mlss20220331

mlss20220331_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 March 31, 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)

Registrant’s 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 May 16, 2022, the registrant has a total of 68,432,335 shares of Common Stock, $0.001 par value outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None

MILESTONE SCIENTIFIC INC.

Form 10-Q

TABLE OF CONTENTS

	PART I—FINANCIAL INFORMATION

Item 1.	Unaudited Condensed Consolidated Financial Statements	4

	Balance Sheets as of March 31, 2022 and December 31, 2021	4

	Statements of Operations for the three months ended March 31, 2022 and 2021	5

	Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2022 and 2021	6

	Statements of Cash Flows for the three months ended March 31, 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	28

Item 4.	Controls and Procedures	28

	PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3.	Defaults Upon Senior Securities	30

Item 4.	Mine Safety Disclosures	30

Item 5.	Other Information	30

Item 6.	Exhibits	31

Signatures		32

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 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 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^TM; the Milestone logo ®; SafetyWand®; STA Single Tooth Anesthesia Device®; and The Wand ®.

Part I- Financial Information

Item 1. Financial Statements

MILESTONE SCIENTIFIC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	March 31, 2022			December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	13,254,775		$	14,764,346
Accounts receivable, net		1,063,613			943,272
Accounts receivable, related party net		269,973			-
Prepaid expenses and other current assets		622,080			375,360
Inventories, net		1,799,908			1,541,513
Advances on contracts		1,217,253			1,309,260
Total current assets		18,227,602			18,933,751
Furniture, fixtures and equipment, net		20,325			23,713
Intangibles, net		264,192			277,619
Right of use assets		528,907			550,511
Other assets		24,150			24,150
Total assets	$	19,065,176		$	19,809,744


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,012,093		$	780,428
Accounts payable, related party		1,128,919			395,857
Accrued expenses and other payables		1,335,451			1,417,248
Accrued expenses, related party		257,815			414,241
Current portion of finance lease liabilities		8,743			8,545
Current portion of operating lease liabilities		83,585			81,001
Total current liabilities		3,826,606			3,097,320
Non-current portion of finance lease liabilities		17,801			20,062
Non-current portion of operating lease liabilities		454,857			476,980
Total liabilities	$	4,299,264		$	3,594,362

Commitments

Stockholders’ equity
Common stock, par value $.001;authorized 100,000,000 shares; 68,153,336 shares issued at March 31, 2022 and December 31, 2021 and 68,120,003 shares outstanding as March 31, 2022 and December 31, 2021;		68,153			68,153
Additional paid in capital		125,385,315			124,915,560
Accumulated deficit		(109,605,997	)		(107,704,274	)
Treasury stock, at cost, 33,333 shares		(911,516	)		(911,516	)
Total Milestone Scientific, Inc. stockholders' equity		14,935,955			16,367,923
Noncontrolling interest		(170,043	)		(152,541	)
Total stockholders’ equity		14,765,912			16,215,382

Total liabilities and stockholders’ equity	$	19,065,176		$	19,809,744

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

MILESTONE SCIENTIFIC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	For the three months ended March 31, 2022			For the three months ended March 31, 2021

Product sales, net	$	2,700,902		$	2,924,707
Cost of products sold		1,018,476			1,122,413
Gross profit		1,682,426			1,802,294

Selling, general and administrative expenses		3,115,629			2,749,299
Research and development expenses		464,466			16,444
Depreciation and amortization expense		16,814			20,924
Total operating expenses		3,596,909			2,786,667

Loss from operations		(1,914,483	)		(984,373	)
Interest expense, net		(4,742	)		(2,535	)
Loss before provision for income taxes and net of equity investments		(1,919,225	)		(986,908	)
Provision for income taxes		-			(250	)
Loss before equity investment		(1,919,225	)		(987,158	)
Deferred profit and divesture-equity investment (See Note 6)		-			1,301
Net loss		(1,919,225	)		(985,857	)
Net loss attributable to noncontrolling interests		(17,502	)		(12,988	)
Net loss attributable to Milestone Scientific Inc.	$	(1,901,723	)	$	(972,869	)

