NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1- ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION

All references in this report to “Milestone Scientific,” “us,” “our,” “we,” or “Milestone” refer to Milestone Scientific Inc., and Subsidiaries, (collectively “its consolidated subsidiaries, Wand Dental, Milestone Advanced Cosmetic, Milestone Medical, and Milestone Education (all described below), unless the context otherwise indicates. Milestone Scientific is the owner of the following registered U.S. trademarks: CompuDent®; CompuMed®; CompuFlo®; DPS Dynamic Pressure Sensing Technology®; Milestone Scientific ®; the Milestone logo ®; SafetyWand®; STA Single Tooth Anesthesia System®; and The Wand ®.

Milestone Scientific”, “our”, “us” or “we”)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 The Wand®, a single use disposable handpiece. The instrument is marketed in dentistry under the trademark CompuDent®,and STA Single Tooth Anesthesia System® Wand Plus® and STA (Single Tooth Anesthesia) ^TMand in medicine under the trademark CompuMed®. CompuDent® CompuDent® is suitable for all dental procedures that require local anesthetic. CompuMed®is suitable for many medical procedures regularly performed in Plastic Surgery, Hair Restoration Surgery, Podiatry, Colorectal Surgery, Dermatology, Orthopedics and a number of other disciplines. The dental instruments are sold in the United States and in over 47 countries abroad. ThereTo date there have been no medical instruments sold in the United States and limited amounts sold internationally, as of the reporting date, although certain medical instruments have obtained CE mark approval and now can be marketed and sold in most European countries.   Milestone Scientific’sScientific's products are manufactured by a third-party contract manufacturer.

In July 2014, Milestone Scientific acquired all of the 750,000 outstanding shares of an inactive Florida corporation and changed its name to Wand Dental, Inc.During 2015, our common stock was listed on the NYSE MKT LLC (“Wand Dental”NYSE MKT”). In September 2014, that corporation was merged into a Delaware corporation, retaining under the same name and capitalization. On July 1, 2014, Wand Dental was capitalized with cash and received Milestone Scientific’s dental business and related dental assets including the exclusive license of Milestone Scientific’s, patents, trademarks, and technology for use in the dental marketplace. Wand Dental is consolidated into Milestone Scientific.

The unaudited consolidated financial statements of Milestone Scientific have been prepared in accordance with accounting principles generally accepted in the United States for interim financial informationticker symbol “MLSS”. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. These unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2015 included in Milestone Scientific’s Annual Report on Form 10-K.

In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring entries) necessary to fairly present Milestone Scientific’s financial position as of September 30, 2016 and the results of its operations for the three and nine months then ended.

The results of operations reported for the three and nine months ended September 30, 2016 are not necessarily indicative of the results of operations which may be expected for a full year.

In June 2016, a group of investors that participated in our May 2014 financing investedwe raised an additional $2.0 million of gross proceeds in Milestone Scientific through a private placement of one million restricted shares of our common stock, $.001 par value per share (“common stock”), at a price of $2.00 per share.

In the second quarter of 2016, Milestone Scientific initiated a share exchange program pursuant to which we would exchangeexchanged 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 September 30,the exchange program, at March 31, 2017, Milestone Scientific owned approximately 96% of Milestone Medical.

In July 2016, 5,035,042Milestone Scientific raised gross proceeds of $250,000 in a registered direct offering of 104,200 shares of common stock have been issued in exchange for 9,005,000 shares of Milestone Medical common stock.  As a result of these exchanges, at September 30, 2016 Milestone Scientific owns approximately 91% of Milestone Medical.$2.40 per share.

In July 2016,2016, Milestone Scientific filed for 510(K)510(k) marketing clearance with the USUnited States Food and Drug administration (FDA) for marketing clearance ofAdministration ("FDA") Milestone Medical's (described below) epidural anesthetic injections instrument. This clearance is necessary to begin commercialization of thisthese medical instrumentinstruments in the United States.

In JulyDecember 2016, we received notification from the FDA that based upon the 510(k) application submitted for Milestone Scientific's Compu-Flo Intra Articular Computer Controlled Injection System, did not adequately document 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, we 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. The gross proceeds from this offering were approximately $3,000,000, before deducting underwriting discounts and commissions and other offering expenses.

