UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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For the fiscal year ended December 31, 2016
2022
Or
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For the transition period from to Commission file number 001-14053 Milestone Scientific Inc. (Exact name of registrant as specified in its charter)
(Address of principal executive offices) Registrant Securities registered pursuant to Section12(b) of the Act:
Securities registered pursuant to section 12(g) of the Act: Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☑ No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☑ No 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. ☑ Indicate by check mark whether the registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer,
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. ☐ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
As of June 30, American. As of March
DOCUMENTS INCORPORATED BY REFERENCE None
MILESTONE SCIENTIFIC INC. Form 10-K Annual Report TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
Certain statements made in this Annual Report on Form 10-K are
PART I
All references in this report to Item1. Business Overview
Milestone Scientific was incorporated in the State of Delaware in August 1989. Milestone Scientific has developed a proprietary, revolutionary, computer-controlled anesthetic delivery
development company that patents, designs, develops and commercializes innovative diagnostic and therapeutic injection technologies and devices for medical, and dental Since The recent receipt of chronology-Specific CPT Code for the Company's technology by the 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., which should help accelerate the commercial roll-out of CompuFlo in the U.S. DPS Dynamic Pressure Sensing Technology; Our Proprietary Core Technology Platform Given our experience and established brand awareness within the dental industry beginning with our first commercial product, the first computer-controlled local anesthesia delivery (C-CLAD) system marketed as the Wand® and re-branded as the CompuDent® System, now the market leader in dental injection technology, we elected to focus our product development efforts on
As confirmed by numerous noted medical and dental experts within academia and the clinical practice arenas,
CompuFlo
The
Our
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. Medical Market Product 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
In Cosmetic Botulinum Product Milestone Advanced Cosmetic Systems, Inc. (“Advanced Cosmetic Systems”), was originally owned 50% by us and 50% by Milestone China Company Limited (“Milestone China”), a company organized under the laws of Hong Kong and initially owned 40% by Milestone Scientific. Milestone China contributed $900,000 of cash to the joint venture, and we have provided a royalty-free license to utilize our technology to the joint venture to develop a botulinum toxin injection device. In November 2017, we announced plans for the commercial launch of our proprietary cosmetic injection device using our DPS Dynamic Pressure Sensing technology platform and our CompuFlo Cosmetic System 5 OtherPossible Products
Ukraine 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. As direct impact from the conflict, we have experienced a decrease in international sales to Ukraine and halted all sales to Russia. We will continue to monitor the situation carefully and, if necessary, take action to protect our business, operations, and financial condition. COVID-19 Pandemic The COVID-19 pandemic materially adversely affected the Company’s financial results and business operations during 2021. During the year 2022, the demand increased, and recovery of the dental business was seen, however, it is unclear what the effect other possible variants might have on the business during 2023. Therefore, such increased 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 transmissibility and severity of variants, the effectiveness of the on-going 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. However, there can be no assurance that we will be able to successfully develop any such products, or that if developed, that we will be able to obtain FDA approval to market any such products, or even if we do obtain such FDA approval, that any such products will generate any revenue for us or be a commercial success. The Company’s employees have been and are being affected by the COVID-19 pandemic. 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. If these conditions worsen, the Company’s ability to manage its business may be impaired, and operational risks, cybersecurity risks and other risks facing the Company 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 predict the ultimate consequences that will result therefrom. We are experiencing supply delays and shortages due to the disruptions the ongoing COVID-19 pandemic is having on the global supply chain, especially with respect to goods from China. The ongoing COVID-19 pandemic has resulted in significant disruption to the operations of certain suppliers in China and the related transportation of their goods to the United States that are parts of our global supply chain. We have been able to make alternative delivery arrangements for limited quantities of goods, at increased cost. While we have not yet experienced material shortages in supply because of these disruptions and our alternative delivery arrangements, if they were to be prolonged or expanded in scope, there could be resulting supply shortages which could impact our ability to have manufactured and delivered our products to the United States and, ultimately to our customers. Accordingly, such supply shortages and delivery limitations could have a material adverse effect on our business, financial condition, results of operations, and cash flows. 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. Patents and Intellectual Property Milestone Scientific and its subsidiaries currently hold approxi mately 216 U.S. and foreign patents, and many patent applications. The Company’s patents and patent applications relate to drug delivery methodologies, drug flow rate measurement, pressure/force computer-controlled drug delivery with exit pressure, dynamic pressure sensing, automated rate control, automated charging, drug profiles, audible and visual pressure/force feedback, tissue identification, drug delivery injection unit, drug drive unit for anesthetic, handpiece, and injection device. Milestone Scientific and its subsidiaries also currently hold approximately 36 registered U.S. and foreign trademarks, including CompuDent® , CompuFlo® , DPS Dynamic Pressure Sensing technology® , Safety Wand® , STA Single Tooth Anesthesia System® The
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Milestone Scientific relies on a combination of patent, copyright, trade secret and trademark laws and employee and
Milestone Scientific has informal arrangements with an U.S. manufacturer of the Wand/STA System, and epidural devices. Pursuant to these informal arrangements, our third-party manufacturer manufactures the Wand/STA System under specific purchase orders without minimum purchase commitments, and at prices to be agreed upon in each such purchase order. Our agreement with the principal manufacturer of dental handpieces includes pricing terms. Milestone Scientific has been supplied by the manufacturer of the Wand/STA System and its predecessor, the CompuDent System, since the commencement of production in 1998, and by the manufacturer of its dental handpieces since 2003. The manufacturer of our dental handpieces is in the People’s Republic of China and the manufacturer of the Wand/STA System is in the United States. Refer to Item 1A. Risk Factors. Changes to pricing of the Wand/STA System instruments by the manufacturer could have a material adverse effect on our financial condition, business, and results of operations. Termination of the manufacturing relationship with any of these third-party manufacturers could significantly and adversely affect our ability to produce and sell the products. Though other alternate sources of supply for dental handpieces exist, Milestone Scientific would need to establish relationships with new suppliers, and with respect to the Wand/STA System recover its existing tools or have new tools produced and “burn in” and other manufacturing and quality control software re-produced. Establishing new manufacturing relationships could involve significant expense and delay. Any curtailment or interruptions of supply, whether as a result of the inability of a supplier to meet our product delivery needs or termination of the relationship, would have a material adverse effect on our financial condition, business, and results of operations. Distribution and Marketing Dental Products
The In anticipation of such termination, 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. As of December 31, 2022, there are twelve new non-exclusive dental distributors engaged in the United States and Canada. In addition, the Company developed its own United States direct distribution channel which was launched in January of 2023. 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. 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.
The company, markets and sell it’s medical products in the international markets such as Italy, Switzerland, Greece, Canada and the Middle East through exclusive distributors. In the United States the Medical products are sold by a direct sales team of 3 full time employees and CTI a medical distributor covering 22 states. Competition As of this filing, there is no subcutaneous drug delivery platform or device on the market regulating the flow rate and pressure of an injection capable of delivering a painless injection at the desired location like Milestone Scientific’s proprietary, patented devices having our DPS Dynamic Pressure Sensing technology. 7 Milestone Scientific’s devices compete based on their performance characteristics and the benefits provided to the patient, practitioner, and their business operations. Clinical studies have shown that our devices reduce fear, pain and anxiety for many patients, and Milestone Scientific believes that they can reduce practitioner stress levels, as well. Other computer-controlled local anesthesia delivery (C-CLAD) options are the Quicksleeper and SleeperOne, from Dental Hi Tec, Dentapen from Septodant, the Calajet from Aseptico, and the Comfort Control Syringe by Dentsply. In the medical segment, for needle verification and placement the EpiFaith Syringe made its market entry in 2023. The Quicksleeper was invented in France by Dr. Alain Villette in 1991. It is marketed as the only local anesthetic delivery device in France that allows the ability to perform all intraoral local anesthetic injection techniques, including osteocentral anesthesia, quickly and without failure. The extra feature that gives the Quicksleeper this ability is a built-in motor in the syringe/handpiece that renders the syringe both an injector and a perforator of bone. That is, the handpiece of the Quicksleeper can perform an intraosseous injection via a motor driven perforation of the cortical plate of bone. A standard dental needle that attaches to the syringe spins as the motor rotates the handpiece thus acting as a perforator. However, the handpiece is relatively heavy, weighing 240 g. as compared to a standard syringe that weighs 80 g. Injection speed increases during the injection, but the operator cannot control when the injection speed increases. The Calajet instrument, The Dentapen from Septodent is the newest competitor in the market. This device is manufactured in Europe and began marketing in the United States The EpiFaith Syringe claims to assist the physicians in entering the epidural space. The instrument is introduced at a lower price. Although a potential competitor, we believe that our technology is well documented and is the only pressure sensor guidance system for epidural analgesia assisting the physician over the entire trajectory of epidural needle placement and catheter verification. Milestone Scientific’s proprietary, patented devices with its DPS Dynamic Pressure Sensing Technology platform also compete with disposable and reusable syringes that generally sell at lower prices and that use established and well-understood methodologies in both the dental Rapid technological change and research may affect our products. Current or new competitors could, at any time, introduce new or enhanced products Government Regulation
The manufacture and sale of medical devices and other medical products are subject to extensive regulation by the These processes can take
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The FDA cleared the Wand, our CompuDent System, and its disposable handpieces, for marketing in the United States for dental applications in July 1996; the CompuMed® System for marketing in the United States for medical applications in May 2001; the Safety Wand® for marketing in the United States for dental applications in September 2003; the Wand/STA System for dental applications in August 2006; and our CompuFlo Epidural System in June 2017. For us to commercialize other products in the United States, Milestone Scientific would have to submit and have cleared additional 510(k) applications to the FDA. In 2017, the FDA reduced the barrier to marketing clearance for certain dental devices. As a result, other manufacturers of injection devices could more easily enter the dental market. However, we believe that any new device will be very limited in sales volume without a significant distributor in the dental market.
Though
Compliance with applicable regulatory requirements is subject to continual review and
Milestone Scientific is subject to pervasive and continuing regulation by the FDA, whose regulations require manufacturers of
The Medical Device Reporting (“MDR”) regulation obligates us to provide information to the FDA on product malfunctions or injuries alleged to have been associated with the use of the product or in connection with certain product failures that could cause serious injury. If,
In 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 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 9 Human Capital
good. Corporate Information We were organized in August 1989 under the laws of the State of Delaware. Our principal executive office is located at 425 Eagle Rock Avenue, Roseland, New Jersey 07068. Our telephone number is (973) 535-2717.
Item 1A. Risk Factors
You should consider carefully the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K. If any of the following risks are realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. The Risks Related to Our Financial Position and
We are a
We expect to make substantial expenditures and incur increasing operating costs in the future and our accumulated deficit will increase significantly as we undertake to commercialize our CompuFlo Epidural System. Our losses have had, and are expected to continue to have, an adverse impact on our working capital, total assets, and stockholders' equity. Because of the risks and uncertainties associated with product acceptance, we are unable to predict the extent of any future losses, whether we will ever generate significant revenues We may require additional funding and may be unable to raise capital when needed, which may force us to delay, curtail or eliminate commercialization efforts of our CompuFlo Epidural Computer Controlled Anesthesia System. Our operations have consumed substantial amounts of cash since inception. During the years ended December 31, Sales of a substantial number of shares of our common stock, or the perception that such sales may occur, may adversely impact the price of our common stock. Almost all our 69,306,497 outstanding shares of common stock on December 31, 2022, as well as a substantial number of shares of our common stock underlying outstanding warrants, are available for sale in the public market, either freely or pursuant to Rule 144 under the Securities Act of 1933, as amended. Sales of a substantial number of shares of our common stock, or the perception that such sales may occur, may adversely impact the price of our common stock.
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Raising additional capital by issuing securities or through licensing or lending arrangements may cause dilution to our existing stockholders, restrict our operations, or require us to relinquish proprietary rights. To the extent that we raise additional capital by issuing equity securities, the share ownership of existing stockholders will be diluted. Any future debt financing may involve covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, redeem our stock, make certain investments, and engage in certain merger, consolidation, or asset sale transactions, among other restrictions. In addition, if we raise additional funds through licensing arrangements or the disposition of any of our assets, it may be necessary to relinquish potentially valuable rights to our product candidates or grant licenses on terms that are not favorable to us. Recent developments in financial institutions could adversely affect our current and projected business operations, financial condition and results of operations. Recent events involving limited liquidity, defaults, non-performance and other adverse developments that affect financial institutions have led to market-wide liquidity concerns. For example, on March 10, 2023, Silicon Valley Bank was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation, or FDIC, as receiver. On March 12, 2023, Signature Bank and Silvergate Capital Corp. were also placed into receivership. Future increases of the borrowing rate by the Federal Reserve Board, to slow inflation or for other reasons, may expose other financial institutions to greater interest rate risk and exacerbate liquidity and other adverse developments affecting such institutions. The Company currently keeps more than $250,000, the maximum amount insured by the Federal Deposit Insurance Corporation (“FDIC”), in its current bank depositary. The Company may experience delayed access or a loss of The results of events or concerns that involve non-performance by financial institutions could include a variety of material and adverse impacts on our current and projected business operations and our financial condition and results of operations. In addition, any further deterioration in the macroeconomic economy or financial services industry, or delayed access or loss of uninsured deposits or loss of the ability to draw on existing credit facilities involving a troubled or failed financial institution by our customers or vendors, could lead to losses or defaults by companies with whom we do business, which in turn could have a material adverse effect on our current and/or projected business operations, results of operations and financial condition. In addition, other companies could be adversely affected by any of the liquidity or other risks that are described above as factors that could result in material adverse impacts on us, including but not limited to delayed access or loss of uninsured deposits or loss of the ability to draw on existing credit facilities involving a troubled or failed financial institution. Risks Related to Sales and Distribution of Milestone Scientific Products Changes in our distribution arrangements exposes us to risks of interruption of marketing efforts and building new marketing channels. Effective December 31,
Milestone Scientific’s International Operations Subject it to Certain Business Risks. A substantial amount of Milestone Scientific’s sales come from its operations outside the United States and we intend to continue to pursue growth opportunities outside of the United States. Milestone Scientific’s international operations subject it to certain risks relating to, among other things, fluctuations in foreign currency exchange, local economic and political conditions, competition from local companies, increases in trade protectionism, United States relations with the governments of the foreign countries in which Milestone Scientific operates, foreign regulatory requirements or changes in such requirements, changes in local healthcare payment systems and healthcare delivery systems, local product preferences and requirements, longer payment terms for account receivables than we experience in the United States, difficulty in establishing and managing foreign operations, weakening or loss of the protection of intellectual property rights in some countries and import or export licensing requirements. 12 We are exposed to the risks inherent in international sales. In 2022, export sales outside of the United States made up approximately 63% of our total sales, and we sell our products to customers in approximately 30 countries and U.S. territories. We have exposure to risks of operating in many foreign countries, including:
If physicians do not accept nor use our CompuFlo Epidural System, our ability to generate revenue from sales will be materially impaired. Although the FDA has cleared our application to begin marketing the CompuFlo Epidural System, this is no assurance that physicians, hospitals, clinics, and other health care providers will accept and use it. Acceptance and use of the CompuFlo Epidural System will depend on many factors including:
Because we expect sales of the CompuFlo Epidural Computer Controlled Anesthesia System to generate substantially all our medical product revenues in the near-term, the failure of this product to find market acceptance would harm our business and could require us to seek additional financing or make such financing difficult to obtain on favorable terms, if at all. Milestone Scientific’s sales and marketing efforts rely upon independent distributors that are free to market products that compete with Milestone Scientific’s products, and if Milestone Scientific is unable to maintain or expand its network of independent distributors, its business could be materially adversely affected. Milestone Scientific believes that a significant portion of its sales will continue to be to independent distributors for the foreseeable future, and it is possible that the percentage of its sales to independent distributors could increase. None of Milestone Scientific’s independent distributors in the United States have been required to sell Milestone Scientific products exclusively, and each of them may freely sell the products of Milestone Scientific’s competitors. If Milestone Scientific is unable to maintain or expand its network of independent distributors, its sales may be negatively affected. If any of its key independent distributors were to cease to distribute Milestone Scientific’s products or reduce their promotion of such products as compared to the products of Milestone Scientific’s competitors, Milestone Scientific may need to seek alternative independent distributors or increase its reliance on other independent distributors which alternative arrangements may not be sufficient to prevent a material reduction in sales of its products. Developments by competitors may render our products or technologies obsolete or non-competitive. The medical device industry is intensely competitive and subject to rapid and significant technological change. We expect that other companies (or individuals), whether located in the United States or abroad, will pursue the development of alternative injection-based or imaging-based systems that will compete with our products. Many of these potential competitors have substantially greater capital resources, larger research and development staffs and facilities, longer product development history in obtaining regulatory approvals and greater manufacturing and marketing capabilities than we do. These companies also compete with us to attract qualified personnel and parties for acquisitions, joint ventures, or other collaborations. As a result, we may not be able to compete effectively against these companies or their products. 13 Our ability to commercialize our products will depend in part on the extent to which reimbursement will be available from governmental agencies, health administration authorities, private health maintenance organizations and health insurers and other healthcare payers. Our ability to generate revenues from our products will be diminished if the products sell for inadequate prices or hospitals or physicians are unable to obtain adequate levels of reimbursement for the cost they incur in connection with the use of the product. Significant uncertainty exists as to the reimbursement status of newly approved healthcare products. Healthcare payers, including Medicare, are challenging the prices charged for medical products and services. Government and other healthcare payers increasingly attempt to contain healthcare costs by limiting both coverage and the level of reimbursement for products. Insurance coverage may not be available, or reimbursement levels may be inadequate, to cover the charges for the use of such product. If government and other healthcare payers do not provide adequate coverage and reimbursement for any of our products, market acceptance of such product could be reduced. Prices in many countries, including many in Europe, are subject to local regulation and price controls. In the United States, where pricing levels for medical products, procedures and services are substantially established by third-party payors, including Medicare, if payors reduce the amount of reimbursement for a product, it may cause groups or individuals dispensing the product to discontinue use of the product, to substitute lower cost products even if the alternatives are less effective or to seek additional price-related concessions. These actions could have a negative effect on our financial results. The existence of direct and indirect price controls and pressures on our products could materially adversely affect our financial prospects and performance. We could lose our market advantage earlier than expected. We believe that our products represent a significant improvement over any existing drug delivery injection system in use today. However, this competitive advantage can evaporate quickly if we are not able to commercialize our products quickly. In the medical device industry, the majority of an innovative product’s commercial value is realized during the early stages of commercialization, before competing products are developed. Our market advantage is based, in part, on patent rights and the need for new competing products and systems to obtain regulatory approval before they can be commercialized. The scope of our patent rights may be limited and may also depend on the availability of meaningful legal remedies. Our failure to adequately protect our intellectual property rights, through patents or otherwise, or limitations on the use or loss of such rights, could have a material adverse effect on our ability to prevent the commercialization of competing anesthetic delivery systems. In some countries, basic patent protections for our products may not exist because certain countries did not historically offer the right to obtain specific types of patents and/or we (or our licensors) did not file in those markets. In addition, the patent environment can be unpredictable, and the validity and enforceability of patents cannot be predicted with certainty. Risks Related to the Covid-19 Pandemic The COVID-19 pandemic has and may continue to adversely affect the Company’s business. Additional factors could exacerbate such negative consequences and/or cause other materially adverse effects. Certain COVID-19 pandemic-related impacts were experienced by our businesses during 2022 and may continue for an indeterminable period. These included supply chain delays for some of our products which are manufactured in China and supply shortages in key components in our dental products. Future resurgences in COVID-19 infections or other new viral outbreaks may affect the prioritization of non-acute versus acute healthcare utilization, which may temporarily weaken future demand for certain of our products and increase the demand for other of our products. Also, adverse macroeconomic conditions may worsen if governments impose future restrictions, such as lockdowns or quarantine requirements, in order to control infection rates associated with COVID-19 or other viruses. Additionally, the pandemic escalated challenges that existed for global healthcare systems prior to the pandemic, including budget constraints and staffing shortages, particularly shortages of nursing staff. Changes in the ways healthcare services are delivered, including the transition of more care from acute to non-acute settings and increased focus on chronic disease management, may place additional financial pressure on hospitals and the broader healthcare system. Healthcare institutions may take actions to mitigate any We are experiencing supply delays and shortages due to the disruptions the ongoing COVID-19 pandemic is having on the global supply chain, especially with respect to goods from China. We are experiencing supply delays and shortages due to the disruptions the ongoing COVID-19 pandemic is having on the global supply chain, especially with respect to goods from China. The ongoing COVID-19 pandemic has resulted in significant disruption to the operations of certain suppliers in China and the related transportation of their goods to the United States that are parts of our global supply chain. We have been able to make alternative delivery arrangements for limited quantities of goods, at an increased cost. While we have not yet experienced material shortages in supply as a result of these disruptions and our alternative delivery arrangements, if they were to be prolonged or expanded in scope, there could be resulting supply shortages which could impact our ability to have manufactured and delivered our products to the United States and, ultimately to our customers. Accordingly, such supply shortages and delivery limitations could have a material adverse effect on our business, financial condition, 14 Risks Related to Employee Matters