Net loss per share applicable to common stockholders—
Basic		(0.03	)		(0.01	)
Diluted		(0.03	)		(0.01	)

Weighted average shares outstanding and to be issued—
Basic		69,013,001			66,578,435
Diluted		69,013,001			66,578,435

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

MILESTONE SCIENTIFIC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THREE MONTHS ENDED MARCH 31, 2022

(UNAUDITED)

	Common Stock Share		Common Stock Amount		Additional Paid in Capital		Accumulated Deficit			Noncontrolling Interest			Treasury Stock			Total Stockholder Equity
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

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

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THREE MONTHS ENDED MARCH 31, 2021

(UNAUDITED)

	Common Stock Share		Common Stock Amount		Additional Paid in Capital		Accumulated Deficit			Noncontrolling Interest			Treasury Stock			Total Stockholder Equity
Balance January 1, 2021		64,171,435	$	64,171	$	117,934,696	$	(100,885,957	)	$	(94,426	)	$	(911,516	)	$	16,106,968
Stock based compensation		-		-		113,507		-			-			-			113,507
Common stock issued to employee for compensation expensed in prior periods		7,075		7		-		-			-			-			7
Common stock to be issued for payment of consulting services expensed in prior periods		40,010		40		-		-			-			-			40
Common stock issued to board of directors for services expensed in prior periods		18,879		18		-		-			-			-			18
Common stock issued to employee for stock options exercised		435,558		436		689,754		-			-			-			690,190
Common stock to be issued to employees for bonuses		-		-		100,000		-			-			-			100,000
Common stock issued for warrants exercised		1,918,925		1,919		3,010,297		-			-			-			3,012,216
Net loss		-		-		-		(972,869	)		(12,988	)		-			(985,857	)
Balance March 31, 2021		66,591,882	$	66,591	$	121,848,254	$	(101,858,826	)	$	(107,414	)	$	(911,516	)	$	19,037,089

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

MILESTONE SCIENTIFIC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED

(UNAUDITED)

	March 31, 2022			March 31, 2021
Cash flows from operating activities:
Net loss	$	(1,919,225	)	$	(985,857	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		3,388			9,572
Amortization of intangibles		13,426			11,352
Stock based compensation		305,370			113,507
Employees paid in stock		164,385			115,000
Non-cash operating lease expense		(17,378	)		1,883
Deferred profit and divesture-equity investment (See Note 6)		-			(1,301	)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		(120,341	)		101,895
(Increase) in accounts receivable, related party		(269,973	)		(267,300	)
(Decrease) increase in inventories		(258,395	)		399,630
Decrease (Increase) in advances on contracts		92,007			(338,995	)
(Increase) in prepaid expenses and other current assets		(246,720	)		(272,905	)
Increase in accounts payable		231,668			211,072
Increase (decrease) in accounts payable, related party		733,062			(200,778	)
(Decrease) increase in accrued expenses		(81,797	)		339,518
Decrease in accrued expenses, related party		(156,427	)		(204,107	)
Decrease operating right of use lease liability		19,442			-
Net cash used in operating activities	$	(1,507,508	)	$	(967,814	)

Cash flows from investing activities:
Purchase of furniture, fixtures, and equipment		-			(5,916	)
Net cash used in investing activities	$	-		$	(5,916	)

Cash flows from financing activities:
Proceeds from exercise of warrants		-			3,012,216
Payments finance lease obligations		(2,063	)		(1,883	)
Common stock issued to employee for option exercised		-			690,190
Net cash (used in) provided by financing activities	$	(2,063	)	$	3,700,523

Net (decrease) increase in cash and cash equivalents		(1,509,571	)		2,726,793
Cash and cash equivalents at beginning of period		14,764,346			14,223,917
Cash and cash equivalents at end of period	$	13,254,775		$	16,950,710

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

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 ®; CathCheck^TM; 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. To date there have been seventeen medical devices sold in the United States and limited amounts sold internationally. Certain of our medical instruments have obtained European CE mark approval and can be marketed and sold in most European countries.

