and uncertainties. The actual results may differ materially from those anticipated in these forward-looking statements. 

 

OVERVIEW

 

Milestone Scientific is a biomedical technology research and development company that patents, designs, develops and commercializes innovative diagnostic and therapeutic injection technologies and devices for medical, dental and cosmetic use. Since our inception, we have engaged in pioneering proprietary, innovative, computer-controlled injection technologies, and solutions for the medical and dental markets. We believe our technologies are proven and well established. Our common stock was initially listed on the NYSE American on June 1, 2015, and trades under the symbol “MLSS”.

 

We have focused our resources on redefining the worldwide standard of care for injection techniques by making the experience more comfortable for the patient by reducing the anxiety and stress of receiving injections from the healthcare provider. Our computer-controlled injection devices make injections precise, efficient, and virtually painless.

 

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 is suitable for all dental procedures that require local anesthetic. Our proprietary DPS Dynamic Pressure Sensing technology® is our technology platform that advances the development of next-generation devices. It regulates flow rate and monitoring pressure from the tip of the needle, through platform extensions for local anesthesia for subcutaneous drug delivery, used in various dental and medical injections. It has specific medical applications for cosmetic botulinum toxin injections, epidural space identification in regional anesthesia procedures and intra-articular joint injections.

 

Milestone Scientific remains focused on advancing efforts to achieve the following three primary objectives:

 

Establishing Milestone’s DPS Dynamic Pressure Sensing technology platform as the standard-of-care in painless and precise drug delivery, providing for the first time, objective visual and audible in-tissue pressure feedback, and continuing to expand platform applications;

 

Following obtaining successful FDA clearance of our first medical device, Milestone Scientific is transitioning from a research and development organization to a commercially focused medical device company; and

 

Expanding our global footprint of our CompuFlo Epidural and CathCheck System by utilizing a direct field sales force and partnering with distribution companies worldwide.

 

Because of combining the ability to regulate the flow rate and monitor pressure at the tip of the needle, Milestone Scientific developed the industry’s first solution for painlessly administering an intra-ligamentary injection, i.e., “single-tooth anesthesia” which could be used as the only injection necessary for achieving dental anesthesia, foregoing the need to administer traditional injections such as a nerve branch block. In addition to single-tooth anesthesia, the STA System can effectively perform all the traditional injections that dentists routinely give but can provide them virtually pain free and with numerous clinical advantages. This device, which also utilizes a disposable handpiece, is currently marketed by Milestone Scientific as the Wand STA® System. 

 

Milestone Scientific believes its dental devices have set a new standard of care for dental injections. Our dental devices have been used to administer tens of millions of injections worldwide. Each of our devices has a related single use disposable handpiece, leading to a continuing revenue stream following sale of the device. At present, we sell disposable handpieces unique to our legacy product (the Wand and CompuDent) to users who have not upgraded to our current dental product, the Wand STA System. 

 

26

 

 

Building on the success of our proprietary, core technology platform for dental injections, and desiring to pursue other growth opportunities, we have recently begun to expand the uses and applications of our proprietary, patented technologies to achieve greater operational efficiencies, enhanced patient safety and therapeutic adherence, patient satisfaction, and improved quality of care across a broad range of medical specialties. In June 2017, we received FDA regulatory clearance to sell the CompuFlo Epidural Computer Controlled Anesthesia System in the United States for certain medical applications. We intend to continue to expand the uses and applications of our DPS Dynamic Pressure Sensing technology.

 

We believe that we and our technology solutions are widely recognized by key opinion leaders (i.e., academics, anesthesiologists and practicing dentists whose opinions are widely respected), industry experts and medical and dental practitioners as a leader in the emerging, computer-controlled injection industry.

 

Wand STA Dental Market

 

Since its market introduction in early 2007, the Wand STA System and prior C-CLAD devices have been used to deliver over 80 million safe, effective, and comfortable injections. The instrument has also been favorably evaluated in numerous peer-reviewed, published clinical studies and associated articles. Moreover, there appears to be a growing consensus among users that the STA Instrument is proving to be a valuable and beneficial instrument that is positively impacting the practice of dentistry worldwide.