Our future success depends upon the continued service of our executive officer and other key management and technical personnel, and on our ability to continue to identify, attract, retain, and motivate them. Implementing our business strategy requires specialized territory managers and other talent, as our revenues are highly dependent on technological and product innovations. The market for employees in Risk Related to Our Dependence on Third Parties
We have limited internal experience in manufacturing operations and have not historically established our own manufacturing facilities. We currently lack the internal resources to manufacture any of our products, including our CompuFlo® Epidural Computer Controlled Anesthesia System. Milestone Scientific has been supplied by the manufacturer of the Wand/STA System and its predecessor, the CompuDent System, since the commencement of production in 1998, and by the manufacturer of its handpieces since 2003. The manufacturer of our handpieces is in the
An operational disruption in the
Though other alternate sources of supply for dental handpieces exist, Milestone Scientific would need to establish relationships with new suppliers, and with respect to the Wand/STA System recover its existing tools or have new tools produced and “burned in” and other manufacturing and quality control software re-produced. Establishing new manufacturing relationships could involve significant expense and delay. Each of these risks could delay the commercialization of our CompuFlo Epidural Computer Controlled Anesthesia System, limit our available supply of The Wand/ STA for dental applications, cause damage to our reputation, result in
Because the sole manufacturer of our dental handpieces is located in China, our business is disproportionately exposed to the economic, environmental, and political conditions of the region. China’s political and economic systems are very different from most developed countries in many respects, including, the amount of government involvement, the level of development, the control of foreign exchange and the allocation of resources. Uncertainties may arise with changing governmental 15 These instabilities may significantly and adversely affect our
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. See Item 1; “Government Regulation.” Use of third parties to manufacture our products may increase the risk that we will not have sufficient quantities of our products or such quantities at acceptable levels of cost and quality, which could impair our commercialization efforts. Milestone Scientific relies on a number of third parties to supply and manufacture the components and raw materials for its products and its does not have long-term supply agreements with suppliers of these component parts and raw materials, and its arrangements with these suppliers are on a purchase-order basis. These products we obtain from suppliers are subject to fluctuations in price and availability attributable to a number of factors, including general economic conditions, commodity price fluctuations, the demand by other companies for the same raw materials and the availability of complementary and substitute materials. While Milestone Scientific works with suppliers to ensure continuity of supply, no assurance can be given that these efforts will be successful. In the event that any of its existing supply arrangements are terminated or there is a reduction or interruption of supply under these existing arrangements, Milestone Scientific expects that it will be able to enter into new arrangements with alternative suppliers, but these new arrangements may be on terms that are less favorable, including with respect to price and volume, and it may be costly or cause delays in our manufacturing process to transition to a new supplier, particularly in cases in which we must comply with regulatory requirements relating to qualification of new suppliers. The termination, reduction or interruption in supply of these raw materials and components could adversely impact Milestone Scientific Scientific’s ability to manufacture and sell certain of its products. Third-party suppliers may encounter problems during manufacturing for a variety of reasons, including failure to follow specific protocols and procedures, failure to comply with applicable regulations, equipment malfunction, component part supply constraints, and environmental factors, any of which could delay or impede their ability to supply the components and raw materials for Milestone Scientific’s products. Any such failure to perform or a reduction or interruption in supply could have a material adverse effect on Milestone Scientific’s business and operations.
Risks Related to Regulatory Compliance and Other Legal Matters We are subject to substantial domestic and international government regulation, including regulatory quality standards applicable to our manufacturing and quality processes. Failure by us to comply with these standards could have an adverse effect on our business, financial condition, or results of operations.
The FDA regulates the approval, manufacturing and sales and marketing of many of our products in the United States. Significant government regulation also exists in other countries in which we conduct business. As a device manufacturer, we are required to register with the FDA and are subject to periodic inspection by the FDA for compliance with the In the European community, we are required to maintain certain ISO certifications to sell our products and must undergo periodic inspections by notified bodies to obtain and maintain these certifications. Failure to comply with current governmental regulations and quality assurance guidelines could lead to temporary manufacturing shutdowns, product recalls or related field actions, product shortages or delays in product manufacturing. Efficacy or safety concerns, an increase in trends of adverse events in the marketplace, and/or manufacturing quality issues with respect to our products could lead to product recalls or related field actions, withdrawals, and/or declining sales.
16 We may be subject, directly, or indirectly, to U.S. federal and state health care fraud and abuse and false claims laws and regulations. Prosecutions under such laws have increased in recent years and we may become subject to such litigation. If we are unable to comply or have not fully complied with such laws, we could face substantial penalties. Our operations are and will continue to be directly, or indirectly through our distributors, customers, and health care professionals, subject to various U.S. federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute, federal False Claims Act, and the Foreign Corrupt Practice Act of 1977 (“FCPA”). These laws may impact, among other things, our proposed sales, and marketing and education programs. The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving, or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing or arranging for a good or service, for which payment may be made under a federal health care program such as Medicare or Medicaid. Several courts have interpreted the
The federal False Claims Act prohibits persons from knowingly filing, or causing to be filed, a false claim to, or the knowing use of false statements to obtain payment from, the federal government. Suits filed under the False Claims Act, known as “qui tam” actions, can be brought by any individual on behalf of the government and such individuals, commonly known as “relators” or “whistleblowers,” may share in any amounts paid by the entity to the government in fines or settlement. The frequency of filing qui tam actions has increased significantly in recent years, causing greater numbers of medical device, pharmaceutical and health care companies to have to defend False Claim Act actions. The Affordable Care Act includes provisions expanding the ability of certain relators to bring actions that would have been previously dismissed under prior law. When an entity is determined to have violated the federal False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties for each separate false claim. The Deficit Reduction Act of 2005 encouraged states to enact or modify their state false claims act to be at least as effective as the federal False Claims Act by granting states a portion of any federal Medicaid funds recovered through Medicaid-related actions. Most states have enacted state false claims laws, and many of those states included laws with qui tam provisions.
The Affordable Care Act includes provisions known as the Physician Payments Sunshine Act (section 6002), which require manufacturers of drugs, biologics, devices, and medical supplies covered under Medicare and Medicaid Manufacturers must also disclose investment interests held by physicians and their family members. Failure to submit the required information may result in civil monetary penalties of up to $1 million per year for knowing violations and may result in liability under other federal laws or regulations. Similar reporting requirements have also been enacted on the state level in the United States, and an increasing number of countries worldwide either have adopted or are considering similar laws requiring transparency of interactions with health care professionals. In addition, some states, such as Massachusetts and Vermont, impose an outright ban on certain gifts to physicians.
In addition, we are subject to the Safeguards we implement to discourage improper payments or offers of payments by our employees, consultants, sales agents, or distributors may be ineffective, and violations of the FCPA and similar laws may result in severe criminal or civil sanctions, or other liabilities or proceedings against us, any of which would likely harm our reputation, business, results of operations and financial condition. Safeguards we implement to discourage improper payments or offers of payments by our employees, consultants, sales agents, or distributors may be ineffective, and violations of the FCPA and similar laws may result in severe criminal or civil sanctions, or other liabilities or proceedings against us, any of which would likely harm our reputation, business, results of operations and financial condition.
17 Certain modifications to Milestone Scientific’s products may require new 510(k) clearances or other marketing authorizations and may require Milestone Scientific Once a medical device is permitted to be legally marketed in the United States pursuant to a 510(k) clearance, a manufacturer may be required to notify the FDA of certain modifications to the device. Manufacturers determine in the first instance whether a change to a product requires a new 510(k) clearance or premarket submission, but the FDA may review any manufacturer’s decision. The FDA may not agree with Milestone Scientific’s decisions regarding whether new clearances are necessary. Milestone Scientific has made modifications to its products in the past and has determined based on its review of the Milestone Scientific may be subject to enforcement actions if it engages in improper marketing or promotion of its
Milestone
Risks Related to Milestone Scientific Common Stock Milestone Scientific is effectively controlled by a limited number of stockholders.
Milestone Scientific
18
Our stock price may experience substantial volatility because of many factors, including:
Many of these factors are beyond our control. The stock markets in general, and the market for small, medical device companies, in particular, have historically experienced extreme price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. These broad market and industry factors could reduce the market price of our common stock, regardless of our actual operating performance. We have never paid and do not intend to pay cash dividends in the foreseeable future.As a result, capital appreciation, if any, will be your sole source of gain. We have never paid cash dividends on any of our capital stock, and we currently intend to retain future earnings, if any, to fund the development and growth of our business. In addition, the terms of existing and future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future. Provisions in our certificate of incorporation, our by-laws and Delaware law might discourage, delay, or prevent a change in control of our company or changes in our management and, therefore, depress the trading price of our common stock. Provisions of our certificate of incorporation, our by-laws and Delaware law may have the effect of deterring unsolicited takeovers or delaying or preventing a change in control of our company or changes in our management, including transactions in which our stockholders might otherwise receive a premium for their shares over then current market prices. In addition, these provisions may limit the ability of stockholders to approve transactions that they may deem to be in their best interests. These provisions include:
All of which could make it more difficult for a third party to acquire, or discourage a third party from seeking to acquire, control of our company. In addition, Section 203 of the Delaware General Corporation Law prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last three years, has owned 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. The existence of the forgoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our Company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition. If we fail to adhere to the strict listing requirements of NYSE American, we may be subject to delisting.As a result, our stock price may decline, and our common stock may be de-listed.If our stock were no longer listed on NYSE American, the liquidity of our securities likely would be impaired. Our common stock currently trades on the NYSE American under the symbol “MLSS”. If we fail to adhere to NYSE American's strict listing criteria, including with respect to stock price, our market capitalization and stockholders’ equity, our stock may be de-listed. This could potentially impair the liquidity of our securities not only in the number of shares that could be bought and sold at a given price, which may be depressed by the relative illiquidity, but also through delays in the timing of transactions and the potential reduction in media coverage. As a result, an investor might find it more difficult to dispose of our common stock. Any failure at any time to meet the continuing NYSE American listing requirements could have an adverse impact on the value of and trading activity in our common stock. 19 Your percentage of ownership in Milestone Scientificmay be diluted in the future In the future, your percentage ownership in Milestone Scientific may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including any equity awards that Milestone Scientific will grant to its directors, officers, employees and consultants. Such awards will have a dilutive effect on outstanding share count which could adversely affect the market price of Milestone Scientific’s common stock. Risks Related to Our Intellectual Property If we are unable to adequately protect our patents, trade secrets and other proprietary rights, if our patents are challenged or if our provisional patent applications do not get approved, our competitiveness and business prospects may be materially damaged. Intellectual property rights, including patents, trade secrets, confidential information, trademarks, trade names and trade address, are important to our business. We will endeavor to protect our intellectual property rights in key jurisdictions in which our products are produced or used and in jurisdictions into which our products are imported. Our success will depend to a significant degree upon our ability to protect and preserve our intellectual property rights. However, we may be unable to obtain or maintain protection for our intellectual property in key jurisdictions. Although we own and have applied for patents and trademarks throughout the world, we may have to rely on judicial enforcement of our patents and other proprietary rights. Our patents and other intellectual property rights may be challenged, invalidated, circumvented, and rendered unenforceable or otherwise compromised. A failure to protect, defend or enforce our intellectual property could have an adverse effect on our financial condition and results of operations. Similarly, third parties may assert claims against us and our customers and distributors alleging our products infringe upon third party intellectual property rights. We believe that the intellectual property underlying our products is a competitive advantage. We rely on a combination of patent rights, trade secrets and nondisclosure and non-competition agreements to protect our proprietary intellectual property, and we will continue to do so. There can be no assurance that our patents, trade secret policies and practices or other agreements will adequately protect our intellectual property. Our issued patents may be challenged, found to be over-broad or otherwise invalidated in subsequent proceedings before courts or the U.S. Patent and Trademark Office. Even if enforceable, we cannot provide any assurances that they will provide significant protection from competition. The processes, systems, and/or security measures we use to preserve the integrity and confidentiality of our data and trade secrets may be breached, and we may not have adequate remedies resulting from such breaches. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. There can be no assurance that the confidentiality, nondisclosure and non-competition agreements with employees, consultants and other parties with access to our proprietary information to protect our trade secrets, proprietary technology, processes and other proprietary rights, or any other security measures relating to such trade secrets, proprietary technology, processes and proprietary rights, will be adequate, will not be breached, that we will have adequate remedies for any breach, that others will not independently develop substantially equivalent proprietary information or that third parties will not otherwise gain access to our trade secrets or proprietary knowledge. To the extent that our consultants, contractors, or collaborators use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. If we must take legal action to protect, defend or enforce our intellectual property rights, any suits or proceedings could result in significant costs and diversion of our resources and our management’s attention, and we may not prevail in any such suits or proceedings. A failure to protect, defend or enforce our intellectual property rights could have an adverse effect on our results of operations. Third parties could obtain patents that may require us to negotiate licenses to commercialize our technologies, and we cannot assure you that the required licenses would be available on reasonable terms or at all. Third parties may claim that one or more aspects of our technologies or products may infringe on their intellectual property rights. Our computer-controlled anesthesia systems are complex systems and numerous U.S. and foreign patents and pending patent applications owned by third parties exist in fields that relate to the development and commercialization of drug delivery systems. In addition, many companies have employed intellectual property litigation as a strategy to gain a competitive advantage. It is possible that infringement claims may occur as the number of products and competitors in our market increases. In addition, to the extent that we gain greater visibility and market exposure as a public company, we face a greater risk of being the subject of intellectual property infringement claims. We cannot be certain that the conduct of our business does not and will not infringe intellectual property or other proprietary rights of others in the U.S. and in foreign jurisdictions. If any of our computer-controlled anesthesia systems are found to infringe third party patent rights, we could be prohibited from manufacturing and commercializing the infringing technology unless we obtain a license under the applicable third-party patent and pay royalties or are able to design around such patent. We may be unable to obtain a license on terms acceptable to us, or at all, and we may not be able to redesign the system to avoid infringement. Even if we can redesign our products or processes to avoid an infringement claim, our efforts to design around the patent could require significant time, effort and expense and ultimately may lead to an inferior or costlier product. Any claim of infringement by a third party, even those without merit, could cause us to incur substantial costs defending against the claim and could distract our management from our business. Furthermore, if any such claim is successful, a court could order us to pay substantial damages, including compensatory damages for any infringement, plus prejudgment interest and could, in certain circumstances, treble the compensatory damages and award attorney fees. These damages could be substantial and could harm our reputation, business, financial condition, and operating results. A court also could enter orders that temporarily, preliminary, or permanently prohibit us, our licensees, if any, and our customers from making, using, selling, offering to sell, or importing one or more of our products or using our proprietary technologies or processes, or could enter an order mandating that we undertake certain remedial activities. 20 Any of these events could seriously harm our business, operating results, and financial condition. General Business Risks Continued instability in the credit and financial markets may negatively impact our ability to commercialize our products. Financial markets in the United States, Canada, Europe, and Asia continue to experience disruption, including, among other things, significant volatility in security prices, declining valuations of certain investments, as well as severely diminished liquidity and credit availability. Business activity across a wide range of industries and regions continues to be reduced. As a small medical device company, we rely on third parties for several important aspects of our business, including contract manufacturing of products, distribution of our products and sales and marketing. These third parties may be unable to satisfy their commitments to us due to tightening of global credit from time to time, which would adversely affect our business. The continued volatility in the credit and financial market conditions may also negatively impact our ability to access capital and credit markets and our ability to manage our cash balance. While we are unable to predict the continued duration and severity of any adverse conditions in the United States and other countries, any of the circumstances mentioned above could adversely affect our business, financial condition, operating results and cash flow or cash position. 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. Insurance coverage may be inadequate or unavailable to cover any product liability losses we incur. Our business exposes us to potential product liability claims that are inherent in the design, manufacture, testing, inspection, and sale of dental and medical devices. We are subject to product liability lawsuits alleging that component failures, manufacturing flaws, manufacturing defects, negligence in manufacturing, design defects, negligence in design, or inadequate disclosure of product-related risks, warnings, or product-related information resulted in an unsafe condition, injury, or death to customers. The risk of one or more product liability claims or lawsuits may be even greater after we launch new products with new features or enter new markets where we have no prior experience selling our products and rely on newly-hired staff or new independent distributors or contractors to provide new customer training and customer support. In addition, the misuse of our products or the failure of customers to adhere to operating guidelines could cause significant harm to customers, including death, which could result in product liability claims. Product liability lawsuits and claims, safety alerts or product recalls, with or without merit, regardless of any available insurance coverage, could cause us to incur substantial costs, and could place a significant strain on our financial resources, divert the attention of management from our core business, harm our reputation and adversely affect our ability to attract and retain customers, any of which could have a material adverse effect on our business, financial condition and operating results. Item1B. Unresolved Staff Comments
None.