NOTE 2- LIQUIDITY AND UNCERTAINTIES

The Company has evaluated whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued. As of March 31, 2022, the Company had an accumulated deficit of $109.6 million and has incurred a net loss of approximately $1.9 million for the period ended March 31, 2022. Management believes that Milestone Scientific, Inc. will have sufficient cash reserves to meet its anticipated obligations over the next twelve months from the filing date of this quarterly report.

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 three months ended March 31, 2022 and 2021 were adversely affected in particular for the medical business. However, any business interruptions, resulting from COVID-19, or new strain could significantly disrupt our operations 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.

The Ukrainian-Russian conflict, sanctions imposed by the United States and other western democracies, and any expansion 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 from 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.

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.

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 months ended March 31, 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”).

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. 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 have the power to direct the activities that most significantly impact the economic performance of Milestone China. Management has concluded that Milestone Scientific is not the primary beneficiary under ASC 810. Accordingly, Milestone China has not been consolidated into the financial statements of Milestone Scientific and is accounted for under the equity method. See Note 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 March 31, 2022 and December 31, 2021. Milestone Scientific has approximately $12.4 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 product on credit terms to its major distributors. Milestone Scientific estimates losses from the ability or inability of its customers to make payments on amounts billed. Most credit sales are due within 90 days from invoicing. There have not been any significant credit losses incurred to date. As of March 31, 2022, and December 31, 2021, accounts receivable was recorded, net of allowance for doubtful accounts of $10,000.

8. Inventories

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

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.

9. Intangible Assets – Patents and Developed Technology

Patents are recorded at cost to prepare and file the applicable documents with the U.S. Patent Office, or internationally with the applicable governmental office in the respective country. The costs related to these patents are being amortized using the straight-line method over the estimated useful life of the patent. Patents and other developed technology acquired from another business entity are recorded at acquisition cost and be amortized at the estimated useful life. Patent defense costs, to the extent applicable, are expensed as incurred.

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
	•	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.

At March 31, 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.

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 69,013,001 and 66,578,435 for the three months ended March 31, 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.

Since Milestone Scientific had net losses in the three months ended March 31, 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 7,543,252 and 6,092,193 on March 31, 2022, and 2021, respectively.

14. Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market at the measurement date (exit price). 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 March 31, 2022, and December 31, 2021 the Company does not have any assets or liabilities that were measured at fair value on a recurring basis.

15. 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.

16. 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 consolidated financial statement.

In October 2021, FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which provides guidance on accounting for contract assets and contract liabilities acquired in a business combination in accordance with Topic ASC 606, Revenue Recognition from Contracts with Customers (“ASC 606”). To achieve this, an acquirer may assess how the acquiree applied ASC 606 to determine what to record for the acquired revenue contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements. The amendments of ASU 2021-08 are for fiscal years beginning after December 15, 2022, including interim periods. Early adoption is permitted, including adoption in an interim period. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. The Company will evaluate the impact of ASU 2021-08 on any future business combinations the Company may enter in the future.

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. 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:

	March 31, 2022		December 31, 2021

Dental finished goods, net	$	632,003	$	342,465
Medical finished goods, net		989,257		1,119,709
Component parts and other materials		178,648		79,339
Total inventories	$	1,799,908	$	1,541,513

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

NOTE 5 — ADVANCES ON CONTRACTS

The advances on contracts represent funding of future STA inventory purchases, epidural instruments, and epidural replacements parts. The balance of the advances as of March 31, 2022, and December 31, 2021 is approximately $1.2 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.

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, who became the independent distributor, former agent, for Milestone China and its subsidiaries, and due to the good working relationship developing between Milestone Scientific and Solee and 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.

However, management has determined to pursue an investigation of whether the above-described consideration payable by LiDong Zhang to Milestone China was actually paid to Milestone China and, if so, its recovery. Nevertheless, 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. As a result, at this time, Milestone Scientific has not received any consideration and does not know if any of the consideration promised to Milestone China for its interest in Anhui has been paid and, if paid, 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 March 31, 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.