 

Beginning January 1, 2016, Milestone Scientific entered into a non-exclusive distribution agreement with Henry Schein, Inc. (“Henry Schein”) for distribution of The Wand® STA® Computer Assisted Anesthesia System, including its disposable, single-use handpiece, and certain related products (the “Wand STA System”), in the United States and Canada. In June 2016, that agreement was replaced with an exclusive distribution arrangement for our Wand STA system for the United States and Canada with Henry Schein. In December 2020, Henry Schein’s exclusive distribution arrangement with respect to the Wand STA System became a non-exclusive distribution arrangement for the United States and Canada. On December 31, 2022, such non-exclusive distribution arrangement will terminate, subject to certain post-termination rights and obligations of the parties, all in accordance with such agreement.

 

In January 2021, the Company began a process of signing non-exclusive dental distribution arrangements with dental distributors in specific geographical locations in the United States and Canada. To date there are twelve new non-exclusive dental distributors engaged in the United States and Canada. The goal is to add not only additional non-exclusive distributors in the United States, but as well as exploring other co-operation opportunities with Dental Service Organization, education institutions, dental schools and entities in specific dental market segments. To date there are two of such channel partners in the United States.

 

The goal of changing our marketing plan from a sole exclusive distributor in the USA and Canada, to a large number of non-exclusive distributors, is to increase placement of our Wand STA System and thus the expansion of our dental disposables usage.

 

On the global front, we have granted exclusive marketing and distribution rights for the Wand STA System to select dental suppliers in various international regions in Asia, Africa, South America, and Europe. They include FM Produkty Dla Stomatologii in Poland and Unident AB in the countries of Denmark, Sweden, Norway, and Iceland. Additionally, the Company is in the process of evaluating current international distributors and adding new distributors globally as required based on the economics of the region.

 

Sanctions imposed by the United States and other western democracies, because of the Ukrainian-Russian conflict, and any expansion thereof, is likely to have unpredictable and wide-ranging effects on the domestic and global economy and financial markets, which could have an adverse effect on our business and results of operations. Already the conflict has caused market volatility, a sharp increase in certain commodity prices, such as wheat and oil, and an increasing number and frequency of cybersecurity threats. So far, we have experienced a decrease in international sales to Ukraine and halted all sales to Russia, a direct impact from the conflict. We will continue to monitor the situation carefully and, if necessary, take action to protect our business, operations, and financial condition.  

 

Medical Market

 

During 2016, Milestone Scientific filed for 510(k) marketing clearance with the U.S. Food and Drug Administration (FDA) for both intra-articular and epidural injections with the CompuFlo Epidural System.  In June 2017, the FDA approved the CompuFlo Epidural System for epidural injections. 

 

In December 2016, we received notification from the FDA that based upon the 510(k)-application submitted for intra-articular injections, we did not adequately document that the device met the equivalency standard required for 510(k) clearances. Following consultation with the FDA Office of Device Evaluation, we intended to file a new 510(k) application for the device in 2019. However, due to financing constraints, a new 510(k) application was not filed in 2019. The Company has decided not to proceed with securing FDA approval for the intra-articular instrument at the present time.

 

27

 

 

In April 2020, Milestone Scientific, announced that it has validated and integrated the new CathCheck ® feature into the CompuFlo® Epidural System. Using CathCheck, physicians and nurses can now monitor the placement of a catheter to determine the presence or absence of a pulsatile waveform (heartbeat), providing new information that can be used to determine if the catheter is in place or has become dislodged from the epidural space. This can be performed within seconds by measuring the pulsatile waveform within the epidural space.

 

In March 2022, the Company was notified by a territory manager that Epidural Disposable Kit, Part # 6100-01, lot HC 51 potentially had an issue. The Company opened an investigation and decided to initiate a voluntary market withdrawal for the Epidural Disposable Kit, Part # 6100-01, lot HC 51. Management has determined that there are no potential impacts to patients or users.

 

On April 11, 2022, the Company announced that it has commenced sales of its CompuFlo Epidural and CathCheck Verification System disposables to a leading northeast medical center in the U.S. This approval follows an extensive trial and evaluation, which validates the safety and efficacy of the technology. As a teaching hospital, the Company's tools provide residents, fellows, and seasoned physicians greater accuracy through real-time verification of epidural needle placement, as well as subsequent monitoring of catheter placement.