21 Item 2.
The headquarters for Milestone Scientific is located at
Milestone Scientific does not own or intend to invest in any real property. Milestone Scientific currently has no policy with respect to investments
Not applicable.
PART II
Market Information
On June 1, 2015, our common stock was listed on the NYSE
Holders
As of March
Dividends
The holders of common stock are entitled to receive such dividends as may be declared by Milestone Scientific’s Board of Directors. Milestone Scientific has not paid and does not expect to declare or pay any dividends in the foreseeable future.
Sales of Unregistered Securities
ITEM 6. Selected Financial Data
ITEM 7. Management
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 included elsewhere in this annual report. 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. See "Risk Factors"
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 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
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 WandSTA® System.
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
24
Since its market introduction in early 2007, the Wand STA
The following table shows a breakdown of Milestone
25
Current Product Platform
See Item 1. Description of Business.
Summary of Critical Accounting Policies and Significant Judgments and Estimates
The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and
While significant accounting policies are more fully described in Note
Principles of Consolidation Milestone Scientific's discussion and analysis of the financial condition and results of operations is based upon its consolidated financial statements that 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, and Milestone Medical. All significant, intra-entity transactions and balances are eliminated in the consolidation. 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:
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 F. Assessment of our Ability to Continue as a Going Concern
The Company has evaluated whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. Total operating losses since inception of $116.4 million. The operating losses were $8.8 million and $7.4 million, for the
26
Inventories
Inventories principally consist of finished goods and component parts stated at the lower of cost (first-in,
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
Results of
The following table sets forth
27 Year endedDecember 31, 2022, compared to year ended December 31,
Consolidated revenue for the
Gross Profit for years ended December 31,2022 and 2021 were as follows:
Consolidated gross profit for the years ended December 31, 2022 and 2021 decreased approximately $1.4 million or 22%. The decrease was driven by an allowance of approximately $550,000 on slow moving Medical finished goods. Selling, general and administrative expenses for
Consolidated selling, general and administrative expenses for the years ended December 31, 2022 and 2021 were approximately
Research and Developmentfor years ended December 31,2022 and 2021 were as follows:
Consolidated research and development expenses for the 28 Profit (Loss) from Operationsfor years ended December 31,2022 and
The loss from operations was approximately $8.8 million and $7.4 million for the
Liquidity and Capital Resources
Milestone Scientific has incurred annual operating losses and negative cash flows from operating activities since its
Contractual Obligations
The impact of the consolidated contractual obligations at December 31,
(1) Purchase obligations include agreements for the purchase of dental devices, including purchase obligations entered into post year end, which will require payment in during the year ended 2023.
Recent Accounting Pronouncements
See
Item 7A. Quantitative and
Milestone Scientific is a
Item 8.
The financial statements of Milestone Scientific required by this Item are set forth beginning on page F-1.
Item 9. Change in and Disagreements with
None.
29 Item 9A. Controls and Procedures
We maintain disclosure controls and procedures
Management
During the
Item 9B. Other Information None. Item 9C. Disclosure regarding Foreign Jurisdiction that Prevent inspections
None.
30
reference.
reference.
hereby incorporated by reference.
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PART IV
Item 15. Exhibits and
The following documents are filed as part of this Report:
Certain of the following exhibits were filed as Exhibits to previous filings filed by Milestone Scientific under the Securities Act of 1933, as amended, or reports filed under the Securities and Exchange Act of 1934, as amended, and are hereby incorporated by reference. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
31.1 | ||
31.2 | Rule 13a-14(a) | |
32.1 | ||
32.2 | ||
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* | |
| 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.
** Indicates management contract or compensatory plan or arrangement.
*** Furnished, not filed, in accordance with item 601(32) (ii) of Regulations-S-K.
* | Filed herewith. | |
** | Indicates management contract or compensatory plan or arrangement. | |
*** | Furnished, not filed, in accordance with item 601(32) (ii) of Regulations-S-K. | |
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2) | Incorporated by reference to Amendment No. 1 to Milestone |
3) | Incorporated by reference to |
4) | Incorporated by reference to Milestone |
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7) | Filed as Appendix A to Milestone |
| Incorporated by reference to Milestone |
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| 13) | Incorporated by reference to Milestone Scientific’s Form 10-K for the year ended December 31, 2015. | |
| 14) | Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on June 30, 2016. |
15) | Incorporated by reference to Milestone |
16) | Incorporated by reference to Milestone | |
| 17) | Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on June 2, 2017. | |
| 18) | Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on June 7, 2017. | |
| 19) | Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on July 10, 2017. | |
| 20) | Incorporated by reference to Milestone Scientific’s Form 10-Q filed with the SEC on August 14, 2017. | |
| 21) | Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on February 1, 2019. | |
| 22) | Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on February 14, 2019. | |
| 23) | Incorporated by reference to Milestone Scientific’s Form 10-K filed with the SEC on April 1, 2019. | |
| 24) | Incorporated by reference to Milestone Scientific’s Form 10-K/A filed with the SEC on April 2, 2021 . | |
| 25) | Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on April 9, 2021 . | |
| 26) | Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on June 25, 2021 | |
| 27) | Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on April 7, 2021 | |
| 28) | Incorporated by reference to Milestone Scientific’s Proxy Statement on Schedule 14A filed with the SEC on April 30, 2021 | |
| 29) | Incorporated by reference to Milestone Scientific’s Form 10-Q filed with the SEC on August 15, 2022. | |
| 30) | Incorporated by reference to Milestone Scientific’s Form 10-K filed with the SEC on March 31, 2022 | |
| 31) | Incorporated by reference to Milestone Scientific’s Form 10-K filed with the SEC on March 31, 2022 |
SIGNATURES
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Milestone Scientific Inc. | ||
By: | /s/Arjan Haverhals | |
Chief Executive Officer | ||
Milestone Scientific Inc. | ||
By: | /s/ | |
Chief | ||
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Date: March 31, 201730, 2023
In accordance withPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Date | Title | |
/s/ Neal Goldman | March 30, 2023 | Chairman and Director | |
Neal Goldman | |||
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/s/ Leonard Osser | March |
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Leonard Osser |
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/s/ Gian Domenico Trombetta | March | Director | |
Gian Domenico Trombetta | |||
/s/ | March | Director | |
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/s/ Michael McGeehan | March 30, 2023 | Director | |
Michael McGeehan | |||
/s/ Arjan J. Haverhals | March 30, 2023 | Director | |
Arjan J. Haverhals | |||
REPORTINDEX TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022and 2021
| Reports of Independent Registered Public Accounting Firms (Marcum LLP PCAOB ID Number 688 and Friedman LLP PCAOB ID Number 711) | F-2 | |
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
For the Years ended December 31, 2016 and 2015
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Consolidated Financial Statements: | ||
Consolidated Balance Sheets | F-4 | |
Consolidated Statements of Operations | F-5 | |
Consolidated Statements of Changes in | F-6 | |
Consolidated Statements of Cash Flows | F-7 | |
Notes to Consolidated Financial Statements |
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders Audit Committee and Board of Directors of
Milestone Scientific, Inc. and Subsidiaries
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Milestone Scientific, Inc. and subsidiaries (the “Company”) as of December 31, 2016,2022 and the related consolidated statement of operations, consolidated statementstockholders’ equity and cash flows for year ended December 31, 2022, and the related notes(collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of changes in stockholders' equitythe Company as ofDecember 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2016. Milestone Scientific Inc.'s management is responsible2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for these consolidatedOpinion
These financial statements.statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidatedthe Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standardsstandards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not requiredmisstatement, whether due to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Milestone Scientific Inc. as of December 31, 2016, and the results of its operations and its cash flow for the year ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders, Audit Committee and Board of Directors
Milestone Scientific Inc. Livingston, NJ
We have audited the accompanying consolidated balance sheet of Milestone Scientific Inc. as of December 31, 2015, and the related consolidated statements of operations stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our As part of our audit included considerationwe are required to obtain an understanding of its internal controlcontrol over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An
Our audit includesincluded performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements. AnOur audit also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidatedpresentation of the financial statement presentation.statements. We believe that our audit provideprovides a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Marcum LLP
We have served as the Company’s auditor since 2016 (such date takes into account the acquisition of certain assets of Friedman LLP by Marcum LLP effective September 1, 2022)
East Hanover, New Jersey
March 30, 2023
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Milestone Scientific, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Milestone Scientific, Inc. (the “Company”) as of December 31, 2021, the related consolidated statement of operations, stockholders’ equity and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Milestone Scientific Inc.the Company as of December 31, 20152021, and the results of its operations and its cash flows for the year then ended December 31, 2021, in conformity with U.S.accounting principles generally accepted accounting principles.in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
The valuation of inventories requires management to make significant assumptions and complex judgments about the future salability of the inventory and its net realizable value. These assumptions include the assessment of net realizable value by inventory category considering future usage and forecast product demand for the Company’s products. Changes in such assumptions could have a significant impact on the valuation of the Company’s inventories. Additionally, management makes qualitative judgments related to slow moving and obsolete inventories. This leads to a high degree of auditor judgment and an increased extent of effort is required when performing audit procedures to evaluate the methodology and reasonableness of the estimates and assumptions.
How We Addressed the Matter in Our Audit
The following are the most relevant procedures we performed to address this critical audit matter:
● | Testing of whether the data used to assess obsolescence associated with inventory on hand was complete and sufficiently precise. |
● | Evaluating whether the expected customer demand used was reasonable, considering the Company’s current and past marketing efforts and their market studies in developing the estimate of future demand, the estimated useful life of the inventory, current economic and competitive conditions that could impact the forecasts, and the timing of the introduction and development of new or enhanced products. |
● | Evaluating the reasonableness of management’s assumption related to the risk of technological or competitive obsolescence for products considering the technological or competitive obsolescence experiences during the product life cycle of existing products used in other business lines. |
/s/ Baker Tilly Virchow Krause,Friedman LLP
New York, New York
April 6,We have served as the Company’s auditor from 2016 to 2022.
East Hanover, New Jersey
March 31, 2022
MILESTONE SCIENTIFIC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2022 | December 31, 2021 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 8,715,279 | $ | 14,764,346 | ||||
Accounts receivable, net | 693,717 | 943,272 | ||||||
Prepaid expenses and other current assets | 443,872 | 375,360 | ||||||
Inventories | 1,792,335 | 1,541,513 | ||||||
Advances on contracts | 1,325,301 | 1,309,260 | ||||||
Total current assets | 12,970,504 | 18,933,751 | ||||||
Furniture, fixtures and equipment, net | 18,146 | 23,713 | ||||||
Intangibles, net | 227,956 | 277,619 | ||||||
Right of use assets finance lease | 17,645 | 26,294 | ||||||
| Right of use assets operating lease | 443,685 | 524,217 | ||||||
Other assets | 24,150 | 24,150 | ||||||
Total assets | $ | 13,702,086 | $ | 19,809,744 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,102,729 | $ | 780,428 | ||||
Accounts payable, related party | 803,492 | 395,857 | ||||||
Accrued expenses and other payables | 1,124,839 | 1,417,248 | ||||||
Accrued expenses, related party | 167,549 | 414,241 | ||||||
Current portion of finance lease liabilities | 9,365 | 8,545 | ||||||
Current portion of operating lease liabilities | 91,701 | 81,001 | ||||||
Total current liabilities | 3,299,675 | 3,097,320 | ||||||
Non-current portion of finance lease liabilities | 10,698 | 20,062 | ||||||
Non-current portion of operating lease liabilities | 385,279 | 476,980 | ||||||
Total liabilities | $ | 3,695,652 | $ | 3,594,362 | ||||
Commitments | ||||||||
Stockholders’ equity | ||||||||
Common stock, par value $.001;authorized 100,000,000 shares; 69,306,497 shares issued and 69,273,164 shares outstanding as of December 31, 2022; 68,153,336 shares issued and 68,120,003 shares outstanding as of December 31, 2021 | 69,306 | 68,153 | ||||||
Additional paid in capital | 127,478,325 | 124,915,560 | ||||||
Accumulated deficit | (116,410,405 | ) | (107,704,274 | ) | ||||
Treasury stock, at cost, 33,333 shares | (911,516 | ) | (911,516 | ) | ||||
Total Milestone Scientific, Inc. stockholders' equity | 10,225,710 | 16,367,923 | ||||||
Noncontrolling interest | (219,276 | ) | (152,541 | ) | ||||
Total stockholders’ equity | 10,006,434 | 16,215,382 | ||||||
Total liabilities and stockholders’ equity | $ | 13,702,086 | $ | 19,809,744 | ||||
See notes to Consolidated Financial Statements
MILESTONE SCIENTIFIC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
2022 | 2021 | |||||||
Product sales, net | $ | 8,805,906 | $ | 10,304,711 | ||||
Cost of products sold | 3,905,092 | 3,992,811 | ||||||
Gross profit | 4,900,814 | 6,311,900 | ||||||
Selling, general and administrative expenses | 12,514,323 | 12,738,362 | ||||||
Research and development expenses | 1,150,209 | 878,210 | ||||||
Depreciation and amortization expense | 63,755 | 73,836 | ||||||
Total operating expenses | 13,728,287 | 13,690,408 | ||||||
Loss from operations | (8,827,473 | ) | (7,378,508 | ) | ||||
Interest income (expense) | 54,607 | (16,360 | ) | |||||
Gain on debt extinguishment-PPP | - | 276,180 | ||||||
Loss before provision for income taxes and equity investments | (8,772,866 | ) | (7,118,688 | ) | ||||
Provision for income taxes | - | (333 | ) | |||||
Loss before equity investment | (8,772,866 | ) | (7,119,021 | ) | ||||
Deferred profit and divesture-equity investment (See Note F) | - | 242,589 | ||||||
Net loss | (8,772,866 | ) | (6,876,432 | ) | ||||
Net loss attributable to noncontrolling interests | 66,735 | 58,115 | ||||||
Net loss attributable to Milestone Scientific Inc. | $ | (8,706,131 | ) | $ | (6,818,317 | ) | ||
Net loss per share applicable to common stockholders— | ||||||||
Basic and Diluted | (0.12 | ) | (0.10 | ) | ||||
Weighted average shares outstanding and to be issued— | ||||||||
Basic and Diluted | 70,607,338 | 68,829,860 | ||||||
See notes to Consolidated Financial Statements
MILESTONE SCIENTIFIC CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31 2022 AND 2021 | |||||
|
December 31, 2016 | December 31, 2015 | |||||||
| ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 3,602,229 | $ | 4,194,384 | ||||
Accounts receivable, net of allowance for doubtful accounts of $10,000 as of December31, 2016 and $5,000 as of December 31, 2015 | 802,384 | 1,437,401 | ||||||
Account receivable from related party | 2,083,610 | 356,400 | ||||||
Other receivable | 10,000 | 58,140 | ||||||
Inventories | 4,602,719 | 4,258,094 | ||||||
Advances on contracts | 700,900 | 1,215,128 | ||||||
| Deferred cost | 620,041 | - | ||||||
Prepaid expenses and other current assets | 291,929 | 304,604 | ||||||
Total current assets | 12,713,812 | 11,824,151 | ||||||
Investment in Milestone Education LLC | - | 16,346 | ||||||
Furniture, fixtures & equipment net of accumulated depreciation of $659,144 as of December 31, 2016 and $566,477 as of December 31, 2015 | 159,026 | 235,935 | ||||||
Patents, net of accumulated amortization of $717,086 as of December 31, 2016 and $646,388 as of December 31, 2015 | 660,457 | 715,540 | ||||||
Other assets | 17,355 | 17,355 | ||||||
Total assets | $ | 13,550,650 | $ | 12,809,327 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 2,576,259 | $ | 2,088,268 | ||||
Accrued expenses and other payables | 1,436,262 | 1,555,567 | ||||||
Deferred revenue | 1,001,800 | - | ||||||
Total current liabilities | 5,014,321 | 3,643,835 | ||||||
Commitments and Contingencies | ||||||||
Stockholders’ Equity | ||||||||
Series A convertible preferred stock, par value $.001, authorized 5,000,000 shares, 33,333 shares held in the treasury, and 7,000 shares issued and outstanding as December 31, 2016 and December 31, 2015 | 7 | 7 | ||||||
Common stock, par value $.001; authorized 50,000,000 shares; 30,457,224 shares issued, 1,270,481 shares to be issued and 30,423,891 shares outstanding as of December 31, 2016; 21,720,497 shares issued, 963,451 shares to be issued and 21,687,164 shares outstanding as of December 31, 2015 | 31,720 | 22,685 | ||||||