In January 2017, in connection with Milestone Scientific raised $250,000public offering of shares in December 2016, the underwriter of the offering exercised a portion of its over-allotment option and purchased an additional capital from the sale of 104,200123,700 shares of common stock at $2.40the public offering price of $1.499 per share. The Company incurred placement agent fees equal to ten percent of the gross proceeds or $25,000, which are reflected as an offset against additional paid-in capital as of September 30, 2016. to Milestone Scientific from this exercise was approximately $186,000 before deducting underwriting discounts and commissions and other offering expenses.   

Milestone Scientific has incurred operating losses and negative cash flows from operating activities since its inception, except for 2013. Milestone Scientific is actively pursuing the generation of revenue, positive operating income and net income. The capital raised in May 2014December 2016 and June and July 2016 providedJanuary 2017, provide Milestone Scientific with the opportunity to continue to develop and commercialize additional medical instruments and aggressively market itsthe dental instruments throughout the world. Milestone Scientific is actively pursuing the generation of positive cash flows from operating activities through an increase in revenue based upon management’s assessment of present contracts and managementcurrent negotiations and reductions in operating expenses. Management believes itsthat Milestone Scientific will have sufficient cash on hand and remaining net current assets are sufficientreserves to meet its anticipated obligations over the next twelve months.months from the issuance date of this report.  However, Milestone Scientific may need to raise additional capital prior to management’smanagement's expected generation of sustainable positive cash flow from operating activities.     

NOTE -– 1 2 SUMMARY OF ACCOUNTING POLICIES

1.Principles Basis of Consolidation

 The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP” ("GAAP") and include the accounts of Milestone Scientific and its wholly owned and majority owned subsidiaries, including, Wand Dental, Milestone Advanced Cosmetic Systems, Inc., as well as Milestone Medical Inc. (“Milestone Medical”) and Milestone Medical. Milestone Education LLC (“Milestone Education”), bothis a variable interest entities forentity of which Milestone Scientific is the primary beneficiary.beneficiary and is consolidated into Milestone Scientific's financial statements. All significant, intra-entity transactions and balances have been eliminated in the consolidation.   

2.Reclassifications

Certai2. n reclassifications have been made to the 2015 financial statements to conform to the consolidated 2016 financial statement presentation. These reclassifications had no effect on net loss or cash flows as previously reported.Basis of Presentation

           The unaudited condensed consolidated financial statements of Milestone Scientific have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information with the instructions for Form 10Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements. In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring entries) necessary to fairly present such interim results. Interim results are not necessarily indicative of the results of operations which may be expected for a full year or any subsequent period. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2016, included in Milestone Scientific's Annual Report on Form 10-K.

3. Variable Interest EntitiesEntities

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’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 is the primary beneficiary of Milestone Medical throughas of December 31, 2015 (see Note 3)4) and Milestone Education as VIEs.of January 2016. Accordingly, the assets and liabilities of Milestone Medical and Milestone Education are included in the accompanying consolidatedcondensed consolidated financial statements. See Note 3 for further details regarding the treatment of the VIE.

Because  Milestone Scientific had an increasing  variable interest in  Milestone China, it further considered the guidance in Accounting Standard Codification ("ASC") 810 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:

Milestone management does not have the ability to control the activities that most significantly impact China’sMilestone 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 majority shareholder/CEO of Milestone China.  As majority shareholder, majority holder of voting rights, and the active CEO, the 53% investor has the power to direct the activities that most significantly impact the economic performance of Milestone China. Management has concludesconcluded 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 be accounted for under the equity method (see Note 4)5).

4. 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.

5. Accounts Receivable

Milestone Scientific sells a significant amount of its product on credit terms to its major distributors. Milestone Scientific estimates losses from the inability of its customers to make payments on amounts billed. A majority of creditcredit sales are due within ninety days from invoicing. There have not been any significant credit losses incurred by Milestone Scientific.to date.

6. Product Return and Warranty

Milestone Scientific generally does not accept non-defective returns from its customers. ProductProduct 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

7.            Inventories

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

8. Equity Method Investments

Investments in which we haveMilestone Scientific has the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in the long term assets on the Condensed Consolidated Balance Sheets.condensed consolidated balance sheets. Under this method of accounting, ourMilestone Scientific's share of the net earnings or losses of the investee is presented below the income tax line on the Condensed Consolidated Statementscondensed consolidated statements of Operations. We evaluate ouroperations. 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. DepreciationDepreciation expense is computed using the straight-line method over the estimated useful lives of the assets, which range from five to seven years. The costs of maintenance and repairs are charged to operations as incurred.