 

On May 27, 2022, the Company announced on that it has commenced sales of its CompuFlo Epidural instrument disposables at a leading veterinary and academic institution following a successful research study and evaluation. The veterinary institution has initially begun using the CompuFlo Epidural instrument for maxillary nerve block procedures in horses with plans to expand into epidural procedures. The CompuFlo Epidural instrument can provide fellow veterinarians and students greater accuracy through real-time verification of needle location when performing a maxillary nerve block.

 

In addition, the recent receipt of chronology-Specific CPT Code for the Company's technology by American Medical Association marks an important milestone, that could increase the potential number of anesthesia pain management clinics adopting the CompuFlo instrument. A CPT code expands the potential for reimbursement of epidural procedures in pain management utilizing the CompuFlo Epidural System., thereby helping accelerate the commercial roll-out of CompuFlo in the U.S.

 

The following table shows a breakdown of Milestone Scientific’s product sales (net), domestically and internationally, by business segment product category: 

 

   

Three months ended September 30, 2022

   

Three months ended September 30, 2021

 

Domestic: US

 

Dental

   

Medical

   

Grand Total

   

Dental

   

Medical

   

Grand Total

 

Instruments

  $ 164,341     $ 7,500     $ 171,841     $ 36,480       -     $ 36,480  

Handpieces

    678,473       1,700       680,173       721,149       11,500       732,649  

Accessories

    24,304       -       24,304       21,253       -       21,253  

Grand Total

  $ 867,118     $ 9,200     $ 876,318     $ 778,882     $ 11,500     $ 790,382  
                                                 

International: Rest of World

                                               

Instruments

  $ 436,069     $ -     $ 436,069     $ 253,063     $ 4,500     $ 257,563  

Handpieces

    881,616       -       881,616       674,133       16,000       690,133  

Accessories

    21,696       -       21,696       9,300       -       9,300  

Grand Total

  $ 1,339,381     $ -     $ 1,339,381     $ 936,496     $ 20,500     $ 956,996  
                                                 

International: China

                                               

Instruments

  $ -     $ -     $ -       -       -     $ -  

Handpieces

    -       -       -       360,855       -       360,855  

Accessories

    -       -       -       -       -       -  

Grand Total

  $ -     $ -     $ -     $ 360,855     $ -     $ 360,855  
                                                 

Total Product Sales

  $ 2,206,499     $ 9,200     $ 2,215,699     $ 2,076,233     $ 32,000     $ 2,108,233  

 

28

 

 

   

Nine months ended September 30, 2022

   

Nine months ended September 30, 2021

 

Domestic: US

 

Dental

   

Medical

   

Grand Total

   

Dental

   

Medical

   

Grand Total

 

Instruments

  $ 442,336     $ 7,500     $ 449,836     $ 391,250       -     $ 391,250  

Handpieces

    2,275,865       25,750       2,301,615       2,319,049       19,650       2,338,699  

Accessories

    73,210       2,100       75,310       58,134       -       58,134  

Grand Total

  $ 2,791,411     $ 35,350     $ 2,826,761     $ 2,768,433     $ 19,650     $ 2,788,083  
                                                 

International: Rest of World

                                               

Instruments

  $ 1,050,443     $ -     $ 1,050,443     $ 792,903     $ 62,500     $ 855,403  

Handpieces

    2,265,367       20,000       2,285,367       2,337,692       41,900       2,379,592  

Accessories

    42,434       -       42,434       42,409       -       42,409  

Grand Total

  $ 3,358,244     $ 20,000     $ 3,378,244     $ 3,173,004     $ 104,400     $ 3,277,404  
                                                 

International: China

                                               

Instruments

  $ -     $ -     $ -     $ 228,000       -     $ 228,000  

Handpieces

    359,964       -       359,964       1,165,191       -       1,165,191  

Accessories

    -       -       -       -       -       -  

Grand Total

    359,964       -     $ 359,964     $ 1,393,191     $ -     $ 1,393,191  
                                                 

Total Product Sales

  $ 6,509,619     $ 55,350     $ 6,564,969     $ 7,334,628     $ 124,050     $ 7,458,678  

 

Current Product Platform

 

See Note 1, “Organization and Business”.