Additional paid-in capital | 82,761,503 | 78,632,383 | ||||||
Accumulated deficit | (73,381,491 | ) | (67,434,984 | ) | ||||
Treasury stock, at cost, 33,333 shares | (911,516 | ) | (911,516 | ) | ||||
Total Milestone Scientific Inc. stockholders' equity | 8,500,223 | 10,308,575 | ||||||
Noncontrolling interest | 36,106 | (1,143,083 | ) | |||||
Total Equity | 8,536,329 | 9,165,492 | ||||||
Total liabilities and stockholders’ equity | $ | 13,550,650 | $ | 12,809,327 | ||||
| Common Stock Shares | 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 | - | - | 790,915 | - | - | - | 790,915 | |||||||||||||||||||||
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 | 19 | (19 | ) | - | - | - | - | ||||||||||||||||||||
Common stock to be issued to employees for bonuses | - | - | 100,000 | - | - | - | 100,000 | |||||||||||||||||||||
Common stock issued to employee for stock options exercised | 826,499 | 826 | 1,381,060 | - | - | - | 1,381,886 | |||||||||||||||||||||
Common stock issued to employee for compensation | 18,345 | 18 | 107,482 | - | - | - | 107,500 | |||||||||||||||||||||
Common stock to be issued for payment of consulting services | 289,661 | 290 | 770,044 | - | - | - | 770,334 | |||||||||||||||||||||
Common stock issued to board of directors for services | 277,767 | 278 | 617,889 | - | - | - | 618,167 | |||||||||||||||||||||
Common stock issued to employee for bonus expensed in prior periods | 402,490 | 402 | (402 | ) | - | - | - | - | ||||||||||||||||||||
Common stock issued for warrants exercised | 2,101,175 | 2,102 | 3,213,942 | - | - | - | 3,216,044 | |||||||||||||||||||||
Net loss | - | - | - | (6,818,317 | ) | (58,115 | ) | - | (6,876,432 | ) | ||||||||||||||||||
Balance at December 31, 2021 | 68,153,336 | $ | 68,153 | $ | 124,915,560 | $ | (107,704,274 | ) | $ | (152,541 | ) | $ | (911,516 | ) | $ | 16,215,382 | ||||||||||||
Stock based compensation | - | - | 1,499,302 | - | - | - | 1,499,302 | |||||||||||||||||||||
Common stock to be issued to employees for bonuses | - | - | 264,385 | - | - | - | 264,385 | |||||||||||||||||||||
Common stock issued to employee for compensation | 30,196 | 30 | 39,973 | - | - | - | 40,003 | |||||||||||||||||||||
Common stock issued for payment of consulting services | 577,074 | 577 | 746,774 | - | - | - | 747,351 | |||||||||||||||||||||
Common stock issued to employees for bonuses | 147,338 | 147 | (147 | ) | - | |||||||||||||||||||||||
Common stock issued to board of directors for services | 398,553 | 399 | 12,478 | - | - | - | 12,877 | |||||||||||||||||||||
Net loss | - | - | - | (8,706,131 | ) | (66,735 | ) | - | (8,772,866 | ) | ||||||||||||||||||
Balance December 31, 2022 | 69,306,497 | $ | 69,306 | $ | 127,478,325 | $ | (116,410,405 | ) | $ | (219,276 | ) | $ | (911,516 | ) | $ | 10,006,434 |
See notes to Consolidated Financial Statements
MILESTONE SCIENTIFIC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31,
See notes to Consolidated Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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2016 | 2015 | |||||||
Revenue | ||||||||
Product sales, net | $ | 10,482,005 | $ | 9,491,569 | ||||
Cost of products sold | 4,175,533 | 3,048,260 | ||||||
Gross profit | 6,306,472 | 6,443,309 | ||||||
Selling, general and administrative expenses | 11,549,961 | 9,399,201 | ||||||
Research and development expenses | 1,270,471 | 100,856 | ||||||
Total operating expenses | 12,820,432 | 9,500,057 | ||||||
Loss from operations | (6,513,960 | ) | (3,056,748 | ) | ||||
Other (expenses) | (5,088 | ) | (5,347 | ) | ||||
Interest income | 1,285 | 3,838 | ||||||
Loss before provision for income tax and equity in net earnings of equity investments | (6,517,763 | ) | (3,058,257 | ) | ||||
Provision for income tax | 19,101 | (36,157 | ) | |||||
| Loss before equity in net earnings of equity investments | (6,498,662 | ) | (3,094,414 | ) | ||||
Loss on earnings from Milestone Medical | - | (2,019,211 | ) | |||||
Income (Loss) on earnings from Education Joint Venture | - | (7,846 | ) | |||||
Loss on earnings from China Joint Venture | (795,827 | ) | (418,432 | ) | ||||
Loss in equity investments | (795,827 | ) | (2,445,489 | ) | ||||
Net Loss | (7,294,489 | ) | (5,539,903 | ) | ||||
Net loss attributable to noncontrolling interests | (1,347,982 | ) | (72,381 | ) | ||||
Net loss attributable to Milestone Scientific Inc. | $ | (5,946,507 | ) | $ | (5,467,522 | ) | ||
Net loss per share applicable to common stockholders— | ||||||||
Basic | $ | (0.22 | ) | $ | (0.26 | ) | ||
Diluted | $ | (0.22 | ) | $ | (0.26 | ) | ||
Weighted average shares outstanding and to be issued— | ||||||||
Basic | 26,966,988 | 21,429,993 | ||||||
Diluted | 26,966,988 | 21,429,993 | ||||||
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Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Additional | Accumulated | Noncontrolling | Treasury | Total | ||||||||||||||||||||||||||||
Balance, December 31, 2014 | 7,000 | $ | 7 | 22,379,447 | $ | 22,380 | $ | 77,504,415 | $ | (61,967,462 | ) | $ | 394,528 | $ | (911,516 | ) | $ | 15,042,352 | ||||||||||||||||||
Consolidation of Milestone Medical | - | - | - | - | - | - | (1,965,230 | ) | - | (1,965,230 | ) | |||||||||||||||||||||||||
Stock based compensation | - | - | - | - | 637,108 | - | - | - | 637,108 | |||||||||||||||||||||||||||
Capital contribution from noncontrolling interest | - | - | - | - | - | 500,000 | - | 500,000 | ||||||||||||||||||||||||||||
Common stock issued for payment of consulting services | - | - | 41,365 | 41 | 119,959 | - | - | - | 120,000 | |||||||||||||||||||||||||||
Common stock issued for payment of employee compensation | - | - | 17,817 | 18 | 49,982 | - | - | - | 50,000 | |||||||||||||||||||||||||||
Common stock to be issued to employee for bonuses | - | - | 29,865 | 29 | 99,971 | - | - | - | 100,000 | |||||||||||||||||||||||||||
Common stock issued to employee for exercise of stock options | - | - | 200,000 | 200 | 199,800 | - | - | - | 200,000 | |||||||||||||||||||||||||||
Exercise of stock options for consultants | - | - | 16,666 | 17 | 21,148 | - | - | - | 21,165 | |||||||||||||||||||||||||||
Net loss | - | - | - | - | (5,467,522 | ) | (72,381 | ) | - | (5,539,903 | ) | |||||||||||||||||||||||||
Balance, December 31, 2015 | 7,000 | $ | 7 | 22,685,160 | 22,685 | 78,632,383 | (67,434,984 | ) | (1,143,083 | ) | (911,516 | ) | 9,165,492 | |||||||||||||||||||||||
Consolidation of Milestone Education | - | - | - | - | 16,346 | - | 16,346 | |||||||||||||||||||||||||||||
Stock based compensation | - | - | - | - | 580,347 | - | - | - | 580,347 | |||||||||||||||||||||||||||
Common stock to be issued to employee for compensation | 14,181 | 14 | 29,986 | - | - | - | 30,000 | |||||||||||||||||||||||||||||
Common stock to be issued to employee for stock program | 31,053 | 31 | 58,969 | - | - | - | 59,000 | |||||||||||||||||||||||||||||
Common stock issued to employee for exercise of stock options | 327,778 | 328 | 137,172 | - | - | - | 137,500 | |||||||||||||||||||||||||||||
Common stock issued for payment of consulting services | 270,526 | 263 | 504,150 | - | - | - | 504,413 | |||||||||||||||||||||||||||||
Common stock to be issued to employee for bonuses | 259,765 | 260 | 539,240 | - | - | - | 539,500 | |||||||||||||||||||||||||||||
Sale of Common Stock - Private Placement | 1,104,200 | 1,104 | 2,223,896 | - | - | - | 2,225,000 | |||||||||||||||||||||||||||||
Sale of Common Stock - Public Offering | 2,000,000 | 2,000 | 2,571,220 | 2,573,220 | ||||||||||||||||||||||||||||||||
Common Stock exchanged for Milestone Medical Inc. | 5,035,042 | 5,035 | (2,515,860 | ) | - | 2,510,825 | - | - | ||||||||||||||||||||||||||||
Net loss | - | - | (5,946,507 | ) | (1,347,982 | ) | - | (7,294,489 | ) | |||||||||||||||||||||||||||
Balance, December 31, 2016 | 7,000 | $ | 7 | 31,727,705 | $ | 31,720 | $ | 82,761,503 | $ | (73,381,491 | ) | $ | 36,106 | $ | (911,516 | ) | $ | 8,536,329 | ||||||||||||||||||
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|
2016 | 2015 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (7,294,489 | ) | $ | (5,539,903 | ) | ||
| Adjustments to reconcile net loss to net cash (used in) by operating activities | ||||||||
Depreciation expense | 92,667 | 27,947 | ||||||
Amortization of patents | 70,699 | 69,428 | ||||||
Common stock and options for compensation, consulting and vendor services | 1,850,760 | 1,128,274 | ||||||
Equity loss on Milestone Medical Inc. | - | 2,019,211 | ||||||
Equity loss on Education joint venture | - | 7,846 | ||||||
Equity loss on China joint venture | 795,827 | 348,651 | ||||||
Changes in operating assets and liabilities: | ||||||||
Increase (Decrease) in accounts receivable | 635,017 | (207,248 | ) | |||||
| Increase in due from related party | (1,727,210 | ) | - | |||||
Decrease (Increase) in other receivable | 48,515 | (58,140 | ) | |||||
Increase in inventories | (509,462 | ) | (875,034 | ) | ||||
Decrease (Increase) to advances on contracts | 514,228 | (450,407 | ) | |||||
| Increase in deferred cost | (620,041 | ) | - | |||||
Decrease to prepaid expenses and other current assets | 12,675 | 192,601 | ||||||
(Increase) in other assets | - | (2,670 | ) | |||||
Increase in accounts payable | 486,348 | 173,068 | ||||||
Decrease in accrued expenses and other payables | (755,915 | ) | 220,038 | |||||
| Increase in deferred revenue | 1,001,800 | - | ||||||
Net cash (used in) operating activities | (5,398,581 | ) | (2,946,338 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchases of intangible assets | (15,615 | ) | (9,939 | ) | ||||
Purchases of property and equipment | (15,344 | ) | (67,581 | ) | ||||
Consolidation of variable interest entity | 39,165 | (3,649,751 | ) | |||||
Net cash provided by (used in) investing activities | 8,206 | (3,727,271 | ) | |||||
Cash flows from financing activities: | ||||||||
Net proceeds on private placement offering | 2,225,000 | - | ||||||
Net proceeds on public offering | 2,573,220 | - | ||||||
Capital contribution from noncontrolling interest | - | 500,000 | ||||||
Net cash provided by investing activities | 4,798,220 | 500,000 | ||||||
Net (decrease) in cash and cash equivalents | (592,155 | ) | (6,173,609 | ) | ||||
Cash and cash equivalents at beginning of year | 4,194,384 | 10,367,993 | ||||||
Cash and cash equivalents at end of year | $ | 3,602,229 | $ | 4,194,384 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Net assets acquired from variable interest entity | $ | 16,346 | $ | 566,775 | ||||
|
MILESTONE SCIENTIFIC INC.
NOTESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A — ORGANIZATION BUSINESS AND BASIS OF PRESENTATIONBUSINESS
All references in this report to “Milestone“Milestone Scientific,” “us,” “our,” “we,” the “Company” or “Milestone” refer to Milestone Scientific Inc., and its consolidated subsidiaries, Wand Dental, Inc., Milestone Advanced CosmeticMedical, Inc. and Milestone MedicalEducation LLC (all described below) and affiliate, Milestone Education (described below), unless the context otherwise indicates. Milestone Scientific is the owner of the following registered U.S. trademarks: CCompuDent®ompuDent®; CompuMed®CompuMed®; CompuFlo®CompuFlo®; DPS Dynamic Pressure Sensing Technology®technology®; Milestone Scientific ®; ®;the Milestone logo ®; SafetyWand®®; SafetyWand®; STA Single Tooth Anesthesia System®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 instrument, through the use of device, using The Wand®Wand®, a single use disposable handpiece. The instrumentdevice is marketed in dentistry under the trademark CompuDent®CompuDent®, and STA Single Tooth Anesthesia System®System® and in medicine under the trademark CompuMed®CompuMed®. CompuDent®CompuDent® is suitable for all dental procedures that require local anesthetic. CompuMed®CompuMed® is suitable for many medical procedures regularly performed in Plastic Surgery, Hair Restoration Surgery, Podiatry, Colorectal Surgery, Dermatology, Orthopedicsplastic surgery, hair restoration surgery, podiatry, colorectal surgery, dermatology, orthopedics, and a number ofmany other disciplines. The dental instrumentsdevices are sold in the United States, Canada and in over 47 countries abroad. There have been no60 other countries. Certain medical instruments sold in the United States and limited amounts sold internationally as of the reporting date, although certain medical instrumentsdevices have obtained CE mark approval and now can be marketed and sold in most European countries. Milestone Scientific’s products are manufactured by a third-party contract manufacturer.
In May of 2014, June 2017, Milestone Scientific completed a private placement (the “May 2014 Financing”), which raised aggregate gross proceeds $10 million,received 510(k) marketing clearance from the sale of $3 million of our common stock, $.001 par value per share (“common stock”) (two million shares at $1.50 per share) and $7 million of our Series A Convertible Preferred Stock (7,000 shares at $1,000 per share), convertible into common stock at $2.37 per share (as adjusted to date) on May 14, 2019, or $1.50 per share if certain conditions are not met; both subject to an anti-dilution adjustment.
On June 1, 2015, we listed our common stock on the NYSE MKT LLC (“NYSE MKT”) under the ticker symbol “MLSS”.
In June 2016, Milestone Scientific raised an additional $2.0 million of gross proceeds in a private placement of one million shares of common stock, at a price of $2.00 per share, to the same investors that participated in the May 2014 Financing.
In the second quarter of 2016, Milestone Scientific initiated a share exchange program pursuant to which we exchanged one share of common stock for every two outstanding shares of Milestone Medical (described below) common stock, a previously consolidated variable interest entity. As a result of the exchange program, at December 31, 2016, Milestone Scientific owned approximately 91% of Milestone Medical.
In July 2016, Milestone Scientific filed for 510(k) marketing clearance with the United StatesU.S. Food and Drug Administration ("FDA"(FDA) on the CompuFlo® Epidural Computer Controlled Anesthesia System (“Epidural”) Milestone Medical's epidural anesthetic injections instrument. This clearance is necessary to begin commercialization.
We are in the process of thesemeeting with medical facilities and device distributors within the United States, Middle East and Europe. Certain of our medical instruments have obtained European CE mark approval and can be marketed and sold in the United States.most European countries.
In December 2016, Milestone Scientific2020, the Company received notificationa Notice of Allowance from the FDAUnited States Patent and Trademark Office (USPTO) related to its new CompuPulse System, which combines the benefits of our CompuWave technology with a manual syringe. The new CompuPulse System allows one to identify a pulsatile pressure waveform in a variety of applications, thereby improving the reliability and safety of a drug delivery procedure. Importantly, not all procedures require the sophistication of our CompuFlo system, which precisely controls the administration and flow rate of medication as it is being administered. This new technology provides an efficient and low-cost alternative for procedures where a manual syringe may suffice, while still providing the ability to verify needle and subsequent catheter placement.
NOTE B-LIQUIDITYAND UNCERTAINTIES
The Company has evaluated whether there are conditions or events, considered in the aggregate, that based upon the 510(k) application submitted forraise substantial doubt about the Company's Compu-Flo Intra Articular Computer Controlled Injection System, it did not adequately documentability to continue as a going concern within one year after the date that the device met the equivalency standard required for 510(k) clearance. Following consultation with the FDA Office of Device Evaluation, we intend to provide additional data, which could include a new Human Factor Validation study (HFV Study) in support of a new 510(k) application for the device. An HFV Study demonstrates the ease of use of a product. The cost to generate this incremental data is estimated to be approximately $100,000.
In December 2016, Milestone Scientific completed an underwritten public offering of 2,000,000 shares of common stock and warrants to purchase up to 1,592,775 shares of common stock, including 92,775 additional warrants pursuant to a partial exercise of the over-allotment option granted to the underwriters. The public offering price for each share and related warrant was $1.50. The warrants have a three-year term and an exercise price of $2.55 per share. In January 2017, the underwriter exercised a portion of its over-allotment option to purchase an additional 123,700 shares of common stock at the public offering price of $1.499 per share. The gross proceeds from this offering, including proceeds from partial exercises of the over-allotment option, were approximately $3,200,000, before deducting underwriting discounts and commissions and other offering expenses. This offering was covered by the prospectus supplement, filed with the SEC on December 16, 2016, to our shelf registration statement on Form S-3 (SEC File No.: 333-209466).
As of December 31, 2016, Milestone Scientific'sconsolidated financial statements are consolidated to include the accounts of its wholly-owned, majority-owned subsidiaries variable interest entity including, Wand Dental, Inc., a Delaware corporation ("Wand Dental"), Milestone Advanced Cosmetic Systems, Inc. ("Milestone Advanced Cosmetic"), Milestone Medical Inc. ("Milestone Medical") and Milestone Education LLC ("Milestone Education"). Milestone Education are variable interest entity for which Milestone Scientific is the primary beneficiary. All significant, intra-entity transactions and balances have been eliminated in the consolidation. (See Note E to the Consolidated Financial Statements).
Milestone Scientific has incurredissued. Total operating losses since inception of $116.4 million. The operating losses were $8.8 million and negative$7.4 million, for the years ended December 31, 2022, and 2021, respectively. Management has prepared cashflow forecasts covering a period of 12 months from the date of issuance of these financial statements. These forecasts include several revenue and operating expense assumptions which indicate that the Company’s current cash flowsand liquidity is sufficient to finance the operating requirements for at least the next 12 months Management believes that the Company will have sufficient cash reserves to meet its anticipated obligations for at least the next twelve months from operating activities since its inception, except for 2013.the filing date of this report. Milestone Scientific is actively pursuing the generation of increasedpositive cash flows from operating activities through an increase in revenue positivefrom 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 income and cash flow from operations. The previous equity financings provided Milestone Scientific withexpenses. However, the opportunity to continue to develop medical instruments and aggressively marketCompany’s continued operations will depend on its already commercialized dental instruments throughout the world. Management believes its cash on hand and remaining net current assets are sufficient to meet its obligations over the next twelve months from the filing of this form 10K. Milestone Scientific may needability to raise additional capital prior to management's expected generation of sustainable positive cash flow from operating activities. through various potential sources until it achieves profitability, if ever.