For three months ended March 31, 2022, Milestone Scientific shipped handpieces to Solee for the sale to Anhui and recognized revenue of $370,000, of which approximately $270,000 at March 31, 2022 was included in account receivable related party. For the three months ended March 31, 2021, Milestone Scientific shipped instruments and handpieces to Solee for the sale to Anhui and recognized revenue of $506,400. As of December 31, 2021, the Company has approximately $89,000 of deposits from Solee for future shipment of goods included in accrued expenses on the accompanying consolidated balance sheet. As of March 31, 2022, the Company had no deposits from Solee for future shipment of goods included in accrued expenses on the accompanying consolidated balance sheet.

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, the former agent, for 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. As of March 31, 2022 and December 31, 2021, there have been no shipment under the new agreement to Solee.

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.

The Company deferred profits on sales to Anhui and Milestone China due to its equity investment in the Companies, pursuant to ASC 323. Investments – Equity Method and Joint Ventures. Due to the Equity Transfer Agreement discussed above, the Company no longer has any equity interest and/or significant influence in Anhui via Milestone China and, as such, all previously deferred profit of $407,000 has been recognized in the accompanying statement of operations at the date of the Equity Transfer Agreement.

At Mach 31, 2022, and December 31, 2021 the deferred profit was approximately $0, which is included in deferred profit, related party in the unaudited condensed consolidated balance sheets. For the three months ended March 31, 2022, and 2021, Milestone Scientific recorded income from gross profit deferral of approximately $0 and $1,301, 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

	March 31, 2022
	Cost		Accumulated Amortization			Net
Patents-foundation intellectual property	$	1,377,863	$	(1,113,671	)	$	264,192
Total	$	1,377,863	$	(1,113,671	)	$	264,192

	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 $11,000 for the three months ended March 31, 2022, and March 31, 2021, respectively. The annual amortization expense expected to be recorded for existing intangibles assets for the years 2022 through 2026 and thereafter, is approximately $40,000, $52,000, $34,000, $28,000 and $110,000.

NOTE 8— STOCKHOLDERS’ EQUITY

Warrants

The following table summarizes information about shares issuable under warrants outstanding as of March 31, 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 March 31, 2022		4,268,221		2.18		1.25	$	580,142

Shares to Be Issued

As of March 31, 2022, and 2021, there were 2,000,127 and 2,264,127 shares respectively, to be issued whose issuance has been deferred to the employees of Milestone Scientific, Inc. respectively.

As of March 31, 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.

The following table summarizes information about shares to be issued on March 31, 2022, and 2021, respectively.

	March 31, 2022		March 31, 2021

Shares-to-be-issued, outstanding January 1, 2022 and 2021, respectively		2,066,343		2,440,878
Granted in current period		108,148		33,238
Issued in current period		-		(65,965	)
Shares-to be issued outstanding March 31, 2022 and 2021, respectively		2,174,491		2,408,151

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. In general, options become exercisable over a three-year period from the grant date and expire five years after the date of grant.

On April 8, 2021, as part of its Succession Plan going into effect on April 23, 2021, the Company announced that Leonard Osser, the Interim Chief Executive Officer, would be accepting the role of Vice Chairman of the Board of Directors. As part of accepting this role, he would be granted options to purchase 2,000,000 shares of common stock, exercisable at the fair market value of the common stock on the date of grant, vesting over the five-year period after he steps down as Interim Chief Executive Officer of the Company or ten years from the date of grant, whichever shall end first. The options were issued pursuant to the 2020 Plan.

Milestone Scientific recognizes compensation expense over the requisite service period. For three months ended March 31, 2022 and 2021, Milestone Scientific recognized $305,370, and $113,507 of total employee compensation cost, respectively, recorded in general and administrative expenses on the statement of operations.

As of March 31, 2022 and 2021, there was $3,140,335 and $914,389 of total unrecognized compensation cost related to non- vested options, respectively. Milestone Scientific expects to recognize these costs over a weighted average period of 3.25 and 2.70 for the three months ended of March 31, 2022 and 2021, respectively.

A summary of option activity for employees under the plans and changes during the three months ended March 31, 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		2.98		-
Exercised during 2022		-		-		-

SEC Form 10-Q filed by Milestone Scientific Inc.