 

Results of Operations

 

The following table sets forth the consolidated results of for the three and nine months ended September 30, 2022, and 2021, respectively. The trends suggested by this table may not be indicative of future operating results:  

 

   

Three months ended

September 30, 2022

   

Three months ended

September 30, 2021

 

Operating results:

               

Product sales, net

  $ 2,215,699     $ 2,108,233  

Cost of products sold

    762,964       747,997  

Gross profit

    1,452,735       1,360,236  
                 

Operating expenses:

               

Selling, general and administrative expenses

    3,283,378       2,968,625  

Research and development expenses

    166,191       356,179  

Depreciation and amortization expense

    16,661       16,353  

Total operating expenses

    3,466,230       3,341,157  

Loss from operations

    (2,013,495 )     (1,980,921 )

Other income, and interest expense net

    28,012       (74,513 )

Gain on debt extinguishment-PPP

    -       -  

Net loss

    (1,985,483 )     (2,055,434 )

Net loss attributable to noncontrolling interests

    (13,680 )     (12,227 )

Net loss attributable to Milestone Scientific Inc.

  $ (1,971,803 )   $ (2,043,207 )

 

29

 

   

Nine months ended

September 30, 2022

   

Nine months ended

September 30, 2021

 

Operating results:

               

Product sales, net

  $ 6,564,969     $ 7,458,678  

Cost of products sold

    2,749,160       2,926,794  

Gross profit

    3,815,809       4,531,884  
                 

Operating expenses:

               

Selling, general and administrative expenses

    9,681,326       9,729,594  

Research and development expenses

    897,218       588,043  

Depreciation and amortization expense

    50,121       52,113  

Total operating expenses

    10,628,665       10,369,750  

Loss from operations

    (6,812,856 )     (5,837,866 )

Other income, and interest expense net

    26,819       (176,398 )

Gain on debt extinguishment-PPP

    -       276,180  

Net loss

    (6,786,037 )     (5,738,084 )

Net loss attributable to noncontrolling interests

    (54,030 )     (41,540 )

Net loss attributable to Milestone Scientific Inc.

 

(6,732,007

)   $ (5,696,544 )

 

Cash flow:

 

September 30, 2022

    September 30, 2021  

Net cash used in operating activities

  $ (4,942,360 )   $ (3,629,025 )

Net cash used in investing activities

  $ (3,827 )   $ (19,486 )

Net cash (used in) provided by financing activities

  $

(6,486

)   $ 3,915,339  

 

Three months ended September 30, 2022, compared to three months ended September 30, 2021

 

Net sales for 2022 and 2021 were as follows:

 

   

2022

   

2021

   

Change

 

Dental

  $ 2,206,499     $ 2,076,233     $ 130,266  

Medical

    9,200       32,000     $ (22,800 )

Total sales, net

  $ 2,215,699     $ 2,108,233     $ 107,466  

 

Consolidated revenue for the three months ended September 30, 2022 and 2021 were approximately $2.2 million and $2.1 million, respectively. Dental revenue increased approximately $130,000 for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. For the three months ended September 30, 2022, dental domestic revenue increased approximately $88,000, and dental international revenue increased approximately $403,000 compared to September 30, 2021. The increase in domestic and international is related to the Company expanding its parentship with new distributors. For the three months ended September 30, 2022, the Company recorded no revenue from China as compared to approximately $360,000 for the three months ended September 30, 2021. The reduction in shipments to Milestone China is due to Milestone China continuing cash flow issues. Medical revenue decreased approximately $23,000 for the three months ended September 30, 2022, as compared to the three months ending September 30, 2021.

 

Gross Profit for 2022 and 2021 were as follows: 

 

   

2022

   

2021

   

Change

 

Dental

  $ 1,446,111     $ 1,343,027     $ 103,084  

Medical

    6,624       17,209     $ (10,585 )

Total gross profit

  $ 1,452,735     $ 1,360,236     $ 92,499  

 

Consolidated gross profit for the three months ended September 30, 2022 increased approximately $92,000 or 7%, from the three months ended September 30, 2021. The increased is related to higher cost of parts, and freight expenses on the disposables.