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. Notwithstanding the reopening of dental offices, hospitals, and pain clinics throughout the country and the rest of the world, revenues for years ended December 31, 2022, and 2021 were adversely affected. 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.
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 caused market volatility, a sharp increase in certain commodity prices, and an increasing number and frequency of cybersecurity threats. As direct impact from the conflict, we have experienced a decrease in international sales to Ukraine and halted all sales to Russia. We will continue to monitor the situation carefully and, if necessary, take action to protect our business, operations, and financial condition.
NOTE B C— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1.Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"), and the applicable rules and regulations of the Securities and Exchange Commission (SEC) include the accounts of Milestone Scientific and its wholly owned and majority owned subsidiaries, including, Wand Dental Milestone Advanced Cosmetic(wholly owned), and Milestone Medical. Milestone Education is a variable interest entity of which Milestone Scientific is the primary beneficiary and is consolidated into Milestone Scientific's financial statements. Prior to December 31, 2015, Milestone Medical was accounted for as an equity investment (See Note E)(majority owned). All significant, intra-entity transactions and balances have been eliminated in the consolidation.
2. Reclassifications Use of Estimates
Certain reclassifications have been madeThe preparation of 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 2015 financial statementsallowance 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.
3.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 conformreceive 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 consolidated 2016 financial statement presentation. These reclassifications had no effectallowance for product returns may be required. The Company recorded allowance of approximately $179,000 for sales returns from Henry Schein due to the termination of the contract on net loss or cash flows as previously reported.December 31, 2022.
Financing and Payment
3. The Company's payment terms differ by geography and customer, but payment is 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 M for revenues by geographical market, based on the customer’s location, and product category for the twelve months ended December 31, 2022, and 2021.
4.Variable Interest Entities
A variable interest entity (“VIE”("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’sScientific’s involvement constitutes power that is most significant to the entity when it has unconstrained decision makingdecision-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 the primary beneficiary of Milestone Medical as of December 31, 2015 (see Note E) and Milestone Education as of January 2016. Accordingly, the assets and liabilities of Milestone Medical and Milestone Education are included in the accompanying consolidated financial statements.
Becausenot a variable interest. Milestone Scientific had an increasinghas a variable interest in Milestone China, it further considered the guidance in Accounting Standard Codification ("ASC") ASC 810, “Consolidation” as it relates to determining whether Milestone China is a VIE and, if so, identifying the primary beneficiary. As Milestone China’s equity at risk and voting rights were not proportional to their economic interest, Milestone China was determined to be a VIE. 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 |
● | Losses/Benefits Criterion: The obligation to |
Milestone managementScientific does not have the ability to control the activities that most significantly impact Milestone China'sChina'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 majority shareholder/CEO of Milestone China. As majority shareholder, majority holder of voting rights, and the active CEO, the 53% investor hasChina 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 continues to beis accounted for under the equity method (seemethod. See Note F).F.
4.
5.Cash and Cash Equivalents
Milestone Scientific considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of December 31, 2022, and 2021 Milestone Scientific has approximately $8.7 million and $14.8 million, respectively, invested in cash. As of December 31, 2022, and 2021 Milestone Scientific had approximately $8.3 million and $13.9 million, respectively, invested in cash that exceeded the Federal Deposit Insurance Corporation insurance limit of $250,000.
5.
6.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. A majority ofMost credit sales are due within ninety90 days from invoicing. There have not been any significant credit losses incurred to date. As of December 31, 2022 and 2021, accounts receivable was recorded, net of allowance for doubtful accounts of $10,000.
6. Product Return and Warranty
Milestone Scientific generally does not accept non-defective returns from its customers. Product returns under warranty are accepted, evaluated and repaired or replaced in accordance with the Warranty Policy. Returns not within the Warranty Policy are evaluated and the customer is charged for the repair.
7.Inventories
Inventories principally consist of finished goods and component parts stated at the lower of cost (first-in, first-out method)(first-in, first-out method) or market.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.
8.Equity Method Investments
Investments in which Milestone Scientific has the ability tocan exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in the long termlong-term assets on the Consolidated BalanceBalance 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 line on the Consolidated Statements of Operations. Milestone Scientific evaluates its equity method investments whenever events or changes in circumstance indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period.
9.Furniture, Fixture and Equipment
Equipment is recorded at cost, less accumulated depreciation. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets, which range from fivethree to seven years. The costs of maintenance and repairs are charged to operations as incurred.
10.Intangible Assets -– Patents and Developed Technology
Patents are recorded at cost to prepare and file the applicable documents with the USUnited States Patent Office, or internationally with the applicable governmental office in the respective country. Although certain patents have not yet been approved, theThe costs related to these patents are being amortized using the straight-line method over the estimated useful life of the patent. IfPatents and other developed technology acquired from another business entity are recorded at acquisition cost and be amortized at the applicable patent application is ultimately rejected, the remaining unamortized balance will be expensed in the period in which Milestone Scientific receives notice of such rejection.estimated useful life. Patent defense costs, to the extent applicable, are expensed as incurred. Patent applications filed and patents obtained in foreign countries are subject to the laws and procedures that differ from those in the United States. Patent protection in foreign countries may be different from patent protection under United States laws and may not be favorable to Milestone Scientific. Milestone Scientific also attempts to protect the proprietary information through the use of confidentiality agreements and by limiting access to its facilities. There can be no assurance that the program of patents, confidentiality agreements and restricted access to the facilities will be sufficient to protect the proprietary technology.
11.Impairment of Long-Lived Assets
Milestone Scientific reviews long-livedLong-lived assets with finite lives are tested for impairment whenever events or changes in circumstances (i.e. a triggering event) indicate that the carrying amounts amount of an asset may not be recoverable. The carrying valueCompany’s impairment review process is based upon an estimate of the assets is evaluated in relation to the operating performance and future undiscounted cash flowsflow. 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 the underlying assets. Milestone Scientific adjusts the net book value of an underlying asset if its fair value is determinedassets that will continue to be less than its net book value. There have been no impairment indicators or triggering events and therefore, no impairment reviews have been performedused in the period ending December 31, 2016.
12. Revenue Recognition
Revenue from product salesCompany's operations is recognized, net of discounts and allowances to domestic distributors, onmeasured by comparing the date of shipment for substantially all shipments, since the shipment terms are FOB warehouse. Milestone Scientific recognizes revenue on date of arrival of the goods at the customer's location, where shipments are FOB destination. Shipments to international distributors are FOB warehouse, therefore revenue is recognized on shipment of the goods. In all cases the pricecarrying value to the buyer is fixedfuture 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 the collectability is reasonably assured. Further, Milestone Scientific has no obligation on these sales for any post 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. Instrument and hand pieces are not bundled but rather sold separately and, as such, there are no multiple element determinations in connection with the revenue recognition.estimated future costs.
13. Shipping and Handling Costs
Milestone Scientific includes shipping and handling costs in cost of goods sold. These costs are billed to customers at the time of shipment for domestic shipments. International shipments are FOB warehouse, therefore no costs are incurred by Milestone Scientific.
14.
12. Note Payable
On April 27, 2020, the Company received a loan (the “Loan”) from Savoy Bank. in the aggregate amount of approximately $276,000, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The Company received forgiveness for the Loan during the year ended December 31, 2021 and recorded a gain on debt extinguishment of $276,180.
13.Research and Development
Research and development costs, which consist principally of new product development costs payable to third parties, are expensed as incurred. Advance payments for the research are amortized to expense either as services are performed or over the relevant service period using the straight line method.
15.
14.Income Taxes
Milestone Scientific accounts for income taxes pursuant tounder 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.
16. At December 31, 2022 and 2021, we had no uncertain tax positions that required recognition in the consolidated financial statements. Milestone Scientific's policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Consolidated Statements of Operations. No interest and penalties are present for periods open. Tax returns for the 2019,2020, and 2021 years are subject to audit by federal and state jurisdictions.
15.Basic and diluted net loss per common shareDiluted Net Loss Per Common Share
Milestone Scientific presents “basic”“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 Statement of Financial Accounting Standards ASC Topic 260.260, “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 70,607,338 and 68,829,860 during each period.the years ended December 31, 2022 and 2021, respectively. The calculation of diluted earnings per common share is similar tolike 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 warrants, and the conversion of debtwarrants were issued during the period.
Since Milestone Scientific had net losses for 2016 in the years ended December 31, 2022 and 2015,2021, 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 3,329,7697,855,160 and 1,427,769 at 7,291,800 on December 31, 20162022 and 2015,2021, respectively.
17. Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to the allowance for doubtful accounts, inventory valuation, and cash flow assumptions regarding evaluations for impairment of long-lived assets and going concern considerations, and valuation allowances on deferred tax assets. Actual results could differ from those estimates.16.
18. Fair Value of Financial Instruments
Fair Value Measurements: We follow the provisions of ASC 820, Fair Value Measurements and Disclosures related to financial assets and liabilities that are being measured and reported on a fair value basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market at the measurement date (exit price). We areThe Company required to classify fair value measurements in one of the following categories:categories
● | Level 1 inputs which are defined as quoted prices |
● | Level 2 inputs which are defined as inputs other than quoted prices included within Level 1 that are observable |
● | 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 a particularan input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. As of December 31, 2022 and 2021, the Company does not have any assets or liabilities that were measured at fair value on a recurring basis.
19.
17. 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 Statementsconsolidated statements of Operationsoperations over the service period, as an operating expense, based on the grant-date fair values.
The weighted-average fair value of the options granted during 2016 and 2015 was estimated as $1.70 and $3.01, respectively, on the date of grant. The fair value for 2016 and 2015 was determined using the Black-Scholes option-pricing model with the following weighted average assumptions:18.Reclassifications
Certain reclassification has been made to the 2021 consolidated financial statements to conform to the 2022 consolidated financial statement presentation. These reclassifications had no effect on net loss or cash flows as previously reported.
2016 | 2015 | |||||||
Volatility | 181 | % | 167 | % | ||||
Risk-free interest | 0.99 | % | 1.73 | % | ||||
Expected Life (in years) | 5 | 5 | ||||||
Dividend yield | 0 | % | 0 | % | ||||
Forfeiture Rate | 6 | % | 6 | % | ||||
20.
19. Recent Accounting Pronouncements
In May 2014, the FinancialAugust 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 Standards Board (“FASB”) issuedfor Convertible Instruments and Contracts in an Entity’s Own Equity”, which, generally, provides guidance for revenue recognitionaccounting regarding derivatives relating to entities common stock and earnings per share. ASU 2020-06 is effective for contracts, supersedingall 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 previous revenue recognition requirements, along with most existing industry-specific guidance. The guidance requires an entity to review contracts in five steps: 1) identify the contract, 2) identify performance obligations, 3) determine the transaction price, 4) allocate the transaction price, and 5) recognize revenue. The new standard will result in enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue arising from contracts with customers. Company's consolidated financial statement.
In August 2015, June 2016, the FASB issued ASU 2016-13,Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the guidance approving a one-year deferral, makingon 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): Effectivedates, 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 reporting periodsall entities with fiscal years beginning after December 15, 2017, with early2022, including interim periods. The adoption permitted only for reporting periods beginning after December 15, 2016. The FASB continuesof this update is not expected to release guidance clarifying certain aspects of the revenue guidance. We do not believe that this new accounting pronouncement will have a material impact on ourthe Company's consolidated financial statements.statement.
In August 2014, the FASB issued a new standard Accounting Standards Update (“ASU”) No.2014-15, “Presentation of Financial Statements – Going Concern” (Subtopic 205-40).The new standard is intended to enhance the disclosure as it relates to management’s assessment of the abilities to continue as a going concern. The standard will be effective for the annual period ending after December 15, 2016. Milestone Scientific adopting this standard with its annual reporting as December 31, 2016.
In November 2015, the FASB issued guidance simplifying the balance sheet classification of deferred taxes. The new guidance requires that all deferred taxes be presented as noncurrent, rather than separated into current and noncurrent amounts. The guidance is effective for reporting periods beginning after December 15, 2016 and early adoption is permitted. In addition, the adoption of guidance can be applied either prospectively or retrospectively to all periods presented. We do not believe that this new accounting pronouncement will have a material impact on our financial statements.
In February 2016, the FASB issued a new standard ASU No.2016-02, “Leases“(Topic 842). The new standard is intended to increase transparency and comparability among organizations to recognize lease assets and liabilities on the balance sheet and disclose key information about leasing arrangements. It will be effective for fiscal years beginning after December 15, 2018 and for interim periods within fiscal years beginning after December 15, 2020. Milestone Scientific is in the process of determining what impact, if any, the adoption of this ASU will have on its financial position, results of operations and cash flows.
In March 2016, the FASB issued a new standard ASU No.2016-07, “Investments - Equity Method and Joint Ventures” (Topic 323): The new standard is intended to eliminate the requirement that when an investment qualifies for the use of the equity method as a result of an in increase in the level of ownership or degree of influence, results of operations and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect all of the previous periods that the investment was held. It will be effective for all entities for fiscal years and interim periods, beginning after December 15, 2016. Milestone Scientific is in the process of determining what impact, if any, the adoption of this ASU will have on its financial position, results of operations and cash flows.
In March 2016, the FASB issued a new standard ASU No.2016-07, “Investments - Equity Method and Joint Ventures” (Topic 323): The new standard is intended to eliminate the requirement that when an investment qualifies for the use of the equity method as a result of an in increase in the level of ownership or degree of influence, results of operations and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect all of the previous periods that the investment was held. It will be effective for all entities for fiscal years and interim periods, beginning after December 15, 2016. Milestone Scientific does not believe that this new accounting pronouncement will have a material impact on our financial statements.
In June 2016, the FASB issued a new standard ASU No.2016-13, “Financial Instruments – Credit Losses” (Topic 326).: The new standard is intended to replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. It will be effective for all entities for fiscal years and interim periods, beginning after December 15, 2018. Milestone Scientific is in the process of determining what impact, if any, the adoption of this ASU will have on its financial position, results of operations and cash flows.
In August 2016, the FASB issued a new standard ASU No.2016-15, “Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Disbursements” (Topic 230). The new standard provides guidance as to the conformity of presentation of certain cash receipts and disbursements. It will be effective for all entities for fiscal years and interim periods, beginning after December 15, 2017. Milestone Scientific is in the process of determining what impact, if any, the adoption of this ASU will have on its presentation within the statement of cash flows.
NOTE C — INVENTORIES
December 31 | ||||||||
2016 | 2015 | |||||||
Inventories consist of the following: | ||||||||
Finished goods | $ | 4,573,667 | $ | 4,252,612 | ||||
Component parts and other materials | 29,052 | 5,482 | ||||||
Total | $ | 4,602,719 | $ | 4,258,094 | ||||
NOTE D— INVENTORIES
December 31, 2022 | December 31, 2021 | |||||||
Dental finished goods | $ | 1,315,263 | $ | 342,465 | ||||
Medical finished goods | 334,124 | 1,119,709 | ||||||
Component parts and other materials | 142,948 | 79,339 | ||||||
Total inventories | $ | 1,792,335 | $ | 1,541,513 | ||||
The Company recorded an allowance on slow moving Medical finished goods of approximately $582,000, and $450,000 as of December 31, 2022 and 2021, respectively due to the slow adoption of the epidural instruments and handpieces. The Company recorded an allowance on slow moving Dental finished goods of approximately $0 as of December 31, 2022 and 2021, respectively.
NOTE E — ADVANCES ON CONTRACTS
Milestone Scientific has entered into fixed arrangements with a contract manufacturer to manufacture STA Instruments and handpieces, CompuDent®. The contract manufacturer bills Milestone Scientific as the work progresses and it is Milestone Scientific’s policy to record these billings as advances on contracts. These advances are reclassified intocontracts represent funding of future dental STA "Single Tooth Anesthesia System" and epidural inventory when the contract manufacturer ships the productpurchases and title passes to Milestone Scientific.epidural replacements parts. The balance of the advances as of December 31, 2016 2022 and 2015 are $700,900 and $1,215,128, respectively. The advance is classified as current based on the estimated annual usage of the underlying inventory.2021 was approximately $1.3 million.
NOTE E F– CONSOLIDATION OF VARIABLE INTEREST ENTITY
Milestone Medical
As of December 31, 2016, Milestone Medical is approximately 91% owned by Milestone Scientific. Milestone Medical was established to develop and commercialize intra-articular and epidural drug delivery instruments, utilizing an exclusive royalty-free license to Milestone Scientific's CompuFlo technology. The license was contributed by Milestone Scientific for its initial 50% ownership in Milestone Medical in September, 2011.
Since its initial investment in Milestone Medical, Milestone Scientific had accounted for the investment in accordance with the equity method of accounting. However, during 2015, Milestone Scientific provided short term bridge financing to Milestone Medical in anticipation of the completion of a secondary stock offering in Poland. In December 2015, Milestone Medical suspended this capital raise efforts meriting re-consideration of the initial accounting for the investment as an equity method investment. In April 2016, Milestone Medical cancelled the uplisting of its shares to the Poland Warsaw Stock Exchange.
As a result of the change in circumstances around the proposed offering in December 2015 by Milestone Medical, Milestone Scientific reevaluated its relationship with Milestone Medical and Milestone Medical's status as a VIE and determined that Milestone Medical did not have sufficient capital at risk to support its activities without additional financial support from Milestone Scientific. Since the factors giving rise to concluding that Milestone Medical is a VIE happened proximate to the end of fiscal year 2015, the date for measuring the consolidation of Milestone Medical was deemed to be December 31, 2015.
In the second quarter of 2016, Milestone Scientific initiated a share exchange program pursuant to which it would exchange one share of common stock for every two outstanding shares of Milestone Medical common stock. As there was no change in control, the acquisition of the non-controlling interest is reflected as an equity transaction with the carrying value of the non-controlling interest adjusted to reflect Milestone Scientific's increased ownership interest in the subsidiary. As a result of these exchanges, Milestone Scientific owns approximately 91% of Milestone Medical at December 31, 2016.
Milestone Education LLC
Milestone Education is a 50% owned subsidiary of Milestone Scientific which began operations in 2013 to provide training and education to dentists throughout the world. Milestone Scientific accounted for its investment in Milestone Education using the equity method of accounting through December 31, 2015. Approximately 81% of the revenue earned by Milestone Education is from services performed for Milestone Scientific as of December 31, 2016. As a result of this relationship, we determined that we have the power to direct the activities that most significantly impact Milestone Education's economic performance, and that it is a VIE and should be consolidated in the financials of Milestone Scientific effective January 2016.