10.  Intangible Assets - Patents

Patents are recorded at cost to prepare and file the applicable documents with the United StatesUS Patent Office, or internationally with the applicable governmental office in the respective country. Although certain patents have not yet been approved, the costs related to these patents are being amortized using the straight-line method over the estimated useful life of the patent. If 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.  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-lived assets for impairment whenever events or circumstances (i.e. a triggering event) indicate that the carrying amounts may not be recoverable. The carrying value of the assets is evaluated in relation to the operating performance and future undiscounted cash flows of the underlying assets. Milestone Scientific adjusts the net book value of an underlying asset if its fair value is determined to be less than its net book value. There have been no impairment indicators or triggering events and therefore, no impairment reviews have been performed in the period ending September 30, 2016.March 31, 2017.

12. Revenue Recognition

Revenue from product sales is recognized, net of discountsdiscounts and allowances to domestic distributors, on the date of shipment for essentiallysubstantially all shipments, since the shipment terms are FOB warehouse. Milestone Scientific will recognizerecognizes revenue on date of arrival of the goods at the customer’scustomer'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 price to the buyer is fixed 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’sScientific'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.

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 domesticdomestic shipments. International shipments are FOB warehouse, therefore no costs are incurred by Milestone Scientific.

14. 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. Income Taxes

Milestone Scientific accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed for temporary differences between the financial statement and tax basis of assets and liabilitiesliabilities 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. Use of Estimates

           The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to the allowance for doubtful accounts, inventory valuation, 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.

16.17. Fair Value of Financial Instruments

            Fair Value Measurements: Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market at the measurement date (exit price). We are required to classify fair value measurements in one of the following categories:

●        Level 1 inputs which are defined as quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

●        Level 2 inputs which are defined as inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly or indirectly.

●        Level 3 inputs are defined as unobservable inputs for the assets or liabilities.

            Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular 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.

18. Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”("FASB") issued guidance for revenue recognition for contracts, superseding 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.

In August 2015, the FASB issued guidance approving a one-year deferral, making the standard effective for reporting periods beginning after December 15, 2017, with early adoption permitted only for reporting periods beginning after December 15, 2016. The FASB continues 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 our financial statements.

              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 increase 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 will be adopting this standard with its annual reporting of December 31, 2016 to include enhanced disclosures as it relates to management’s considerations.

In November 2015, the FASB issuedissued 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. The Company has adopted this pronouncement as of January 1, 2017, and applied retrospectively, for its provision for income taxes disclosure.  The adoption will not have an impact on the presentation of the balance sheet, as the Company assigns a full valuation allowance to its net deferred tax asset. 

In February 2016, the FASB issued a new standard Accounting Standards Update ("ASU No.2016-02, “Leases“") 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, 20192018 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 inThe Company has adopted the process of determining what impact, if any,standard, effective January 1, 2017, and has determined the adoption of this ASUstandard will not have an impact on its financial position, results of operations and cash flows.reporting.

In March 2016, the FASB issued a new standard ASU No.2016-09, “Compensation“Compensation – Stock Compensation” (Topic 718).: The new standard is intended, under FASB’s Simplification Initiative, to clarifyaddress certain reportingdiversity of application within previous guidance.  The new standard primarily addresses certain tax aspects relating toin connection with the stock based compensation relating primarily to forfeitures, tax impacts and cash flow presentation. Certain attributes will be treated prospectively, while others will require a retroactive application. Generally, the changesheld. It will be effective for fiscal years and interim periods, beginning after December 15, 2016. Milestone Scientific is inThe Company has adopted the process of determining what impact, if any,standard, effective January 1, 2017, and has determined the adoption of this ASU willstandard does not have an impact on its financial position, results of operations and cash flows.reporting.

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, 2019.2018. 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"Statement Cash Flows – Classification“Classification of Certain Cash Receipts and Cash Disbursements” (TopicDisbursements" 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.

            In October 2016, the FASB issued a new standard ASU No.2016-16, "Income Taxes Intra-Entity Transfers of Assets Other Than Inventory" (Topic 740). The new standard provides guidance as to address the deferred tax treatment on certain intra-entity transfer of assets, other than inventory.  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.