 

30

 

Selling, general and administrative expenses 2022 and 2021 were as follows:

 

   

2022

   

2021

   

Change

 

Dental

  $ 979,911     $ 818,577     $ 161,334  

Medical

    933,218       927,971       5,247  

Corporate

    1,370,249       1,222,077       148,172  

Total selling, general and administrative expenses

  $ 3,283,378     $ 2,968,625     $ 314,753  

 

Consolidated selling, general and administrative expenses for the three months ended September 30, 2022 and 2021, were approximately $3.3 million, and $3.0 million respectively. The increase of approximately $315,000 reflects changes in several areas. During the three months ended September 30, 2022, warehousing and also expenses associated with quality assurance in connection with ISO certification and digitizing parts of our quality control process increased approximately $125,000, and professional fees increased approximately $370,000 due to certain 510(k) work for a new indication for our product, upgrades to automate our quality control procedures and additional digitizing of parts of our quality control process. Other selling, general and administrative and royalties' expenses increased approximately $122,000 for three months ended September 30, 2022. The Company included in other selling general and administrative $100,000 relating to an allowance taken against the accounts receivable related party during the three months ended September 30, 2022.Employee salaries and benefits expenses decreased approximately $191,000 during the three months ended September 30, 2022 compared to the same period in 2021. Such reduction was due, in part, to reduced directors’ fees, accrued bonus, employee recruiting fees, and medical insurance for the three months ended September 30, 2022. The Company reduced employee travel and marketing expense for three months ended September 30, 2022 by approximately $111,000. 

 

Research and Development for 2022 and 2021 were as follows: 

 

   

2022

   

2021

   

Change

 

Dental

  $ 156,336     $ 330,306     $ (173,970 )

Medical

    9,855       25,873       (16,018 )

Corporate

    -       -       -  

Total research and development

  $ 166,191     $ 356,179     $ (189,988 )

 

Consolidated research and development expenses for the three months ended September 30, 2022 and 2021, were approximately $166,000 and $356,000, respectively. The decrease of approximately $190,000 is related to the Company delaying enhancements to the STA Single Tooth Anesthesia System product line.

 

Profit (Loss) from Operations for 2022 and 2021 were as follows: 

 

   

2022

   

2021

   

Change

 

Dental

  $ 308,913     $ 193,252     $ 115,661  

Medical

    (937,468 )     (937,876 )     408  

Corporate

    (1,384,940 )     (1,236,297 )     (148,643 )

Total loss from operations

  $ (2,013,495 )   $ (1,980,921 )   $ (32,574 )

 

The loss from operations for each of the three months ended September 30, 2022, and 2021 was approximately $2.0 million, respectively. As noted above, higher cost for parts, and freight expense, along with additional professional fees for quality control impacted the loss for operations. The Company is actively pursuing the generation of positive cash flows from operating activities through an increase in revenue from its dental business worldwide, the generation of revenue from its medical devices and disposables business in the United States and worldwide, and a reduction in operating expenses.

 

 

Nine months ended September 30, 2022, compared to nine months ended September 30, 2021

 

Net sales for 2022 and 2021 were as follows:

 

   

2022

   

2021

   

Change

 

Dental

  $ 6,509,619     $ 7,334,628     $ (825,009 )

Medical

    55,350       124,050     $ (68,700 )

Total sales, net

  $ 6,564,969     $ 7,458,678     $ (893,709 )

 

31

 

Consolidated revenue for the nine months ended, September 30, 2022, and 2021 were approximately $6.6 million and $7.5 million, respectively. Dental revenue decreased approximately $825,000 for the nine months ending September 30, 2022, as compared to the nine-month ended September 30, 2021. For the nine months ended, September 30,2022, dental domestic revenue increased approximately $23,000, and dental international revenue increased approximately $185,000 compared to September 30, 2021. For the nine months ended September 30, 2022, the Company revenue to China decreased approximately $1.0 million compared to September 30, 2021which most significantly caused our overall decrease in revenues. The reduction in shipments to Milestone China is due to Milestone China continuing cash flow issues. Medical revenue decreased approximately $69,000 for the nine months ending September 30, 2022, as compared to the nine months ended September 30, 2021.  