The financial information in the table below summarizes the combined results of operations of Milestone Scientific and its subsidiaries, including Milestone Medical and Milestone Education, on a pro forma basis as though the companies had been combined as of the beginning of the earliest period presented. The pro forma financial information is presented for informational purposes only and is not indicative of the result of operations that would have been achieved if the consolidation had taken place at the beginning of the period presented.
December 31, 2015 Pro Forma (unaudited) | |||
Revenue | |||
Sales | $ | 9,624,375 | |
Cost of products sold | 3,061,299 | ||
Gross Profit | 6,563,076 | ||
Selling, general and administrative expenses | 12,781,813 | ||
Research and development expenses | 892,255 | ||
Operating expenses | 13,674,068 | ||
Loss from operations | (7,110,992 | ) | |
Other expenses | (6,845 | ) | |
Interest income | 3,846 | ||
Loss before provision for income tax and equity in net earnings of equity investments | (7,113,991 | ) | |
Provision for Income Tax | (36,157 | ) | |
Loss before equity in net earnings of equity investments | (7,150,148 | ) | |
Loss on earnings from China Joint Venture | (418,432 | ) | |
Loss in equity investments | (418,432 | ) | |
Net loss | (7,568,580 | ) | |
Less: Net loss attributable to the noncontrolling interests | (2,101,056 | ) | |
Net loss attributable to Milestone Scientific Inc. | $ | (5,467,524 | ) |
NOTE F – INVESTMENT IN AND TRANSACTIONS WITH EQUITY INVESTEESUNCONSOLIDATED SUBSIDIARIES
Advance Ocular Science SA
Advanced Ocular Sciences SA (“Advanced Ocular”) is an entity organized to develop an instrument that delivers injections into the eyes. Advanced Ocular is a shell company as of December 31, 2016. Milestone Scientific owns 25% of this entity. During 2015, Milestone Scientific advanced $78,798 for marketing and strategy planning to Advanced Ocular and they, or their organizers, are obligated to repay this advance once a public offering of Advanced Ocular equity is approved and funded in Poland during 2016. No public offering was completed in Poland as of December 31, 2016.
As such, Milestone Scientific has written-off the $78,798 advanced to Advanced Ocular as of December 31, 2016. Advance Ocular was not included in the consolidated financial statements at December 31, 2016 as no investment has been made by Milestone Scientific. The suspended losses approximated $19,700 at December 31, 2016.
Milestone China Ltd.
Ownership
In June 2014, Milestone Scientific invested $1 million through the contribution of 772 STA instruments (at a distributor price of approximately $1,296 per instrument) for a forty percent (40%) ownership in Milestone China. In 2014, the instruments were shipped and were recorded as an investment in Milestone China at the cost of the inventory contributed. In January 2016, Ltd. (“Milestone Scientific contributed 308 STAChina”) by contributing dental instruments with a retail value of approximately $400,000 ($1,296 per instrument) to Milestone China which increasedfor a 40% ownership interest. Milestone Scientific's investment byChina owns approximately $165,000 which represents75% of Milestone Beijing Medical Equipment Company, Ltd (“Milestone Beijing”). At the costtime, Milestone Beijing had primary responsibility for the sales, marketing, and distribution of the instruments. This did not increase Milestone Scientific's percentage of ownership since the contribution was proportionate to contributions from other shareholders.
Company’s dental products in China. Milestone Scientific recorded a loss on its investment in Milestone China under the equity method of $795,827 accounting.
In first quarter of 2020, Milestone China and $418,432certain 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 twelve months ended 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, 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. 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 December 31, 2016, 2022 and 2015, respectively. Milestone Scientific'December 31, 2021, the investment in Milestone China was $0 as of December 31, 2016 and 2015. Milestone Scientific had suspended losses on its investment in Milestone China of $1,124,350, and $215,347 as of December 3, 2016 and 2015.zero.
Related Party Transactions
Milestone Scientific China Distribution Agreement
Milestone China had $3,425,000 of related party revenue for sales of instrumentsbeen Milestone Scientific’s exclusive distributor in China. During 2017 and handpiecesprior to the payment default during the twelve months ended December 31, 2016 to Milestone China.2018, Milestone Scientific recorded deferred revenues and cost associates with salesagreed 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 $1,001,800the 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 $620,041its subsidiaries. On November 22, 2021, Wand Dental, Inc., respectively asa 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 twelve months ended December 31, 2016. Milestone China owes $2,714,600 to Milestone Scientific for STA instruments and handpieces shipped in 2016, which is included in due from related party at December 31, 2016. During 2015, 2022, Milestone Scientific shipped $507,000instruments or handpieces to Solee for sale to Anhui and recognized revenue of approximately $630,000. For the twelve months ended December 31, 2021, Milestone Scientific shipped instruments or handpieces to Solee for sale to Anhui and recognized revenue of approximately $2.1 million. As of December 31,2022, the Company had no deposits from Solee for future shipment of goods included in handpieces and $938,304accrued expenses on the accompanying consolidated balance sheet. As of December 31, 2021, the Company had approximately $89,000 of deposits from Solee for future shipment of goods included in instruments to Milestone China Ltd.accrued expenses on the accompanying consolidated balance sheet.
Milestone Scientific recognizes the total revenue and costs of goods sold at the time the shipment of instruments and handpieces to Milestone China. However, dueGross Profit Deferral
Due to timing differences of when the inventory is 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 intra-entityrecorded profit is required as of the balance sheet date. In accordance with ASC 323Investment Equity Method and Joint Ventures, Milestone Scientific has deferred its ownership percentage of the gross profit associated with inventory shippedrecognized revenue from sales to Milestone China, Solee as an agent, and Anhui until that has not beenproduct is sold to third parties. The deferred profit of $630,990 and $ 69,781, as of December 31, 2016 and 2015, respectively is included in the loss from Milestone China within the Consolidated Statements of Operations and presented in due from related parties in the Consolidated Balance Sheets. Milestone Scientific received payment of $1.7 million of the amount outstanding at December 31, 2016 subsequent to year end.
The following table includes summarized financial information of Milestone China:
December 31, 2016 (unaudited) | December 31, 2015 (unaudited) | |||||||
Assets: | ||||||||
Current Assets | $ | 9,362,198 | $ | 772,999 | ||||
Non -Current Assets | 2,467,547 | 903,766 | ||||||
Total Assets: | 11,829,745 | 1,676,765 | ||||||
Liabilities: | ||||||||
Current Liabilities | 9,900,611 | 580,613 | ||||||
Stockholders' equity | 1,929,134 | 1,096,152 | ||||||
Total liabilities and stockholders’ equity | $ | 11,829,745 | $ | 1,676,765 | ||||
December 31, 2016 (unaudited) | December 31, 2015 (unaudited) | |||||||
Net Sales | $ | 1,126,484 | $ | 2,303,660 | ||||
Cost of Goods Sold | 976,106 | 2,096,569 | ||||||
Gross Profit | 150,378 | 207,091 | ||||||
Other Expenses | (2,834,980 | ) | (1,342,357 | ) | ||||
Net Losses | $ | (2,684,602 | ) | $ | (1,135,266 | ) | ||
As of December 31, 2022 and 2021, the Company had no deferred profit in the consolidated balance sheets. For the twelve months ended December 31, 2021 Milestone Scientific recorded loss on equity investment of approximately $242,000 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 consolidated statement of operations.
NOTE G— FURNITURE, FIXTURES AND EQUIPMENT
December 31 | December 31, 2022 | December 31, 2021 | ||||||||||||||
2016 | 2015 | |||||||||||||||
Furniture, Fixtures and Equipment consist of the following: | ||||||||||||||||
Leasehold improvements | $ | 24,734 | $ | 24,734 | $ | 24,734 | $ | 24,734 | ||||||||
Office furniture and equipment | 135,802 | 134,948 | 178,058 | 174,147 | ||||||||||||
Molds | 7,200 | 7,200 | 7,200 | 7,200 | ||||||||||||
Trade show displays | 143,357 | 136,029 | 151,462 | 151,462 | ||||||||||||
Computers and software | 224,840 | 217,265 | 280,066 | 275,364 | ||||||||||||
Tooling Safety Wand | 125,022 | 20,377 | 125,022 | 125,022 | ||||||||||||
Tooling equipment-STA & Wand | 11,100 | 115,745 | 11,100 | 11,100 | ||||||||||||
EPI and IA Instruments | 82,363 | 82,362 | 82,363 | 82,363 | ||||||||||||
STA Trials Instruments | 63,752 | 63,752 | 63,752 | 63,752 | ||||||||||||
Total | 818,170 | 802,412 | 923,757 | 915,144 | ||||||||||||
Less accumulated depreciation | (659,144 | ) | (566,477 | ) | (905,611 | ) | (891,431 | ) | ||||||||
Total | $ | 159,026 | $ | 235,935 | $ | 18,146 | $ | 23,713 | ||||||||
Depreciation expense was $92,226$14,180 and $27,947$22,205 for the years ended December 31, 2016 2022, and 2015,2021, respectively.
NOTE H— PATENTS
December 31, 2022 | ||||||||||||
Cost | Accumulated Amortization | Net | ||||||||||
Patents-foundation intellectual property | $ | 1,377,863 | $ | (1,149,907 | ) | $ | 227,956 | |||||
Total | $ | 1,377,863 | $ | (1,149,907 | ) | $ | 227,956 | |||||
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 103 to 20 years, with a weighted average amortization period of 12 years. Amortization expense amountedwas $49,663 and $53,011 for the years ended December 31, 2022 and 2021 , respectively. The annual amortization expense expected to $70,699 in 2016be recorded for existing intangibles assets for the years 2023 through 2027 is approximately $52,000, $34,000, $28,000, $28,000 and $69,428 in 2015.$86,000, respectively.
NOTE I— STOCKHOLDERS’ STOCKHOLDERS’ EQUITY
ISSUANCES COMMON STOCK
In June 2016, Milestone Scientific raised an additional $2.0 million of gross proceedsAt the annual shareholders meeting in a private placement of one million2021, the Company received approval to increase its authorized shares of common stock at a price of $2.00 per share,from 85,000,000 to the same investors that participated in the May 2014 Financing.
In July 2016, Milestone Scientific raised gross proceeds of $250,000 in a registered direct offering of 104,200 shares of common stock at $2.40 per share. The transaction was covered by the prospectus supplement, filed with the United States Securities and Exchange Commission ("SEC) on July 22, 2016, to our shelf registration statement on Form S-3 (SEC File No.: 333-209466).
In December 2016, Milestone Scientific completed an underwritten public offering of 2,000,000 shares of common stock and warrants to purchase up to 1,592,775 shares of common stock, including 92,775 additional warrants pursuant to a partial exercise of the over-allotment option granted to the underwriters. Each share of common stock was sold in combination with a warrant to purchase 0.75 shares of common stock. The public offering price for each share and related .75 share warrant was $1.50 for gross proceeds of $3,000,000. The warrants have a three-year term and an exercise price of $2.55 per share. In January 2017, the underwriter exercised a portion of its over-allotment option to purchase an additional 123,700 shares of common stock at the public offering price of $1.499 per share for gross proceeds of approximately $186,000. The gross proceeds from this offering, including proceeds from partial exercises of the over-allotment option, were approximately $3,200,000, before deducting underwriting discounts and commissions and other offering expenses of $426,780. 100,000,000 shares.
ISSUANCES OF PREFERRED STOCKWARRANTS
In May of 2014, Milestone completed a private placement, which raised gross proceeds in the total of $10 million, from the sale of $3 million of Milestone Scientific common stock (two millionThe following table summarizes information about shares issuable under warrants outstanding at $1.50 per share) and $7 million of our Series A Convertible Preferred Stock ("preferred stock") (7,000 shares at $1,000 per share), convertible into common stock at $2.37 per share (as adjusted to date) on May 14, 2019, or $1.50 per share unless certain conditions are not met both subject to anti-dilution adjustment. Generally, each share of preferred stock entitles the holder to vote together with the holders of Milestone Scientific common stock, as a single class, on all matters submitted for the approval of the holders of Milestone Scientific common stock and has the number of votes equal to the number of shares of our common stock into which they are then convertible. In addition, preferred stock is also entitled to share, pari passu, in any cash dividends declared on Milestone Scientific common stock on as converted basis.December 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 December 31, 2022 | 4,268,221 | 2.18 | .50 | - | ||||||||||||
SHARES TO BE ISSUED
As of December 31, 2016 2022 and 2015,2021 , there were 1,270,4812,057,976 and 963,4511,891,979, respectively shares respectively,to be issued whose issuance has been deferred under the terms of an employment agreements with the former Interim Chief Executive Officer, former Chief Financial Officer, and other employees of Milestone Scientific. Such shares will be issued to each party upon termination of their employment.
As of December 31, 2022 and 2021, there were 382,697 and 174,364, respectively shares to be issued to non-employees, that will be issued to non-employees for services rendered. The number of shares was fixed at the date of grant and were fully vested upon grant date.
SHARES RESERVED FOR FUTURE ISSUANCEThe following table summarizes information about shares to be issue at December 31, 2022 and 2021
At December 31, 2016 and 2015 there were 4,600,250 and 2,391,220 shares reserved for future issuance and 3,329,769 and 1,427,769 shares underlying other stock options and warrants outstanding, respectively. At December 31, 2016 and 2015 there were 1,270,481 shares and 963,451 shares, respectively, reserved for issuance in settlement of deferred compensation to officers of Milestone Scientific.
December 31, 2022 | December 31, 2021 | |||||||
Shares-to-be-issued, outstanding | 2,066,343 | 2,428,329 | ||||||
Granted in current period | 524,814 | 93,918 | ||||||
Issued in current period | (150,484 | ) | (455,904 | ) | ||||
Shares-to be issued outstanding | 2,440,673 | 2,066,343 | ||||||
NOTE J— STOCK OPTION PLANS
The 2004 Stock OptionMilestone Scientific Inc. 2020 Equity Compensation Plan, providedas amended and restated (the "2020 Plan"), provides for the grantawards of restricted common, stock restricted stock units, options to purchase and other awards, up to 750,000a maximum 4,000,000 shares of Milestone Scientific's common stock. stock and expires in June 2031. Options may be granted to employees, officers, 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. Generally, options become exercisable over a three-year period from the grant date and expire five years after the date of grant. As of December 31, 2022 and 2021, the Company had 323,190 and 811,597, respectively, remaining options available for grants under the Plan.
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 grant. In general, options become exercisable over a three-yearfive-year period fromafter he steps down as Interim Chief Executive Officer of the grant date and expire fiveCompany or ten years afterfrom the date of grant. Theregrant, whichever shall end first. The options were no shares available for grant at December 31, 2016 under this plan.issued pursuant to the 2020 Plan.
In June 2011, the stockholders of Milestone Scientific approved the 2011 Stock Option Plan (the "2011 Plan") which originally provided for stock options to our employees, directors and consultants and incentive and non-qualified stock options to purchase up to 2,000,000 shares of common stock. Such future share issuances are included in the above noted shares reserved for future issuances. In general, options become exercisable over a three-year period from the grant date and expire five years after the date of grant.
In May 2016, Milestone Scientific's stockholders approved the following amendments to the 2011 Plan:
i. Renaming of the 2011 plan to the “Milestone Scientific Inc., 2011 Equity Compensation Plan”
ii. Providing for awards of restricted common stock; and
iii. Increasing the maximum number of shares of common stock reserved for grants under the 2011 Plan from 2,000,000 to 4,000,000.
Milestone Scientific recognizes compensation expense on a straight line basis over the requisite service period and in the case of performance basedperformance-based options over the period of the expected performance. For the twelve monthsyears ended December 31, 2016 2022 and 2015 respectively,2021, Milestone Scientific recognized $579,103approximately $961,000 and $637,108$763,000 of total employee compensation cost, respectively. respectively, recorded in general and administrative expenses on the statement of operations.
As of December 31, 2016 2022 and 2015,2021, there was $678,842$2.5 million and $1,167,865$3.2 million of total unrecognized compensation cost related to nonvestednon-vested options, respectively. Which Milestone Scientific expects to recognize these costcosts over a weighted average period of 2.58 years3.09 and 2.783.49 years as of December 31, 2016 2022 and 2015,2021, respectively.
A summary of option activity for employees under the plans and changes during the year ended December 31, 2016, 2022 is presented below:
Number of Options | Weighted Averaged Exercise Price $ | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Options Value $ | |||||||||||||
| Outstanding January 1, 2015 | 1,472,130 | 0.79 | 2.88 | 1,430,231 | ||||||||||||
Exercisable, December 31, 2015 | 1,036,185 | 1.10 | 2.75 | 1,244,074 | ||||||||||||
Granted | 157,306 | 3.01 | 4.18 | |||||||||||||
Exercised during 2015 | (200,000 | ) | 1.00 | - | - | |||||||||||
Forfeited or expired | (10,000 | ) | 1.00 | - | - | |||||||||||
| Outstanding December 31, 2015 | 1,419,436 | 1.56 | 2.79 | 1,220,338 | ||||||||||||
Exercisable, December 31, 2015 | 1,041,680 | 1.29 | 2.41 | 1,135,819 | ||||||||||||
Granted | 520,337 | 1.79 | 4.38 | - | ||||||||||||
Exercised during 2016 | (327,778 | ) | .75 | - | - | |||||||||||
Forfeited or expired | (100,000 | ) | 2.35 | - | - | |||||||||||
| Outstanding December 31,2016 | 1,511,995 | 1.74 | 2.97 | 102,605 | ||||||||||||
Exercisable, December 31, 2016 | 1,054,202 | 1.65 | 2.51 | 102,605 | ||||||||||||
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 December 31, 2022 | 3,059,989 | 2.36 | 6.38 | - | ||||||||||||
Exercisable, December 31, 2022 | 1,026,987 | 2.18 | 4.93 | - | ||||||||||||
The weighted-average grant date fair value per share of options granted to employees during the years ended December 31, 2022 and 2021 was $0.82 and $1.56, respectively. The aggregate intrinsic value of options granted to employees exercised was $0 and $290,688 for the years ended December 31, 2022 and 2021, respectively.
The Company used the following assumptions to calculate the fair value of the stock option grants using the Black-Scholes option pricing model on the measurement date during the year ended December 31, 2022, risk free interest rate of 2.45%, Volatility of 89.60% (which is based on the Company’s historical volatility over the expected term), expected term of 3 years, 0% dividend rate and closing price of the stock of $1.52.