In October 2016, the FASB issued a new standard ASU No.2016-17, "Consolidation Interests Held through Related Parties That Are under Common Control"(Topic 810). The new standard provides guidance as to consideration of consolidation requirements of a primary beneficiary and variable interest entity that are part of related party group under common control.  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 presentation within the statement of cash flows.

In November 2016, the FASB issued a new standard ASU No.2016-18, “Statement of Cash Flows – Restricted Cash” (Topic 230). The new standard provides guidance as to address the diversity of treatment of restricted cash on the statement of cash flows.  It will be effective for all entities for fiscal years and interim periods, beginning after December 15, 2017 and interim periods therein. 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.

We have evaluated all otherIn January 2017, the FASB issued a new standard ASU No.2017-04, “Intangibles Goodwill and unadopted ASUsOther – Simplifying the Test for Goodwill Impairment” (Topic 350). The new standard provides guidance as to simplify the testing and, believepotential, measurement of impairment of goodwill.  It will be effective for all entities for fiscal years and interim periods, beginning after December 15, 2020. Milestone Scientific is in the process of determining what impact, if any, the adoption of these standardsthis ASU will not have a material impact on its resultspresentation within the statement of operations, financial position, or cash flows of its common stock.flows.

NOTE -– 2 3 Basic and Diluted Net INCOME (Loss) Per Common Share

Milestone Scientific presents “basic”"basic" earnings (loss) per common share applicable to common stockholders and, if applicable, “diluted”"diluted" earnings (loss) per common share applicable to common stockholders pursuant to the provisions of Statement of Financial Accounting Standards ASC Topic 260. Basic earnings (loss) per common share is calculated by dividing net income or loss applicable to common stockholders by the weighted average number of common shares outstanding and to be issued during each period. The calculation of diluted earnings per common share is similar to 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 debt were issued during the period.

Since Milestone Scientific had net losses for 2016three months ended March 31, 2017 and 2015,2016, the assumed effects of the exercise of potentiallypotentially dilutive outstanding stock options of 1,885,010and warrants were not included in the calculation as their effect would have been anti-dilutive. Such outstanding options and warrants totaled 3,457,615 and 1,776,677 at March 31, 2017 and 2016, respectively.

NOTE - 4 – 3 CONSOLIDATION OF VARIABLE INTEREST ENTITY

Milestone Medical

            As of March 31, 2017, Milestone Medical is was approximately 91%96% owned by Milestone Scientific as of September 30, 2016.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’sScientific's CompuFlo technology. The license was contributed by Milestone Scientific for ourits initial 50% ownership in Milestone Medical. Medical in September 2011. 

Since ourits initial investment in Milestone Medical, we haveMilestone 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, weMilestone Scientific reevaluated ourits relationship with Milestone Medical and Milestone Medical’sMedical's status as a VIE and determined that Milestone Medical doesdid not have sufficient capital at risk to support its activities without additional financial support from us.Milestone Scientific.  Since the factors giving rise to concluding that Milestone Medical is a VIE happened so closeproximate to the end of fiscal year 2015, the date for measuring the consolidation of Milestone Medical has beenwas deemed to be December 31, 2015.

In the second quarter of 2016, Milestone Scientific initiated a share exchange program pursuant to which weit 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’sScientific's increased ownership interest in the subsidiary.  As of September 30, 2016, 5,035,042 shares of common stock have been issued in exchange for 9,005,000 shares of Milestone Medical common stock.  As a result of these exchanges, Milestone Scientific owns approximately 91%96% of Milestone Medical at September 30, 2016.

As a result of our increased ownership in Milestone Medical, we have determined that we continue to have control of Milestone Medical and have consolidated Milestone Medical in the accompanying condensed consolidated financial statements.March 31, 2017.

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 forfor its investment in Milestone Education using the equity method of accounting through December 31, 2015. Approximately 83%82% of the revenue earned by Milestone Education is from services performed for Milestone Scientific.Scientific as of March 31, 2017. As a result of this relationship, we determined that we havehad the power to direct the activities that most significantly impact Milestone Education’sEducation's economic performance, and that it iswas  a VIE and shouldwould  be consolidated in the financialsfinancial statements  of Milestone Scientific.Scientific effective January 2016.

NOTE - 5 INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES

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.

The financial statements of Milestone Education have been consolidated in the accompanying condensed consolidated financial statements.

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.