 

Gross Profit for 2022 and 2021 were as follows: 

 

   

2022

   

2021

   

Change

 

Dental

  $ 4,207,376     $ 4,460,935     $ (253,559 )

Medical

    (391,567 )     70,949     $ (462,516 )

Total gross profit

  $ 3,815,809     $ 4,531,884     $ (716,075 )

 

Consolidated gross profit for each of the nine months ended September 30, 2022 and 2021 decreased approximately $716,000 or 16%.  The decrease is related less shipments to Milestone China, due to Milestone China continuing cash flow issues, and increased in higher cost of parts, and freight expenses on the disposables. The Company recorded an allowance of approximately $430,000 on slow moving Medical finished goods, and reduction in dental revenue during the nine months ended September 30, 2022.

 

Selling, general and administrative expenses 2022 and 2021 were as follows:

 

   

2022

   

2021

   

Change

 

Dental

  $ 2,529,352     $ 2,098,687     $ 430,665  

Medical

    3,346,113       2,959,927       386,186  

Corporate

    3,805,861       4,670,980       (865,119 )

Total selling, general and administrative expenses

  $ 9,681,326     $ 9,729,594     $ (48,268 )

 

Consolidated selling, general and administrative expenses for the nine months ended September 30, 2022, and 2021, were approximately $9.7 million, and $9.7 million respectively. The decrease of approximately $48,000 is categorized in several areas. Employee salaries, and benefits expenses decreased approximately $426,000 during the nine months ended September 30, 2022 compared to the same period in 2021. The Company reduced director fees, bonuses, employee recruiting fees, and medical insurance for the nine months ended September 30, 2022.The Company reduced marketing expense for nine months ended September 30, 2022, by approximately $11,000. The Company increased employee travel and for nine months ended September 30, 2022, by approximately $192,000. During the nine months ended September 30, 2022 warehousing, and quality control, increased associated with quality assurance in connection with ISO certification and digitizing parts of our quality control increased approximately $235,000, professional fees, increased approximately $122,000 due to the additional professional services quality control required in the compliance and regulations. Other selling, general and administrative and royalties' expenses decreased approximately $290,000 for nine months ended September 30,2022. The Company included in other selling general and administrative $100,000 relating to an allowance taken against the accounts receivable related party during the nine months ended September 30, 2022.

 

Research and Development for 2022 and 2021 were as follows: 

 

   

2022

   

2021

   

Change

 

Dental

  $ 849,112     $ 514,682     $ 334,430  

Medical

    48,106       73,361       (25,255 )

Corporate

    -       -       -  

Total research and development

  $ 897,218     $ 588,043     $ 309,175  

 

Consolidated research and development expenses for the nine months ended, September 30, 2022, and 2021, were approximately $897,000 and $588,000, respectively. The increase of approximately $309,000 is related to the Company exploring possible enhancements to the STA Single Tooth Anesthesia System product line.

 

32

 

Profit (Loss) from Operations for 2022 and 2021 were as follows: 

 

   

2022

   

2021

   

Change

 

Dental

  $ 826,175     $ 1,844,083     $ (1,017,908 )

Medical

    (3,788,842 )     (2,968,596 )     (820,246 )

Corporate

    (3,850,189 )     (4,713,353 )     863,164  

Total loss from operations

  $ (6,812,856 )   $ (5,837,866 )   $ (974,990 )

 

The loss from operations was approximately $6.8 million and $5.8 million for the nine months ending September 30, 2022 and 2021, respectively. As noted above, higher cost for parts, and freight expense, along with additional professional fees for quality control impacted the loss for operations. Although, the Company kept the SG&A expenses down, the Company increased research and development by exploring other possible enhancements for STA. The Company reported less shipments to Milestone China, due to Milestone China continuing cash flow issues. The Company is actively pursuing the generation of positive cash flows from operating activities through an increase in revenue from its dental business worldwide, the generation of revenue from its medical devices and disposables business in the United States and worldwide, and a reduction in operating expenses.