A summary of option activity for non-employees under the plans as of December 31, 2016 and 2015, and changes during the year ended December 31, 2022 is presented below:
|
| Number of Options |
|
| Weighted Averaged Exercise Price $ |
|
| Weighted Average Remaining Contractual Life (Years) |
|
| Aggregate Intrinsic Options Value $ |
| ||||
Outstanding, January 1, 2015 |
|
| 16,666 |
|
|
| 1.27 |
|
|
| 0.62 |
|
|
| 17,166 |
|
Exercisable, January 1, 2015 |
|
| 16,666 |
|
|
| 1.27 |
|
|
| 0.62 |
|
|
| 17,166 |
|
Granted |
|
| 8333 |
|
|
| 2.70 |
|
|
| 4.83 |
|
|
| 22,499 |
|
Exercised |
|
| (16,666 | ) |
|
| 1.27 |
|
|
| - |
|
|
| - |
|
Outstanding, December 31, 2015 |
|
| 8,333 |
|
|
| 2.70 |
|
|
| 4.83 |
|
|
| - |
|
Exercisable, December 31, 2015 |
|
| 2,777 |
|
|
| 2.70 |
|
|
| 4.83 |
|
|
| - |
|
Granted |
|
| 216,666 |
|
|
| 2.53 |
|
|
| - |
|
|
| - |
|
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Outstanding, December 31, 2016 |
|
| 224,999 |
|
|
| 2.53 |
|
|
| 5.32 |
|
|
| - |
|
Exercisable, December 31, 2016 |
|
| 14,734 |
|
|
| 2.72 |
|
|
| 4.36 |
|
|
| - |
|
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 | 8,333 | 0.73 | 4.80 | - | ||||||||||||
Exercised during 2022 | - | - | - | - | ||||||||||||
Options outstanding December 31, 2022 | 91,663 | 1.75 | 2.55 | 1,083 | ||||||||||||
Exercisable, December 31, 2022 | 77,776 | 1.66 | 2.30 | 1,083 | ||||||||||||
The fair value of the non-employee options was estimated on the date of grant using the Black Scholes option-pricing model at the date of grant. In accordance with the provisions of FASB ASC 505, Milestone Scientific will re-measure the value of the grant at each presentation date unless there is a significant disincentive for non-performance or until performance has been. For the twelve months end years ended December 31, 2016,2022 and 2021, Milestone Scientific recognized $25,346approximately $22,900 and $27,600 expense related to non-employee options.options, respectively.
The Company used the following assumptions to calculate the fair value of the stock option grants using the Black-Scholes option pricing model on the measurement date during the year ended December 31, 2022, risk free interest rate of 4.12%, Volatility of 91.46% expected term of 5 years, 0% dividend rate and closing price of the stock of $0.73.
The information below summarizes the restricted stock award activity for year ended December 31, 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 | (449,695 | ) | - | |||||
Cancelled | (186,717 | ) | - | |||||
Non-vested as December 31, 2022 | 435,293 | 1.18 | ||||||
As of December 31, 2022, there were 49,615 restricted shares granted and deferred under the terms of an employment agreements with the Territory Manager of Milestone Scientific. Such shares will be issued to each party upon completion of 2 years of employment. For the twelve months end years ended December 31, 2015, Milestone Scientific2022 and 2021, the Company recognized $7,050negative stock compensation expense and stock compensation expense of approximately ($20,000) and $70,000, respectively. As of December 31, 2022, the total unrecognized compensation expense was $37,500 related to non-employee options. As of December 31, 2016, there was a total of $678,842 of unrecognized compensation cost related to non-vested options,unvested restricted stock awards for Territory Managers, which Milestone Scientificthe Company expects to recognize over an estimated weighted-average period of 1.03 years.
As of December 31, 2022, the Company entered into restricted stock agreements with members of the Board of Directors of the Company. The Company granted 899,390 restricted stock awards with a fair market value of $0.82 per share. Such restricted stock vests as follows: 25% on the grant date in June 2022, 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 year ended December 31, 2022, the Company recognized approximately $549,000 for restricted stock expenses recorded in general and administrative expenses on the statement of operation. As of December 31, 2022, the total unrecognized stock compensation expense was approximately $160,000 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 2.490.25 years.
NOTE K– K–EMPLOYMENT CONTRACT AND DEFERRED COMPENSATIONCONSULTING AGREEMENTS
Employment Contracts
K. Tucker Andersen, a significant stockholder of Milestone Scientific, has an agreement with Milestone Scientific to provide financial and business strategic services. Expenses recognized on this agreement were $100,000 for years ended December 31,2022 and 2021, respectively.
The Director of Clinical Affairs’ royalty fee was approximately $442,000 and $446,000 for the years ended December 31, 2022 and 2021, respectively. Additionally, Milestone Scientific expensed consulting fees to the Director of Clinical Affairs of $154,000 and $158,000 for the year ended December 31, 2022 and 2021, respectively. As of September 1, 2009, December 31, 2022, and 2021, Milestone Scientific owed the Director Clinical Affairs for royalties of approximately $120,000 and $123,000, respectively, which is included in accounts payable, related party and accrued expense, related party, in the consolidated balance sheet.
On March 2, 2021, Milestone Scientific entered into a five-year employment agreementRoyalty Sharing Agreement with Leonard Osser, as itsthe Company’s then Interim Chief Executive Officer, (the "2009 Agreement"). The term of the 2009 Agreement is automatically extended for successive one-year periods unless prior to August 1 of any year, either party notifies the other that he or it chooses not to extend the term. Under the 2009 Agreement, the CEO receives base compensation of $300,000 per year. In addition, the CEO, may earn annual bonuses up to an aggregate of $400,000, payable one half in cash and one half in common stock, contingent upon achieving targets set for each year by the Compensation Committee. In addition, if in any year of the term of the agreement the CEO earns a bonus, he shall also be granted five-year stock options to purchase twice the number of bonus shares earned. Each such option is to be exercisable at a price per share equal to the fair market value of a share on the date of grant (110%) of the fair market value if the CEO is a 10% or greater stockholder on the date of grant). The options shall vest and become exercisable to the extent of one-third of the shares covered at the end of each of the first three years following the date of grant, but shall only be exercisable while the CEO is employed by Milestone Scientific or within 30 days after the termination of his employment. In 2012 the CEO waived the option component of his bonus for that year.
In accordance with the 2009 Agreement, 855,810 shares of common stock are to be paid out at the end of the term in settlement of $980,906 of deferred compensation accrued at December 31, 2016 and 735,369 shares of common stock are to be paid out at the end of the contract in settlement of $730,985 of deferred compensation accrued at December 31, 2015 and, accordingly, such shares have been classified in stockholders' equity with the common stock classified as to be issued.
On December 1, 2016, Wand Dental and Gian Domenico Trombetta (“Trombetta”) entered into an Amended and Restated Employment Agreement (the “Agreement”), pursuant to which Trombetta receives base compensationMr. Osser sold, transferred and assigned to the Company all of $280,000 per yearhis rights in and to a certain patent application as to which he is eligiblea co-inventor with Dr. Hochman, and the Company agreed to receive annual bonuses in the sole discretionpay to Mr. Osser, beginning May 9, 2027, half of the Compensation Committee. 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 Trombetta will continuedated as of July 10, 2017 between Mr. Osser and the Company, pursuant to servewhich upon Mr. Osser stepping down as theInterim Chief Executive Officer of Wand Dental for a period of one-year beginning on September 1, 2016 through August 31, 2017 (the “Employment Term”). The Employment Term automatically renews for a one-year period, from September 1st through August 31st of each successive year (each a “Renewal Term”), unless priorthe Company, the Company agreed to June 1stemploy him as Managing Director, China Operations of the Employment Term or any Renewal Term,Company (the “China Operations Agreement”), and (ii) the Consulting Agreement dated as applicable, either party notifies of July 10, 2017 (the other that he or it chooses not“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 extendreduce the termoverall 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 employment in accordance with$200,000 and $125,000 related to the termsManaging Director, China Operations for the year ended December 31, 2022, and 2021, respectively. The Company recorded expense of $200,000 and $125,000 related to the Agreement.
US Asian Consulting Group, LLC for the year ended December 31, 2022, and 2021, respectively.
NOTE L— INCOME TAXES
Due to Milestone Scientific®€™sScientific's history of operating losses, a full valuation allowances hashave been provided for all of Milestone Scientific®€™sScientific's deferred tax assets at assets. At December 31, 2016 2022 and 2015,2021, no recognition was given to the utilization of the remaining net operating loss carryforwards.carry forwards in each of these periods.
Deferred tax attributes resulting from differences between financial accounting amounts and tax bases of assets and liabilities at December 31, 2016 2022 and 20152021 are as follows:
2016 | 2015 | |||||||
Current assets | ||||||||
Allowance for doubtful accounts-short term | $ | 4,000 | $ | 2,000 | ||||
Warranty reserve | 36,000 | 43,000 | ||||||
Deferred officers compensation | 395,000 | 643,000 | ||||||
Subtotal | 435,000 | 688,000 | ||||||
Valuation allowance | (435,000 | ) | (688,000 | ) | ||||
Non-current assets | ||||||||
Depreciation and amortization | $ | 135,000 | $ | 149,000 | ||||
Net operating loss carryforward | 18,456,000 | 16,160,000 | ||||||
Federal tax effect of state deferred tax assets | - | (117,000 | ) | |||||
Subtotal | 18,591,000 | 16,192,000 | ||||||
Valuation allowance | (18,591,000 | ) | (16,192,000 | ) | ||||
2022 | 2021 | |||||||
Allowance for Doubtful Accounts | 2,000 | $ | 2,000 | |||||
Warranty Reserve | 2,000 | 3,000 | ||||||
Impaired Assets | - | - | ||||||
Capitalized Sec. 174 R&D | 242,000 | - | ||||||
Inventory Reserve | 242,000 | 108,000 | ||||||
Deferred Officer's Compensation | 428,000 | 439,000 | ||||||
Depreciation and Amortization | (56,000 | ) | (52,000 | ) | ||||
Net Operating Loss Carryforwards | 19,315,000 | 18,895,000 | ||||||
Tax Credits | 688,000 | 660,000 | ||||||
Other | 155,000 | 45,000 | ||||||
Subtotal | 21,018,000 | 20,100,000 | ||||||
Valuation allowance | (21,018,000 | ) | (20,100,000 | ) | ||||
Non-current deferred tax asset | - | - | ||||||
As of December 31, 2016,2022 and 2021, federal net operating loss carryforwardscarry-forwards are approximately $51,807,000.$71,700,000 and $68,300,000, respectively. As of December 31, 2015 and 2022, Milestone Scientific has federal net operating loss carryforwards oflosses generated before December 31, 2017 will be available to offset future income, if any, through December 2037. Net operating losses generated in 2018 or after can be carried forward indefinitely.
State net operating losses were approximately $46,875,000, which is comprised solely of losses attributable Milestone Scientific$60,500,000 and its subsidiaries.$63,400,000 for the periods ended December 31, 2022 and 2021, respectively. Net operating losses will be available to offset future taxable income, if any, through December 2036. As of December 31, 2016 state net operating losses were approximately $10,047,000. As of December 31, 2015 Milestone Scientific has state net operating loss carryforwards of approximately $3,771,000. Net operating losses will be available to offset future taxable income, if any, through December 2036.2041.
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 of its deferred tax assets due to uncertainty as to their future realization.
For the year ended December 31, 2016 and 2015, state tax liability was approximately $13,000 and $62,000. Such expense was recognized in the accompanying consolidated financial statements.
A reconciliation of the statutory tax rates for the years ended December 31, is as follows:
|
| 2016 |
|
| 2015 |
| ||
|
|
|
|
|
|
|
|
|
Statutory rate |
|
| 34 | % |
|
| 34 | % |
State income tax - all states |
|
| 6 | % |
|
| 6 | % |
Non-deductible stock based compensation |
|
| 3 | % |
|
| - |
|
| 43 | % | 40 | % | |||||
Current year valuation allowance |
|
| (43 | %) |
|
| (40 | %) |
Benefit for income taxes |
|
| 0 | % |
|
| 0 | % |
Accounting for Uncertain Tax Positions:
Accounting for uncertainties in income taxes prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, disclosure, and transition. At December 31, 2016, 2022 and 2015,2021, we had no uncertain tax positions that required recognition in the consolidated financial statements. Milestone Scientific's policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Statements of Operations. No interest and penalties are present for periods open. Tax returns for the 2013, 2014,2019,2020, and 20152021 years are subject to audit by federal and state jurisdictions.
A reconciliation of the statutory tax rates for the years ended December 31, is as follows:
2022 | 2021 | |||||||
Statutory Rate | 21.00 | % | 21.00 | % | ||||
State income tax - all states | -2.74 | % | 7.44 | % | ||||
Stock compensation | -2.57 | % | 0.00 | % | ||||
NOL Expiration | -4.69 | % | -9.13 | % | ||||
Other | -0.56 | % | -7.79 | % | ||||
Subtotal | 10.44 | % | 11.52 | % | ||||
Valuation Allowance | -10.44 | % | -11.52 | % | ||||
Effective tax Rate | -0.00 | % | 0.00 | % | ||||
NOTE M— PRODUCT SALES SEGMENT AND SIGNIFICANT CUSTOMERS AND VENDORSGEOGRAPHIC DATA
Milestone Scientific’s consolidated dentalThe Company conducts its business through two reportable segments: Dental and Medical. These segments offer different products and services to different customer base. The Company provides general corporate services to its segments; however, these services are not considered when making operating decisions and assessing segment performance. These services are reported under “Corporate Services” below and these include costs associated with executive management, investor relations, patents, trademarks, licensing agreements, new instruments developments, financing activities and public company compliance.
The following tables present information about our reportable and operating segments:
Year ended December 31, | ||||||||
Sales | ||||||||
Net Sales: | 2022 | 2021 | ||||||
Dental | $ | 8,753,156 | $ | 10,152,511 | ||||
Medical | 52,750 | 152,200 | ||||||
Total net sales | $ | 8,805,906 | $ | 10,304,711 | ||||
Operating Income (Loss): | 2022 | 2021 | ||||||
Dental | $ | 1,121,815 | $ | 2,475,059 | ||||
Medical | (4,788,105 | ) | (4,105,854 | ) | ||||
Corporate | (5,161,183 | ) | (5,747,713 | ) | ||||
Total operating loss | $ | (8,827,473 | ) | $ | (7,378,508 | ) | ||
Depreciation and Amortization: | 2022 | 2021 | ||||||
Dental | $ | 3,805 | $ | 4,351 | ||||
Medical | 4,075 | 7,313 | ||||||
Corporate | 55,875 | 62,172 | ||||||
Total depreciation and amortization | $ | 63,755 | $ | 73,836 | ||||
Income (loss) before taxes and equity in earnings of affiliates: | 2022 | 2021 | ||||||
Dental | $ | 1,116,598 | $ | 2,544,730 | ||||
Medical | (4,794,089 | ) | (4,111,159 | ) | ||||
Corporate | (5,095,375 | ) | (5,552,259 | ) | ||||
Total loss before taxes and equity in earnings of affiliate | $ | (8,772,866 | ) | $ | (7,118,688 | ) | ||
Total Assets | December 31, 2022 | December 31, 2021 | ||||||
Dental | $ | 3,875,978 | $ | 6,163,169 | ||||
Medical | 620,373 | 1,373,511 | ||||||
Corporate | 9,205,735 | 12,273,064 | ||||||
Total assets | $ | 13,702,086 | $ | 19,809,744 | ||||
The following table presents information about our operations by geographic area as of December 31, 2022 and 2021. Net sales by product and by geographical regiongeographic area are as follows:based on the respective locations of our subsidiaries.
Years Ended December 31, | ||||||||||||||||
2016 | 2015 | |||||||||||||||
DOMESTIC | ||||||||||||||||
Instruments | $ | 852,148 | 27.5 | % | $ | 623,195 | 17.8 | % | ||||||||
Handpieces | 2,102,394 | 67.9 | % | 2,799,785 | 79.8 | % | ||||||||||
Other | 143,762 | 4.6 | % | 83,362 | 2.4 | % | ||||||||||
Total Domestic | $ | 3,098,304 | 100.0 | % | $ | 3,506,342 | 100.0 | % | ||||||||
INTERNATIONAL | ||||||||||||||||
Instruments | $ | 3,264,633 | 44.2 | % | $ | 2,062,556 | 34.5 | % | ||||||||
Handpieces | 4,063,811 | 55.1 | % | 3,836,002 | 64.1 | % | ||||||||||
Other | 55,257 | 0.7 | % | 86,669 | 1.4 | % | ||||||||||
Total International | $ | 7,383,701 | 100.0 | % | $ | 5,985,227 | 100.0 | % | ||||||||
DOMESTIC/INTERNATIONAL ANALYSIS | ||||||||||||||||
Domestic | $ | 3,098,304 | 29.6 | % | $ | 3,506,342 | 36.9 | % | ||||||||
International | $ | 7,383,701 | 70.4 | % | $ | 5,985,227 | 63.1 | % | ||||||||
Total Product Sales | $ | 10,482,005 | 100.0 | % | $ | 9,491,569 | 100.0 | % | ||||||||
2022 | 2021 | |||||||||||||||||||||||
Domestic: US | Dental | Medical | Grand Total | Dental | Medical | Grand Total | ||||||||||||||||||
Instruments | $ | 524,715 | $ | 7,500 | $ | 532,215 | $ | 560,424 | $ | - | $ | 560,424 | ||||||||||||
Handpieces | 2,653,914 | 25,250 | 2,679,164 | 2,905,354 | 35,200 | 2,940,554 | ||||||||||||||||||
Accessories | 78,493 | - | 78,493 | 69,271 | 1,300 | 70,571 | ||||||||||||||||||
Grand Total | $ | 3,257,122 | $ | 32,750 | $ | 3,289,872 | $ | 3,535,049 | $ | 36,500 | $ | 3,571,549 | ||||||||||||
International: Rest of World | Dental | Medical | Grand Total | Dental | Medical | Grand Total | ||||||||||||||||||
Instruments | $ | 1,413,525 | $ | - | $ | 1,413,525 | $ | 1,226,486 | $ | 70,000 | $ | 1,296,486 | ||||||||||||
Handpieces | 3,391,748 | 20,000 | 3,411,748 | 3,246,302 | 44,900 | 3,291,202 | ||||||||||||||||||
Accessories | 60,797 | - | 60,797 | 46,546 | 800 | 47,346 | ||||||||||||||||||
Grand Total | $ | 4,866,070 | $ | 20,000 | $ | 4,886,070 | $ | 4,519,334 | $ | 115,700 | $ | 4,635,034 | ||||||||||||
International: China | Dental | Medical | Grand Total | Dental | Medical | Grand Total | ||||||||||||||||||
Instruments | $ | 270,000 | $ | - | $ | 270,000 | $ | 303,000 | $ | - | $ | 303,000 | ||||||||||||
Handpieces | 359,964 | - | 359,964 | 1,795,128 | - | 1,795,128 | ||||||||||||||||||
Accessories | - | - | - | - | - | - | ||||||||||||||||||
Grand Total | 629,964 | - | $ | 629,964 | $ | 2,098,128 | $ | - | $ | 2,098,128 | ||||||||||||||
Total Product Sales | $ | 8,753,156 | $ | 52,750 | $ | 8,805,906 | $ | 10,152,511 | $ | 152,200 | $ | 10,304,711 | ||||||||||||
NOTE N-- CONCENTRATIONS
Milestone Scientific has informal arrangements with the manufacturerthird-party U.S. manufacturers of the STA, CompuDent®CompuDent and CompuMed® instruments, one of the principal manufacturers for those instrumentsCompuMed devices, pursuant to which they manufacture these products under specific purchase orders but without any long-term contract or minimum purchase commitment. In March 2016, Milestone Scientific entered into a new purchase commitment for delivery of 3,000 instruments. An advance an aggregate of $656,752 was recorded at December 31, 2016. Consequently, advances on contracts have been classified as current at December 31, 2016 2022 and 2015.