 

 

Liquidity and Capital Resources

 

On September 30, 2022, Milestone Scientific had cash and cash equivalents of approximately $9.8 million and working capital of approximately $10.8 million versus working capital of $15.8 million on December 31, 2021. For the nine months ended September 30, 2022 and 2021, we had cash flows used in operating activities of approximately $4.9 million and $3.6 million, respectively. 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 September 30, the Company had an accumulated deficit of $114.4 million and has incurred a net loss of approximately $2 million and $6.7 million for the three and nine months ended September 30, 2022, respectively. Management believes that the Company will have sufficient cash reserves to meet its anticipated obligations for at least the next twelve months from the filing date of this report. 

 

To improve the Company’s cash position, management implemented a cost restructuring program to reduce the cash burn rate. This program included a reduction of the direct medical sales organization by half, and additional cost savings have been identified in other functional areas. The results of this program generated a cash burn rate for the three months ended September 30, 2022 of approximately $1.1million which is lower than burn rate for previously quarters in 2022.
 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Milestone Scientific is a “smaller reporting company” as defined by Regulation S-K and, as such, is not required to provide the information required by this item.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Milestone Scientific’s Chief Executive Officer has evaluated the effectiveness of the design and operation of Milestone Scientific’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, Milestone Scientific’s Chief Executive Officer has concluded that the disclosure controls and procedures as of September 30, 2022 are effective to ensure that information required to be disclosed in the reports Milestone Scientific files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to Milestone Scientific's management, including the Chief Executive Officer, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in Milestone Scientific’s internal control over financial reporting that occurred during the quarter ended September 30, 2022 that have materially affected, or that are reasonably likely to materially affect, Milestone Scientific’s internal controls over financial reporting.

 

33

 

PART II OTHER INFORMATION

 

Item 1. Legal Proceedings

 

Milestone Scientific is not involved in any material litigation.

Item 1A. Risk Factors

 

The COVID-19 pandemic has and may continue to adversely affect the Companys business. Additional factors could exacerbate such negative consequences and/or cause other materially adverse effects.

 

The COVID-19 pandemic did materially adversely affect the Company’s financial results and business operations in the nine months ended September 30, 2022, while economic and health conditions in the United States and across most of the globe have continued to change rapidly due to the Omicron variant since the end of 2021. In the short-term, demand for the Company’s dental products is showing an increase in sell through activity to dental offices. However, the change in demand may or may not continue and/or demand may or may not increase from historical levels depending on the duration and severity of the COVID-19 pandemic, the effectiveness of the ongoing vaccination process, the length of time it takes for normal economic and operating conditions to resume, additional governmental actions that may be taken and/or extensions of time for restrictions that have been imposed to date, and numerous other uncertainties. Such events may result in business and manufacturing disruption, inventory shortages, delivery delays, and reduced sales and operations, any of which could materially affect our business, financial condition, and results of operations.

 

The ability of the Companys employees to work may be significantly impacted by the Coronavirus.

 

The Company’s employees are being affected by the COVID-19 pandemic. From time to time, we have had employees working in the office, depending on the local positivity rate of COVID-19. As a result of the Omicron variant, beginning in December 2021, most of our office and management personnel were working remotely. As of March 15, 2022, the employees returned in full to the office. The health of the Company’s workforce is of primary concern and the Company may need to enact further precautionary measures to help minimize the risk of our employees being exposed to the coronavirus. Further, our management team is focused on mitigating the adverse effects of the COVID-19 pandemic, which has required and will continue to require a large investment of time and resources across the entire Company, thereby diverting their attention from other priorities that existed prior to the outbreak of the pandemic. If these conditions worsen, or last for an extended period of time, the Company’s ability to manage its business may be impaired, and operational risks, cybersecurity risks and other risks facing the Company even prior to the pandemic may be elevated

 

The COVID-19 pandemic is affecting the Company’s customers, suppliers, vendors, and other business partners, but the Company is not able to assess the full extent of the current impact nor predict the ultimate consequences that will result therefrom. 

 

The full effects of the COVID-19 pandemic are highly uncertain and cannot be predicted. 