For the year ended December 31, 2016, Milestone Scientific had two customers (distributors, one is a related party) that purchased approximately 58% (31% and 27%), of its net product sales. Accounts receivable for the two major customers amounted to approximately $2,994,686, or 85% of gross accounts receivable for the years ended December 31, 2016. For the year ended December 31, 2015, Milestone Scientific had two customers (distributors, one is a related party) that purchased approximately 33% (15% and 15%), of its net product sales. Accounts receivable for the three major customers amounted to approximately $1,100,000, or 69% of gross accounts receivable for the years ended December 31, 2015.
NOTE N -- RELATED PARTIES
Milestone Scientific has a manufacturing agreement with one of its principal manufacturers, which is a related party, of its handpieces pursuant to which they manufacture products under specific purchase orders, but without minimum purchase commitments. Purchases of handpieces from this vendor in China were $3,025,249 and $2,698,522 during the years ended December 31, 2016 and 2015 respectively. All other purchases from other suppliers were not significant for the period. Milestone Scientific Inc owed $1,235,052 and $716,519 to this supplier as of December 31, 2016 and 2015, respectively.
Milestone Scientific has $3,245,000 of related party revenue for sales of instruments and handpieces during the twelve months ended December 31, 2016 to Milestone China. Milestone Scientific recorded deferred revenues and cost associates with the sales to Milestone China $1,001,800 and $620,041 as of December 31, 2016. Milestone China owes $2,714,600 to Milestone Scientific for STA instruments and handpieces shipped in 2016, which is included in due from related party at December 31, 2016. During 2015, Milestone Scientific shipped $507,000 in handpieces and $938,304 in instruments to Milestone China Ltd.
Milestone Scientific recognizes the total revenue and costs of goods sold at the time the shipment of instruments and handpieces to Milestone China. However, due to timing differences of when the inventory is sold to Milestone China and when Milestone China sells the acquired inventory to third parties, elimination of the intra-entity profit is required as of the balance sheet date. In accordance with ASC 323 Equity Method and Joint Ventures, Milestone Scientific has deferred the gross profit associated with inventory shipped to Milestone China that has not been sold to third parties. The deferred profit of $630,990 and $ 69,781, as of December 31, 2016 and 2015, respectively is included in the loss from Milestone China within the Consolidated Statements of Operations and presented in due from related parties in the Consolidated Balance Sheets. Milestone Scientific received payment of $1.7 million of the amount outstanding at December 31, 2016 subsequent to year end.
In June 2016, Milestone Scientific raised an additional $2.0 million of gross proceeds in a private placement of one million shares of common stock, at a price of $2.00 per share, to Innovest, a related party.
In August 2013, a stockholder of Milestone Scientific entered a three-year agreement with Milestone Scientific to provide financial and business strategic services. The fee for these services are $100,000 annually.
NOTE O — COMMITMENTS AND OTHER
(1) Lease Commitments
The headquarters for Milestone Scientific is located at 220 South Orange Ave, Livingston, New Jersey. Milestone Scientific leases approximately 7,625 square feet of office space. The lease term expires January 31, 2020 at a monthly cost of $12,522. Additionally, Milestone Scientific has other smaller insignificant leases ending through 2017. A third party distribution and logistics center in Pennsylvania handles shipping and order fulfillment on a month-to-month basis.
Aggregate minimum rental commitments under noncancelable operating leases are as follows:
Year Ending December 31, | ||||
2017 | 150,264 | |||
2018 | 150,264 | |||
2019 | 161,532 | |||
2020 | 152,142 | |||
| $ | 614,202 | |||
For the years ended December 31, 2016 and 2015, respectively, rent expense amounted to $133,657and $121,866 respectively.
(2) Contract Manufacturing Arrangement
Milestone Scientific has informal arrangements for the manufacture of its product, The STA Single Tooth Anesthesia System® instrument is manufactured for Milestone Scientific by Tricor Systems, Inc. pursuant to specific purchase orders. The STA and the Wand® Handpiece with Needle is supplied to Milestone Scientific by a contractor in the United States, which arranges for its manufacture with two factories in China.
2021.The termination of the manufacturing relationship with any of the abovethese 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, whether or not as a resultbecause of termination of such a relationship, would have a material adverse effect on Milestone Scientific’s financial condition, business, and results of operations.
(3) Other CommitmentsWe had two customers that accounted for 32%, and 11% amount of revenue respectively for the year ended December 31, 2022. We had two customers that accounted for 35%, and 20% amount of revenue respectively for the year ended December 31, 2021.
We had two customers that accounted for 33%, and 20% amount of accounts receivable, respectively as of December 31, 2022. We had three customers that accounted for 29%, 28%, and 13% amount of accounts receivable, respectively as of December 31, 2021.
We had one vendor that accounted for 42%, of accounts payable and accounts payable related party, respectively as of December 31, 2022. We had two vendor that accounted for 14% and 34 %, of accounts payable and accounts payable related party, respectively as of December 31, 2021.
NOTE O-- RELATED PARTY TRANSACTIONS
United Systems
Milestone Scientific's employmentScientific has a supply agreement with United Systems (whose controlling shareholder, Tom Cheng, is a significant stockholder of Milestone Scientific), the principal supplier of its Chief Executive Officer provides for payments of $203,111 per year for five yearshandpieces, pursuant to the executive, or as he directs such payments, to a third party to fund his acquisition of, or contribution to, an annuity, pension, or deferred distribution plan; or for an investmentwhich it procures manufactured products under specific purchase orders, but without minimum purchase commitments. Purchases from this supplier were approximately $3.4 million and $1.7 million for the benefittwelve months ended December 31, 2022, and 2021, respectively. As December 31, 2022, and December 31, 2021, Milestone Scientific owed this supplier approximately $819,000 and $548,000, respectively, which is included in accounts payable and accrued expenses related party on the consolidated balance sheets. In June 2021, the Company signed a ten-year agreement with United Systems for supplier of the executive and his family. For the twelve months ended December 31, 2016 and 2015 approximately $203,111 and $236,963 was charged to expense, respectively to fund this obligation. handpieces.
The technology underlying the SafetyWand® and CompuFlo®, and an improvement to the controls for CompuDent® were developed by the DirectorMilestone China
See Note F.
Other
K. Tucker Andersen, a significant stockholder of Clinical Affairs and assigned to Milestone Scientific. Milestone Scientific, purchased this technology pursuant tohas an agreement dated January 1, 2005. The Director of Clinical Affairs will receive additional payments of 2.5% of the total sales of products using certain of these technologies, and 5% of the total sales of products using certain other of the technologies. The Director of Clinical Affairs was granted, pursuant to the agreement, an option to purchase, at fair market value on the date of the grant 8,333 shares of common stock upon the issuance of each additional patent relating to these technologies. If products produced by third parties use any of these technologies (under license from us) then the Director of Clinical Affairs will receive the corresponding percentage of the consideration received bywith Milestone Scientific to provide financial and business strategic services. Expenses recognized on this agreement were $100,000 for such sale or license.years ended December 31,2022 and 2021, respectively.
The Director of Clinical Affairs’ royalty fee was $526,737approximately $442,000 and $442,763$446,000 for the twelve monthsyears ended December 31, 2016 2022 and 2015,2021, respectively. Additionally, Milestone Scientific expensed consulting fees to the Director of Clinical Affairs of $275,000$154,000 and $185,751$158,000 for the twelve monthsyear ended December 31, 2016 2022 and 2015,2021, respectively. As of December 31, 2022, and 2021, Milestone Scientific owed the Director Clinical Affairs for royalties of approximately $120,000 and $123,000, respectively, which is included in accounts payable, related party and accrued expense, related party, in the 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 $200,000 and $125,000 related to the Managing Director, China Operations for the year ended December 31, 2022, and 2021, respectively. The Company recorded expense of $200,000 and $125,000 related to the US Asian Consulting Group, LLC for the year ended December 31, 2022, and 2021, respectively.
NOTE P — COMMITMENTS
(1) Contract Manufacturing Agreement
Milestone Scientific has informal arrangements with third-party manufacturers of the STA, CompuDent® and CompuMed® devices, pursuant to which they manufacture these products under specific purchase orders but without any long-term contract or minimum purchase commitment. The company entered a new purchase commitment for the delivery of 2,040 STA CompuDent® instruments. As of December 31, 2022, the purchase order commitment was approximately $1.7 million, and approximately $1.2 million was paid and reported in advances on contracts in the consolidated balance sheet. As of December 31,2021, the purchase order commitment was approximately $2.6 million, approximately $1.3 million was paid and reported in advances on contracts in the consolidated balance sheet. As of December 31, 2022 and 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 $76,000 and $34,000, respectively.
(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 year lease in a new facility located in Roseland, New Jersey (the “Roseland Facility”), which commenced of January 8, 2021 . Under the Roseland Facility lease, rent payments commence on April 1, 2021 , 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 December 31, 2022, total finance right-of-use assets were $17,645 and total finance liabilities were $20,063 of which $9,365 and $10,698 were classified as current and non-current, respectively. As of December 31, 2022, total operating right-of use assets were$443,685 and total operating lease liabilities were $476,980, of which $91,701 and $385,279 were classified as current and non-current, respectively. As of December 31, 2021, total finance right-of-use assets were $26,294 and total finance liabilities were $28,607 of which $8,545 and $20,062 were classified as current and non-current, respectively. As of December 31, 2021, total operating right-of use assets were $524,217 and total operating lease liabilities were $557,981, of which $81,001 and $476,980 were classified as current and non-current, respectively.
The Company identified and assessed the following significant assumptions in recognizing its right-of-use assets and corresponding lease liabilities:
● | As the Company’s leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease payments. The Company has utilized its incremental borrowing rate based on the long-term borrowing costs of comparable companies in the Medical Device industry. | |
● | Since the Company elected to account for each lease component and its associated non-lease components as a single combined lease component, all contract consideration was allocated to the combined lease component. | |
● | The expected lease terms include non-cancellable lease periods. Renewal option periods are not included in the determination of the lease terms as they were not reasonably certain to be exercised. |
The components of lease expense were as follows:
December 31, 2022 | December 31, 2021 | |||||||
Cash paid for operating lease liabilities | $ | 127,995 | $ | 127,526 | ||||
Cash paid for finance lease liabilities | 10,740 | 10,740 | ||||||
Right-of-use assets obtained in exchange for new operating lease liabilities (1) | - | 663,009 | ||||||
Property and equipment obtained in exchange for new finance lease liabilities | - | 43,242 | ||||||
Weighted Average Remaining Lease Term | ||||||||
Finance leases (years) | 2.04 years | 3.04 years | ||||||
Operating leases (years) | 4.25 years | 5.25 years | ||||||
Weighted-average discount rate – operating leases | 9.20 | % | 9.20 | % | ||||
Weighted-average discount rate – finance leases | 9.20 | % | 9.20 | % | ||||
Maturity of lease liabilities as of December 31, 2022 | Operating Leases | Finance Leases | ||||||
2023 | $ | 130,778 | $ | 10,740 | ||||
2024 | 133,560 | 10,740 | ||||||
2025 | 136,343 | 433 | ||||||
2026 | 139,125 | - | ||||||
2027 | 35,477 | - | ||||||
Total future minimum lease payments | 575,283 | 21,913 | ||||||
Less: interest | (98,303 | ) | (1,850 | ) | ||||
Present value of lease liabilities | $ | 476,980 | $ | 20,063 | ||||
NOTE P Q— PENSION BENEFIT PLAN
Milestone Scientific has a Defined Contribution Plan that allows eligible employees to contribute part of their salary through payroll deductions. Milestone Scientific does not contribute to this plan, but does pay the administrative costs of the plan, which were not significant.
NOTE Q R— SUBSEQUENT EVENTS
On January 3, 2023 ,the Company launched an E-Commerce platform, selling and shipping STA Single Tooth Anesthesia System® (STA) and handpieces directly to dental office, and dental groups within the US.
On January 4, 2023, Leslie Bernhard tendered her resignation to Milestone Scientific Inc. (the "Company”) as a director, Chairman of the Audit Committee and Chairman of the Board of the Company. Ms. Bernhard’s resignation comes after nearly 20 years of service as a director of the Company. Ms. Bernhard indicated that her decision to resign was not the result of a disagreement with the Company. The Company thanks Ms. Bernhard for her long, dedicated service on the Board and wishes her well in her future pursuits.
In January 2017, in connection with Milestone Scientific public offeringMs. Bernhard’s resignation, on January 4, 2023, the Company’s Board of shares in December 2016, the underwriterDirectors (the "Board”) unanimously appointed Neal Goldman, who has been a member of the offering exercisedBoard since 2019, as Chairman of the Board. Mr. Goldman is the President and Founder of Goldman Capital Management, Inc., a portionfamily office since 2018, which was previously an investment advisory firm founded in 1985. Mr. Goldman was First Vice President of its over-allotment optionResearch at Shearson Lehman Hutton. He has also held senior positions as a money manager and purchased an additional 123,700 sharesresearch analyst with a variety of common stock atfirms including Neuberger Berman, Moseley Hallgarten Estabrook and Weeden, Bruns Nordeman, and Russ and Company. Mr. Goldman has served as Chairman of Charles & Colvard, Ltd. since 2016 and served on the public offering priceboard of $1.499 per share.directors of Imageware Systems, Inc. until November 2020. He also serves on the board of directors of Koil Energy Solutions Inc. Prior to their respective acquisitions, he served on the boards of Blyth Industries and IPASS Corporation. Mr. Goldman received his B.A. degree in Economics from The gross proceeds to Milestone Scientific from this exercise was approximately $186,000 before deducting underwriting discounts and commissions and other offering expenses.City University of New York (City College).
In January 2017, Milestone Scientific continued its Milestone Medical exchange program and exchanged 1,065,084 shares of Milestone Medical shares for 532,542 shares of Milestone Scientific common stock. Giving effect to Also on January 4, 2023, the exchange, Milestone Scientific now owns approximately 96%Board unanimously appointed Arjan Haverhals as a director of the shares in Milestone Medical.Company. Mr. Haverhals has been the Company’s Chief Executive Officer since May 2021 and President since September 2020. Mr. Haverhals has also been the President and Chief Executive Officer of the Company’s Dental Division (Wand Dental, Inc.) since June 2020.
In February 2017, On January 10, 2023, the Company issuedannounced it has entered into a purchase orderdistribution agreement granting TEKMIKA Health Technologies exclusive distribution rights to its supplier for 2,000market Milestone’s STA instrumentsSingle Tooth Anesthesia System® (STA) in the amountBrazil. TEKMIKA Health Technologies is a leading distributor in Brazil, focused on importing, promotion, marketing and distribution of $1.4 million which are expected to be delivered beginning in the third quarter of 2017. high-tech medical equipment and device.
On January 12, 2023, the Company announced it has entered into a distribution agreement with Sweden & Martina, a leading European dental distributor and manufacturer. Under the agreement, Sweden & Martina has been awarded the exclusive rights to market Milestone’s STA Single Tooth Anesthesia System® (STA) in the new markets of Spain, Portugal and France. In addition, Sweden & Martina will replace the Company’s current distributor in Italy and become its exclusive STA distributor in this market.
On February 6, 2023, Milestone Scientific Inc. (the "Company”) announced the appointment of Peter Milligan as the Company’s Chief Financial Officer, on a part-time basis, effective February1,2023. In connection with serving as the Company’s Chief Financial Officer, Mr. Milligan will be entitled to receive an annual salary of $120,000 and be eligible to receive an annual incentive bonus with a target of 40% of his annual cash compensation, which shall be payable in shares of the Company’s common stock. Mr. Milligan will also be entitled to receive $100,000 in shares of the Company’s common stock on an annual basis, of which, $50,000 shall have a grant date of February 1 and $50,000 shall have a grant date as of August 1 of each year beginning in 2023, valued at the closing price of the Company’s common stock on the NYSE American on the grant date, and which shares are to be issued to Mr. Milligan following the expiration of sixty (60) days after the termination of his employment with the Company. Mr. Milligan holds an M.B.A. from New York University with a concentration in Finance and Economics and a B.B.A. in Accounting from Hofstra University. There are no family relationships between Mr. Milligan and any of the Company’s directors or executive officers, and there is no arrangement or understanding between Mr. Milligan or any other person and the Company or any of its subsidiaries pursuant to which he was appointed as an officer of the Company. There are no transactions between Mr. Milligan or any of his immediate family members and the Company or any of its subsidiaries that would be required to be reported under Item 404(a) of Regulation S-K.
On February 27,2023, the Company announced that its CompuFlo® Epidural System has received 510(k) FDA clearance for use in the thoracic region of the spine, including the cervical thoracic junction. This approval expands upon the Company’s prior approval of CompuFlo for use within the lumbar region of the spine, where the focus has been on labor and delivery.