 

The COVID-19 pandemic affected the Company’s operations during the nine months ended September 30, 2022 and may continue to do so for an indeterminable period thereafter. All of these factors may have far reaching impacts on the Company’s business, operations, and financial results and conditions, directly and indirectly, including without limitation impacts on the health of the Company’s management and employees, manufacturing, distribution, marketing, sales operations, customer, and consumer behaviors, and on the overall economy. The scope and nature of these impacts, most of which are beyond the Company’s control, continue to evolve and the outcomes are uncertain.

 

Due to the above circumstances and as described generally in this Form 10-Q, the Company’s results of operations for the three- and nine-month periods ended September 30, 2022, are not necessarily indicative of the results to be expected for the full fiscal year. Management cannot predict the continued impact of the COVID-19 pandemic on the Company’s sales channels, supply chain, manufacturing, and distribution nor to economic conditions generally, including the effects on consumer spending on elective medical procedures. The ultimate extent of the effects of the COVID-19 pandemic on the Company is highly uncertain and will depend on future developments, and such effects could exist for an extended period of time even after the pandemic might end.

 

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Changes in our distribution arrangements exposes us to risks of interruption of marketing efforts.

 

In January 2021, in connection with the change in our relationship with Henry Schein, with which we had an exclusive distribution arrangement with respect to our dental products in the United States and Canada, the Company began a process of signing non-exclusive dental distribution arrangements with dental distributors in specific geographical locations in the United States and Canada. The goal of changing our marketing plan from a sole exclusive distributor in the USA and Canada, to a large number of non-exclusive distributors, may not be seamless or uninterrupted

 

 

Our business and operations would suffer in the event of cybersecurity or other system failures.  

 

Despite the implementation of security measures, our internal computer systems and those of any third parties with which we partner are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any cybersecurity or system failure, accident or breach to date, if an event were to occur, it could result in a material disruption of our operations, substantial costs to rectify or correct the failure, if possible, and potentially violation of HIPAA and other privacy laws applicable to our operations. If any disruption or security breach resulted in a loss of or damage to our data or applications or inappropriate disclosure of confidential or protected information, we could incur liability, further development of our products could be delayed, and our operations could be disrupted, any of which could severely harm our business and financial condition.

 

Issues with product quality could have a material adverse effect upon our business, subject us to regulatory actions and cause a loss of customer confidence in us or our products.

 

In general, our success depends upon the quality of our products.  Quality management plays an essential role in meeting customer requirements, preventing defects, improving our products and services, and assuring the safety and efficacy of our products.  Our future success depends on our ability to maintain and continuously improve our quality management program.  A quality or safety issue may result in adverse inspection reports, warning letters, product recalls or seizures, monetary sanctions, injunctions to halt manufacture and distribution of products, civil or criminal sanctions, costly litigation, refusal of a government to grant approvals and licenses, restrictions on operations or withdrawal of existing approvals and licenses.  An inability to address a quality or safety issue in an effective and timely manner may also cause negative publicity, a loss of customer confidence in us or our current or future products, which may result in the loss of sales and difficulty in successfully launching new products.

 

Item 2. Unregistered Sales of Equity Securities and use of proceeds

 

Not applicable.

 

Item 3. Default upon Senior Securities

 

Not applicable.

 

Item 4. Mine Safety Disclosure

 

Not applicable.

 

Item 5. Other Information

 

None

 

35

 

 

Item 6. Exhibits and Financial Statement Schedules

 

Exhibit No

Description

31.1

Rule 13a-14(a) Certification-Chief Executive Officer*

32.1

Section 1350 Certifications-Chief Executive Officer**

101.INS

Inline XBRL Instance Document*

101.SCH

Inline XBRL Taxonomy Extension Schema Document*

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document*

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document*

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document*

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document*

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

 


*

Filed herewith.

**

Furnished herewith and not filed, in accordance with item 601(32) (ii) of Regulation S-K.

 

36

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

MILESTONE SCIENTIFIC INC.

 
     
 

/s/ Arjan Haverhals

 
 

Arjan Haverhals

 
 

Chief Executive Officer 

 
 

Principal Financial Officer

 

Date: November 14, 2022

   

 

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